The African continent is blessed with some of the world’s greatest natural resources, huge mineral wealth and fertile land however; it would have to be the understatement of the year to say that doing business in the African continent is easy. If you can get over the initial bureaucratic, political and logistical hurdles to set-up a project you are still left with the daunting task of deciding where.
Both Africa’s recent and ancient history is riddled with war, famine and political unrest with some countries experiencing almost inconceivable changes to their national welfare in extremely short periods of time.
Take the cataclysmic fall of Zimbabwe. This is a country that following its independence, in 1980, was considered one of the most stable countries to do business in. Initially under Robert Mugabe’s leadership, it was doing well both in economic terms and as well as a tourist destination. In the early 80’s it prospered from mineral exports but when the world markets fell, it managed to successfully transition to an agricultural economy and continue its growth. Although droughts and foreign exchange issues slowed Zimbabwe’s growth, a steady 4.5% growth was maintained for more than a decade. However, in 1997 the government began making poor decisions, including assisting the civil war in Congo.
These bad fiscal decisions materialized in the economy in the past decade. For example, in 1980 inflation was 0.5% with an exchange rate of US$1 to Z$0.7. By 2008 inflation was 231million%. In 2008 a Z$10 million dollar note was worth less than $US1.35. On the 17th of January 2009, Zimbabwe issued its first Trillion dollar note and later suspended its currency. Zimbabwe is ranked 173rd out of 185 countries in doing business by the World Bank. Zimbabwe isn’t alone. The bottom 5 positions are held by DRC, Eritrea, Congo, Chad and the Central Africa Republic.
However, other countries are seen to be benefiting from a change of regime and new industrial links with China. Angola spent more than a quarter of a century ripping itself apart with a bloody civil war. Since the war ended Angola has one of the worlds fastest growing economies with GDP growth of over 11% with over 50% of this being generated by the oil sector. The other major export is diamonds with over 10 million carats a year being produced. However, this growth has not yet filtered down to the general population, with subsistence farming still providing 85% of the population with a livelihood.
Angola currently ranks number 172 in the World Bank’s index, one above Zimbabwe. In fact there are no African countries in the top 20. The highest ranked country is South Africa at 39 followed by Rwanda and Ghana at 52 and 64, respectively.
Despite these rankings, many African countries are a sought after destination for foreign investment, be it for oil, or as a manufacturing base or as an agricultural producer for countries with limited and expensive land resources of their own. Ethiopia, South Sudan, Mozambique, Liberia, the DRC and Sierra Leone have all signed sizeable land deals with foreign investors. It’s estimated that in the last decade international companies have acquired more than 11 million hectares of land.
The land grab issues in Africa are well reported and so are the many failures that have occurred, particularly in the bio-fuels industry. However, the truth of the matter is that many African countries offer an inviting opportunity for investment but the challenge is how to do it in a sustainable and equitable way while helping to create a stable, long-term, positive economic environment.
Many business leaders argue that these goals cannot be achieved by the countries alone, but need to be addressed by organisations such as the G20. Things like weak judicial systems, non-transparent administrative systems, lack of capacity in regulatory bodies and failure to tackle corruption, increase the risk profile of an investment in Africa against an investment somewhere else.
I’d like to think the days of short term goals outweighing the common good are a thing of the past and that Africa has the ability to take advantage of this new period of growth. But who is ultimately responsible for building this desperately needed long term stability… investors, external bodies, political leaders or concerted effort from all three…
TerViva has trial plantings in Mozambique as part of a sustainable agro forestry project.
Matt Willis is TerViva’s Director of International Markets