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New Business Africa FIFA WORLD CUP 2010: SOUTH AFRICA IS READY

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Editor’s Comment New Business Africa

Editor’s Note: AFRICA IS

New Business Africa FIFA WORLD CUP 2010: SOUTH AFRICA IS READY

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READY FOR 2010 FIFA WORLD CUP IN SOUTH AFRICA

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reparations for the World Cup 2010 have long started on different fronts on the African continent. Win in Africa with Africa is FIFA’s initiative to ensure that the entire continent will

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EDITORIAL

benefit from the biggest football fiesta on planet earth. Many initiatives are springing up from different sectors of the societies all over the continent that are geared toward making

the football show a big success. No doubt, if preparations continue with this momentum, football lovers around the world are set to witness not just a welcome they will never forget, but also the most colourful and the biggest continental parties since the time of independence on the continent. The

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slogan for the 2010 World Cup could not have been more appropriate – Africa is the theatre South

www.newbusinessafrica.com info@newbusinessafrica.com, publisher@newbusinessafrica.com

In this issue also NBA notices a second round of colonisation of Africa by its own children who are

Africa is the stage. But there is still a challenge of how to pitch World Cup in Africa to investors and visitors alike on a global stage. It is precisely this task that the New Business Africa takes up as we continue to watch and monitor events in the up to the World Cup 2010.

returning with resources and experience from different parts of the World. The continent is showing a growing will to reconcile with the African Diaspora. Both the New Partnership for Africa’s Development (NEPAD) and the African Union (AU) have formally recognized the African Diaspora as a key player in

Publishing Editor: Tunde Aworinde-Robert Ajani Dr.d Associate Editor (Caribbean): David F. Roberts Project Director: Barbara Druege A Sales Director: Matthew Johnson Chief Business Developer N. America: Malik Manager Client Relations: Bunmi Aworinde

the development agenda of the continent.

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CEO, PetroSA; amongst others business leaders from across the African continent. This fact is not lost

Head London Desk: Sam Emetulu Head Swiss Desk: Taiwo Danjuma Head German Desk: Jimi Adeyemi Head African Desk: Sam Osadolor Head Middle East Desk: Soji Aworinde

of Africa’s industrialisation.

Editorial Advisory Board: Megwa Phillips Ademola Andrew Koyejo Thomas Stoelzner Guest Consultants: Kaus Leger Yomi Rhodes Uwe Heerde

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One important attraction to investors is the increasingly qualified and sophisticated staff, with a new generation of internationally experienced African financiers at the helm of most Africa-centred funds. For example, there is Kofi Bucknor, a Ghanaian who leads the Accra-based fund of Kingdom Zephyr African Management Company. And there is Vincent Le Guennou, an HEC and Harvard-educated manager of the largest private equity firm on the African continent: the $1 billion Emerging Capital Partners funds based in Tunis. Notable business leaders include, Dr Alhaji Bamanga Tukur, Chairman, NEPAD Business Group, Dr Cheick Diarra, Chairman, Microsoft Africa; Mr Sifiso Dabengwa, Group Chief Executive, MTN; Mr Paul Baloyi, CEO, Development Bank of Southern Africa; Mr Sipho Mkhize, on investors and investment promotion agencies and top performing businesses that are at the heart

Various reports and articles in this issue stress the point that, Africa needs more companies with a global outreach. If Africa is ever going to find a place among the global powers that be, we need to market more African ideas and businesses to the rest of the world. It would be a good thing for Africa to have corporations and brands that would be recognized around the world. This is possible and it is happening, considering the wave of industrialisations and business friendly policies of many governments in Africa. As Obama says, Africa’s future is up to Africans. All we need are responsible and selfless leaders and visionary CEOs who would go back to the drawing boards, strategise, damn the consequences, take their countries and companies to the next level, and take on the rest of the world.

Publishing editor D.rd Tunde Aworinde-Robert Ajani

September 2009

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Contents

Contents summer

African Emerging Markets

10  Tourism:Swaziland 12 Tourism :

Arusha – Sub-Saharan Africa (SSA)

14 African Diaspora:

Capacity building in Africa and the challenge of brain drain

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20

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3 Editor’s note 6 Investment:

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20 Capacity Building: Due Dilligence

22 African Business

Empowerment: A Solution To IntraAfrican Trade and Investment

24 Cover Story:

2010 FIFA WORLD CUP: win in Africa with Africa

32 OPINION:

Obama Presidency: What Africa should do

36 International Trade

and Poltics: G20 A perspective from Africa

38 International trade and Poltics: Rich countries leverage on Africa

40 Trading with Africa: China-Africa Trade

42 Infrastructure:

Inftrastructure Precondition for investment in Africa

18 Challenges of leadership: 34 International Trade

African CEO

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and Politics: G20 nations remember Africa

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Emerging Markets

1. Cover Story: Emerging markets in Africa About 200 years ago the Edinburgh economist Adam Smith observed that trade promotes economic progress and that the invisible hand of the market directs buyers and sellers towards activities that promote the general good. Nothing has changed

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to make that basic observation less true today. In essence, neither the trade protectionism for developing countries nor the export subsidies and import tariffs that rich trading blocs practice to deny developing countries fairer access to their markets will suffice for free flow of trade. Economic history shows that all parties win from open trade, albeit, with the exception

of those formerly receiving financial protection in order to remain solvent. It is against this backdrop that we choose at the editorial to explore and report extensively on the theme of emerging markets in Africa in this maiden issue. Emerging markets present an exciting challenge for international finance and foreign investment. The emergence of new markets is arguably the most important aspect of foreign investment, finance and economic development in contemporary Africa. As investors look for emerging markets in 2009 and beyond, Africa becomes a major focal point, being the last spot on the planet that has yet to be turned into a series of countries with something resembling stable market economies and somewhat stable governments. Indeed AFRICA is the last major emerging market frontier. However, for emerging capital markets to attract the attention of global investors, certain criteria must prevail. Emerging Market Indicators (EMI) identify variables that affect investment decisions as political stability, economic stability, local market access, low labour costs, transparency and good governance, legal framework, skilled labour, infrastructure, quality of life and government agency support. In other words, political stability and economic stability are the salient indicators. In this regard, according to experts on development in Africa, the performance of most African countries is better than worldwide average of all developing countries. Clearly nineteen countries in Africa qualify as emerging markets (Name the countries). A situation where these criteria are met is appealing to investors because it increases the probability of high returns as witnessed in other emerging markets. Comparatively, Africa’s share of global foreign investment is still disproportionately low. Therefore it is crucial that African governments work to improve macro level management and performance by providing legal institutional frameworks, facilitating political stability and creating investment agencies. In the merit-based finance system, evidence of macro economic and political progress can be marketed to attract foreign investment, increase overall international economic activity and promote domestic economic development. There is little doubt among

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Emerging Markets

scholars and practioners of finance and investment that emerging markets are crucial for the growth of developing regions

2. Cover Story: An emerging markets frontier Something new is happening in Africa. Once talk of investment in the continent’s countries was dismissed as idealism. Now global investors are turning their eyes–and their funds–to a new investment frontier. Is this short-term euphoria? The very idea of private equity and hedge funds racing to place their bets on the African continent seemed almost incongruous until such a short time ago. Today it has become a reality. In fact, Africa is in the process of becoming the new frontier for emerging market investors. A look at this hitherto hardly noticed trend reveals some impressive movements. The enthusiasm is no longer limited to South Africa, for instance. Instead, from bases in London and New York, Johannesburg and Lagos, flows of investment into the entire continent are gathering pace, to countries like Kenya, Ghana and Botswana. As recently as last February, the Russian-based investment bank Renaissance Capital announced

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the launch of a billion-dollar pan-African investment fund. By 18 April, the company announced that it was well on the way to creating “a fully-fledged, pan-regional investment banking, research and asset management operation”, with offices in Lagos and Nairobi. South Africa’s Pamodzi Investment Holdings has announced a US$1.3 billion pan-African fund too, this one backed by US financial institutions. The London-based fund Blakeney Management, which has been committed to Africa for well over a decade, now invests in Angola, Mozambique and Ethiopia, betting on the countries that have managed to pull themselves out of years of violent conflict. In total, nearly $3 billion in private equity has been raised so far in 2007 for Africa. Investors in the emerging equity markets are also developing a taste for Africa, with global emerging market funds deploying nearly 10% of their portfolios on the continent. Pan-African securities funds, such as those developed by investment firms Investec or Stanlib, a subsidiary of the Standard Bank of South Africa, are appearing and represent another revealing trend. Imara, a South African investment group, now offers three African funds, two of which are dedicated exclusively to Nigeria and to Zimbabwe

respectively. The largest pan-African fund to date also comes from South Africa, with Ethos Private Equity’s $750 million fund launched in 2006. Africa is not just about new players, of course. One of the more established private investors in Africa is the Saudi prince Al-Walid Ibn Talal Al Saoud who has investments in Ghanaian banking, Telecoms in Senegal, and in July 2005 was behind the creation of a new $400 million fund: HSBC Kingdom Africa Investments,

