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Africa: Trading With the Enemy

Jason Hickel

The African Growth and Opportunity Act (AGOA) masquerades as a boost for Africa‘s development, but the reality is that it’s nothing less that a new scramble for Africa, writes Jason Hickel.

The last decade has seen a remarkable surge in US economic interest in the continent of Africa. Policymakers who once considered Africa the languid backwater of global economics are now rushing in to stake a claim in the continent’s enormous resource endowment.

Most of this effort operates with a rhetoric focused on ‘partnership’ and ‘development’, with the vision of using US trade and investment to lift Africans out of poverty. US Secretary of State Hillary Clinton exemplified this attitude when she spoke last year at a US-Africa trade policy forum, saying, ‘Let’s help each other make Africa all that it can be.’

But a quick look at the trade policy itself shows that this sugary rhetoric of American benevolence and concern for African welfare is deeply misleading. It does little more than cloak an agenda firmly rooted in economic realpolitik.

Michael Battle, the US Ambassador to the African Union, has revealed the blunt urgency of this agenda in a candid but troubling statement: ‘If we don’t invest on the African continent now, we will find that China and India have absorbed its resources without us, and we will wake up and wonder what happened to our golden opportunity of investment.’

The centerpiece of US trade policy for Africa is the African Growth and Opportunity Act (AGOA). Signed into law by President Clinton in 2000, AGOA is, according to Congress, ‘perhaps the most significant American initiative on Africa in our country’s history’. It provides trade preferences for duty-free entry into the United States for certain goods from sub-Saharan Africa, which is touted as a way to boost African business by encouraging exports. President Bush signed the AGOA Acceleration Act of 2004, which extends the policy until 2015.

THE BIG CATCH

It’s hard to quarrel with the idea that reduced trade barriers around American markets would be a boon for African exporters. The quintessential example is Lesotho, whose textile industry has flourished since joining AGOA and now exports more than $400 million worth of garments to the United States annually.

But there’s a catch. The US president reserves the right to reevaluate each country for AGOA eligibility on an annual basis; 41 made the cut last year. In order to qualify, African countries have to meet a specific set of stringent ‘conditions’.

Topping the list is the requirement that the beneficiary promote ‘a market-based economy that protects private property rights … and minimises government interference in the economy through such measures as price controls, subsidies, and government ownership of economic assets.’ In addition – and here’s the big one – the beneficiary must make progress toward ‘the elimination of barriers to United States trade and investment’.

In other words, AGOA eligibility requires not just mild economic deregulation but the outright destruction of any and all tariff protections, flinging open African markets to a flood of American goods that inevitably undermine local industry. And African countries don’t really have a choice in the matter, for if they refuse to meet these conditions, they effectively forfeit their access to the American market.

For all of the positive spin that US policymakers put on AGOA, nobody ever so much as mentions these draconian measures, which are easily as destructive as the dreaded ‘structural adjustment’ conditions that the International Monetary Fund attaches to its loans. Essentially, AGOA amounts to a coercive free trade agreement with most of the subcontinent.

Given that AGOA requires its beneficiaries to eliminate barriers to US investment, it’s not surprising that the balance of trade comes out strongly in favour of the United States. Trade data shows that Benin, for example, has exported almost nothing to the United States since it became an AGOA member, but has imported some $600 million worth of US goods that have significantly undercut local producers. Some countries do actually export a great deal under AGOA rules – but only those with substantial petroleum and mineral deposits.

Take Angola, for instance; 99 per cent of all of Angola’s exports under AGOA have been energy-related. In the Congo, that number reaches closer to 100 per cent. The same is true of Nigeria, Botswana, and every other country with an oil and mineral portfolio. Indeed, more than 80 per cent of all exports under AGOA fall under this sector.

AGOA, in other words, is designed to pry open new markets for US goods while making it easier for the United States to extract oil and minerals. And since most of Africa’s oil and minerals are controlled by Western corporations like Exxon, Shell, and Anglo-American, this is hardly an arrangement designed to benefit African businesses.

DUBIOUS ELIGIBILITY

If that’s the tragedy, then here’s the farce. AGOA actually does include a number of progressive conditions for membership. In order to qualify, beneficiaries must develop ‘economic policies to reduce poverty’, uphold ‘the rule of law, political pluralism, and the right of due process, a fair trial, and equal protection’, construct ‘a system to combat corruption and bribery’, and refrain from ‘gross violations of human rights’.

