By JUDY WAGUMA
Africa?s economic performance between 1980 and 1990 was very poor, as most countries in the continent engaged in fighting. While this was happening, the rest of the world was moving on, forming very powerful trade blocs in which members were guaranteed preferential treatment.
This makes investing in Africa all the more important. Which is why it is instructive for investors to know the underlying issues that have seen some businesses on the continent stumble before closing shop, while others have thrived and raked in billions in profits over the years.
One of the biggest challenges facing investors coming to Africa is lack of the right information on Africa. With the help of information and communication technology (ICT), Africans cannot only improve their business, but investors from the rest of the world will be encouraged to bring in more money and boost the continent?s economies.
Challenges like fluctuating currencies, bureaucracy or red tape, which have been major obstacles, are increasingly getting easier to wade through.
With many other issues counting against it, Africa has still to contend with political instability in places like Sudan, Somalia and the Congo, where perennial wars have stagnated development despite the regions? great potential.
Driving the unfriendly climate are issues of underdeveloped infrastructure in many parts of the continent. The latest is the HIV/AIDS pandemic, which is threatening to wipe out the skilled working-class, more so in Sub- Saharan Africa where prevalence rates are highest in the world.
The banking and financial sector, though, has huge potential in spite of these setbacks. The need for an established reliable banking industry cannot be overemphasized. For instance, in Zimbabwe the banking industry is very well developed, but because of the volatile economic and political situation, inflation rates have soured.
Other challenges that impede on business in Africa are diverse ? they range from lack of effective legal and regulatory framework to strong government presence in companies, commercial and retail banks, thus negatively impacting on their corporate governance.
There is also the stain of corruption, which is perceived as a fault of the non-Africans who pass the brown paper bags as the poor and often poorly paid civil servants who accepts them. Many a potential investors have cancelled their plans after running into African bureaucrats who demanded huge kick-backs in exchange for licenses.
Nepotism, also a form of corruption, poses a challenge as politically-correct individuals are favored at the expense of serious but honest investors when it comes to doing business. There is also the challenge of limited access to credit, a strong source of capital, monopolies of marketing boards, state trading firms, foreign exchange restrictions, trade taxes, quotas and concentration on limited commodities. The latter places a disincentive on exports, thus delinking Africa from the world economy, and making it a net importer of capital goods.
Poor infrastructure in areas such as telecommunications and energy has made sure that Africa trails other economies. In some countries, like Kenya, the costs of electricity and telecommunications are so high, locally produced goods become less competitive on the international market. Lately, however, the continent?s governments have been moving to open up these crucial sectors to private players who are expected to improve efficiency and reduce costs for businesspeople. This way, Africa will be able to use new technologies and, hopefully, leapfrog more advanced economies.
The good new is, none of these challenges is insurmountable. In fact some entrepreneurs will agree that Africa?s risk is lower than even that of North America. Those who have partaken of Africa?s business haven?t shown the slightest hint of relocating. While many choose to write off Africa as the continent of despair, other enterprising individuals and organizations have recognized the huge, untapped potential of Africa and are actively pursuing business ventures with a lot of success.
Africa?s opportunities include oil and gas found mainly in Angola and Libya, mining in West and Central Africa, privatizations in South Africa and Nigeria; and mobile telecommunications in virtually all the countries. Mobile, fixed-line and internet penetration is still in infancy and promises a boom for investors who will go for the worm first ? and fast.
International trade includes oil producers and infrastructure, which are linked to pipelines, roads and telecommunications. Stock exchanges are also mushrooming in many African countries, thus giving foreign investors a safe way to hedge their cash in both private and government securities.
Ecotourism, arguably a strong sector in many countries here, provides the opportunity to develop leisure complexes that can take advantage of a vibrant market provided by the vast game parks, golf courses, beaches and beautiful ecosystem that abounds across the continent.
Much as the opportunities of doing business in Africa are immense, the assurance of financing, which implies the protection of the investment, is needed. Indeed, the issue of property rights is gaining prominence and it?s only a matter of time before a clear definition is reached.
The Corporate Council on Africa has set up a commission on financing private capital flows to Africa to enable capital deficient companies to invest in Africa.
The major problem has been that most African banks don?t support businesses in their own countries. They are not ready to give loans to new and small businesses, thus stifling the small and micro-enterprise sector, which employs a huge chunk of the population. This dearth has fueled the emergence of micro-finance institutions, a growing line of trade that has yet to get strong competition.
The establishment of a more coherent banking system in Africa would go along way in Africa helping itself by involving more regional and national banks in active economy.
The large private banks in Nigeria, for example, are more of lenders to the government and work less with private business for development. The interest rates for private businesses are also too high and therefore banking systems need to reform to make credit more affordable.
Nevertheless, Africa is no doubt a lucrative place to do business. Just ask companies like Coca Cola, Barclays Bank, Unilever, General Motors and Boeing to mention but six.
Judy Waguma is a staff writer of the African Executive.
Comment on this article!