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Emerging Markets in association with HSBC bank. But something new is happening, as now even the hedge funds are getting in on the action. Tudor Investments took a risk on Africa Opportunities Partners, a vehicle for investing in Tanzanian beer, Senegalese Telecoms, and insurance companies in Egypt. The Swiss financier Nicolas Clavel launched the first hedge fund in Europe entirely dedicated to Africa on 1 July 2007: the Scipion African Opportunities Fund, with the aim of raising $700 million. So what exactly is going on? Has Africa changed or is there just so much money slushing about that all bets are on? External factors certainly play a role. International conditions and low yields in OECD countries, high liquidity and the search for high returns all lure investors into the arms of ever riskier investments. Meanwhile, investment opportunities have expanded greatly in African countries, with over 522 firms now listed on subSaharan stock exchanges, up from barely 66 in 2000. Financial information and communications infrastructure are also greatly improving, so much so that Renaissance Capital’s analysts can now cover over a dozen sub-Saharan local equity markets—a feat that would have been unthinkable five years ago. But Africa too has changed. Indeed, this is the core reason for all the enthusiasm. As the annual African Economic Outlook, a joint publication of the OECD Development Centre and the African Development Bank, has underlined for several years now, growth in Africa is back on track, and not just because of oil or mineral wealth. Rather, Asia’s thirst for competitive exports has spread to the African continent. Meanwhile, governments are modifying their policies and encouraging private

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investment in viable and profitable projects with a lasting impact on development. As the Outlook has pointed out, this trend must continue if African leaders are to put their economies on a fast track to growth. And that means more opportunities for investment are bound to open up. One important attraction to investors is the increasingly qualified and sophisticated staff, with a new generation of internationally experienced African financiers at the helm of most Africacentred funds. For example, there is Kofi Bucknor, a Ghanaian who leads the Accra-based fund of Kingdom Zephyr African Management Company. And there is Vincent Le Guennou, an HEC and Harvard-educated manager of the largest private equity firm on the African continent: the $1 billion Emerging Capital Partners funds based in Tunis. The reaction of the world’s main financial centres to Africa has been far from euphoric. The funds are there, but so far the expertise available in these financial centres has been timid. But in Africa itself and outside the OECD area the approach to the new opportunities has been bold. It is surely time the “old” financial centres took a fresh new look at Africa, perhaps with an eye for innovation and in partnership with other players. Already some major investment banks such as UBS are collecting data and analysis on Africa,

while others are planning to muscle their teams. This is good news for Africa as it means the continent is no longer being overlooked by equity and bond analysts. Beyond private funds from OECDbased institutions, other players, such as China, India and Brazil, are also present on the continent. China and India have long had some presence in Africa, but not on the scale of today. Groups like Tata from India and oil companies from China have become major competitors of OECDbased firms. And this phenomenon is not limited to the so called BRIC countries: in October 2007, Dubai Ports World (DP World), a United Arab Emirates sea ports management company, signed a 25-year agreement to run Senegal’s most crowded containers ports, beating the French group Bolloré to clinch the contract. Africa has changed because it needs to. It may not become a new stellar emerging market overnight like Asia or Latin America, but the continent is likely to become a solid pole of attraction. African leaders now realise that aid is no longer Africa’s only recourse; as one leader put it, what the continent needs is less sympathy and more investment. Private investment may not flood into the continent, but a steady flow is nonetheless good news. It is now largely up to policymakers to ensure that the growing interest in Africa does not evaporate into short-lived euphoria.

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Tourism

Summerfield Casino

S

ummerfield exclusive resort is located in Matsapha on a 100 hectares private farm. The resort is ten minutes from the airport and close to the city and major tourist attractions. A pre-feasibility study is available for interested investors. The project is expected to boost the tourism infrastructure, serve the growing market for golf estate living; provide job opportunities and foreign currency. A conference facility is currently under construction in the same location.

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Cost of investment: Minimum US$25 million. US$10 million has been invested on the project so far. Operational Date: The project is expected to be fully operational by 2011. Partners: Summerfield Casino would have 51% ownership of the investment, and foreign investors the remaining 49%. The payback period is 10 years, and a minimum of 25% rate of return on capital is expected. The project’s coordinating entities are Exclusive Resorts (Pty) Ltd and Swaziland Investment promotion Authority (SIPA).

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Tourism

o & Golf Estate For further information contact SIPA. Contact person: Zizwe Vilane Director: Foreign Direct Investment Email: vilanez@sipa.org.sz Tel+268 404 0470/2/3/4 Fax+268 404 3374

d n a l i z a w nation: S

Desti

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Tourism

Sub-Saharan Africa can earn R800 billion in tourism

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September 2009

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Tourism

Arusha – Sub-Saharan Africa (SSA) is said to have potential to generate up to $100 billion annually from the booming and lucrative global tourism market that currently accounts for nearly 10 per cent of the world’s gross domestic product (GDP).The revenue

that can be generated in about a decade translates into almost R800 billion at yesterday’s mean official exchange rate. The fortune is enough to fund Tanzania’s recurrent and development costs for about 20 financial years based on last year’s government budget. According to estimates by African Sun Hotels of Zimbabwe, SSA might account for about 10 per cent of the global tourism receipts the World Tourism Organisation (WTO) forecast to hit $1 trillion by 2020. Its chief executive officer Shingi Munyeza however cautions that the prevailing sectoral landscape has to be overhauled to create the requisite opportunities to generate that income. “If things remain as they are now, it will take Africa between 50 to 100 years to catch up with developed markets and realise its full tourism potential,” he told a forum on tourism investments in Africa at the ongoing Sullivan Summit. He said Africa needs to fix its travel systems and infrastructure, conserve and nurture its attractions, and extensively increase the current accommodation level to fully exploit the forecast global hospitality business. The official said that these are the critical factors for the growth and future prosperity of tourism in SSA that will create 10 million jobs in the region this year. Last year, 233 million people were employed in the sector globally. Opening the forum, Zanzibar’s Tourism, Trade and Investment minister Samia Sululu said the sector in the region grew by 9.4 per cent last year which was higher than any other region in the world. However, she noted that the phenomenal growth has not been replicated in visitor arrivals, which were 44 million and the least in the world that hosted 900 million tourists. She said the challenges to change the status quo are enormous, required joint efforts and end of the pole syndrome in Africa. Sululu noted that investments are what Africa needs to catapult it to new heights but the continent should first put its tourism house in order to lure the required capital. The chief investment officer of Southern Africa Enterprise Development Fund,

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Richard Swai, said Africa needs more capital than it is currently getting to be able to cope with the projected demand. He said his organisation is ready to cooperate with both local and foreign investors to help finance all tourism related projects in Africa. “Tourism is the key sector of Zanzibar’s economy being the largest foreign exchange earner and contributing 35 per cent of the GDP by last year,” Sululu told The Citizen in an interview. A few years back the GDP rate was 22 per cent and the sector represented 77 per cent of the foreign direct investments in the isles’ economy. In 2006, the Spice Islands hosted over 137,111 tourists that reached 143, 232 last year and are set to rise to about 156,000 visitors this year. Currently Tanzania earns less than $1 billion (about Sh1.2 trillion) from tourism but it is among the national economy’s key sectors and the leading foreign exchange earner. Together with attracting huge investment flows, tourism’s superb performance indicators are yet to have a down trickle effect to directly benefit the majority people in the country. Munyeza said the sector currently contributes 7.9 per cent to Africa’s GDP which the WTO expects to fall to 7.4 per cent due to various factors, including investment constraints. Other shortcomings will be competitiveness demerits, and rigid macro-economic policies that respond poorly to global changes. According to the World Travel and Tourism Council (WTTC), demand for tourism in SSA will grow by 5.4 per cent this year and 4.1 per annum between 2009 and 2018. The Zimbabwean official said that Tanzania which has recently benefited from strong promotion in the US and other new markets will together with other leading destinations like South Africa, Kenya and Seychelles reap a lot from the demand.“Construction of hotels is a measure of development in a country and SSA will require four to five times accommodation over the next 10 years to meet this demand for accommodation and facilities such as restaurants,” he said. “In Arusha where we have an interest through Mount Meru Hotel, five world class hotels with 200 beds will be required in the next five years to accommodate the expected visitor influx,” he told the forum. Arrivals to the continent are forecast to reach 47 million in 2010 and 77 million in 2020. Source: allAfrica

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African Diaspora

Capacity Building in Africa and the Challenge of Brain Drain

“In 25 years, Africa will be empty of brains.” That dire warning, from Dr Lalla Ben Barka of the UN Economic Commission for Africa (ECA), reflects the growing alarm over Africa’s increasing exodus of human capital. Data on brain drain in Africa is scarce and inconsistent; however, statistics show a continent losing the very people it needs most for economic, social, scientific, and technological progress.