In addition, beneficiaries must implement ‘the protection of worker rights, including the right to organize and bargain collectively, a prohibition on the use of any form of forced or compulsory labor, a minimum age for the employment of children, and acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health.”

In practice, however, none of this actually applies. Countries renowned for corruption, human rights abuses, and labour law violations are routinely approved for AGOA eligibility. Indeed, the countries with the most flagrant abuses are those that trade the most under AGOA, giving blatant lie to the claim that good governance is a necessary precondition for successful US investment in Africa. Cameroon, for example, enjoys AGOA eligibility even though the government there rules an undemocratic, one-party state, regularly obstructs political meetings, harasses journalists, tortures human rights activists, and turns a blind eye to child labour. But it has a lot of oil.

Neighbouring Chad also enjoys AGOA eligibility, despite rampant corruption and a long tradition of arbitrary detentions and extra-judicial killings. But it has the Chad-Cameroon pipeline – the single biggest US investment in Sub-Saharan Africa – and Bush and Obama have been devoted to protecting the project’s US investors.

Eritrea is another example. In 2003, the UN named Eritrea one of the ‘World’s Most Repressive Regimes’. But it gets AGOA eligibility in exchange for having joined ‘the coalition of the willing’ during Bush’s war in Iraq. Burkina Faso, Angola, Swaziland, and the Congo all benefit from similar double standards.

The issue here is not just that the United States benefits from corrupt and repressive regimes, but that while AGOA claims to create incentives for political reform in Africa, it actually does the opposite. By encouraging the deregulation of oil and mineral based economies, AGOA contributes to the development of ‘rentier states’ that do not have to rely on income taxes for their revenue.

Such states have no incentive to build up a strong middle class, diversify their economies, or respond to the needs of their citizens. In turn, citizens have no incentive to scrutinise government priorities. As the social contract between citizens and the state erodes, endemic corruption inevitably follows, and states become increasingly repressive in order to maintain their grip on power.

This is what economists call ‘the resource curse’ or ‘the paradox of plenty’. An over-reliance on huge oil and mineral deposits ends up generating corruption, inequality, and widespread poverty instead of positive development outcomes. This pattern contradicts the common assumption that economic liberalisation translates into political freedom or democratic reforms.

WHO BENEFITS?

Although AGOA purports to leverage exports as a way of boosting economic development in Africa, it does not stipulate that the exporting companies must be African. Indeed, most of them are American, Chinese, and Indian. The vast majority of beneficiaries under AGOA are not impoverished Africans, but wealthy foreign corporations.

Indeed, AGOA’s insistence on the elimination of local trade barriers allows US companies to bid freely on things like mineral concessions and government contracts. And given that these companies have deep capital reserves, they can usually win, effectively blocking out their African competitors.

In addition, when it comes to industries like textile manufacturing, AGOA stipulates that producers must use US raw materials, which effectively blocks investment in local upstream sectors. Furthermore, because AGOA requires that goods exported to the United States ‘originate’ in the host country, Chinese and Indian clothing manufacturers frequently label their goods ‘Made in Kenya’ and transship them to the United States through Africa to get preferential treatment. The overall effect, then, is that AGOA does not create greater market share for African companies but actively diminishes it.

One might argue that regardless of where the investment comes from, at least it creates jobs. This may be true. But AGOA does not require that the new jobs go to Africans. Indeed, many of the extractive industries that benefit from AGOA import highly skilled labour from developed countries like the United States.

In Angola, for example, most of Exxon’s engineers are Americans. Furthermore, the jobs that AGOA does create for Africans are often deeply exploitative. AGOA has encouraged the development of Export Processing Zones (EPZs) across the continent, where labour laws are nearly non-existent and wages are rock-bottom in order to attract foreign manufacturers. In the textile industry, the net effect is that Asian sweatshops relocate to Africa to take advantage of AGOA incentives.

In Kenya in 2006, the average wage of EPZ workers in Asian sweatshops was a paltry 20 cents per hour, which amounts to barely more than a dollar a day – the lowest wages in the country. Most EPZ workers – the majority of whom are women and doubly vulnerable to exploitation – have to work excessive overtime just to meet their basic needs, and live in constant danger of being laid off without compensation.

