There is truth to these pictures, of course, for some parts of
Africa. But, they obscure a number of positive developments
throughout the continent that, typically, do not capture the
headlines. During the past few years, a number of civil wars have
ended and reconstruction has begun; Liberia, with the first
democratically elected female president in Africa, Ellen
Sirleaf-Johnson, is an example. Through the African Peer Review
Mechanism, an increasing number of countries are submitting
themselves to a rigorous process of evaluation; hopefully, those
that perform well will be particularly rewarded, e.g. in the
framework of the G-8 process. Economic growth during the past two
years has been respectable, and quite strong in a number of
countries. Partly, this is because more governments have recognized
that the private sector has a central role to play when it comes to
wealth creation and economic development. Presidents from across
the continent would agree with what the President of Ghana had
announced for his country, namely the arrival of a "golden age" for
business.
All this has created a new environment for foreign direct
investment (FDI). But it is more than that: the role of FDI in
economic growth and development is now widely acknowledged, and all
countries in Africa, without exception, are actively seeking to
attract it. For that purpose, virtually all have liberalized their
national regulatory framework for FDI, making it much more
welcoming than it was, say, 15 years ago, by, e.g., opening sectors
to such investment, reducing obstacles to the operation of foreign
affiliates and offering a range of incentives. This is not to say,
though, that the regulatory framework cannot be improved and,
perhaps even more importantly, implemented more thoroughly; but,
overall, it is certainly welcoming.
National improvements in the regulatory framework are
complemented and made stronger by international investment
agreements, especially bilateral investment treaties (BITs) that
protect foreign investors. In fact, the BITs density for Africa (12
BITs per country) is the same as that of Latin America and the
Caribbean. Most recent free trade agreements and/or association
agreements with, especially, Europe and the US, also include
investment chapters; the Cotonou agreement, in particular, contains
strong provisions aimed at promoting FDI in Africa. Finally, the
EU, Japan and the US provide preferential access to a wide range of
goods and services produced in most African countries, making it
attractive for foreign investors to set up shop there and export to
the world's most important markets.
But there is more: virtually all African countries are actively
seeking to attract FDI by setting up investment promotion agencies
to attract foreign investors, beginning with image building and
ending with after-investment services. Moreover, the rise of
multinational corporations from emerging markets - especially
China, India, and South Africa, but also Russia and
Brazil 1 - creates new sources of FDI. African
countries benefit from competition among firms for profitable
investment opportunities, a development already noticeable in the
natural resource sector.
To be true, African IPAs vary widely in terms of the resources
they have at their disposal, but they are making strides, often
being helped by international organizations such as UNCTAD, UNIDO,
FIAS and OECD.2
These good-news stories need to get out to adjust the image of
Africa to the new reality. In the specific area of FDI, moreover,
African countries need to make stronger efforts if they wish to
attract more FDI (especially outside the natural resources sectors)
and, equally important, to benefit from it as much as possible. To
do so, they need to go below the national level and identify
concrete investment opportunities at the provincial and even city
levels. This is all the more important as, traditionally, foreign
investors concentrate in capitals, often leaving other towns
outside the mainstream of economic development. This situation is
aggravated by a trend in toward urbanization - typically because
people flee rural poverty. Many of them end up in slums. The
challenge, then, becomes to make cities viable - and that means
they need to develop a vibrant enterprise sector that provides
employment and hence helps people escape from poverty, thus
promoting the MDGs. This is precisely where the Millennium Cities
Initiative (MCI) comes in.
The Millennium Cities Initiative
The Millennium Cities Initiative is one of a number of practical
initiatives launched to help implement the Millennium Development
Goals (MDGs), for halving extreme poverty, as adopted by the Heads
of State and Governments at a UN Summit in 2000 and re-affirmed in
September 2005 at another such Summit. Anchored in the
recommendations of the Millennium
Project, the independent advisory body to the UN
Secretary-General which was led by Professor Jeffrey D. Sachs, the
Earth-Institute based Millennium Cities
Initiative assists seven cities in six African
countries to become viable economic units. The cities are: Akure,
Nigeria; Bamako - Segou, Mali; Blantyre, Malawi; Kisumu, Kenya;
Kumasi, Ghana; and Louga, Senegal. The MCI was launched in 2006
with the strong support of the Governments of the participating
countries, and it benefits from the partnership of UNDP, including
its MDG Support Team, which supports African countries to develop
MDG-based national development strategies. The Millennium Cities
Initiative also partners actively with the Millennium
Villages Project to localize the MDGs and establish a
practical framework for supporting the escape from extreme poverty
in Africa.
In the broader context of City Development Strategies being
prepared, the priority of the MCI is to help to create employment,
stimulate enterprise development and foster economic growth in the
Millennium Cities, especially by attracting FDI. The latter effort
rests on three pillars:
1. Analyses to inform foreign investors.
- The regulatory framework of FDI at the city level, not only as
far as it is "on the books", but also as it is in reality and how
it could be improved, so that investors know the framework within
which they have to operate. These assessments are undertaken pro
bono by teams of lawyers from Carter, Ledyard & Milburn LLP;
Cravath, Swaine & Moore LLP and DLA Piper. They are dovetailed
with the Policy Framework for Investment developed by the OECD, and
it is hoped that this Organization will eventually partner with MCI
to help the countries and towns involved to improve their
regulatory framework.