T

he ECA estimates that between 1960 and 1989, some 127,000 highly qualified African professionals left the continent. According to the International Organization for Migration (IOM), Africa has been losing 20,000 professionals each year since 1990. This trend has sparked claims that the continent is dying a slow death from brain drain, and belated recognition by the United Nations that “emigration of African professionals to the West is one of the greatest obstacles to Africa’s development.” [See box: Some Statistics on Africa’s Brain Drain]

The costs of brain drain Brain drain in Africa has financial, institutional, and societal costs. African countries get little return from their investment in higher education, since too many graduates leave or fail to return home at the end of their studies.

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In light of a dwindling professional sector, African institutions are increasingly dependent on foreign expertise. To fill the human resource gap created by brain drain, Africa employs up to 150,000 expatriate professionals at a cost of US$4 billion a year. The departure of health professionals has eroded the ability of medical and social services in several sub-Saharan countries to deliver even basic health and social needs. Thirty-eight of the 47 subSaharan African countries fall short of the minimum World Health Organization (WHO) standard of 20 physicians per 100,000 people. This continuous outflow of skilled labour contributes to a widening gap in science and technology between Africa and other continents. Africa’s share of global scientific output has fallen from 0.5 in the mid-1980s to 0.3% in the mid1990s. There are more African scientists and engineers in the USA than in the entire continent.

The flight of professionals from Africa endangers the economic and political systems in several African countries. As its middle class crumbles and its contributions to the tax system, employment, and civil society disappear, Africa risks becoming home to even greater mass poverty.

In search of solutions Throughout four decades of Africa losing its best and brightest, the world debated the semantics of the issue and focused almost solely on remittances, overlooking the implications of brain drain on human resources, institutional capacity, and health/social services. Efforts to stem Africa’s brain drain focusing on repatriation strategies were discouraging. Studies have shown that repatriation will not work so long as African governments fail to address the pull and push factors that influence emigration. Moreover, the relationship between African

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African Diaspora governments and the African Diaspora remained a major barrier to finding solutions.

Virtual participation

One potential solution to Africa’s brain drain is virtual participation. Virtual participation is participation in nation-building without physical

“… sees the brain drain not as a loss but a potential gain… Highly skilled expatriates are seen as a pool of potentially useful human resources for the country of origin… the challenge is to mobilize these brains.” relocation. It also shows promise as a means to engage the African Diaspora in development efforts. Mercy Brown of the University of Cape Town notes that virtual participation Questions remain, however. Will virtual participation work in a continent where government–Diaspora relations are adversarial, and information technology almost nonexistent, and where development needs are complex and require a sustained commitment?

The Diaspora as stakeholder Recent developments in government– Diaspora relations show positive signs of change. A recent study, Semantics Aside: the Role of the African Diaspora in Africa’s Capacity Building Efforts, revealed emerging Diaspora efforts to assume a more active role in Africa’s development. The study, conducted by the Association for Higher Education

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and Development (AHEAD), a Diaspora group based in Canada, was funded by the International Development Research Centre (IDRC). Semantics Aside examined the potential of virtual participation to facilitate an effective and sustained Diaspora commitment to Africa’s development efforts. The study concluded that virtual participation has tremendous potential to channel the untapped intellectual and material input from the African Diaspora. Moreover, it recorded a growing awareness among the African Diaspora of its moral, intellectual, and social responsibility to contribute to Africa’s development efforts. Africa has shown a growing will to reconcile with the African Diaspora. Both the New Partnership for Africa’s Development (NEPAD) and the African Union (AU) have formally recognized the African Diaspora as a key player in the development agenda of the continent. In 2003, the AU amended its Charter so as to “… encourage the full participation of the African Diaspora as an important part of the continent.”

Virtual linkages Another potential area where the talents of the Diaspora could be channelled is virtual linkages. Virtual linkages are independent, non-political, and non-profit networks facilitating skill transfer and capacity-building. These networks mobilize skilled Diaspora members’ expertise for the development process in their countries of origin. To date, 41 virtual networks in 30 different countries have been identified. Six of these are African, including the South African Network of Skills Abroad (SANSA) with members in 68 countries. Individuals of the Diaspora also contribute through virtual networks, as visiting scholars, by investing in companies, and assisting in joint ventures between host and sending countries. According to author Damtew Teferra, Africa lags behind:“… This pattern of contributing to scientific and technological development is repeated for many Third World countries, though not… for most of Africa.” In 2001, IOM launched the Migration for the Development of Africa (MIDA) “to develop the potential synergy between… African migrants and the demand from countries by facilitating the transfer of virtual skills and resources of the African Diaspora to their countries of origin.” Based on the notion of human capital mobility through temporary, long-term, and virtual participation, IOM works with

African and host countries and Diaspora members. MIDA has launched pilot

projects in a number of African countries.

Next steps In November 2004, AHEAD, in collaboration with IDRC, organized an international Stakeholder Roundtable on Mobilizing the African Diaspora toward Development Efforts in Africa. The roundtable, held in Ottawa, Canada, brought together key stakeholders, including the IOM, Canadian government agencies, African missions, non-governmental organizations, and Diaspora groups to discuss brain drain in Africa and potential strategies for mobilizing the African Diaspora. Some of the issues identified included the need to recognize the African Diaspora as a key stakeholder in the current dialogue and efforts to address the issues of brain drain and capacitybuilding in Africa. Effective and sustained Diaspora engagement will require policy and resource commitments by key stakeholders, including international organizations, African governments, and host countries. The emerging Diaspora movement to become more active in Africa’s development efforts, the growing political will in Africa to recognize the Diaspora’s potential contribution, and the possibilities created by information technology show that the African Diaspora is not, after all, a total loss to the continent. A former journalist, Ainalem Tebeje is Vice-President of AHEAD.

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Challenges of leadership

African CEOs One important attraction to investors is the increasingly qualified and sophisticated staff, with a new generation of internationally experienced African financiers at the helm of most Africa-centred funds.

F

or example, there is Kofi Bucknor, a Ghanaian who leads the Accra-based fund of Kingdom Zephyr African Management Company. And there is Vincent Le Guennou, an HEC and Harvard-educated manager of the largest private equity firm on the African continent: the $1 billion Emerging Capital Partners funds based in Tunis. Notable business leaders include, Dr Alhaji Bamanga Tukur, Chairman, NEPAD Business Group, Dr Cheick Diarra, Chairman, Microsoft Africa; Mr Sifiso Dabengwa, Group Chief Executive, MTN; Mr Paul Baloyi, CEO, Development Bank of Southern Africa; Mr Sipho Mkhize, CEO, PetroSA, Mr. Tony Elumelu, CEO, UBA; amongst others business leaders from across the African continent. Without doubt, investors and investment promotion agencies are at the heart of Africa’s industrialisation. African Investment Promotion Agencies has the objective to provide a platform for the development of policies to attract foreign direct investment in Africa, among other things through the commissioning of surveys of investors in the region. Therefore, leading African CEOs and top performing businesses but also CEOs from African Investment Promotion Agencies will be featuring in this section. In short, this section is a platform for the leaders of African companies and multinational corporations operating in Africa to project their impact in investment climate for industrial growth and competiveness. Experience from advanced world economies show, that the key to effective industrial policy-making is to make sure that government and the private sector talk to each other constructively. We will also be using this section to get feedback from the heads of some of Africa’s largest companies on investment spectrum and industrialization strategy in

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Challenges of leadership

OPION: African CEOs Need To Think More Globally Africa. Recently, I browsed through Forbes magazine’s 2008 annual ranking of the top 2000 companies in the world. As always, the list was dominated by American, European and Asian companies like HSBC, Bank of America, JP Morgan Chase and Exxon Mobil. Only 17 African companies (all South African) made it to the list. They included Naspers, a diversified media conglomerate, Standard Bank, First Rand, both financial institutions, diversified conglomerates Remgro, Barloworld and Bidvest group among others. While it’s a good thing that at least, Africa was represented in the list, the continent could do better still. For the fact that only 17 companies in the whole of Africa could make it to the list of 2000 mega corporations, I think we still have a long way to go. I could not help but ask: Where’s Africa’s place in big, global business? Many companies that topped the lists were multinational corporations; companies which decided not to limit themselves to doing business in their countries of origin but braved venturing into the uncharted territories of other countries. Citigroup, for example, a financial services institution founded in the United States, became a global corporate and financial services giant because its managers dared to think beyond America, and ventured into the financial markets of other countries of the world. Today, Citigroup has operations in about 100 countries of the world, employs 385,000 people and ranked 24 in the global ranking of the world’s biggest companies. Citigroup, just like Microsoft, Walmart, Procter & Gamble, Toyota, and Home

