Why US Businesses Are Not Investing In Africa As They Should - Report

American businesses are not investing in Africa as they should due to a number of reasons including corruption, lawlessness unstable governments and inadequate infrastructure.

They are also hesitant to put their money in African countries because of the apparent lack of political will by African governments to curb corruption, a report released Wednesday May 20, 2009 by Baird’s CMC, a communications marketing consultancy together with the US Chamber of Commerce.

The report a copy of which was made available to ghanabusinessnews.com indicates that, overall, US businesses do not view Africa as an attractive place to invest.

The businesses take into consideration, the image of lawlessness, corruption, unstable governments, an inadequate infrastructure, uneducated or untrained people, and an unwelcoming government attitude toward business.

The businesses believe that these practices handicap those who will not or cannot “play the game” by these rules.

In addition, returns are not reasonably ensured or sustainable because costs can often escalate for reasons unrelated to business operations and the rules can change unexpectedly. This means that the time and resources already invested could be lost, the report said.

The report which is titled ‘The conversation behind closed doors: Inside the Boardroom: How Coporate America Really views Africa’ is in two parts, the study for the second part is ongoing.

The US Chamber of Commerce which is the world’s largest business federation has a membership of more than three million businesses and organizations of every size, sector and region as well as 112 affiliates in 99 countries around the world.

One of the objectives of the qualitative survey was to examine why US companies hesitate to invest in Africa. It also looked at what American businesses and African countries can do to increase US investments across the continent.

Ten industries were looked at in the survey and these are, aerospace/defense, agribusiness, consumer goods, health care and information and communications technology.

The others are, infrastructure, media, petrochemical/extractive, pharmaceutical and transportation.

Top management decision makers in 30 leading U.S. multinational corporations participated and majority were executives of U.S. Fortune 100 corporations.

The executives who were interviewed, the report indicated, do not yet believe that they are at a competitive disadvantage because they are not investing in African countries.

According to the report, with no competitive traction, there is no sense of an opportunity being missed. Furthermore, since Africa is not selling itself overtly by asking for investment, the continent does not attract enough attention amidst competition for investment from other developing countries or regions. The only exceptions to this are China and India.

While the report recognized the fact that African countries are marketing themselves and creating the environment to attract investments, the lack of the following is a disincentive:

The fact that the rule of law does not prevail to the degree required to make Africa an attractive investment destination. This applies to corporate, societal, and criminal law.

Africa, the businesses observed, does not offer a sufficiently large middle class of consumers or show consistent economic growth that could promise a future market. Most African countries are small and have poor markets, and there are barriers to regional markets—such as taxes and the freedom of movement of people and goods.

According to the report however, if African countries want to position themselves, to attract a lot more foreign direct investment (FDI), from America, then they should do several things including the following:

• 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.

By Emmanuel K. Dogbevi