Month: June 2012

THE LOOMING INVESTMENT AVALANCHE

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Great! The FDI is really going to start rolling in! Wait…should we be saying that? It seems like the African Renaissance it here, or we’re at the brink of it…a cause for celebration! Or is it? Over the past few years there has been an ever increasing interest in Africa as a truly viable investment destination worthy of serious consideration by Fortune 500 companies and the like. Africa is slowly being seen as a ‘fairly reasonable’ place to do business. With fewer wars, more democratically elected governments and relative peace in most countries, it seems the dust is beginning to settle and the entirety of Africa’s potential (beyond raw materials I mean) is truly beginning to get note. A seemingly sunny prospect for Africa many think…but frankly I’m very nervous. Why? Well because we’re ill-prepared for the looming investment avalanche hurtling towards Africa with ever increasing speed, intent and ability. We just aren’t ready. These are some of the reasons behind why Africa is starting to be taken more seriously…and why I’m nervous:

1.       Seems like there is nowhere else to go, really

Europe check, North America check, Oceania check, Asia check-ing, South America check-ish, Middle East kinda check, Africa…Africa…There you go, we’re (still) wide open. Yes other emerging markets are clearly competitors but at the end of the day we are the last frontier where there is genuinely an abundance of land, minerals and people STILL not really integrated into global markets, not really a point of profit for the world economy, not TRULY exploited if you will. We’re among the Bottom Billion, the low income markets that are vulnerable and waiting to be properly researched and effectively utilized. Africa. Yes it is still not the most attractive place to do business, but the situation on the ground is improving and there are lucrative investments to be made. Ask Dangote.

2.       The old catch: Raw materials…yaawwn

No big deal here. An old story. We are abundantly blessed with raw materials and there seems to be an equal abundance in new natural resource discoveries. Uganda and Kenya now officially have oil; the latter has coal as well. And as suspected, FDI is streaming in because of it. Already, ‘France’s Total said it signed a production sharing contract with the Kenyan government to explore for oil in 2,000-3,500 metre deep waters’.[1] We didn’t even have to go hunting for the investment. Our governments just made the announcement and a queue of potential investors magically appeared.

3.       China

Africa used to be Euro-America’s territory…and everyone knew that. Then in comes China with its deep pockets and deeper determination to get what it wants out of Africa. ‘Oh be Sinophobic!’, EuroAmerica cries, ‘They’re just here to exploit you!’….ummmm and YOU weren’t? You were in Africa to practice altruism were you? It seems like China has woken everyone up, even those that never used to take Africa seriously, like Brazil, ‘The recent announcement by Brazil’s leading investment bank, Banco BTG Pactual, of a $1 billion Africa investment fund – the biggest in the world – to aid the country in competing with China for Africa’s huge mineral resources and growing consumer market, demonstrates the massive untapped trade and investment potential on the continent’[2]. Egaaad! Clearly China’s presence in Africa seems to be getting under everyone’s skin and their presence has catalysed everyone else to look to Africa and make money off the continent before the Chinese take it all.

4.       Innovation

Scarcity breeds ingenuity.  Just the other day I was reading about how, ‘Africans kid do more with less’ as the resource constraints in which many live force them to be creative and solve problems with limited resources[3]. There is merit to this theory if you look around Africa. I saw a documentary years ago that showed how Peugeots cars run on Renault (or was it Citroën) engines in the Congo. The ingenuity of the mobile money transfer system, M-Pesa, here in Kenya has gained worldwide recognition and accolades. ‘Well done Africa’, we seem to be being told, ‘You’re making something out of yourselves despite the fact that you are so poor’. (Ok that’s me being cynical). But the point is that there is innovation on the continent, from how we use technology to how we manoeuvre around huge potholes on our roads…and the world seems to be beginning to realize the potential of that capacity to innovate.

