Professor Nicholas Biekpe President: Africagrowth Research& Professor of Development Finance & Econometrics University of Stellenbosch

Attracting Global Investors to Africa

Introduction  Economic growth & Poverty alleviation –Direct link between economic growth, poverty alleviation and resource mobilisation efforts; –Links between human resource capacity and efficient resource mobilisation outcome;  Investment and development conundrum –Development requires resources; –Resources require relevant skills-lacking in Africa

Why Invest in Africa?  Under-utilised human and natural resources;  Expanding consumer base;  Improving governance structures in governments and private sector;  Improving economic and political security;  A continent is hungry for development- can only get better;

Investor’s Checklist  Purchasing power of population;  Level of Education;  Level of Infrastructure Development;  Level of flow of FDI into country;  Skill of labour force;  Degree of militancy of Unions;  Geographical location;  Consumption pattern;

Figure 1:Trends in Private and Public Investment in Africa, (% of GDP)

Resource mobilisation: A brief historical perspective  Great depression and the need to mobilise domestic resources;  Positive intervention of states during the depression;  Europe and the US- Intervened to create favourable conditions for resource mobilisation efforts;  Post-independent Africa- Intervened to create centralised political and economic administrations (this did not work!)

NEPAD and Resource Mobilisation- what is new now?  Involves business for the first time;  NEPAD has well defined objectives;  Emphasises on partnership rather than donor support;  Puts governance at the top of its agenda;  Stresses on self-reliance rather than donor reliance.

Some key objectives of NEPAD on the Resource Mobilisation Front  Facilitate business development in Africa;  Promote transparency and good governance;  Attract Investment (e.g. FDI and ODA);  Reduce cost of doing business;  Promote the spirit of entrepreneurship;  Create environment for efficient taxes and savings;  Marketing Africa as an investment destination.

Impact of development grants on economic development  Grants mostly create obstacles to development;  Grants tend to serve donor interest;  Historical pattern of failure from donor models;  Grants create a cycle of perpetual dependency ;

Main resources channels: Inflow & Outflow Figure 2: Resource Flow Channels Inflow ChannelsOutflow Channels  Savings;  FDI;  Taxes  ODA;  Debt Relief;  Export Earnings;  Capital markets and other financial instruments (e.g. venture capital, private equity, insurance etc.)  Other private sector injections;  Capital flight  Imports  Debt services  Profits paid to foreign investors/ shareholders Source: ACIA & NEPAD (2004)

Key obstacles that really prevent investment in Africa  Cost of starting a business  Dealing with numerous licences;  Cost of hiring and firing staff;  Registering property;  Getting credit;  Investor protection;  Paying taxes;  Cost of trading across borders;  Enforcing contracts  Closing a business

Dealing with numerous licences

Difficulty in employing workers

Ease of registering property

Ease of getting credit

Protecting Investors

Paying taxes

Trading across borders

Enforcing contracts

Closing business

Conclusion To attract global investors, Africa will need to: – Promote transparency and good governance; –Reduce cost of doing business; –Improve and speedup capital markets reforms; –Market Africa as an investment destination.

continue  Encourage savings;  Strengthen export capacity;  Support venture capital initiative;  Encourage small enterprise schemes;  Help strengthen capacity to collect local taxes;  Develop schemes to attract sustained FDI flow;

THANK YOU