Africa's Promise - Opportunities And Risks In The Extractives Industry

Business perspectives on Africa

For years Africa existed on the margins of the world economy. With markets perceived to be uncompetitive and undiversified, investment tended to be targeted at site-specific projects, for example in the mining or hydrocarbons sectors. Since the 1990s, however, there has been an upsurge of interest in a broader range of industries, sparked by an improvement in both political stability and the overall policy environment, more rapid rates of economic growth, and an increasing awareness that Africa, with a population of an estimated 1bn people, is probably the last largely untapped market left in the world.

Foreign direct investment (FDI) in Africa rose to a record $88bn in 2008, from less than $9.8bn at the beginning of the decade. Provisional data suggest that FDI declined again in 2009, as the global economic and financial crisis increased risk aversion among investors. However, the drop was not as great as in other developing regions, suggesting that the status of Africa as 'semi-detached' from the global economy has on this occasion proved to be advantageous. Indeed, responses to the UN Conference on Trade and Development's World Investment Prospects Survey 2009-2011 suggest that transnational corporations are planning an increase in both the number and value of investments in Africa by 2011.

These new investors will face a series of challenges. Most importantly, Africa is not a single entity – it contains more than 50 states, all with unique opportunities, operating environments and risks. However, some issues are likely to be apparent across a range of markets. In exploring these issues, this report will focus on five markets, from the north, centre and south of the continent: Democratic Republic of Congo (DRC), Gabon, Libya, Nigeria and Zambia. They typify many of the problems of the continent as well the opportunities for investors.

Instability

Instability is one such issue. African political stability has improved greatly in recent years, so that the likelihood of inter-country conflict and (to a lesser extent) coups has decreased substantially. However, this does not mean that the risk of instability has disappeared. African disputes in the 21st century have tended to centre on regional dominance (notably in Sudan's Darfur region, Chad, Côte d'Ivoire, the DRC, Ethiopia and Nigeria), resources (Nigeria, Sierra Leone, Sudan and the DRC) and national power (Burundi, the Central African Republic, Chad, Côte d'Ivoire, the DRC, Guinea, Guinea-Bissau, Kenya, Niger, Rwanda, Sierra Leone, Somalia and Zimbabwe). Future conflicts are likely over water and land. The UN estimates...