5.       We’re ripe for the picking

All investors are self-seeking utility maximisers, assuming otherwise is naïve I think. The sad reality is that other parts of the world seem to have a tighter grasp and control of their nations and resources than Africa has. We still seem to come across as sitting ducks, and that is a tempting option for many. Some are attracted to Africa because we’re so vulnerable. We’re low hanging fruit and our innovation, resources and energy will be plucked with little benefit to Africa as a whole if we’re not careful. Governance issues are rife, the levels of corruption on the continent are well-known, levels of poverty notorious and these all conspire to create a vulnerable continent. I am not saying that the situation is not improving, it is, and Africans are doing an immense amount to improve the continent. However there are curious juxtapositions we need to expose and understand. Yes, our economies are growing but what does that really mean if it’s jobless and inequitable ‘growth’? Yes, more educated Africans are choosing to work on the continent  but this is often for foreign companies which then makes one wonder the extent to which ‘Africa’ is truly benefitting. Yes, the numbers of university graduates are rising but most end up unemployed or under-employed thereby limiting the ability for Africa to effectively tap into their full skills set and potential. Poverty, I think, is the ultimate crippler because it creates desperation and severely limits options.  So instead of working for an African Think Tank, the African is somewhere bleak breaking stones for a living…leaving a vacuum that is often taken up by foreign think tanks (who often hire Africans) to essentially figure out how to get the most out of Africa in the most efficient manner possible. Yes. We are ripe for the picking…and many are coming a-picking here.

So yes I am nervous about the looming avalanche[4]. And the main concern is with the African governments which are often critical in large investments made on the continent. Their behaviour seems to indicate that either they haven’t learnt anything about making smart deals despite the numerous opportunities presented to them by decades of post-Independence financial interactions OR they clearly understand the dynamics but choose selfishness instead. Greed is a vicious animal. But alas, behold the avalanche is here.


[1] Reuters (2012), ‘Total signs Kenya oil exploration contract’ http://www.reuters.com/article/2012/06/27/total-kenya-idUSWEA523120120627

[2] Epic Communications (2012), Africa Day – Increasing Global Investment In Africa Demonstrates Need For Development Finance, http://www.epiccommunications.co.za/newsroom/africa-day-increasing-global-investment-africa-demonstrates-need-development-finance

[3] Olopade, Dayo (2012), ‘African Kids Do More with Less’, http://dayoolopade.com/2012/06/26/african-kids-do-more-with-less/

[4] My next post will get into more detail as to why Africa is not ready…and what we can do about it (hopefully).

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Africa’s Immigration Time Bomb

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Immigration and Africa. When those two words are said in the same sentence, they typically conjure up images of Africans fleeing from Africa to (hopefully) enter foreign lands, mainly in the global North, in search of a ‘better life’. Although horror stories abound such as those of African women forced into sex slavery and prostitution in Europe, and torture and sexual abuse of African maids in the Middle East, Africans still seem very keen to get out of Africa to ‘more developed’ spheres.  Mountains have been written on Africa’s ‘brain drain’ while at the same time others lament the poor skills set of the African population and how ‘difficult’ it is to do business in Africa. T.I.A [1] they say, as though that acronym explains why Africa seems to be at the bottom of the ‘development’ hierarchy. Pronounced pessimism when writing about Africa is the norm with flourishing misperceptions about Africa that view the continent as one that is full of wild animals, starving children with flies on their face, inhumane rebel armies and corrupt governments. How bleak.

However, something IS changing…there is more optimism about the continent and as a result more and more foreigners are coming to check Africa out, with some staying longer than they had envisaged. We’re no longer ‘The Hopeless Continent’…we’re now ‘Lion economies’ rising in the midst of an African Renaissance imbued with hope. But now we have an new interesting problem. No one is documenting a growing trend of foreigners coming to Africa, and staying for years, decades or even life. No one is looking at the pattern of migration INTO Africa. Having searched for articles on the internet on this subject, I was valiantly unsuccessful. Even when I googled ‘Migration INTO Africa’ I’d get reams of pages documenting migration OUT OF Africa (an it’s implications). So here I will give my two cents about this interesting emerging trend of immigration into Africa and some of the problems it is causing or is likely to cause. Please note the commentary is critical in the sense that it seeks to tease out the issues rather than document the positives…maybe I’ll do that in another post.So here are 3 emerging problems that have arisen and will continue to arise if Africans and international community at large do not start paying attention to migration into Africa:

 

  • The ‘taking jobs’ issue

This has caused contention in many African countries especially with regard to one country: China. ‘Many infrastructure deals signed by Chinese firms mandate that the majority of labour for the project must be Chinese, precluding Africans from fully benefitting from the inflow of Chinese investment. This deprives locals of jobs and fosters discontent, as workers cannot reap the expected benefits of the influx of new projects’[2]. Indeed it is argued that, ‘Indian companies tend to generate more jobs and facilitate skills transfer, while only a very small component of Chinese investment in Africa creates jobs’[3]. So here, rather than creating jobs investment ‘takes’ jobs and leaves Africans no better than if the investment had not occurred in the first place. This type of immigration, although mainly temporary, is a worrying trend as it ostracizes Africans in their own continent. Africans are forced to accommodate new people and a new culture without truly benefiting from the new arrivals.