CHANGING AGOA

It doesn’t have to be this way. With a few thoughtful changes, AGOA could be used to make trade work for everyday Africans.

First, the economic liberalisation condition should be dropped. Rich countries like the United States, Britain, Japan, and China initially used tariff protections and subsidies to promote their industries in the early stages of development; it’s cruel to deny those basic strategies to African countries desperately in need of development. Second, the political reform conditions should be taken seriously, and used to leverage best practices in human rights and labour law.

Third, local content rules should require that all US investments in Africa should tier up over a set period to at least 80 per cent local labour and local contracts – characterised by genuine registration – and should require investment in local capacity where it proves too poor to meet the necessary standards. Finally, targeted quotas should be used to channel foreign investment to where it’s needed most, rather than to where the regulations are most relaxed.

But changes of this order are not on the horizon, for – as I have demonstrated – the United States is concerned less about the well-being of Africans than about meeting its own energy needs and promoting the interests of American corporations. We need to cut through the deceptive rhetoric of US trade policy and ask the tough questions: Who really benefits from AGOA? Does AGOA enhance welfare and development, or facilitate extraction and exploitation?

As Ambassador Battle’s statement illustrates, the present trade arrangement between the United States and Africa is eerily reminiscent of the era of colonial conquest. In 1875, as Europe set its sights on Africa’s vast riches, King Leopold II of Belgium wrote to his ambassador in London, ‘I do not want to miss a good chance of getting us a slice of this magnificent African cake.’ It’s America’s turn now, and it appears that the Obama administration – like Bush before him – is driven by a similarly disturbing vision: a new scramble for Africa.

Foreign Policy In Focus contributor Jason Hickel is an instructor and PhD candidate in anthropology at the University of Virginia. His research focuses on trade, development, and political conflict in Sub-Saharan Africa.

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Business in Africa: It’s Boom Time if You Can Dance

There is much more happening in Africa than what you see on TV. There is a reason the world’s big businesses are paying closer attention to the continent known for its challenges like poverty, disease, gang rape and high maternal and infant mortality. Some of the portrayals are real.

Last week, former President of Nigeria, Olusegun Obasanjo said ‘

“The lack of a dependable electricity supply hampers production, the absence of good roads slows transport, and insufficient access to modern technology limits industrialization and integration into the global marketplace. The resultant inefficiencies make Africa the most difficult and expensive place in which to do business; they also slow economic growth and frustrate general development”

President Obasanjo was 100% right is the statement he made but he was yet very optimistic about the prospects for the continent, a fact that is often clouded by the pessimism. Similarly, Mr. Kofi Annan in a speech delivered at the Exeter College on February 13 portrayed a similar sentiment: hope and excitement in the years ahead for the continent of Africa. Reports from several international bodies and financial institutions point to a continent experiencing an economic boom that is creating numerous opportunities not just for the African people, but for investors and business owners all over the world.

As Kofi Annan pointed out in his speech, the country with the world’s most sustained and strongest economic growth over the last four decades is in Africa; it is Botswana. In fact, the IMF assessment establishes that the African continent will have as many as seven of the ten fastest-growing economies in the world over the next decade.  The McKinsey report estimates that by 2030, the continent’s top 18 cities will have a combined spending power of $1.3 trillion. These are the reasons why multinational corporations can no longer afford to ignore the continent.

I still believe that Africa faces numerous challenges but those who have the eyes to see beyond these challenges are taking the lead and, by the time some of us wake up, the lead may be too big to catch up.

Last week I had conversation with a friend about business opportunities in our home countries. In the 45 minutes discussion I had with the friend, I can recollect that not less than 30 minutes were spent on listing the impossible. We might be right, but that is exactly what entrepreneurship is about. An entrepreneur is “one who undertakes innovations, finance and business acumen, amidst risks and challenges, in an effort to transform innovations into economic goods”.

I would like to end with laudable example of what people like you and I have embarked upon to change their lives and change their societies.  A group of African traditional dancers in Botswana met and decided to form an alliance to preserve and promote the rich and historic culture of Botswana traditional dance and music. The group, MatsosaNgwao Tradition Dancers, has being performing live music shows in the region over the past three years to promote this African cultural heritage. The MatsosaNgwao Tradition Dance group was the typical neighborhood dance group, unknown and not recognized beyond their physical location. But the group’s efforts did not go unnoticed. The Department of Culture and Youth invited them on a trip to Mumbai, India, for a cultural exchange event in 2009. It was then that the youngsters realized how far their talents could take them. Today, the group is hot. The waiting list for appointment is long. To have them say “yes” is a lifelong accomplishment

What is fascinating about the MatsosaNgwao Tradition Dancers is their impetus; it was simply to help their community preserve its cultural and historic heritage.  Money and fame are the bye-products.