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Depot among others are where they are today because their founders and managers had a global mindset. They went beyond their local markets and ventured into uncharted territory in other countries. The companies have become global brand names whose success stories are being told even by the least informed persons. But it’s a different scenario here in Africa. Most African companies are content with dominating the markets in their local countries and regions. While it may be argued that at times, some companies’ business model may be peculiar to just Africa and hence going global might not be a smart move, it can also be argued that many times, company chief executives prefer to remain in their comfort zones, ignoring growth and expansion opportunities in foreign markets. The Chief executive officers are either too content with being local champions, or are too chickenhearted to venture into other markets and explore foreign opportunities. Many times, foreign companies establish their presence in Africa and sell their products and services to us. We have several foreign banking institutions such as Citigroup, Barclays and Standard Chartered who are dominating our African banking markets. How many African banks have thought of launching branches elsewhere apart from Africa and probably in markets such as Europe, Asia or the Americas? Nestle, a Swiss food manufacturer feeds Africa with lots of their products. When will a Kenyan, Tanzanian or Nigerian food company establish presence in Europe or America and feed them with its own uniquely packaged products? Microsoft, SAP and Oracle have offices in Africa from where they sell a

diverse range of software services to us. When will a Nigerian or Ugandan software company dare to expand, launch an office in U.S.A and sell African-made software to the Americans? Going global offers numerous benefits in the long run. It reduces dependence on traditional markets; takes advantage of booming export markets and exposes a country to new ideas, new approaches, and new marketing techniques. Furthermore, companies which have established global sales have a higher value than strictly domestic companies. Africa needs more companies with a global outreach. If Africa is ever going to find a place among the global powers that be, we need to market more African ideas and businesses to the rest of the world. It would be a good thing for Africa to have corporations and brands that would be recognized around the world. I look forward to good times when a Kenyan Biscuit company would be selling Kenyanmade biscuits in the United States and Europe, and software made by an African software company being sold in various countries. It could happen. All we need are visionary CEOs who would go back to the drawing boards, strategize, damn the consequences, take their companies to the next level, and take on the rest of the world. By Mfonobong Nsehe Mfonobong Nsehe is a business writer and communications student at Daystar University, Kenya.

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Capacity Building

Due Diligence General Process of Due Diligence

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arties often enter into joint ventures, acquisitions, investments or employ senior staff without first checking the validity of the financial statements. It is essential to have a clear understanding of the potential business partner, namely its financial position, credit worthiness, location and ownership of assets, corporate history, business associates and legal position i.e. to evaluate the strengths and weaknesses of possible partners. The full range of the due diligence process is available, including-Legalfinancial-human resources-risk management-corporate governanceBEE-foreign acquisitions In addition the aims and objectives of the investigation are established. Deal breakers are highlighted and the use of the right advisers is considered Most importantly the sale agreement is carefully checked to ensure that what has been agreed is included in the contract Because of the importance of due diligence-a wide range of training courses have been perfected covering both small and big transactions In M&A effective due diligence through a forensic approach can uncover criminal offences, including fraud. The investigation will confirm the accuracy of the available information or uncover valid reasons to

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reconsider or renegotiate the transaction This approach assists to identify risk, accounting and compliance irregularities, regulatory problems, misrepresentations and non-disclosure of material facts or omissions The investigation will confirm the accuracy of the available information or uncover valid reasons to reconsider or renegotiate the transaction This approach assists to identify risk, accounting and compliance irregularities, regulatory problems, misrepresentations and nondisclosure of material facts or omissions. Threat Assessments: It is imperative that parties to a transaction are fully appraised of the political, economic, commercial, regulatory/compliance and crime situation prevailing in the country, especially if they are investors from overseas. Market and Competitive Research in addition to researching the market for opportunities, particular interest is taken in analysing the strengths and weaknesses of the competition. Company Profiles: An overview of the company’s history, its activities, key business relationships and ventures, principal officers, and professional reputation in the business community. Confidential Due Diligence Report: An in-depth review of the company’s

behind the scenes business activities to include potential problem areas, by utilising public record searches, contact with government, industry, professional advisers and confidential sources. Background Checks on Corporate Officers: A report on the criminal, credit, associates, sources of income, educational anomalies, previous employment history, family and lifestyle history of the executives involved. Publicly Available Information: A compilation of pertinent supporting information gathered from open sources over the past several years and analysed by its financial, stock market and press monitoring associates. Off Balance Sheet Activities: Areas which are specifically investigated are those not on the balance sheet or covered by warranties, such as the health of executives, emerging competition, reliance on certain contracts which may be cancelled, possible employees who may defect after the acquisition, onerous contracts, political issues, sellers leaving the country after the acquisition, intellectual property infringements, lack of corporate governance and insider trading-fraud, to name but a few.

New Business Africa


New Business Africa

September 2009

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African Business Empowerment

A SOLUTION TO INTRAAFRICAN TRADE AND INVESTMENT

FINANCIAL INTEGRATION

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y all indicators evidence of economic progress resulting from trade and investment show that Africa’s performance has been poor, marginalizing it in the global trading system. Before proceeding to discuss the subject let me start by explaining what it means to have a financially integrated African economy and a suggested framework to bring about

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it’s implementation. Whether it is the solution to the promotion of the regional trade and investment in the continent shall be a food for thought to the key policy makers. African financial integration refers to the progressive harmonization and integration of the financial sectors of African countries. The ultimate objective will be the creation of a monetary union which will entail the harmonization of

macro-economic and monetary policies as well as the creation of institutions to manage the process. It will however not be necessary at inception to have a full monetary union but instead the elements of Financial Integration can be adopted through the creation and co-operation of effective regulatory bodies on a wide range of issues. A suggested example is the free movement of goods, services and in

New Business Africa


African Business Empowerment particular capital as one would have in a common market such as the European Union. As global trends in international trade relations continue to forge closer integration among countries and regions, trade in goods and services, and movement of capital and human resources continue to grow

tremendously, assisted by accelerated sharing of technology across national and regional borders. A key solution to dealing with the challenges facing the continent is trade, particularly within the continent. Regional integration is thus suggested as the framework to address obstacles to intraAfrican trade. Reducing barriers to intraAfrican trade will create larger regional markets that can realize economies of scale and sustain production systems and markets as well as enhance Africa’s competitiveness Effective financial integration can increase the efficiency of the financial sector, by reducing interest rates, decreasing the cost of credit, and increasing lending for investment activities. For example, too small African economies could become more competitive, diversify their portfolios, and reduce their risk premiums by integrating their financial sectors. The continent continues to face

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significant financing gaps that cannot be met through donor funding or international lending. But all the same, the fragmented nature of the individual financial sectors makes them unable to meet these financing needs. Africa’s financial integration is therefore an essential step towards mobilizing domestic financial resources

to address Africa’s financing needs for the promotion of trade and investment. Therefore the need for a direct role by the continent in the financial integration to promote trade and investment in the region could not be over emphasised.

Broadly speaking, regional integration will result in increased investment opportunities, improving policy credibility, enlarged markets and competition. An important developments in the world economy that is significant to Africa is the rapid increase in South-South trade and capital flows. FDI from the South increased from just 5 percent of world outward flows in 1990 to 17 percent in 2005. While FDI to Africa is increasingly

coming from Asia, especially China, India and the Gulf States, at the same time, FDI flows within Africa increased substantially in 2006. The integration of the financial services will further boost FDI flows within Africa. Africa financial integration will make it much easier to move capital from one part of Africa to the other therefore increasing trade and investment within the continent. Globalization, an era is trade in financial services as a business opportunity in its own right. The liberalization of trade in services is probably the most sensitive one. Opening competition in that area requires tight vigilance and professional regulation so as to protect players, consumers and also macroeconomic stability of an economic community. Therefore, harmonization in policy, legal and regulatory framework is paramount to ensure the necessary order. However, much more is needed than just harmonization of individual countries’ frameworks. Indeed, we have experienced cases whereby countries negotiated and agreed on steps to be taken, but these remained unimplemented due to the lack of an institution that has been empowered enough with the authority to enforce decisions beyond the discretion of individual governments. Secondly, one of the major challenges to the growth of trade and investment on the continent has been the inadequate provision of financing to fuel this growth. The recent sub-prime mortgage market crises in the USA and its knock on effects has served as a reminder of the fragility of international finance markets, Africa therefore needs to alleviate her financing constraints by mobilizing more domestic resources. Consequently, there is the imperative to develop regional financial markets that can meet Africa’s financing needs. Therefore, the establishment of the critical institutions of the African Monetary Fund, the African Central Bank and the African Investment Bank are essential in addressing these challenges. It is encouraging to note that serious efforts are being made in this direction and it is our hope that these efforts will be brought to fruition sooner rather than later.

New Business Africa September 2009

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Cover Story

2010 FIFA World Cup: Win in Africa with Africa Reported for African News Switzerland by Robert Ajani

”Africa is a power house. If you don’t give it to them, then something is wrong” FIFA President Joseph Blatter

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reparations for the World Cup 2010 have started in earnest. Win in Africa with Africa is FIFA’s initiative is to ensure that the entire African continent will benefit from the biggest football show on planet earth. Speaking in a joint press conference at FIFA headquarters in Switzerland, FIFA President Joseph S. Blatter, after narrating a catalogue of injustices previously done to Africa by the World Football Organisation as in other areas of life, summed up the initiative as follows: “We want to make a difference for African football by building new artificial pitches, supporting the national leagues and

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training football executives? Mr. Blatter passionately argued that football development means investing in people and society at large, and that the initiative makes these goals realisable by building a legacy for African football. According to him, the core aims were to improve football facilities and general access to football as well as to enhance football management skills and the quality of sports medicine across Africa. To realise these lofty goals, he disclosed that 52 artificial turf pitches would be built across Africa with 27 already completed and the rest to be finalised by June 2008.