  • The ‘taking away income source’ issue

With the arrival of some immigrants, local African traders find that the immigration leads to a serious price slash in the goods they trade thereby eating into their income source. ‘The recent arrival of Chinese traders in the grimy alleys of Soweto market in Lusaka halved the cost of chicken. Cabbage prices dropped by 65%. Local traders soon marched their wire-mesh cages filled with livestock to the local competition commission to complain’[4]. Though it can be said that the reduction in prices is positive as most Africans stand to benefit from it, it must be said that if immigration threatens the means through which some Africans earn a living, it will catalyse great discontent and resentment on the continent. Taken in the context of Euro-America’s mostly Sino-phobic commentaries, such negative effects of Chinese immigration may fuel such commentaries and strain the diplomatic relations between the parties involved. This, arguably, stands to complicate a primarily economic interaction that has provided Africa with much reprieve from Euro-American economic dominance and the concomitant political/ diplomatic high-handedness. Threatening this would be a problem because the entry of India and China in particular into Africa trade circles means that, ‘African nations now have a multitude of potential trading partners to choose from. And more leverage to set the rules’[5]. Ergo, this immigration dynamic ought to be strategically handled with sober-mindedness due to the economic implications that a fracture with China would cause for Africa.

 

  • The ‘immigrant elite’ issue

This is mainly an issue with the migration of Europeans and Americans (both North and South America) into Africa. These nations typically tend to ‘export’ expatriates to the continent, who have cushy salaries, live in exclusive suburbs and have an arm-load of household support…basically living a life they could never afford in their home countries. Although there are no real estimates on the numbers of individuals involved in this type of immigration, any informal look around any fairly prominent African city will let you know that the foreigners are coming in thick and fast. As stated, these individuals tend to have comfortable lives and truly live on the upper crust of African society. If you add the successful Asian business men and the handful of Africans who have really ‘made it’, a troubling pattern begins to emerge. Life is not getting easier for most Africans on the continent. Although there may be ample opportunities, it is often those with the connections and resources that are aware of these opportunities and can therefore exploit them. This leaves most Africans (who are still mainly in grossly under-developed rural areas) out of the loop. So we risk seeing the development of an upper crust of the non-Black Africa ‘immigrant elite’ lording it over the ‘black masses’, the vast majority of whom are still wallowing in poverty. The implications of the development of such a class divide compounded with a nationality divide do not bode well for Africa. If Africans feel or begin to believe that it is easier for foreigners to ‘make it’ in their continent than it is for them, this will spell trouble. If Africans find that opportunities are presented to and exploited by foreigners more than them, it will spell trouble. If it reaches a stage where Africans feel that others are benefiting from while they have been locked out of the prosperity that their land offers, it will spell trouble. So this is an emerging dynamic that Africans need to be aware of and seek to manage.

 

I am not suggesting that these issues are an imminent threat on Africa’s stability. They are likely to fester over decades but eventually explode. I should also reiterate the fact that it is clear that the implications of this new immigration wave are not all bleak. For example, immigration from emerging economies such as China is, ‘becoming major sources of innovation for Africa’[6].  Further, although the lack of skills transfer may be an issue that arises in some Africa countries, this is not the case everywhere. In some African countries, ‘new economic powers are an important source of technology transfer through their tacit, specialist knowledge’[7]. So it is not all negative, however it is important to be cognisant of the negative aspects so as to be well-placed to address and mitigate the negative consequence they may prompt.


[1] This Is Africa (TIA)

[2] Hu, Raymond (2011), ‘Chinese Investment in Africa: A Dangerous Game’ http://afpprinceton.com/2011/03/chinese-investment-in-africa-a-dangerous-game/

[3] Palitza, Kristin(2012), ‘China Keen to Reverse Negative Image in Africa’, http://ipsnews.net/newsTVE.asp?idnews=107905

[4] The Economist (2011), ‘Trying to pull together’, http://www.economist.com/node/18586448

[5] Palitza, Kristin(2012), ‘China Keen to Reverse Negative Image in Africa’, http://ipsnews.net/newsTVE.asp?idnews=107905

[7] African Economic Outlook (2011), ‘New opportunities for African manufacturing’, http://www.africaneconomicoutlook.org/en/in-depth/africa-and-its-emerging-partners-2011/industrialisation-debt-and-governance-more-fear-than-harm/new-opportunities-for-african-manufacturing/