Thursday, May 21, 2009

Inside the Boardroom – How Corporate America Really Views Africa

I just found out a very interesting piece on Africa asking why the US has not invested in the continent: Inside the Boardroom – How Corporate America Really Views Africa. The piece was prepared by Baird’s Communications Management Consultants (Baird’s CMC) in partnership with the Africa Business Initiative of the US Chamber of Commerce (US Chamber).

Here are some excerpts:
Why has Africa not attracted more interest from the U.S. business community?
• Rule of law -- 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
• Attraction -- While the enormous natural resources are an attraction, Africa 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
• Risks versus rewards-- Given the currently perceived risks in Africa, the rewards have to be very high to make it worthwhile to invest. Presently, U.S. corporations say that there are very few visible promises of future returns high enough to justify significant interest in investing
•Supportive business framework--Transportation and communications infrastructure, trained or trainable human resources, and equitable trade and employment practices are insufficient to support corporate investment

Besides that they argue that there is a stiff competition for FDI and that other countries publicize themselves better and align their offers to US needs. Consequently, U.S. corporations do not lack investment choices, and they rarely consider African nations.

Another negative aspect about Africa is the fact that news about the continent is related to social unrest and chaos. They found out that Africa is not active or aggressive enough about attracting investment; the voices of the few countries that are making an effort get lost in the surrounding negative noise. The study argues that some African countries are trying to distinguish themselves to the great majority. For example, Nigeria’s president regularly engages with the local leaders of foreign companies to help cut through bureaucratic tape.

US companies and corporation do not have a strong and specific incentive to invest in Africa. In China, for example, there was always the promise of an immense consumer market when the US went there in the end of 1999s. Besides the large domestic markets in China, the US companies found out that labor is cheaper in China than in the US. The US companies in China can therefore produce cheaper goods and ship them to America. In Africa, labor can be even cheaper than in China. However, the problem is the labor force in Africa is illiterate, making it harder to adopt themselves to American standards.

In brief, the study is very interesting and I strongly recommend my readers to take a close look in this interesting report.

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