MORE TOURNAMENTS Buttressing FIFA President’s claim, the Secretary General of the world soccer body, Mr. Jerome Valcke added that more tournaments than ever before had been allocated to the African continent. Egypt would play host to the FIFA U-20, Nigeria would be home to the U-17 World Cup, while South Africa would stage the FIFA Confederations Cup in 2009 and the 2010 FIFA World Cup. To ensure the smooth running of professional football in Africa, Valcke said it was important that sports administrators were equal to the tasks. Therefore, Win

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Cover Story

in Africa with Africa builds on the success of the International Centre for Sports Studies (CIES) in Neuchatel in Switzerland through an extensive partnership with selected African universities to give students a solid grounding in areas as diverse as communications, law, management and organisation of sporting events and marketing. The programme, which started at the Cheikh Anta Diop University in Senegal in 2006, later took off in Nelson Mandela Metropolitan University in South Africa. Also this year, two further partnerships would begin, one with the University of South Africa, whose distance-learning courses began in February 2008, and the other with Cairo University, Egypt, from September.

FOOTBALL ARCHIVE Using video clips to demonstrate the various national stadiums that FIFA has helped to refurbish or build on the African continent, Jerome Champagne, FIFA Director for International Relations also presented to both the African Diplomats and journalists at the conference as part of the Win in Africa with Africa project a complete and unique archive of African football, including footage of fantastic football actions and historic moments that were previously scattered around the continent. He stated that this unique collection of documentation would be made available to fans of the African game in a box set containing 7,000 documents, 2000 photos, exclusive interviews, the complete collection of several African publications as well as a first ever video compilation of the goals scored by African teams at FIFA World Cups. Outlining the important role of the media in spreading the message, helping to build brands and creating anticipation as well as awareness, Jerome Champagne added that

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with the help of experts, FIFA was working on educational training for print, radio and television journalists with a view to leaving a lasting legacy for the game, for the world and for Africa as a whole.

NOT ABOUT AID The initiative - Win in Africa with Africa is not about sending aid to Africa but about providing the continent with the tools to progress and the skills with which it could continue its own development. No one could put it more pointedly as FIFA President Joseph S. Blatter when he asked rhetorically: “Why World cup in Africa? It is justice for Africa for what Africa has done in terms of players, referees and coaching development. Africa is a power house. If you don’t give it to them, then something is wrong” Concluding, the World Soccer Chief opined that if everybody does what football is doing in Africa, the world would not be talking about poverty, disease and development aid for the continent. Solidarity, he asserted “is not about preaching and paying lip service, it is more worthwhile to practice it” The conference was attended by many African Ambassadors to Switzerland. Among them were Ambassadors A.J. Correia - Angola, S. Amehou Republic of Benin, N. Nkundwanabake Burundi, H.L. Bindzi Cameroon, R-J. Menga Congo, E. Diarrassouba Ivory Coast, M. Camara Guinea, F. Velho Rodrigues Mozambique, I. Adani Niger and V. Sebudandi Rwanda. Others that stood in for their Ambassadors were 1st Secretary, Mr. Agyekum Ghana, Charge de affaires a.i. Mr. I. Aldredi Libya, Charge de affaires a.i. Mrs. F. Arasah Nigeria, Charge de affaires a.i. Mr. M. Blout Tunisia and Social Affairs Officer, Mr. B. Naidoo.

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Cover Story

SOUTH AFRICA 2010: A WORLD CUP LIKE NONE BEFORE Reported for African News Switzerland by Robert Ajani

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September 2009

New Business Africa


Cover Story

T

o fail to prepare is to prepare to fail. Obviously, the organisers of the 2010 World Cup in S. Africa seem to see the truth in this time-proven Boys Scout motto. Indeed, if preparations continue with this momentum, soccer lovers around the world are set to witness not just a welcome they never will forget, but also the most colourful and the biggest national party since the end of apartheid. In short, a World Cup like none before - leaving a lasting legacy for Africa as a whole. Africa is the theatre South Africa is the Stage. This slogan for the 2010 World Cup in South Africa was once

New Business Africa

more repeated by no less a person than Her Excellency Dr. Konji Sebati, the Ambassador of the Republic of South Africa in Switzerland. Speaking at the FIFA House in Zurich, Switzerland at the FIFA/South Africa joint Conference, Dr. Sebati expressed her happiness at the presence of most African Ambassadors in Switzerland, saying that the World Cup 2010 is not only for South Africa, but for the whole African continent. She further implores the Ambassadors and all Africans in general to join hands in showcasing the best of African hospitality and openness. In his own presentation, the Executive Officer of the 2010 FIFA World Cup

Organising Committee, Dr Danny Jordaan, noted with confidence that “South Africa will fulfil and exceed the expectations of the world in respect of hosting the 2010 FIFA World Cup”, while stressing the social legacy the hosting of the event would have for South Africa and Africa before, during and after the event itself. Dismissing the anxiety expressed in certain quarters regarding S. Africa’s preparation, the Executive Officer went on to describe the state of readiness, opportunities and plans of his committee that would ensure that S. Africa 2010 will be the best FIFA World Cup ever.

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Cover Story able to host Cricket World Cup 2003 and Rugby World Cup 1995, the world Summit on Sustainable Development (WSSD) in 2001 there is no reason why we can’t do it again, and in doing so, prove to the world that we are a safe destination for tourists, he asserted.

INFRASTRUCTURE

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South Africa has invested R17,4 billion as a direct investment in infrastructure for the FIFA World Cup The FIFA World Cup projects and the anticipated benefits of hosting the event for the tourism industry will provide small, medium and micro enterprises (SMMEs) and empowerment companies with opportunities to develop sustainable businesses. Construction is already underway on five new stadiums, one major upgrade and four minor upgrades. A number of smaller stadiums are upgraded for use as training grounds. In all, government has allocated more than R9 billion for municipal transport, precinct upgrading, roads and rail services In particular the South African special train, Gautrain, will provide the world with a shining example of South Africa’s vision, skill and determination to make a First World project of this size a reality. All these will create 3000 direct jobs (93% South African, 78% of which are historically disadvantaged). This figure does not include subcontractor and supplier jobs created estimated at 90,000 jobs On the whole, construction jobs sustained by FIFA World Cup amount to about 218, 600 annual jobs Over R150 billion has also been allocated to the generation and transmission capacity expansion programme of electricity over the next five years A sum of R22 billion was given to the upgrading and facelift of the country’s four major airports.

30,000 police will be dedicated to protecting international visitors during 2010 World Cup. That’s one policeman for every 13 visitors South Africa’s overall crime levels have dropped by approximately 20% since it hosted the Cricket World Cup in 2003. Orders have been placed for mobile command vehicles, Robinson helicopters and four PC-12 airplanes, blimps for aerial surveillance 200 mobile CCTV units and facial recognition system technology.

CRIME

TELECOMMUNICATION

Dr Danny Jodaan condemns the international media accusations of wide spread crimes and insecurities as baseless, saying if South Africa was

A high-definition television channel will be made available in time for 2010 Key games and the tournament final will be transmitted in high definition TV

September 2009

via satellite The upgrade from analogue to digital began last year and the first phase of DTT switch on will be on 1 November 2008 Digital television means that it is possible to use your TV as an Internet access point With this, many South Africans that do not have computers would have access to the Internet • By 2010, you may be watching the FIFA World Cup games on your cell phone This will be made possible by MTN, the exclusive provider of mobile transmissions to the 2010 World Cup. By this, South Africa would have fully satisfied the FIFA

SECURITY MAESURES

requirement for broadband access to all its venues. With all these, Dr. Jordann categorically concluded: “We are ready”

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New Business Africa

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Cover Story

2010 World Cup Benefits For Africa

It’s been repeatedly said that for the World Cup 2010, South Africa is the stage and Africa is the theatre. This claim is further asserted at the recently concluded symposium organised by Africa Travel Association (ATA) in Washington DC. The discussion examined Sports Tourism, development experts agreed that African nations would benefit from focusing their efforts on attracting visitors headed to South Africa for the world sports fiesta. 30

September 2009

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ddressing participants from North America, Africa and Europe, Leslie LeLaulu a development expert stated that “The South Africans see the value of spreading the World Cup benefits to other African nations.” Lelaulu, who is president of Sensible Development advises sister African nations to take advantage and “use this once-in-a lifetime chance to attract visitors to see other parts of Africa and observe other types of football styles.” As a first step, it is suggested that, African nations should recognize South African visas so anyone attending the World Cup can enter any other nation on the continent with the same visa. The idea here is to make it as bureaucracy-free as possible because “the World Cup is the main event and we’re trying to divert Cup fans to other parts of Africa before and after the event.” LeLaulu, who co-founded the World Tourism Forum for Peace and Sustainable Development as well as the Caribbean Media Exchange on Sustainable Development (CMEx), added, “We only have one shot at this goal because for most of these sports fans, this will be their first, and probably last, trip to Africa.” For the longer term benefits of the global sport event, Africa should aim at attracting some of these World Cup fans to future Africa Cup venues. African nations could also use World Cup advertising to highlight the power and beauty of the African game which has so dramatically altered the way football is being played all over the world. Edward Bergman, executive director of the ATA, summarised the purpose of the workshop as a means to determine how African nations could benefit by using their Diaspora communities, but also an opportunity to confront and deal with negative perceptions of travel on the continent. Sam Osadolor New Business Africa(Johannesburg)

