Give a man a fish? A fishing net? How about a fishing boat? Investor-led Development in Africa
May 18, 2011
Africa is a land of enormous opportunities as well as wild misconceptions. At the recent Milken Institute Global Conference, Yaw Nyarko, co-director of NYU's Development Research Institute, summed things up with a nice anecdote: "Two consultants were sent to Africa to size up the shoe market. One came back and said, 'People do not wear shoes in Africa; you'd be crazy to start a business there.' The other came back and said, 'Nobody has shoes there, let's go!'" The opportunities are there, it just takes the right mind-set to see them.

It may sound trite, but the continent is literally filled with hidden gems. In DR Congo alone, there are trillions of dollars in natural resources. You're probably carrying around a piece of DR Congo right now: It's the only country that has the metal coltan, which is required for making cell phones. Enormous growth is possible in Africa, and Kola Masha, managing director of the VC firm Doreo Partners, told conference attendees that Africa can learn a lot from Asia's growth stories, especially those of China and India. Both countries have demonstrated that it is possible to achieve tremendous growth in a short period of time.

There's a Chinese proverb that says water can float a boat, but it can also sink it. Is Africa really ready for an influx of investment, or would it simply create more corruption and greater dependence on foreign funds? Joe Sive of the African Investment Fund was adamant that Africa is ready. In fact, Africa has already attracted huge inflows. The Chinese Investment Corp. alone is looking to invest more than $100 billion in Africa, on top of $40 billion it has already placed.

To gain further traction, Sive stated, people presenting opportunities in Africa must help shake off stereotypes. When Sive conducted a word-association game among students he teaches at USC, the terms that Africa first brought to mind were "poverty" and "malnutrition." But this is an increasingly inaccurate view, and it's no longer how Africans view themselves. Witness the new "American Idol"-style show "Vodacom Superstar" that's become a hit in DR Congo. Observers were surprised that viewers voted for the best talent rather than for contestants from their own region. It's only a TV show, but it's a promising sign that Africans are turning away from solely viewing themselves as regional citizens, a development necessary for progress.

Notice that I have not mentioned foreign aid. The main reason: the consensus among thought leaders is that in African development is that while aid plays a role in furthering growth, investor-led development is key. Mauro De Lorenzo of the John Templeton Foundation explained that some forms of aid work well, but only when there is a clear path to change. Most of these cases involve technical processes that do not require institutions. That's why aid dollars don't generate the return one would hope when applied to generating economic growth -- that kind of change does require institutional involvement.

When all is said and done, what can you do? Invest strategically. Amina Salum Ali, the African Union's ambassador to the U.S., recommends focusing investment on infrastructure and education. The former will facilitate intra-African trade, and the latter will help meet the growing need for human capital. Oscar Kashala, president of the Union for the Rebuilding of Congo and candidate for the next DR Congo election, agrees. He says that one of the goals of investment is to empower people; investing in these two areas will do just that.

Other areas include agriculture and natural resources. Sive believes that Africa is the richest region in the world in terms of natural resources, so it just makes sense to put money there (he also says that the returns are "unbelievable"). But De Lorenzo argued against this approach as a means to spur development in Africa for three main reasons:

o "Stuff" extracted from the ground is not worth much unprocessed, which means that most of the economic wealth generated will be in the hands of foreigners who add value to the raw materials.
o Innovation, whether direct or lateral, is rare from the natural resource industries.
o These industries destroy the quality of democracy as rents received from the natural resources are basically "free money" (i.e., no lasting investments, especially those that are socially beneficial, are required), hence making governments less accountable.

The most important point is to invest now. Africa is on its way to becoming the next financial frontier. Do not miss the boat, it'll set sail before you realize, filled with investors shouting "zaijian!"


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    Posted by Bird Netting, 02/18/2016 (2 years ago)

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