June 28, 2006—Sub-Saharan Africa—long tagged a high-cost, high-risk place to do business—is becoming a more hospitable destination for investors.
Africa attracted about $12 billion of foreign direct investment in 2004, about 3 percent of the global total, with investment flows rising in 40 of the 53 countries in the region. Portfolio investments are at about $3 billion and rising. Much of the inward investment is directed to South Africa or to the extractive industry sectors, but not all. “We are seeing more African countries taking on the investment climate shortcomings, and the reforms are beginning to translate into new investments, beyond the usual geographies and outside the usual sectors,” said Demba Ba, who heads the Africa Region’s Private Sector Development Group. Although the Doing Business rankings paint a picture of sometimes strangling regulatory burdens–– the last report shows it takes 155 days to launch a company in the Democratic Republic of Congo, compared to 22 days in Korea and two in Australia—a number of countries are registering meaningful reforms: - Kenya has brought down the number of required business licenses from 1,347 to 195, substantially reducing the cost of starting up a business.
- Madagascar has brought down the time required to register a firm from 38 days to 8.
- Mozambique has adopted a new investment code and cut the transfer tax for property from 10 percent to 2.4 percent.
- Burkina Faso has created a one-stop shopping concept for new businesses that cuts by nearly a third the time required to start a new company. Company registration costs have dropped 60 percent.
- Mali, meanwhile, has eliminated registration fees altogether.
Attracting Investment Many of the changes grow out of Investment Climate Assessments, which are being carried out throughout the region, and which establish benchmarks for measuring countries’ progress. As a result of the reforms, Africa is emerging as the region that is the fastest reformer on the matter of easing business entry. Speaking of the cutback of licensing requirements in Kenya, Mr.Ba remarked, “The reduction by regulatory guillotine of business licenses in Kenya from 1,347 to 195 is a key result that will contribute to reducing the cost of regulation of the private sector in Kenya , and toward improving transparency and fighting corruption. “ Business climate reforms figure in countries’ CPIA ratings (Country Policy and Institutional Assessment), which influence levels of development assistance and which were recently made public for the first time. In addition, business climate issues are increasingly prominent in discussions of budget support and policy lending. For example, in Burkina Faso a Poverty Reduction Support Credit carries specific reforms to simplify business start-up processes and to make the labor market more flexible. In Mali, a Development Policy Credit calls for reforms to lower the costs of starting a business, to improve the system of land titling, and to cut the fees required for artisan products created for export.  | | At the Africa Growth and Opportunity Act Investment Summit |
Investment Summit Co-chairing a roundtable discussion at the Africa Growth and Opportunity Act (AGOA) Investment Summit in Washington last week, Bank Group President Paul D. Wolfowitz said Africans can attract far higher levels of investment, adding that he has “discovered how much hope there is” on the Continent. Pockets of export success—in cut flowers, clothing, handicrafts, and outsourcing services—are gradually underscoring the potential for more diverse, outward-looking economic growth strategies. Thomas Barry, chief executive of Zephyr Management, said, “We think in Africa, the reality is much better than the perception.” Thomas Gibian, chief executive of Emerging Markets Partnership, said that one of his funds invested $400 million in 14 companies, with the investment value rising to $850 million over several years.
Impact of the Africa Action Plan Under the Africa Action Plan, country strategies are increasingly targeting private sector growth, often by addressing regulatory and infrastructure constraints that make it hard for African companies to expand and generate jobs. One result of an improved investment climate would be Africa claiming a higher portion of world trade, its share of which has dropped from about 3.5 percent thirty years ago to 1.5 percent today. Speaking at a seminar on growth last fall, African Development Bank President Donald Kaberuka remarked, “The countries that make a breakthrough will be the countries that trade.’’ Regular Investment Climate Assessments, together with the Doing Business rankings, have given African leaders specific benchmarks on the investment environment, and have in many cases set the foundation for change. These in turn are increasingly translated into specific reforms. The changes will result in improved ratings, and higher returns on investment, and over-time, a decisive graduation from the high-cost, high risk label that has historically hampered investment in Africa. |
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