DEVELOPMENT: International Investors By-pass Africa

By Thalif Deen Reprint | | Print |

Thalif Deen

UNITED NATIONS, Aug 15 1997 (IPS) - The profit-conscious international business community is pouring billions of dollars into the vibrant economies of Asia while virtually ignoring the economically- troubled, poorer nations of sub-Saharan Africa.

“This situation raises important issues for development policy,” says U.N. Secretary-General Kofi Annan.

The U.N. chief, a national of Ghana, is unhappy that private sector investment continues to flow unevenly to developing nations – and in the process, shuts out African countries desperately in need of capital. “It tends to benefit some countries, and to leave others aside,” he complains.

Acccording to the latest figures released here, foreign direct investment in developing countries totaled a hefty 244 billion dollars in 1996. Of this, more than 48 billion dollars went to Asia while a measly 2.6 billion dollars went to Africa.

The worst-affected are the 48 least developed countries (LDCs) – described as the poorest of the poor – 33 of which are in Africa. Only one percent of direct foreign investment went to these 48 LDCs, each of whom has an average annual per capita income of less than 700 dollars.

Of the 48, about one-third are also afflicted by political turmoil. These include Afghanistan, Angola, Burundi, Cambodia, Ethiopia, Haiti, Liberia, Mozambique, Rwanda, Sierra Leone, Somalia and Sudan.

In a report released early this year, the Geneva-based U.N. Conference on Trade and Development (UNCTAD) said investment flows to Africa remain minimal for several reasons: small markets, poor infrastructure, unskilled labour, high levels of external debt and the negative perception of the continent.

Annan says that if the private sector continues to by-pass Africa, donors have to be more careful in how they target official development assistance (ODA). “With less aid money to go around, much more attention is being given to make sure it is used well,” he said.

Annan points out that developing nations are making policy and institutional changes so as to attract private sector capital and create “an enabling environment.”

“Development assistance can often be crucial in creating such an environment. In other words, careful targeting of ODA can be instrumental in attracting investment capital,” he argues.

In terms of regional allocation, the largest quantum of U.N. grant resources currently goes to Africa – 1.7 billion dollars of the 4.8 billion dollars earmarked in 1995. “The aim of this assistance is to strengthen the capacity of weaker countries to be effective participants in the global economy, ” says Annan.

The Secretary-General also says that one of his major priorities is to establish a new partnership for development between the United Nations and the private sector.

Carol Bellamy, Executive Director of the U.N. Children’s Fund (UNICEF), says that private investment and financing are absolutely vital if the poorest countries are to emerge from poverty.

“Yet, they cannot attract the private sector without ODA. And ODA not only helps these countries weather painful economic reforms, but enables them to create the social and economic infrastructure that is vital to development,” she said.

Despite a steady rise in the number of people with incomes of less than a dollar a day, overall aid to developing countries declined from 58.9 billion dollars in 1995 to 55.1 billion dollars in 1996. In 1996, only four countries – Denmark, the Netherlands, Norway and Sweden – met or exceeded the U.N. target of 0.7 percent of gross national product (GNP) as ODA.

At the World Economic Forum summit in Zimbabwe in May, 12 countries of the Southern African Development Community (SADC) agreed to provide increased incentives to attract foreign investors to the region.

“We don’t care who buys our mines, just as long as the mines make money and contribute to the exchequer,” said Zambian President Frederick Chiluba whose government has successfully privatised about 145 state-run companies.

In 1995, the 12 SADC countries – Angola, Botswana, Lesotho, Malawi, Mauritius, Mozambique, Namibia, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe – attracted an average of about 90 million dollars in foreign investments each. This was in contrast to about two billion dollars that went into Peru, 4.5 billion dollars into Hungary and 7.0 billion dollars into Singapore.

“These figures indicate there is a serious barrier here,” said David Robins, executive vice president of the Union Bank of Switzerland, one of the participants at the Forum.