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31


Opinion

OBAMA PRESIDENCY: WHAT AFRICA SHOULD DO

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e have woken up to witness the coming to power of president-elect Barack Obama. The world is rejoicing in a manner never seen in the election of anyone in any country. Such celebration will be going on for months. Why the election of Barack Obama is highly celebrated? It is because Obama is like no other before him and his arrival signals that the US is a country that extends equal access and opportunity to anyone duly suited. By Obama ascending to the position, Blacks will have joined in all ranks of political posts in US. But what will this mean for the average Joe? No

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one can tell because after the euphoria and celebration, come the challenges and expectations that come with the office. Will Obama have an easy start? Yes and No. But we hope he starts off well maturing into the role so that the expectations are felt beyond the borders of US. For Africa, a stronger sense of connection may ensue because of the paternal connection Obama has with Africa via his father’s tribal birth into the Luo ethnic group of Kenya. Since Africa has had one of the longest connections with US but one yet to gain materially and substantially from such relationship, does this mean the arrival of the Big One? Another expectation that

is hard to tell. How will Obama coming to power benefit Africa? The lead to the answer is “what will Africa expect from an Obama presidency?” Obama cannot give to Africa what Africa does not want for itself. If help comes to those that dutifully pursue good things for themselves, it is likely that another will help as a reaction and response to the stridesand efforts being made. Obama should neither in act nor design be seen as serving the interest of Africa. He is the president of US, even though in an elastic extension of his birth by a Kenyan and a white woman, he may sympathize with issues relating to Africa. But all that may and should not happen in the first two years of his first term, except of course, he is a wonder boy and can wave the magic wand. While a US president has enormous influence, using the Powers of the Presidency, is handled with caution especially when outside forces would like to label him something and use that to undermine his ability to lead. Obama should not immediately embrace the African cause until maybe the third or fourth year into his first term. As the first of his type to be president, he may very well act like John the Baptist, preparing the way for incoming ones to finish the job. If he is successful and gets re-elected, he should at that point in a quest for legacy decide what that legacy should be. If Africa wants to enhance their chances during Obama presidency, they should not just wait for Obama hand-outs, but employ the manners of effective cultivation of relationships to access the resources of US. Available statistics show that African governments are the least effective in lobbying US government and when they do, they often use the wrong approach. Take the case of Goodworks International, an organization associated with former US Ambassador to UN Andrew Young, a democrat lobbying for Nigeria under President Obasanjo in a Bush republican administration. Such approach will not spell well for Nigeria because of the manner of approach. It is not that only democrats lobby democratic administration and vice versa, but certain

New Business Africa


Opinion

approach spells less than desired outcome. In 1997, according to State Department sources in an article styled ‘Making America Love’, in George; now a defunct magazine of the late son of JFK, Nigeria under Abacha, received about $29 million in AID and spent about $3.8 million in laundering its image, nearly 8%; far more than anyone else. That was the highest spent both as a percentage of what was given and in amount by any foreign government. During that same period, Indonesia received $136m but spent only $2.05 million on its image and India received $297 million and spent about $1.7 million. So why did Nigeria spend more but got less? Even though Jessie Jackson was the de facto emissary of US for Africa, Nigeria’s standing in US was short? It was more a situation of ‘take the money and do nothing’. Nigeria and by extension Africa, do not know how to lobby US government. Cases of missed opportunities are outlined in many books including one by former Secretary of State Warren Christopher in his ‘Chances of a Lifetime’. There is a given approach to getting mileage out of any relationship, and with US, certain approach spells success. Nigeria/Africa,

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appear not to care for such and as a result, end up with less when they should be seen as making out big time. No other ethnic group apart from the native Americans, have had elongated and side-by-side relationship with the Anglo-Saxon clan of US than the blacks/ African. While the relationship was dotted and noted for its master-servant style, often, the servant knows the heart of the master and can exploit that to better benefits. The emperor relies on his subjects to keep the empire going and often lets the subject have a say in the direction of things so that the empire is not over-thrown. The American system of government is such that Congress and businesses have enormous roles in deciding how, where and when resources are doled out. If Africa wants to benefit from an Obama presidency, they must embrace the style of best practices for best results. US relations with Africa are as old as diplomatic relations. It was an African country, Morocco that accorded US its first diplomatic recognition which resulted in US building its first ever Embassy in Tangier, Morocco. Although this historic fact is lost because Morocco is a Muslim country and not a European one, African

nations have been lending hands to US but in return, they have mostly been timid in reaching out to US for mutual benefits. It is expected things will be different during Obama. Heaven is available to all but only those that know how to ask God for something end up getting something from God. US may not be God but between heaven and earth, is US, and it depends how one sees her and reaches her for better dealings. There are now many Africans and AfricanAmericans that can help promote African interests in US but Africa must woo these resources and pay them for service. The geo-political interest that tends to shape things in Washington requires that those courting her, must recognize how the game is played and use the proper referees to get the game called in their favour. Written by Ejike Okpa II Article has been edited for clarity and relevance

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International Trade and Politics

G-20 Nations Remember Africa

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ronically the current global economic crisis has come at a time when Africa was turning the corner, steadily building the foundations for higher growth and poverty reduction. Still, most African countries were lagging behind relative to their Millennium Development Governments targets (MDGs). The optimistic growth outlook is now undermined by factors outside Africa’s control. While the initial effects of the crisis were slow to materialize, the tide of the “Tsunami” is moving fast, sweeping away firms, mines, jobs, revenues, and livelihoods. “Time is of essence, decisive action can wait no longer” This was the view of the Committee of African Finance Ministers and Central Bank Governor that was established to monitor the crisis.

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In his article “Don’t ignore Africa” The president of the African Development

Bank (AFDB), Mr. Donald Kaberuka warns the G20 not to ignore the way the world’s poorest are being hit by the global economic crisis The crisis according to Donald Kaberuka, found our Continent in good shape - its best in 30 years. For the last

decade, growth in Africa consistently exceeded four per cent above the increase in population. The success story was not celebrated enough: buried by reporting of conflict, mayhem and bad governance. But now it is threatened: economic growth in 2009, projected at 3.5 per cent, will barely tally with demographic increase. In other words, growth in real per capita incomes will be zero or marginal. Kaberuka analyses that as businesses close, export earnings and remittances fall, finance dries up and governments juggle with declining resources, the inability to create jobs for the young and fund infrastructure and social programs will exacerbate social tensions. Yet it doesn’t have to be. Two decades of economic reforms were beginning to bear fruit. It is true poverty remained massive and

New Business Africa


International Trade and Politics

governance challenges not fully resolved; but overall Africa had demonstrated its ability to do the right thing. Now the people are asking: “Is this what globalisation was meant to offer us”? He states that Africa welcomes steps being taken by wealthy countries to stimulate their economies, but we also recognise that few – if any - African countries faced with the re-emergence of twin deficits can afford such fiscal stimulus. Donald Kaberuka affirms that Africa can be part of the stimulus for the world economy, as we saw in recent years when oil and raw materials were fuelling global growth. Hence, beyond respecting commitments already made, there should be additional new resources. He confirms this is the reason that we,

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the leaders of Multilateral Banks, endorse Robert Zoellick’s (President of World Bank) proposal for a Vulnerability Fund for poor countries equal to 0.7 per cent of G20 fiscal stimulus packages. Nonetheless Africa’s key recommendations to the recent concludedG20 include: Demonstrate political will and take action now: The severity of the crisis calls for the same sense of urgency as shown in rescue plans for banks and corporations in advanced economies. Increase transparency, accountability, and equitable representation: Provide adequate voice and voting rights to African countries in international financial institutions and major global governing bodies. In a genuine historic response to Africa demands in London on April 3, 2009, the G-20s leaders stated in a statement titled “release at the close of the Summit” that they were committed to ensuring that capital continued to flow to emerging markets and developing countries to support their economies and global growth: “We are determined not only to restore growth but to lay the foundation for a fair and sustainable world economy. We recognise that the current crisis has a disproportionate impact on the vulnerable in the poorest countries and recognise our collective responsibility to mitigate the social impact of the crisis to minimise long-lasting damage to global potential. To this end: we reaffirm our historic commitment to meeting the Millennium Development Goals and to achieving our respective ODA pledges, including commitments on Aid for Trade, debt relief, and the Gleneagles commitments, especially to sub-Saharan Africa; the actions and decisions we have taken today will provide $50 billion to support social protection, boost trade and safeguard development in low income countries, as part of the significant increase in crisis support for these and other developing countries and emerging markets; we are making available resources for social protection for the poorest countries, including through investing in long-term food security and through voluntary bilateral contributions to the World Bank’s Vulnerability Framework, including the Infrastructure Crisis Facility, and the Rapid Social Response Fund; We have committed, consistent with the new income model, that additional resources from agreed sales of IMF gold will be used, together with surplus

