Africans seek investment, not aid, as they open a window to a new world

With governments adopting market-led policies and starting to tackle corruption, Nkosana Moyo finds a burgeoning private sector at work on the continent
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The Independent Online

The G8 summit and Live8 concerts have generated much discussion about the impact foreign aid has had on alleviating poverty in Africa. Yet, despite the many billions of dollars spent on aid, the inhabitants of Africa are on the whole poorer today than they were 30 years ago.

While aid certainly has a role to play in Africa, it is only by creating a vibrant private sector that the continent will make real economic progress. This belief has brought about a change of attitude by the finance institutions engaged in the developing world (notably the World Bank). They have all embraced the concept of private-sector-led development to deliver sustainable growth.

So, are the conditions in place for the creation of a successful private sector in sub-Saharan Africa?

Our experience at Actis has shown that it is possible to make successful investments in Africa - increasingly so, as the macro-economic picture improves. African governments are moving away from socialist policies and embracing market-led economics, including privatisation and deregulation. A classic example is Tanzania, which has abandoned its left-wing agenda of the mid-1980s.

Historic resistance to foreign investment is also being broken down. According to the UN Conference on Trade and Development, Africa's share of foreign direct investment in emerging markets rose from 2 per cent in 2000 to 22 per cent in 2003.

Even the thorny issue of corruption is being tackled. Participants in the 37th summit of the Organisation of African Unity in July 2001 signed an agreement to address issues of ethics in commerce. No rational person would deny that the problem exists, but at last moves are being made to deal with it.

The pace of reform will accelerate as the leadership of African countries is taken over by people whose perspectives are shaped by factors very different from those that influence the current leaders. They grew up in a world characterised by parochialism, exchange controls, state ownership and trade tariff barriers, including widespread financial inducements for decision makers.

The new generation of African leaders come from a world with a global perspective, one that is inclusive and guided by principles in matters of business. Emerging markets are, in the words of a recent report from F&C Fund Management, "the growth opportunities of the future".

The push towards privatisation that is gaining momentum across Africa also creates opportunities for strategic investors. Sectors such as mobile communications are particularly attractive. Africa now has more mobile than fixed-line subscribers and is also the world's fastest-growing market, with annualised increases of 65 per cent over the past five years.

Financial services is another sector that provides opportunities as, even where a country is politically unstable, people will always need banking services. A modular approach can be taken, and an efficiently run bank will make profits even if it operates in a small country.

From an investment perspective, markets in Africa fall into two categories: national and global. For example, some African economies are built on the mining and oil industries, and while investors might be putting their money in the country itself, the dynamics of market size, demand and pricing are set globally. Provided there is adequate infrastructure and security, investments in this category are relatively easy for international investors to get to grips with. Recently, Actis successfully sold its stake in East African Goldmines, a Tanzania-based company, to the Canadian mining group Placer Dome.

National markets are defined by their boundaries, and market size is critical in determining the investment opportunity. Most African countries are small and, from the perspective of an international investor, uneconomic. But some - including South Africa, Nigeria, Kenya, Egypt and Morocco - are large enough and developed enough to provide economies of scale. And in smaller countries, advances in technology offer a solution to market-size challenges. For example, Celtel International, which operates cellular networks in 13 African nations, is taking advantage of technological improvements to operate successfully in smaller markets such as Sierra Leone, Gabon and Niger.

If foreign governments genuinely want to help Africa, there are some really effective steps they could take.

One is to work in partnership with African governments and the private sector to invest heavily in infrastructure. Lack of investment here results in large external costs for businesses, which have to provide basics such as a power supply and access roads accepted as the norm in the Western world. In this context, the role of NGOs needs some thought. These organisations can sometimes take a negative attitude to development projects, especially when it comes to infrastructure, that is less than helpful to the country's long-term growth. Hydropower projects, for example, can sometimes be blocked after opposition by foreign NGOs.

As the debate on the building of the kind of infrastructure that would support private-sector-led development rages on, I would, on behalf of developing countries, urge our friends in the NGO community not to inadvertently undermine these foundations.

Crucially, the West should open its markets to African products by reducing trade barriers and subsidies that distort competition and can cripple Africa's fledgling private sector - which has such an important role to play in improving the life of the average African.

Nkosana Moyo is managing partner, Africa at Actis, the specialist emerging markets investment organisation

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