Investing in Africa
posted by Nate Oman
Here is a bit of good news. According to the WashPo, investors unimpressed by sluggish growth in the United States and Europe are looking for other places to put their money and are turning to Africa.
Foreign investment is pouring into the continent at unprecedented rates, doubling in recent years to around $39 billion, according to U.N. figures. In recent months, some investors have even appeared convinced that Africa might be a safer spot to sink their money than the shakier U.S. and European markets.
“People are looking for diversification,” said Hurley Doddy, chief operating officer of Emerging Capital Partners, a private equity group based in Washington whose investments in Africa have jumped from $400 million in 2000 to $1.5 billion this year. “A lot of the problems the U.S. economy is having, you simply do not have that in Africa.”
Of course, one might just as easily say that the United States economy does not have the same problems as the African economy, and ultimately $39 billion is not a big chunk of the international capital market. The other issue that the article does not explore is the extent to which this direct investment is going into extractive industries, especially oil. Turning petro-dollars into wide-spread prosperity is a tricky matter, and too often the availability of huge amounts of easy wealth simply makes political corruption/kleptocracy easier. Indeed, it is no accident that in the U.S. three of the states that have traditionally had some of the most corrupt and dysfunctional political cultures — Louisiana, Texas, and Alaska — are also (or at least in the case of Texas, used to be) essentially petro-states.
Still, foreign investment in Africa is good. It would be better if the story were in the business section rather than the international section.
August 29, 2008 at 7:50 am
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Responses (7)
matt - August 29, 2008 at 9:21 am
It’s probably a good thing over all and I’m glad to see it. There are reasons to be cautious, though. Large amounts of money coming into a country in a short time, especially a country w/ poorly developed institutions and laws, is often highly destabilizing, leading to even more corruption, inflation, and inequality (see Russia in the early to mid 1990s for a nice example.) Money often rushes in and then just as quickly rushes out, making things worse than a smaller but more steady flow would have been (see Indonesia, for an example.) In countries with poorly established institutions and legal systems investors often lose out to criminals, further degrading the country (see again Russia in the 1990s.) These sorts of things can be avoided, but it usually takes more of a functioning state than most African countries have, I think. So, while we ought to be glad to see this our optimism should, I’d think, be cautious.
Patrick S. O'Donnell - August 29, 2008 at 10:13 am
All things being equal, increased investment in the continent probably is a good thing, but as Matt points out and you suggest, “too often the availability of huge amounts of easy wealth simply makes political corruption/kleptocracy easier.” Pranab Bardhan provides us with a nice introductory survey the relevant variables here in his Scarcity, Conflicts, and Cooperation: Essays in the Political and Institutional Economics of Development, 2005. And it’s important to keep in mind the geo-political differences across the continent that provide very different constraints on the nature or types of investment. Recall too that colonialism involved no small amount of “foreign investment”! It would seem essential that we keep in mind normative criteria for assessing to what extent such investment is directed toward the kind of social and economic development that, in Sen’s words, is a “process of expanding the real freedom that people enjoy” (cf. Development as Freedom, 1999) or, relatedly, enhancing social justice, for example, by directly facilitating and encouraging the development of what Martha Nussbaum calls “central human capabilities” (in Women and Human Development, 2000, and most recently, Frontiers of Justice, 2006). This is not unrelated to the fact that, on the receiving end, we would be best served by focusing on the “substantive freedoms that people have reason to enjoy,” rather than solely or simply on such traditional economic criteria as income and wealth (Sen explains how and why in the above book).
Patrick S. O'Donnell - August 29, 2008 at 10:19 am
Corrections:
“a nice introductory survey of the relevant…”
“process of expanding the real freedoms that people…”
Daniel S. Goldberg - August 29, 2008 at 11:18 am
Echoing Matt’s point, you might ask Nigeria whether they think that Pfizer’s investment in their country has been a positive development.
Development theory comes with its own set of thorny problems, has myriad commentators have noted. That doesn’t mean it’s undesirable, only that it’s difficult to make a sweeping assessment of its goodness. Some kinds of international investment in Africa are good, and others are not.
Stan Victor - February 14, 2009 at 1:46 pm
Africa is really like a magnetic for the investors and especially for the multiple national companies. Because, its the developing country and multi-national companies can enjoy the low labor rates that will help to minimize the production cost in the long run.
Stan Victor - February 14, 2009 at 1:46 pm
Africa is really like a magnet for the investors and especially for the multiple national companies. Because, its the developing country and multi-national companies can enjoy the low labor rates that will help to minimize the production cost in the long run.
Stan Victor - February 14, 2009 at 1:48 pm
Africa is really like a magnet for the investors and especially for the multiple national companies. Because, its the developing country and multi-national companies can enjoy the low labor rates that will help to minimize the production cost in the long run.
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