Africa: Why Bother?

Has Mr Mandela’s understanding of political and economic trends in the region been clouded by the euphoria of South Africa’s extraordinary transition to democratic rule?

By Witney Schneidman, Senior Vice President, Samuels International Associates, with assistance from Zafar P Mawani, Associate, Samuels International Associates, Washington D.C.

 

“African renaissance” is a phrase rarely used to describe the state of affairs on the African continent.

Yet, in a video-taped message that opened the recent White House conference on Africa, South Africa’s president, Nelson Mandela, asserted unflinchingly that the “African renaissance is felt not only in the corridors of power, but by an emerging partnership between the state, the private sector and the populace at large”. Has Mr Mandela’s understanding of political and economic trends in the region been clouded by the euphoria of South Africa’s extraordinary transition to democratic rule? Or, does he have a realistic view of regional trends that is obscured by international reporting on Africa’s various civil and humanitarian crises? Recent events in Rwanda and elsewhere notwithstanding, there are some evidence to suggest that Mr Mandela may be closer to the mark than first appearances would indicate. The collapse of communism and the end of the Cold War has had profound implications for the African continent. Perhaps most significantly, Marxist economic policies have been replaced by new economic thinking and a commitment to economic reform in nearly 30 countries. A significant number of governments are openly supportive of market-orientated policies and a reduction of the state’s role in the management of the economy. While the World Bank and the IMP have been influential in this process, these policies have been embraced by indigenous elites in government, the private sector, and various sectors of civil society. Africans across the continent are also demanding a higher standard of governance, and leaders who genuinely represent the people whom they govern. As a result, the political reform movement is taking hold throughout Africa. According to the US State Department, multiparty elections have been held in 26 countries since 1989, with a dozen more expected by 1996. Two-thirds of the initial democratic elections were judged to be free and fair, and incumbents were unseated in South Africa, Zambia, Malawi and in nine other countries. Clearly, the process is incomplete. Countries have implemented economic reforms to widely varying degrees of success, and most experiments in multipartyism are fledgling at best. Progress is further encumbered by the states in Africa that have essentially collapsed and the continent’s other endemic problems, including environmental degradation and high population growth. Nevertheless, a new economic and political reality has taken hold in much of sub-Saharan Africa. Not only has this helped to stem economic decline and lessen political uncertainties in many countries, but it has also created new economic opportunities throughout the region. This reform movement is most pronounced in parts of southern and east Africa and in Ghana. In fact, there is a corridor of countries, ranging from South Africa to Ethiopia, that have yielded to popular demands for more representative governments. A new generation of leaders such as Jerry Rawlings of Ghana, Meles Zenawi in Ethiopia, Yoweri Museveni in Uganda, Sam Nujoma in Namibia, Frederick Chiluba in Zambia, Bakili Mulizi in Malawi not to mention Nelson Mandela in South Africa – share a determined commitment to reverse their predecessors’ autocratic and misguided policies. Progress is evident in such countries as Zimbabwe, Tanzania, Uganda, Kenya,

Zambia and Namibia. These governments are in the process of achieving sustainable reductions in their fiscal deficits and have adopted non-inflationary means of financing government expenditure.

Tax systems are being overhauled to increase the efficiency of revenue collection while preserving business incentives. State owned enterprises are either being sold to the private sector, or liquidated if inoperable. Exchange rate controls have already been lifted in Kenya, Uganda, Zimbabwe and Tanzania and progress is being made in several other countries. More open trade systems have increased incentives for domestic producers to export and foreigners to invest.

And finally, financial sector reforms in Uganda, Kenya, Tanzania and Mozambique have put in place the rudiments of an efficiently functioning banking system. Some investors in the United States and Europe are beginning to see opportunities in parts of Africa due to these changes. In the US alone, at least four portfolio investment funds with a total capitalization of approximately $500 million are prepared to invest exclusively in African stock markets. These investors anticipate that privatization and financial sector reforms will make capital markets larger, more liquid and accessible to global traders. In addition, close to 20 Africa focused venture capital funds of various sizes, based in the United States and Britain, have been established. While the existence of such portfolio and venture capital funds does not necessarily guarantee that foreign direct investment is around the comer, they do represent the first major capital inflows to the continent in a generation, and are likely to increase the attention given to Africa as an emerging market. Success is by no means guaranteed, but the political and economic reforms being implemented are creating the underlying conditions necessary for a period of sustained growth. In addition to foreign portfolio investment, the process of capital flight – which accelerated during the I980s – appears at long last to be reversing. This is a strong indication that Africans are beginning to show more confidence in their governments’ policies than at any time since the 1970s. Tbis has not gone unnoticed by multinational corporations, investors and traders based in the US. While continuing conflicts in Rwanda, Liberia, Sudan and Angola may transmit signals of a continent adrift, these new trends will not be lost on savvy investors who seek undiscovered areas of future profitability. Perceptions of Africa as a continent of despair obscure the current opportunities for business.

 

South Africa, The Journal of Trade, Industry and Investment
Publisher, David Altman
Writer, Witney Schneidman