Financing and promoting African investments: Creating partnerships, improving governance and mitigating risk can help make the continent more attractive to business interests.

Author:Sherif, Khaled
 
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Much is made about poverty in Africa, notwithstanding improvements in some countries in recent years in terms of GDP, incomes, exports, middle class growth, and a mix of health and social indicators. However, even with some progress, Africa is punching well below its weight when considering it is a continent of 1.2 billion people with vast resources. The success of many Africans abroad adds to the question of what has gone awry in Africa, and what can be done to right the course.

While the answers are complicated and often rooted in a disruptive colonial legacy, much of what bogs down modern Africa is how distant it remains from some of the earlier pan-African visions that inspired the wave of national independence in the 1950s-1960s. Independence begot a surge of nationalism that translated into factionalism and division across the continent, undermining the ability of newly independent states to build the literal and figurative bridges needed to achieve broadly distributed wealth. Instead, barriers went up, monopolies ensued, and African economies were unable to distinguish themselves in global markets as niche or volume producers of anything but primary resources. In the process, and being small in most cases, African countries were unable to build up scale for mass production as occurred in more prosperous economies in earlier decades/centuries. Meanwhile, the lack of domestic demand and purchasing power made it all but impossible to cultivate highvalue niche markets as is found so often in Europe and other northern markets.

So how can Africa scale up and modernize to reverse these counter-productive barriers? First, to scale up, one of the keys is the creation of regional value chains. Africa abounds in natural resources, yet its trade patterns reflect legacy relationships from the colonial era. Minerals and oil and gas are exported to processing and consuming countries. Raw materials or very low levels of processed goods are sent on to countries that capture value-added through the intermediary process before shipping off for finishing or final sale. Services in Africa remain weak and expensive on a per unit basis, all the while making it harder for many households to afford such services because of prohibitive costs. When pricing is regulated and controlled to achieve affordability, such as in utilities or transport, resources are siphoned off or production capacity lacks the cash flow for needed reinvestment and capital expenditure...

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