Sunday, April 02, 2006
Investment in Africa worthwhile
In my previous post on the World of Work Team blog, I wrote about the importance of South African business and their effects on the rest of Africa. The question that I raised was whether these companies are a force for good or bad. But you ask yourself, why should South Africa be the one to be a force for good in Africa? Let me briefly explain this:
- South Africa (SA) can unlock Africa’s vast economic potential.
- SA is the economic powerhouse of Africa - our economic and environmental infrastructure is much more sophisticated, advanced and diversified.
- We are not as reliant on commodities, and we’ve got a strong manufacturing and industrial base.
- European and American activities in Africa are mostly only limited to petroleum, mining and construction (SA can fill that gap).
- SA expands itself further into non-traditional sectors (unlike most African countries).
SA’s good global reputation can rub off on Africa.
There are many aspects why Africa has found itself in this predicament of poor sustainable development and slow growth. These reasons differ from country to country, but overall, Africa needs this help because of the following reasons:
- Africa provides 1.5% to the global GDP, and 2.1% to global trade. But Africa makes up 13% of the world’s population.
- Some comparative examples: Spain’s GDP = $ 580 billion (Bigger than Africa’s GDP).
Pentagon budget = $ 400 billion (Slightly smaller than Africa’s GDP).
- Africa is in a marginal position and has a pessimistic stance towards the rest of the world.
- World investment is weary (due to corruption, high business costs etc.).
Considering these impacts, it is obvious that South African businesses should get involved in the development of Africa. It will help liberalise their productive forces, SA business will put some profit into social investment, there will be a transfer of skills, improvement of quality, and most of all a increase in SA Foreign Direct Investment into Africa.
There are some areas where Africa has already shown improvement. These improvements are reason enough to not doubt the effect of business integration into Africa. These improvements are the following:
- Even though there is still high risks involved, returns are quite high.
- Sometimes returns on investment can be between 50-60 %.
- Policies and regulations are improving and countries are becoming more transparent and accountable.
- There is more privatisation.
- Two-thirds of African governments have been democratically elected and there are many anti-corruption committees.
- There are high returns on equity.
- There is a big move towards membership in international organisations. The WTO already has about 40 African members.
With the help of South African companies and the improvement Africa has shown in the past couple of years, its only a matter of time that Africa could become the ideal business-friendly environment. We’ll just have to wait and see.
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