By-Liner (Op-ed)
Welcome to Africa: the Global Economy’s Newest Investment Frontier - by Robert Mosbacher Jr.
July 13, 2007
Under the theme "As Trade Grows, Africa Prospers: Optimizing the Benefits Under AGOA," the sixth African Growth and Opportunity Act (AGOA) Forum will be held in Accra July 18-19. However, as leaders from AGOA nations, including Tanzania, and the United States meet to discuss the trade challenges and opportunities facing Africa, the importance of investment should not get lost in the discussion. Trade and investment are inextricably linked, and both have enjoyed rapid growth in recent years.
After decades of stagnation, Sub-Saharan Africa is in the midst of its strongest economic expansion since independence, registering positive growth annually since 1998. Thanks to significant debt relief initiatives, several countries have been able to clean up their balance sheets, and more importantly, are implementing sound fiscal policies to keep the red ink from returning. The average budget surplus to GDP ratio stands at 3.2 percent in 2006.
International investors have begun to take notice. For instance, last month, Renaissance Capital, an investment bank serving emerging markets, announced plans to double its investment in Africa to at least $1 billion.
Yet, as Africans know only too well, realizing the promise of this opportunity will not be easy. Historically, Africa has attracted less than two percent of the world’s investment flows despite having more than ten percent of its population. Changing this dynamic will require concerted efforts on the part of many players - both public and private.
President Bush recognized this need when he announced the African Financial Sector Initiative last month. This bold effort will combine technical assistance from the U.S. Treasury Department and the U.S. Agency for International Development (USAID) to improve the investment climate with efforts by the Overseas Private Investment Corporation (OPIC) to mobilize up to $1 billion in additional capital investment targeted at critical gaps in the continent’s financial infrastructure.
This is not a new role for us. OPIC is the U.S. government agency responsible for promoting social and economic growth through U.S. private sector investment. The agency’s history over the past 36 years illustrates America’s commitment to private sector investment as a catalyst for economic and social development. Projects supported by OPIC are expanding economic development and job creation, encouraging political stability and fostering free market reforms throughout the world and in Africa in particular.
Today, OPIC is providing almost $2 billion in investment support to projects on the African continent, including financing for critical infrastructure, the burgeoning telecommunications market, financial services, and housing. In fact, OPIC projects are supporting the building of more than 120,000 housing units in Africa, and more importantly, the development of a modern African mortgage market, a goal that President Bush announced during his visit to Africa in 2003. For instance, work began recently on a 5,000- unit development in Zambia that will offer affordable, high-quality homes to middle-income Zambians, financed through a 15-year mortgage, a product that did not previously exist in the country.
OPIC has also helped pioneer the development of Africa’s nascent private equity market. Currently, OPIC is supporting four private investment funds in Africa, which are investing in sectors as diverse as financial services, power, transportation, agribusiness and telecommunications. In total, OPIC has committed more than $300 million to these funds, which will leverage that funding to raise more than $1.5 billion in private capital for nearly $2 billion in total investment.
President Bush’s initiative builds on this success. OPIC will seek fund managers to raise capital for two new types of funds for the continent. The first will deepen and strengthen Africa’s capital markets by providing new financial instruments and services currently not available to African businesses. The second will partner with investors interested in high-impact, developmental investments that have a social as well as a financial return. These could include investments in small and medium enterprises, health care delivery, water infrastructure, and education.
There is still much to do for Africa to realize its potential as an attractive destination for international investment. Macro-economic policies responsible for the Continent’s recent economic success must be maintained, bureaucratic obstacles to business start-up and expansion must be eliminated, and efforts to combat the corruption that has plagued Africa must be stepped up. Only Africans and their governments can take these critical actions, but the United States can support them with innovative initiatives like that announced by President Bush. Together, we can turn today’s moment of promise of investment into a flow of capital for years to come.
Robert Mosbacher Jr. is President and Chief Executive Officer of the U.S. Overseas Private Investment Corporation (OPIC).