- The infrastructure in each of the cities, a key FDI
determinant.
- Perhaps most importantly, analyses of commercially viable
business opportunities, i.e. sectors (and even concrete projects)
in which the cities, together with the Millennium Villages, have a
comparative advantage, be it in the provincial, country, or
international market. This effort is being undertaken by UNIDO and
carried forward, on a pro bono basis, by KPMG in a major
undertaking to identify business opportunities. Products and
sectors with potential identified so far include such agri- and
aqua-cultural products as fruit juices, dried fruits and fishes and
spiced groundnuts; chocolate, cocoa powder and soap, from cocoa,
and starch from cassava; mineral products, such as glass and
ceramics from silica; paint from kaolin, cement from lime stone and
bitumen; as well as cultural and eco-tourism.
The value of these materials depends, of course, not only on their
quality but also, and very much so, on reaching potential
investors, including through a modest investment promotion capacity
to be developed in each city. Accordingly, MCI's second pillar
involves:
2. Dissemination to potential investors.
Several avenues are being pursued or will be pursued:
- Investors' missions to the cities. So far, the Governments of
Germany and Finland have promised to support such missions to bring
investors to two of our towns in order to explore in situ
investment opportunities and conditions. We hope, of course, that,
eventually, we will also be able to cover all of the cities.
- Investors' Roundtables in each of the six countries. These
events, which are organized together with the Economist
Intelligence Unit and typically involve 100-200 participants, allow
a larger group of investors to familiarize themselves with the
country's regulatory and policy framework and the more specific
issues involved in regional development and especially the
Millennium Cities. They also involve field trips to the cities for
those participants interested to do so. A Roundtable was already
held in Nigeria and another one is scheduled for 17-18 July 2007 in
Kenya, made possible in part thanks to the support of the
Government of Finland.
- Millennium Cities Days in strategic locations in North America,
Europe and Asia, to bring representatives of the countries and
cities to meet investors on their home ground. At the moment, we
are still in the process of identifying cities in these regions
that may want to host a Millennium Cities Day.
- Millennium Cities Investors' Guides which, in a concise and
easily accessible manner, can reach a much larger audience than can
be reached through the activities described so far. In fact, these
Guides can potentially reach the universe of actual and potential
foreign investors. They are, therefore, a powerful tool to put the
Millennium Cities on the investment map.
The key is of course whether actual investment projects will take
place and contribute to economic growth and development. The
efforts described so far can be expected to do that. However, MCI's
third pillar approaches this challenge directly:
3. The development of products for export.
Thanks to the cooperation of International Trade Centre, teams
of experts will work with the Millennium Cities and Villages to
identify, for each of them, one or two products that can be
developed immediately for the international market, thus meeting
the toughest competitiveness test in a globalizing world economy.
In due course, additional products will be identified, including by
building especially on the efforts of UNIDO and KPMG.
In a parallel but related endeavor, the Business Alliance
Against Chronic Hunger, led by the World Economic Forum and with
the participation of major multinationals, seeks to develop
business opportunities near Kisumu, building village-to-world
market agriculture-based value chains for important products of the
district.
All these activities are concrete, practical and
result-oriented, and they build on the new reality in Africa. They
involve a broad spectrum of supporters. Apart from those already
mentioned, the Gates Foundation, the Rockefeller Foundation and
private donors are involved. In many ways, the MCI team in New York
and its representatives in each of the Millennium Cities is really
a team of conceptualizers and connectors that helps the cities and
various organizations to stimulate economic growth in an urban
context. In that spirit, the MCI will also develop a
Handbook which, based on its experience, will provide a
framework for other cities in the developing world so that this
effort can be scaled up to contribute to the implementation of the
MDGs.
Conclusions
So what does all of this add up to? In spite of all sorts of
limitations, the climate for FDI in Africa, as well as its
regulatory framework and institutional infrastructure, today are
better than they have ever been. This is reflected in the growth of
FDI flows to Africa which reached some $35 billion in 2006 and they
are expected to stay at this historically all-time high at least
until 2010. To attract even more FDI, especially in manufacturing
and services, countries will need to improve their infrastructure
and identify and promote investment opportunities outside their
capital cities.
In the end, all investment is local - hence local opportunities
need to be brought to the attention of investors, and the local
regulatory and business environment needs to be competitive. This
also implies a broader lesson when it comes to Africa: investors
need to differentiate and look for investment opportunities country
by country, city by city, sector by sector - opportunities exist,
and for all you know, your competitors are already taking advantage
of them!
* Karl P. Sauvant is Co-Director of the
Millennium Cities Initiative and Executive Director of theColumbia Program on
International Investment(a joint program of the
Columbia Law School and The Earth Institute at Columbia
University). He can be reached atkarl.sauvant@law.columbia.edu. I am grateful
for comments by Susan Blaustein, Joerg Simon, Stephanie Kage,
and John McArthur.
1 See Karl P. Sauvant, ed., The Rise
of Transnational Corporations from Emerging Markets: Threat
or Opportunity? (forthcoming).
2 For a recent discussion of FDI promotion
efforts in Africa, see Jeffrey D. Sachs, "The importance of
investment promotion in the poorest countries," in Economist
Intelligence Unit and Columbia Program on International
Investment World Investment Prospects to 2010: Boom
or Backlash? (London, UK: The Economist Intelligence Unit Ltd.,
2006), pp. 78-81.