income, to provide $6 billion additional concessional and flexible finance for the poorest countries over the next 2 to 3 years.” Mr. Kaberuka, who was part of a NEPAD high-level delegation to the G-20, said the summit had addressed some key African concerns relating to the global economic crisis. “The fact that we’re here and that our proposals have been considered is very good,” Mr. Kaberuka said. It goes without saying that the G-20 nations’ decision on Africa had been made possible, following representations from Africa. The AfDB played a leading role in efforts at forging an African position. A NEPAD delegation led by Ethiopia’s Prime Minister, Meles Zenawi, represented Africa as a guest at the Summit. The delegation also comprised African Union Commission Chairperson, Jean Ping. South Africa is the only African state that is a member of the G-20. On the whole, experts think that the African Development Bank (AfDB) would benefit from additional resources that G-20 promised, for its trade financing initiative on the continent. Also the doubling of the International Monetary Fund’s concessional lending capacity for low income member states, also proposed by the G-20, would benefit the Fund’s African member states. The G-20 proposals for improved regulation of the global financial system would generally benefit the entire globe, including Africa said Mr. Donald Kaberuka. He stressed further that the current global crisis was a deep-rooted problem that would take some time to cure. “It was an excellent summit. It is however the beginning of a long process,” he pointed out; adding that implementing the summit’s decisions was the next major challenge. The G20 Summit offers a historic opportunity for a new departure, together rebuilding global confidence, renewing global commitments to fight poverty and a special effort in partnering with Africa. The main objective of the G20 meeting was to save global capitalism. The emphasis on more regulations, the attacks on tax havens, the reference to the “moralization of capitalism” all converge toward the same objective: restore trust in global capitalism and some of the legitimacy it has lost in the eyes of the general public. Experts hope the commitments made at this year G-20 summit will be fulfilled. Reporters Susan Hooper and Lola Coker New Business Africa

September 2009

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International Trade and Politics

G

20

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A perspective from Africa

Iraj Abedian is the chief executive of Pan-African Investment & Research Services. The opinions expressed are his own

lthough Africa had no role whatsoever in causing the financial and economic crisis, the prevailing economic meltdown has put at risk Africa’s growth and development prospects. In its latest update, the International Monetary Fund predicts that, as a direct consequence of the global economic crisis, Africa’s growth will drop to a low of 3.4 per cent, or less, in 2009. This is contrasted with 6.2 per cent economic growth in 2007, followed by 5.2 per cent in 2008. Because of Africa’s integration into the global economy, the financial and economic crisis spread to the continent due to lower levels of trade, foreign direct investment, migrant remittances, and official development assistance. Moreover, with worsening growth projections for Africa’s main development partners in 2009, the continent will also be hurt by declines in export earnings, tourism, and the value of national currencies. Already a number of African countries are under severe stress. Significantly, the deepening economic crisis exacerbated the serious political and socio-economic challenges already being experienced in Africa, due to poverty, underemployment, rising inequality, unfair globalization and difficult social conditions for large segments of Africa’s population. The financial and economic crisis comes at a time when Africa is only beginning to recover from the effects of the food and fuel crises. To ameliorate the adverse consequences and to avoid further damage to the social fabric of the continent, it is vital to recognize that no country or region alone can deal with the consequences of the crisis, hence global, coordinated solutions are called for. More importantly, a profound mindset shift, underpinned by a new set of moral and ethical value system, is required. The hegemonic practices, exploitative

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objectives, and historic maneuverings have to end. The global response to the crisis must be value-driven and pursue the overarching objective of alleviating the burden of the economic downturn on people, especially vulnerable groups. To this end, the removal of the existing barriers to a fair global trade system is a major first step. The elimination of agriculture subsidies in OECD and currency manipulations by China and others should receive serious and immediate attention. Over the past year, there has emerged a growing implicit protectionism within G8 member countries that is detrimental to global recovery and growth. Together with the so-called fiscal stimuli introduced by the G8 countries and others, the focus thus far has been on narrow national interests. Understandable as it might be, such shorttermism and politically driven initiatives have distracted attention from some of the root causes of the global crisis. From Africa’s vantage point, the G20’s focus should be on strengthening and restructuring multilateral institutions, with a view to urgently transforming them on the basis of sound and equitable governance principles. Genuine and coherent economic policies as well as the reform of the global economic governance architecture will have to form an integral part of an effective response to the crisis. De-globalization and segmentation of the global socio-economic system is a false and counter-productive tendency that cannot serve Africa’s interest over time. Strengthening continental structures is another requirement of an effective and sustainable response to the situation. This in turn necessitates a more credible commitment by the richer nations to their global aid commitments, which thus far has left much to be desired. It is common in times of crises for the leaders, G8 or G20, to make popular commitments and subscribe to politically correct goals.

However, it is the delivery of the promises and the genuine removal of structural, institutional and policy barriers that would set the world economy on the path of recovery. Alongside G20 leaders, a critical responsibility rests with the leaders within Africa - political, social and intellectual - to respond to the crisis with a sense of empowerment, integrity and commitment. There is much that can be achieved within the continent, and that should be pursued with the urgency that the conditions demand. True, it would have been ideal if more African countries were represented at the G20 leaders’ table. That South Africa is the only African member country of G20 is no excuse for the other leaders to wait for the G20 decisions to embark upon some key initiatives that would stimulate economic activity, food production, and social cohesion on the continent. After all, the track record of G20 leadership does not inspire much hope, and yet the severity of the socio-economic circumstances demands visionary and committed leadership now. With reporting by Taiwo Danjum (Switzerland), Sam Osadolor (South Africa) and Kellie Brown (London)

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International Trade and Politics

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frica is rich in mineral and natural resources with large parts of its terrain teeming with wild life and magnificent plant life. It possesses 99 percent of the world’s chrome resources, 85 percent of its platinum, 70 percent of its tantalite, 68 percent of its cobalt, and 54 percent of its gold, among others. It has significant oil and gas reserves. Nigeria and Libya are two of the leading oil producing countries in the world. Further, Africa is the home to timber, diamonds, and bauxite deposits. Revenues from their extraction should provide funds for badly needed development, but instead have fuelled state corruption, environmental degradation, poverty, and violence. Rather than being a blessing, Africa’s natural resources have largely been a curse. Africa’s enormous agricultural potential is vastly untapped. Africa’s vast mineral wealth and strategic significance have encouraged foreign powers to intervene in African affairs. During the Cold War era, 1945-1990, there was increasing superpower intervention in Africa. The United States and the Soviet Union were major players on the African scene. The 19th-century scramble for Africa saw the great powers rush to control land so they could exploit natural resources. Today, the scramble continues — the continent still a vital arena of strategic and geopolitical competition among the United States, France, Britain, China, and India. The key question for many is: will the exploitation of Africa’s rich resources benefit anyone other than the continent’s elites? Oil is perhaps the most important lure, with competition between foreign states and companies to secure resources so intense it attracts more than 50 per cent of all foreign direct investment. It is to note that in the year 2006, annual foreign direct investment (FDI) raised to a historic high of $38.8 billion, exceeding record levels of 2005 — a growth of 78 per cent from 2004. According to the U.N. World Investment Report, FDI cash was concentrated in a few industries, notably oil, gas and mining. And six oil-producing countries — Algeria, Chad, Egypt, Equatorial Guinea, Nigeria, and Sudan — hogged around 48 per cent of it. European firms represent roughly twothirds of the total FDI in Africa. More than half of European investment originates from the U.K. and France, going mainly to countries with which they have historic ties. French oil companies such as Total, locked out of the Middle East through France’s

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Rich countries and their leverage on Africa Africa is a vast and exotic continent of about 900 million people in 54 independent countries. It has a total area of over 30 million square kilometres, about three-and-a-half times the size of the United States and 10 times the size of India. It is the second largest continent in the world after Asia. It stretches from the shores of the Mediterranean in the north to the Cape of Good Hope in the south

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International Trade and Politics

opposition to the Iraq war, have made large investments in Francophone countries such as Cameroon, Chad, and Gabon. The U.S. is interested in the region as a cheap and reliable alternative to the increasingly volatile Persian Gulf. West Africa already supplies about 12 per cent of U.S. crude oil imports, and America’s National Intelligence Council predicts that this share will rise to 25 per cent by 2015. As is often the case with oil, military involvement follows behind trade. In February 2007 the U.S. set up an Africa command (Africom). It has established bases in and signed access agreements with Senegal, Mali, Ghana, Gabon, and Namibia. Africa is becoming strategically important to the U.S. because of its oil production

