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Investing in Africa

The global bust could create a boom in investments in Africa - if African governments can create a h

For many years, commentators have bemoaned Africa's relative isolation within the international financial market. It would be easy, given today's global climate, to now perceive this remoteness as an advantage, ensuring Africa's immunity from the current financial woes and as a result, increasing its attractiveness to investors.

However, a note of caution should be injected into any argument that says global bust will automatically translate into economic boom for Africa. Certainly, increased investment into Africa can only be a good thing - and even ahead of the recent troubles on Wall Street, we were seeing increased investment, with the United Nation's 2008 World Investment Report revealing FDI inflows into Africa grew to $53 billion in 2007, marking a growth of 16 per cent - the highest level to date.

However, this increasing investment in Africa will only translate into longer-term economic growth if African governments seize on the opportunity to transform their respective business environments. Without the necessary commitment to reform, it is very likely any increased interest in the continent as an investment destination will prove temporary, with speculators returning to their usual hunting grounds once the crisis has passed.

Despite its great investment potential - with booming stock markets, a billion consumers, large reserves of natural resources and a real entrepreneurial spirit - there is little doubt that challenges remain when doing business in Africa. These challenges are well documented but removing them has become ever more critical as the global financial community increasingly focuses on the continent as the world's last 'untapped' market. African governments therefore have a key role to play in shaping their business climates to ensure investment is attracted and retained and investors continue to look to Africa with confidence in the long-term.

The Investment Climate Facility for Africa (ICF), a public-private partnership, was established in 2006 in response to a recognition that a healthy investment climate is vital for the continent's economic growth. We have been encouraged by the appetite for reform demonstrated by the African governments we are currently working with, which include Burkina Faso, Lesotho, Liberia, Madagascar, Rwanda, Senegal, Sierra Leone, Tanzania and Zambia. Our projects, which are designed to deliver tangible and self-sustaining reform, focus on those areas critical for a healthy investment climate, including business registration and licensing, taxation and customs, property rights, judiciary rights, as well as work to resolve critical infrastructure challenges in the power and financial sectors.

Getting the business climate right is absolutely essential if Africa is to challenge perceptions that it represents a high risk investment destination. There are also important implications for wider social and economic progress; it is worth stressing that foreign or domestic investment does not automatically translate into wider growth. Without the right infrastructure in place, Africa's small and medium enterprises will still struggle to do business and contribute to job creation. As a result, governments will fail to collect the necessary revenues to provide improved health and education services and so on.

Certainly the global financial crisis represents an opportunity for Africa but this must not be measured simply in terms of how much investment is re-directed to the continent. No amount of increased investment, at both a domestic and international level, will ever come to anything if the business environment conspires against enterprise and entrepreneurship. It is vital that governments' increasing commitment to reform is maintained to ensure the increasing interest from investors doesn’t equate to a short-term dalliance, but instead blossoms into a long-term, mutually beneficial relationship.

The good news is that it costs a lot less to deliver institutional and regulatory reform than it does to mobilise a billion dollars of private investment. The reforms we are striving to deliver depend on nothing more than a commitment to reorganisation. If we succeed in improving the investment climate, the impact will be enormous and long-lasting.

Omari Issa is CEO of the Investment Climate Facility for Africa (ICF), the only pan-African body, based in Africa, explicitly and exclusively focused on improving the continent’s investment climate.