Africa for sale

How investors from the United States see the world’s last growth market.

By Francois Baird

It’s the kind of conundrum that keeps some of the United States’ most senior executives stumped: Africa is the world’s last untapped market, but the continent’s reputation for corruption, lack of infrastructure, and instability make investment look risky. A steady stream of negative news from the continent doesn’t help. For now, there’s no opportunity cost to staying out of Africa — so many companies do. Still, the recent success stories of choice industries and Chinese investors are beginning to focus minds. Many large multinational corporations are beginning to wonder if they’re missing out on the next big thing.

These are some of the findings of a recent study commissioned by the American Chamber of Commerce that tells us much about how the corporate world views Africa. U.S. executives were asked to rate African countries on their potential for economic development, their investment climate, their government’s attitude, and the expected return on investment.

The survey suggests that African countries tend to fall into three categories: strong countries that are seriously considered as investment destinations; weak countries that would not even be considered by most of the respondents; and average countries where a mix of good and bad news calls for caution. South Africa, Nigeria and Kenya are rated highest for their economic development, while Ghana, South Africa and Tunisia take top honors for their investment climate. South Africa got the highest marks for government attitude, with Ghana, Morocco, Kenya and Nigeria tied in the next highest position. Nigeria, Morocco, Egypt and South Africa saw the highest perceived return on investment. These traditionally high performers are followed by an interesting group of emerging countries that are catching investors’ attention. Libya, Senegal, Mozambique and Rwanda are viewed increasingly positively in government attitude, investment return, and progress with economic development.

U.S. businesses still see Africa in regions, however, which is unfortunate for successful countries in bad neighborhoods. Botswana, for example, may be highly regarded — but its market is too small to overcome the fact that neighboring Zimbabwe is a mess. Uganda, once a compelling growth story, has also been affected by regional politics; ongoing conflict in Sudan and election violence in Kenya send negative signals about East Africa’s economic development potential. The exceptions tend to be regional powerhouses, such as Nigeria, South Africa, and Egypt — huge markets in and of themselves, and in some cases, springboards for their respective regions as well.

After the vagaries of perception and calculations of profit, the human factor emerges as another reason why companies do not invest in Africa, even if other business indicators look reasonably good. Respondents express concern about persuading top managers, without whom investment is difficult if not impossible, to uproot their lives and take on jobs in some African countries. (This barrier, however, has a simple solution: hire U.S.-based African managers, some of whom maybe be keen to start up operations back home.)

Our study finds a refreshing realism about Africa amongst serious American investors. They see the picture in full color — with all the opportunities, risks, challenges, and gains the continent presents.

African countries, even the most positively regarded ones, must be equally realistic if they are to win over foreign investors. They will have to realize that what they say and, more importantly, what they do matters greatly. Africa needs to put in place a whole spectrum of requirements to attract a virtuous cycle of investment, from improving education, health, and infrastructure to boosting the rule of law and creating a level business playing field. It’s a future that both Africa and the corporate world know is coming. The only question — resting on both sides — is when.

Francois Baird is cochairman of Baird’s CMC, the international communication management consultancy conducting the study, “A Conversation behind Closed Doors,” in partnership with the U.S. Chamber of Commerce.

Photo: PIUS UTOMI EKPEI/AFP/Getty Images