Many communities in Sub-Saharan Africa are endowed with functional African music accompanying work, childbirth, marriage, hunting and political activities most of which are normally associated with a particular dance. Similarly, other regions of the African continent have distinct musical and dance traditions that have not yet been exploited economically. MatsosaNgwao Tradition Dancers have shown that these are untapped gold mine in today’s world.

Out of school and thinking of what the government can do? Look at how the MatsosaNgwao Tradition Dancers did it. Opportunites abound in all areas.

If you are an investor seeking to grow your business globally or an ordinary person seeking opportunities, keep Africa on top of mind. It is still early enough to bring your ideas to the table and join the competition.

MatsosaNgwao Tradition Dancers
MatsosaNgwao Tradition Dancers

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Lobbying for Africa

Lobbying is a form of advocacy with the intention of influencing decisions made by legislators and officials in the government by individuals, other legislators, constituents, or advocacy groups.

Lobbyists exist for diverse interest groups: individuals with disabilities, specific industries, nations, and institutions, and so forth.

Jewish lobby for instance have a strong presence in the US capital and play a significant role in shaping policies affecting business, international finance, the media, academia, and popular culture.

Hispanic groups are well represented by Hispanic politicians who vigorously take on the specific issues affecting Hispanic people. Hispanic politicians never hide, never run away and never apologize when it comes to issues affecting Hispanics.

Last summer, after Arizona passed its tough immigration law, Hispanic politicians reacted with fervor. Some compared the decision to apartheid while others embark on peaceful demonstration and hunger strikes. They articulated that if the law affects one Hispanic, it affects all Hispanics.

It has always baffled me why African American leaders shy away from speaking out on Africa and the issues affecting the nearly one billion people on the African continent. African American politicians and leaders in general speak narrowly, though very well, about issues touching the ‘African American’ in the US. Unlike their Latino counterparts who speak for Mexico, for example, as though they are Mexicans, African American leaders address African American problems and that is enough for them.

Many African countries have made significant progress in creating a more business-friendly environment as well as impressive progress towards political stability. In spite of these, trade policies in most western economies are not designed to make these markets accessible to African goods and services. In fact, some of them are calculated to accomplish the exact opposite.

What is needed is an advocate who will stand up in the Congress, Senate or Parliament and fight for a more afro-centric trade, immigration and environmental policies. The African-American politicians can play a leading role in this.

It is my hope that African Americans leaders, students, musicians, and pastors will realize one day that our destinies are together. The African American will not be accorded the respect and dignity he or she deserves in this country or elsewhere, until the current perception of Africa in the mind of the Westerner is expunged. And this requires work, not only by the African leaders and people but also by their African American brothers and sisters.

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Foreign AID feeding oppressive regimes in Africa

We have being arguing that an open access to western markets is  more in the African interests than aid. This article by Prof Mariam is the exact reason why foreign aid alone is not the way forward for Africa. KAM

Feed them and bleed them

Prof. Alemayehu G. Mariam

“Western donors continue to hand out billions of dollars in ‘humanitarian’ and ‘economic’ aid to Ethiopia’s Zenawi regime each year, turning a blind eye to the fact that their handouts are propping up a repressive dictatorship”

The helping hand that feeds Ethiopians is the same hand that helps bleed Ethiopia. Every year, the US, the UK, Germany, the Netherlands, Canada, Japan and other Western countries hand out billions of dollars in ‘humanitarian’ and ‘economic’ aid to the regime of dictator-in-chief Meles Zenawi in Ethiopia. Every year, these donors turn a blind eye and a deaf ear to the notorious fact that their handouts are used to prop up and fortify a repressive one-man, one-party totalitarian dictatorship.

Today, Western donors have collectively embraced the proverbial principle to ‘see no evil, hear no evil and speak no evil’ of what their ‘aid’ money is doing in Ethiopia. Last week, Human Rights Watch (HRW) pried open Western donors’ eyes to see the havoc their aid money is wreaking in Ethiopia and unplugged their ears to hear the truth about the evil they are helping to spread throughout that poor country.

