WHY SHOULD AMERICAN BUSINESSES CONSIDER INVESTING IN AFRICA?
BY DAVID J. SAUNDERS
The United States' trade and investment policy towards Africa has two principal objectives: (1) to help African countries become more fully integrated into the global economy; and (2) to replace the traditional relationship between Africa and the United States from one based on aid dependency to one based on a mutually beneficial economic relationship. In recent years, many African nations have implemented far-reaching political and economic reforms to build democracy and establish free markets on the continent. These measures have boosted economic performance and opened new trade and investment opportunities for U.S. small and minority businesses. More importantly, the historic passage and ongoing implementation of, the Africa Growth and Opportunity Act (AGOA) holds out the promise of increased access to the United States market for African countries that implement such reforms.
Africa has tremendous potential &endash; rich mineral deposits, large timber reserves, vast pastures for livestock, soils and climatic conditions that are well-suited to the production of export crops and the considerable hydro-electric potential of its great rivers. But the continent is still a long way from realizing it potential because its resources are often only partially developed, primarily because it only receives part of its profits generated by its immense resources, and because income is not always managed in the best interest of its people as a whole. Moreover, if you ask successful entrepreneurs that are doing business in Africa what is the secret to their success, most will stress the importance of identifying and penetrating new markets on the continent.
Why then do so many American small and minority businesses tend to overlook trade and investment opportunities in Africa? It could be because Africa usually makes the headlines through stories of war, disease and general instability. While these and other challenges continue to confront Africa, they are not entirely representative of the continent. What many American small and minority businesses don't realize is that Africa is changing rapidly in many ways. A democratic tide is sweeping the continent with more than thirty countries having had democratic elections since 1990. Accompanying this democratic reform is an impressive wave of economic policy reform. More than thirty countries have dismantled state centralized systems, putting market-based economies in place.
However, in order to continue to improve upon this positive trade and investment climate, Africa needs more political stability in order to reassure foreign investors, nurture dynamic local entrepreneurs who are willing to take risks over the medium and long term, and of course, encourage financial and technical support from developed countries in order to achieve a balanced form of development that will benefit both sides. Ten reasons why an American business should seriously consider doing business in Africa, in my opinion, are as follows:
#1. The Africa Growth and Opportunity Act (AGOA) provides new opportunities for U.S.-Africa partnerships in trade and investments.
#2. The rate of return on direct investments in Africa by U.S. firms is the highest of any region in the world (over 28%).
#3. Africa represents a potential market of over 800 million consumers.
#4. Africa offers good prospects for trade and investment in the areas of food processing, agri-business, tourism, infrastructure, light manufacturing, mining and tele-communications.
#5. Many well-known American banks and financial institutions have very good relationships with African countries such as Citibank, Chase Manhattan Bank and HSBC Equator Bank.
#6. The United States already has a significant presence in Africa with major U.S. corporations such as Pepsi-Cola, Coca-Cola, Sheraton, Caterpillar, Caltex, Mobil Oil, Chevron/Texaco, Xerox, Cargill, Colgate Palmolive, Daimler-Chrysler, etcetera.
#7. Airline travel to Africa is becoming much more efficient, reliable and affordable. In fact, it is already extremely beneficial towards business travelers.
#8. Most African governments are becoming more supportive of trade and investment initiatives (both within their own domestic arena as well as through increased foreign exchange).
#9. As a result of AGOA, many U.S. government agencies have designed pro-active programs to offer increased services and products that favor American businesses doing business in Africa such as the Small Business Administration (SBA), U.S. Agency for International Development (USAID), U. S. Department of Commerce (DOC), Minority Business Development Agency (MBDA); Trade and Development Agency (TDA), U.S. Department of Agriculture (USDA), Overseas Private Investment Corporation (OPIC) and Export-Import (EX-IM) Bank.
#10. U.S.-based organizations such as the Constituency for Africa (CFA) and the Corporate Council on Africa (CCA) have championed the interest of establishing strategic business linkages between African and American small and medium-sized businesses, which are essential to the continued growth and development of Africa's emerging economies.
In conclusion, Africa is truly an immense and diverse continent offering unlimited potential for economic growth and opportunity. Given the commitment of prospective trade and investment policies being channeled by many African nations, coupled with the interest of American businesses, the future looks very promising. While Africa still faces many challenges, it is a place where business can indeed succeed and flourish.