By Olusegun Obasanjo, Ellen Johnson Sirleaf and Mcebisi Jonas
Africa’s record at attracting foreign direct investment (FDI) has been dismal. While the continent accounts for 17% of the world’s population, in 2017 it received just 3% of global FDI flows.
This picture is still bleaker given the concentration of inflows in a small number of countries. Just four — SA, Nigeria, Egypt and Angola — have received more than half of all investment since 2000, reflecting a bias towards natural resources.
Investment fuels growth, which is needed to create jobs. This imperative acquires an even greater urgency with the projected doubling of Africa’s population by 2050, when there will be nearly 50-million school-leavers annually.
Of course, FDI is not the only form of capital available. What Africa needs is less of the hot money of portfolio flows and more of the sort of permanent capital that creates jobs, lasts for generations and brings buildings, facilities, technology and skills. This will be more crucial if Africa’s share of the global population rises to 40% as has been predicted.
While Africa has made many positive economic changes this century, we need to move faster and be bolder to catch up and get ahead, ensuring our youthful population becomes a dividend and not a pending disaster. To attract capital, to get our economies growing faster, fundamentally we have to accept that this task is primarily Africa’s responsibility. Someone somewhere else is not going to fix our problems. We have to own them — and their solutions.
To create a competitive advantage, African countries must seek to differentiate themselves. Ghana and Rwanda have done this successfully, which is why they are so often cited as success stories. But like South East Asia has managed, we need to do this across our continent, and at scale.
Differentiation can happen through symbolic actions. Singapore, under Lee Kuan Yew, took a decision not to remove its colonial statues and change street names as a means of signalling continuity and stability, while at the same time making sweeping changes to land and other prosaic policy aspects.
Differentiation also happens through efficiency, transparency and clarity, where the rule of law is upheld no matter the consequences or personalities. It happens when merit is the critical criterion in government structures and appointments, not special favours.
It happens, too, through enabling meaningful dialogue between government and business, and structuring actions and policies on this basis. And it happens through being high performers on governance and other business indices.
Differentiation, and its benefits, also occur by being the first in the market. If all countries reform policy at the same speed, investors will nearly always gravitate to the larger markets. Opening up the airspace, for example, and permitting the “five freedoms” and transit traffic necessary for the success of an aviation hub, inevitably favours those who liberalise first.
It is important, in this, not to take the wrong lessons out of the success of others. For example, while Singapore, China and South Korea’s development feats are taken, by those so inclined, as being down to authoritarian systems, this disguises the tough choices and laser-like focus on performance and execution that are necessary. Success has to involve the whole population in improving productivity and changing the ethos and mindset.
We need to ensure the bedrock of macroeconomic stability and policy predictability. Long-term investors don’t like sudden changes of policy direction. The best way of reducing risk is not through stifling dissent or reducing the risk of political change, but by institutionalising bureaucratic and legal practices. Continuity has to be measured not in terms of regimes or personalities, but by institutional and policy stability. Bureaucracies need to have a life of their own outside politics, more the independent spirit of “yes, minister” than blind loyalty.
Leadership that encourages this devolution, or decentralisation, of power is thus crucial. This has been an element of China’s success. Those provinces that have created greater policy latitude have historically enjoyed higher rates of growth. Companies invest specifically in places, after all, in cities or districts, not necessarily in countries.
To extract more benefit from our raw materials we need to supply the physical and institutional infrastructure to do so, the right “ecosystem” to enable the development of a value chain. As has been done in Asia and Central America, we must learn to use regional trade arrangements as tools of growth, not only government meetings.
Hardware is important, but it’s easier (and cheaper), if politically complex, to fix human and institutional software in improving access to these markets, and in so doing reducing the frictional costs of doing business. Simple things can help, such as unclogging the roads into Lagos’s Apapa port, or the issuing of permits for tugboat operators, or solving the myriad border-post difficulties across Africa, which seek to operate as points of personal arbitrage not trade facilitation.
It is also necessary to restructure African domestic institutions to go out and attract investment, as Singapore’s Economic Development Board or Costa Rica’s CINDE have targeted those with critical skills, technology and money to spend.
Messaging and branding needs to build on policy differentiation. Investors require nuance if they are not to see Africa as just “one thing”: whether this be hopeless or rising or crime-ridden. Differences and realities need to be carefully explained, and the market led.
Underpinning all of this is the essential skill of listening to business, and clearly understanding market principles. “A focus on growth”, says Tang Xiaoyang of Tsinghua University, “is the simple strategy of the Chinese government”, one that has driven the country’s development trajectory upward.
Lee Kuan Yew said there was no secret to Singapore’s radical transition, where the income per capita rose from $500 at independence in 1965 to $57,000 today. In the veteran leader’s words, “Singapore did a few things right, and continued to do so and widen them all the time.” Do these things, and investors will come.
• Obasanjo and Johnson Sirleaf are former presidents of Nigeria and Liberia respectively; Jonas is one of SA’s investment envoys. They recently steered a public-private dialogue on trade and investment hosted by the Brenthurst Foundation, which Obasanjo chairs.