Africa is the most poor and underdeveloped continent. With one billion people, it accounts for 14% of the world's population. Still the region's share of the global foreign direct investment is only 2.2% as against Asia's 17.3%.
A new survey report by a consulting firm Baird's CMC and the US Chamber of Commerce says that US companies are now taking interest in Africa but African governments needs to build a favorable environment in order to attract investment from foreign companies. The report is based on behind closed door interviews with senior executives of 30 top multinational companies.
The survey points to the following main reasons why US companies don't consider Africa an attractive investment destination:
- a week rule of law
- The middle class is not large enough (who will buy our goods?)
- Political instability in the region
- Prohibitive taxes
- Poor transportaion and communcation structure
- Insufficient trained human resource
The African countries that hold most interest are South Africa and some countries in the North, like Egypt; there are also some pockets of interest in West Africa, most notably Ghana, Nigeria and to some extent Angola; while some in the South (Botswana and Mozambique) and East (Uganda and Kenya), are also being watched.
According to the survey, US companies would consider investing in Africa if the African governments took the following steps:
- Invest in education , health and infrastructure
- Ensure the rule of law and a business-friendly climate for all investing companies
- Show it is serious about attracting foreign investment
- Market itself as aggressively as other regions of the world
- Demonstrate opportunity cost of not investing
The US buisness wish-list for Africa includes:
- Invest in the health and education of the African people to create a large pool of
skilled and productive human resources.
- Invest in and maintain infrastructure—transportation, communications, electricity, and
security—so that there will be a reliable society in which to operate.
- Build a functioning legal system to ensure the rule of law, transparency, and fair play.
- Create a positive climate for foreign investments by reducing bureaucratic processes,
eliminating corruption, and reforming tax systems, irrespective of country of origin.
- Ensure stable political environments—that may or may not be based on
western democratic principles—that work toward the common good of all
stakeholders in society.
The bigger question is whether large multinational companies can legitimately call themselves socially responsible by not investing in a region where communities really need them.