In a report entitled, Development Without Freedom [1], HRW sketched out the architecture of a vast kleptocracy (government of thieves) whose lifeblood is continuous and massive infusion of foreign aid. The report represents a devastating indictment of Western donors and their client regime for crimes that, if committed in the donor countries, would constitute Class A felonies: ‘Led by the ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF), the government has used donor-supported programs, salaries, and training opportunities as political weapons to control the population, punish dissent, and undermine political opponents–both real and perceived.

Local officials deny these people access to seeds and fertilizer, agricultural land, credit, food aid, and other resources for development. Such politicization has a direct impact on the livelihoods of people for whom access to agricultural inputs is a matter of survival. It also contributes to a broader climate of fear, sending a potent message that basic survival depends on political loyalty to the state and the ruling party.’ HRW charges that Zenawi’s regime has used Western aid to benefit its supporters by giving them special access to micro-credit (small loans designed for poor households) loans and benefits under the productive safety net program (multi-year cash payments to those vulnerable to famine to avoid disaster from food shortage emergencies).

The regime has misused state educational facilities for political purposes and engaged in systematic political indoctrination of students, repression of teachers and purging of individuals who are unwilling to support the ruling party from their jobs. In sum, after 19 years and ‘investing’ US$26 billion in ‘aid’, the crowning achievement of Western aid in Ethiopia is the establishment and entrenchment of a one-man, one-party totalitarian state! The Western donors refuse to accept any responsibility for the misuse and abuse of their aid money in Ethiopia; and the conspiracy of silence to cover up the ugly facts uncovered by HRW continues. A few days after HRW released its report, a gathering of vulturous poverty pimps known as the Development Assistance Group (DAG) representing donor states issued a statement denying the undeniable. ‘We do not concur with the conclusions of the recent HRW report regarding widespread, systematic abuse of development aid in Ethiopia. Our study did not generate any evidence of systematic or widespread distortion.’ [2] DAG co-chair Samuel Nyambi was manifestly dismissive of HRW’s findings when he arrogantly proclaimed that ‘development partners have built into the programmes they support monitoring and safeguard mechanisms that give a reasonable assurance that resources are being used for their intended purposes.’

In DAG-istan, what HRW found and reported simply could not happen. HRW made it all up! The report is all lies and fabrications! The fact of the matter is that it is in DAG’s self-interest to bury the truth and keep covering it up even when the truth it is exhumed for public display. For DAG to acknowledge any part of the HRW evidence is tantamount to self-incrimination. They could never admit that the things HRW reported occurred under their watch. As the HRW reports demonstrates, DAG and the donor countries ‘have done little to address the problem [aid abuse/misuse] or tackle their own role in underwriting government repression… even though they recognize [civil and political rights] to be central to sustainable socioeconomic development.’ Huddled together in DAG-istan, the poverty pimps have collectively resolved to continue to do their usual aid business in Ethiopia because ‘broad economic progress outweighs individual political freedoms’.

In ‘their eagerness to show progress in Ethiopia, aid officials aremeles zenawi shutting their eyes to the repression lurking behind the official statistics.’ They say ‘their programs are working well and that aid was not being ‘distorted.’ They refuse to carry ‘out credible, independent investigations into the problem.’ The ‘donor country legislatures and audit institutions [have failed] to examine development aid to Ethiopia to ensure that it is not supporting political repression.’ They refuse to ‘wake up to the fact that some of their aid is contributing to human rights abuses’ in Ethiopia. The Western donors have ignored calls to ‘seriously weigh the impact that their funding has on bolstering repressive structures and practices in Ethiopia.’ They are unwilling to do a ‘fundamental re-thinking of their strategy.’