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and China’s increasing regional influence. Despite its own big backyard, as it were, China is generally resource-poor and Africa offers the natural resources vital to fuel its rapidly growing economy. China looks to the Democratic Republic of Congo (DRC) and Zambia for copper and cobalt, to South Africa for iron ore and platinum, and to Gabon, Cameroon and the Republic of the Congo (Congo-Brazzaville) for timber. For oil, it has been wooing Nigeria, Angola, Sudan, and Equatorial Guinea. China is now the second largest consumer of crude oil after the U.S., and was responsible for 40 per cent of the global increase in demand between 2001 and 2005. Indeed, it imports 25 per cent of its crude oil from Africa. Beijing has charmed African rulers with a triple whammy of arms sales, cancelled debt, and soft loans. Last year, President Hu Jintao and Prime Minister Wen Jiabao visited 10 African countries, and this increasingly intimate relationship was consummated at the China-Africa summit in October 2006, when Beijing rolled out the red carpet to almost 50 African heads of state and Ministers. The global demand for natural resources will bring benefits to Africa — increased FDI and, as exports grow, improving balance of trade figures — but one of the main concerns is that the scramble for Africa is fuelling corruption, environmental degradation, and internal dissent. The windfall gains from resource extraction cause more problems in Africa. It reduces a state’s incentive to impose a free and just taxation system, and encourages corruption and acquisition of weaponry and thus develops internal conflicts or external wars for which Africa is famous for. In the form of Neo-colonisation, Africa is being fragmented into many pieces at the will of super power countries and concentrating more on the exploitation of Africa’s rich resources than providing them the development aid. For example, the recent Organisation for Economic Cooperation and Development OECD report indicates that the world’s major donors 22 member countries of the OECD Development Assistance Committee (DAC), provided USD 103.9 billion in aid in 2006, fell by 5.1% from 2005. This figure includes USD 19.2 billion of debt relief, notably exceptional relief to Iraq and Nigeria. Excluding debt relief, other forms of aid fell by 1.8%. The fall was predicted. ODA was exceptionally high in 2005 due to large Paris Club debt relief operations (notably for Iraq and Nigeria) which boosted ODA to its highest level ever at USD 106.8 billion. In

2006, net debt relief grants still represented a substantial share of net ODA, as members implemented further phases of the Paris Club agreements, providing a little over USD 3 billion for Iraq and nearly USD 11 billion for Nigeria. Excluding debt relief, ODA fell by 1.8%. Preliminary data show that bilateral net ODA to subSaharan Africa rose by 23% in real terms, to about USD 28 billion. However most of the increase was due to debt relief grants, excluding debt relief for Nigeria, aid to subSaharan Africa increased by only 2%. Charities and NGOs working on the issue believe that even governments that are members of the Organisation for Economic Cooperation and Development (OECD) are reluctant to investigate allegations against western companies of corruption or complicity in human rights abuses. In Equatorial Guinea — where U.S. companies such as ExxonMobil and Chevron are active — the regime of President Teodoro Obiang Nguema has been accused of torture, electoral fraud, and corruption. Despite this, President Nguema was welcomed at the U.S. State Department by Secretary of State Condoleezza Rice in April 2006 and described as a “good friend.” The environmental impact is also alarming. The clearing of forests for timber exports increases vulnerability to erosion, river silting, landslides, flooding, and loss of habitat for plant and animal species. Gas flaring from oil production, where unusable waste gas is burned off, pumps large amounts of carbon dioxide into the atmosphere. It is estimated that flaring in the Niger delta emits 70 million tonnes of CO2 a year. Out of which Sweden emitted 69.9 million tonnes of CO2 in 2004. The environmental and social impact of extractive industries is already acknowledged as a key factor in conflicts in Sudan and Nigeria. There is a fear among NGOs that access to natural resources will fuel the kind of violent conflict seen recently in Sierra Leone, the DRC, and Liberia. A number of initiatives have recently been launched in an attempt to deal with the resources that cause Africa to fragment. The developed countries should realize and think to provide the development aid to Africa where millions are suffering with HIV/Aids, poverty, and other vulnerable diseases for their development instead of extracting their resources. Ravinder Rena Associate Professor of Economics at the Eritrea Institute of Technology

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Trading with Africa

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epresenting a record high, analysts said the surge was fuelled by China’s increased imports of African oil, most notably from Sudan. Africa is also buying more Chinesemade goods, the figures show. China is investing heavily in African oil exploration to help meet its rapidlygrowing consumption. In 2003 it overtook Japan to become the world’s second-biggest consumer of petroleum products after the US. The US Energy Information Administration (EIA) adds that China accounted for 40% of the total growth in global oil demand over the past four years.

African investments

Shanghai City

China-Africa Trade on the increase Trade between China and African nations jumped 39% to $32.17bn (£18bn) in the first 10 months of 2008, official Chinese customs figures revealed.

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According to the figures for the first 10 months of last year, China’s exports to Africa totalled $15.25bn, while the country’s imports from Africa were $16.92bn. Yu Yingfu, an official from the Chinese Ministry of Commerce, said China-Africa trade had increased since the start of a new era of cooperation that began with 2000’s China-Africa Forum. Since then China has scrapped tariffs on 190 kinds of imported goods from 28 of the least developed African countries, and Chinese firms have greatly increased investments in Africa - most notably in the oil sector. In the first 10 months of 2005 alone, Chinese companies invested a total of $175m in African countries, according to the official figures.

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Trading with Africa

Chinese firms are also taking on significantly more construction projects in Africa, most notably infrastructure works. Some analysts say China is doing this to aid trade and the movement of goods.

“Oil is central to this, primarily Sudanese oil and trying to develop new oil sources in West Africa. “In terms of Sudan, it is needs to be seen as the biggest producer of African oil outside of Nigeria.” Mr Innes-Ker added that China was well ahead of Western nations regarding Sudanese oil contracts. Since then China has In light of the ongoing scrapped tariffs on violence and human rights concerns in Sudan, he 190 kinds of imported speculated that “Chinese goods from 28 of the firms are a little less ethically constrained” than their least developed African Western counterparts. countries, and Chinese firms He added that Chinese textiles and clothing firms have greatly increased were also investing heavily investments in Africa - most in Africa at the moment as a way to get around US and notably in the oil sector. European Union limits on Chinese exports in this sector. Duncan Innes-Ker, Economist Overall, experts say, China’s involvement could jump-start change Intelligence Unit on the continent, but only if African governments become more assertive partners in their dealings with “Africa has become more China. World Bank economist Harry important for China as a source of the G. Broadman writes that Chinese raw materials needed by the Chinese firms can help African countries tap manufacturing sector,” said Duncan into global value chains, giving them Innes-Ker of the Economist Intelligence a “chance to increase the volume, Unit.

‘Less constrained’

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diversity, and worth of their exports.” But African governments must enact a series of reforms—of basic market

institutions, investment regulations, infrastructure, and tariffs—to realize these benefits, he argues. “This is Africa’s internal problem,” says Kang of Dartmouth. “How do you build infrastructure without outside investment? And how do you have a stable government with no resources?” A 2006 CFR Task Force report on Africa urged U.S. officials to maintain support for reforms and transparency despite the rise in competition with China for Africa’s resources. Reports from Council on Foreign Felations and the Xinhua News Agency

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Infrastructure

INFRASTRUCTURE – PRECONDITION FOR FOREIGN INVESTMENT IN AFRICA

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here once African officials might have viewed infrastructure projects solely as a good source of kickbacks, these days there is pressure from electorates, at least in some countries, to deliver on promises of improvements. The growth that many African states have enjoyed in recent years has exposed the failure of the continent’s infrastructure still more starkly – with even South Africa suffering the kind of power outages that much of the rest of Africa has grown far too used to. Infrastructure was in theory the focus of the recent African Union summit, although as always it was overshadowed by crisis in Somalia, Zimbabwe, Congo, Darfur etc… The global financial crisis is an even bigger threat to hopes of strengthening Africa’s infrastructure. Recently, Kenya, Tanzania and Uganda all set out to borrow money internationally through sovereign bonds, for the upgrade and expansion of roads, water supplies, irrigation schemes and electricity generation capacities. That followed Ghana’s successful launch in 2007 of subSaharan Africa’s first Eurobond outside South Africa to help fund infrastructure development. But the plans of the east African countries have been knocked off course despite early assertions from confident governments that they would not be affected by the global downturn which began in the Western world. Kenya is exploring alternative ways of raising the $500 million it had originally planned to raise from a debut Eurobond. Tanzania and Uganda both made similar announcements. But the problem of poor infrastructure remains as pressing as ever and could restrict growth in Africa once the current global financial storm ends. A senior World Bank official has said Africa risks a “lost decade” of underdevelopment if it neglects projects to boost energy and transport infrastructure because of the global financial crisis – comparing the situation they face now to that in Asian countries a decade ago. How much of a priority should infrastructure be for African governments at this time? Is there anything they can do to raise the money needed? Experts believe that the availability of adequate infrastructure is a necessary precondition for foreign investment. Governments in Africa will do their economies and consequently their citizens a lot of good, if they can find the political will and integrity to invest in their basic infrastructures. David Melzeck New Business Africa (USA) Note: Piuchi please use images of road, railway lines, electricity etc.

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