/ 11 August 1995

Aid and debt eat at Africa’s development

Trade and investment are necessary to set Africa back on=20 the road toward economic development. Karen Harverson=20

Africa urgently needs trade and investment to drive its=20 development which is slower now than it was 30 years=20 ago, says one of Southern Africa’s leading economists.

Tony Hawkins, professor of Business Studies at the=20 University of Zimbabwe, was speaking at a Standard=20 Chartered conference held last week.

Noting that per capita incomes in Africa were lower now=20 than they were in the 1960s, as populations grew faster=20 than economies grew, Hawkins explained that unlike the=20 South East Asian countries, whose rapid economic=20 development was driven by trade and investment, Africa’s=20 lack of development is driven by aid and debt.

“In the 1960’s Thailand’s gross domestic product (GDP)=20 was lower per head than Ghana’s — today, it is five=20 times greater,” said Hawkins.

He said a radical change in certain African countries’=20 economic policies was necessary to attract investment by=20 multinationals which he believed would be crucial in=20 leading the development of Africa.=20

“Many African governments have shown commitment to the=20 liberalisation of trade and investment policy but have =20 found it difficult to implement these changes.”

Another problem facing many African countries is that=20 their economies are 80 percent commodity-based and=20 highly vulnerable to adverse international trends and=20 climatic conditions.

“Fortunately, the protracted downturn in commodity=20 prices in 1992 and 1993 appears to have ended and this=20 bodes well for potential investment.”

Another plus in Africa’s favour was that the return on=20 investment in Africa was greater for multinationals than=20 in any other country.

“Of course, the risks are also much higher.”

Hawkins said that Africa’s best chance for attracting=20 investment was in traditional industries or in the area=20 of privatisation.=20

“Excluding privatisation, most investors are attracted=20 to ventures in oil, gas and mining, especially in West=20

Africa’s difficulties are compounded by tiny markets=20 which hold little attraction for the modern=20 multinational companies, said Hawkins.

Only South Africa and Nigeria have market sizes topping=20 the $10-billion mark.

“South Africa is the only ‘star’ on the continent in=20 terms of market size, growth rate and market=20 attractiveness. It’s the only market investors view as=20 essential to enter.”

He said investors measured the market attractiveness of=20 a country in terms of resource endowment, political=20 stability, policy environment, infrastructure and=20 institutional capacity, foreign debt-burden and export=20

“Of these, policy environment is the most important.=20 Resource endowment is a key factor in attracting=20 investment but not essential as proven by the successful=20 economies of the South East Asian countries.”

He said countries such as Mauritius, Botswana, Namibia=20 and Swaziland were seen as “limited scope” countries.=20

“They have good policies and political stability but=20 their markets were just too small to attract investment=20 interest beyond exploitation of raw materials.”

Despite its market size, Nigeria,along with Cote=20 d’Ivoire, Angola, Zimbabwe, Ghana, Kenya, Uganda,=20 Zambia, Cameroon and Tanzania, was ranked as a “problem=20

“These countries have good growth environments when=20 markets improve but the scope is limited by the moderate=20 market size. Investors need to pick the winners and=20 establish joint ventures.”

He relegated Ethiopia, Mali, Mozambique, Sierre Leone,=20 Toga, Somalia, Rwanda and others to the ranks of “dog”=20

“These are viewed as no-go countries which will take a=20 long time to develop market attractiveness.”=20

He warned investors to adopt a “watch and wait” attitude=20 to these African countries apart from some exports and=20 marketing outlet opportunities.