THE PEOPLE OF ETHIOPIA VERSUS WESTERN DONORS When I wrote my commentaries ‘Speaking Truth to Strangers’[3] this past June and ‘J’Accuse’ last November [4], I argued that in a perfect world Western donors in Ethiopia could be prosecuted for being accessories before and after the fact to the crime of first-degree ‘democricide’, gross human rights violations and for aiding and abetting Zenawi’s kleptocracy. The recent HRW report furnishes a fresh boatload of damning evidence for use in the criminal conspiracy case of ‘The people of Ethiopia versus Western donor countries’ to be tried in the court of international public opinion and in the consciences of all the taxpayers in Western countries shelling out their hard earned money to support one of the most brutal dictatorships in the world. The silent conspiracy between the Western donors and Zenawi’s regime operates on a couple of simple premises. The Western donors in their chauvinistic view believe there are two social classes in Ethiopia. One class consists of the large masses of poor, impoverished, illiterate, malnourished and expendable masses who will not amount to much. The other class consists of the tiny class of elites who maintain a lavish life style for themselves and lord over the masses by manipulating the billions given to them to strengthen their chokehold on the political structure and process. The silent conspiracy is sustained by mutuality of interests. The Western donors want ‘stability’ in Ethiopia, which often means the absence of internal strife that will not undermine their economic and political interests in the country. They want regional ‘stability’, which means having someone who could be called upon to patrol the neighbourhood and kick the rear ends of some nasty terrorists. For those addicted to aid, it’s all about more aid, more free money to play with. As long as the Western donors meet their dual objectives, they do not give a rat’s behind about what happens to their aid money or what harm it does to the Ethiopian masses. When confronted with the truth about the misuse and abuse of aid money as has been documented in the HRW report, the donors will deny it (‘we have built in safeguards, it couldn’t happen), play it down (‘nothing to it’), ignore it (‘nor worth commenting’), excuse it (‘it’s not as bad as it seems’), rationalise it (‘we’ve got to work with the government’), and wax legal about it (‘there is a sovereignty issue’); and to fool the people occasionally, they will come out in public, put on a show of feigned outrage and pontificate about democracy, the rule of law and the rest of it. After all is said and done, they go right back to business as usual.

ETHIOPIA: THE POTEMKIN VILLAGE A Potemkin village is ‘something that appears elaborate and impressive but in actual fact lacks substance.’ Western aid has reduced Ethiopia to a Potemkin village. It’s all a facade, a smoke and mirror show complete with illusions and sleights of hand. DAG is full of it when it counterclaims against HRW’s findings[5]: ‘The aid provided by members of the DAG in Ethiopia is transforming the lives of millions of poor people through basic services such as healthcare, education and water, and long-term food security. Our programmes are directly helping Ethiopia to reach the Millennium Development Goals.’ In their annual dog and pony show, these poverty pimps have been singing the same old song for years: ‘We are saving lives in Ethiopia by the millions. Imagine how many millions would have perished but for aid; how many children would have not gone to school. See the clinics and hospitals that aid has built.’

They challenge us to look at how much economic development aid has brought to Ethiopia: ‘Behold the shiny glass buildings. See all of the fancy roads that snake over the hills and valleys. Look at all of the universities we helped build. Look at the double-digit annual economic growth. Aid money made all that possible.’ What they don’t tell is the fact that many of the shiny buildings have little running water and many more stand unfinished or vacant. The universities have few books and educational materials and even fewer qualified instructional staff. The hospitals and clinics have few doctors and virtually no medical supplies or equipment to care for 85 million people. Ethiopia has one of the highest HIV prevalence rates in the world. Inflation has made it impossible for the vast majority of Ethiopian families to meet their basic needs. The poverty pimps say nothing about the fact that famine and hunger stalks a third of the Ethiopia population year around. As to ‘double digit’ economic growth, it is all made up by Zenawi’s regime.

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Turkish PM: Africa needs trade more than aid

In his address to EU-Africa summit held Monday in Libya, Turkish Prime Minister Recep Tayyip Erdogan said that African countries need trade, investment, technical and scientific cooperation more than assistance. Erdogan is the guest of honor at the summit meeting.

We find this encouraging because last week we presented an article proposing a shift from the AID model to more trade and accessible  western markets.

You may read the article from here

We will welcome your opinion on this or an alternative veiw.

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South of the Sahara: Boom times, at least in parts

Pratibha Thaker: regional director, Africa, Economist Intelligence Unit

Sub-Saharan Africa will be one of the fastest-growing regions of the world in 2011, thanks to surging demand both from abroad (from China and India in particular) and at home (fuelled by urbanisation and consumerism). As a result, investors will find it increasingly difficult to ignore the area, despite its—justified—reputation as a tough place for business because of political uncertainty, corruption, weak infrastructure and inconsistent regulation.

A test of Africa’s democratic credentials will take place in the early part of 2011, when Nigeria—the region’s most populous country, largest oil producer and second-biggest economy after South Africa—elects a new president and legislature. The election, expected to be won by the ruling People’s Democratic Party and President Goodluck Jonathan, will not be fully “free and fair”. However, if a more effective government emerges, the benefits will be felt throughout the region. Several other sub-Saharan states are planning to hold elections during the year. They include, in rough chronological order: Benin, Uganda, Chad, Madagascar, Zambia, Cameroon, the Democratic Republic of Congo, Liberia and Gabon—and in January southern Sudan is due to hold a referendum on independence (see article).


More than just commodities

As well as hosting the region’s most important election, west Africa will be the location of Africa’s fastest-growing economy in 2011: Ghanaian growth is set to reach double digits as oil comes on stream in significant quantities for the first time. The inflow of money will pose a stiff test of institutional accountability, but Ghana’s democratic record is among the best in the region (power has regularly shifted between the two major parties), offering hope that the country will use its new-found oil wealth more wisely than others have done.

Certainly, oil wealth is no guarantee of prosperity, as demonstrated by producers such as Equatorial Guinea and Chad. However, oil will drive growth in Angola, the region’s third-largest economy, Congo-Brazzaville and, within a couple of years, Uganda. Meanwhile, mineral producers, such as Mozambique, the Democratic Republic of Congo, Tanzania and Zambia, and strong agricultural economies, including Ethiopia, Kenya and Malawi, will benefit from rising demand and should achieve economic growth of 5% and above in 2011.

Ghanaian growth is set to reach double digits

Sub-Saharan Africa will be more than just a commodity play, however, as urbanisation and an expanding middle class increase demand for modern goods and services. The arrival of new submarine fibre-optic cables will boost bandwidth, cut costs and stimulate businesses that rely on technology. With recovery in Western economies still looking fragile, there will be a growing appetite to invest in Africa, adding to the forays already made by China and India.

The fastest-growing areas will be telecoms, banking, retailing and manufacturing. The provision of financial services to ordinary people, including tele-banking, will thrive. In addition, outsiders will want to buy or lease cheap agricultural land. Food-importing countries poor in land and water but rich in capital, such as the Gulf states, and countries with large populations and food-security concerns, such as China, South Korea and India, will be at the forefront. Private capital will also play a vital role—through privatisation and public-private partnerships—in modernising the region’s inadequate infrastructure, especially its transport and electricity networks. Several countries will seek private investment in power generation, although their weak regulation will remain an obstacle.

So in 2011 sub-Saharan Africa will find itself newly fashionable. But investors will need to distinguish between the countries that are starting to live up to their potential and those whose politics and policy will keep them stuck in the slow lane.


 

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Never mind the volatility, feel the vitality

These are hardly easy markets: there are good reasons why they are underexplored. Mexico is wracked by a drug war. Saudi Arabia is a closed society. Frontier markets are by their very nature unpredictable—prey to the wiles of dictators and the whims of nature. But they present numerous things that are irresistible to the West’s growth-starved companies. They offer huge opportunities for investment in infrastructure. General Electric wants to provide Africa with the machinery that it needs to grow: any young GE-er who wants a chance to rise to the top has to spend some time working in Africa. IBM wants to provide the computing power.

Africa contains a disproportionate share of the world’s mineral wealth at a time when mineral prices are soaring. It also contains a disproportionate share of the world’s young people at a time when the West faces a demographic squeeze: by 2040 it will be home to one in five of them. Many local stockmarkets are booming: Egypt’s market produced annual returns of 39% between 2000 and 2008, in a period when the average return was 2%. True, this growth is volatile. But in 2011 an increasing number of companies, looking at the West’s flat markets, will decide that volatility is at least a sign of life.

Above all, the overlooked and frontier markets offer businesses a chance to get in on the ground floor. Companies that move first will enjoy lots of advantages. They will be able to forge deals with aggressive young companies: companies such as Angola’s Banco Africano de Investimentos, which is expanding in Europe and Brazil, and Egypt’s Orascom Telecom, which is expanding across the Middle East and beyond. They will be able to strike infrastructure deals with local governments. And they can shape the tastes of future consumers.

Companies that succeed in these neglected emerging markets are not only putting down roots in the world’s most fertile soil. They are giving themselves a chance to establish business habits for years to come.

Adrian Wooldridge The Economist (from the The emerging emerging markets)

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