Chinese and Arabs spur investment in Africa

Foreign investment in sub-Saharan Africa should top $20 billion this year as Chinese and Arab investors pour in money, but a US slowdown could jeopardize the strongest economic growth in decades, the IMF has said.
Record oil prices and a worldwide commodities boom have fuelled appetite for investment in sub-Saharan Africa, a region long overshadowed by Asian and Latin American markets as graft and political instability deterred investors.
IMF Director for Africa Abdoulaye Bio-Tchane said foreign direct investment had risen from $15 billion in 2001 to around $20 billion last year, with more than 70 per cent heading to oil exporters such as Angola, Nigeria and Equatorial Guinea.
Traditional investors from Europe and the United States have been joined by emerging powers such as China and cash-flush Arab firms chasing opportunities in telecoms, tourism and banking.
“My sense is that foreign investment will continue rising and particularly in non-resource sectors,” Mr Bio-Tchane told Reuters in an interview. “The levels of investment which we saw in 2006 will clearly be surpassed this year. The trend is to have more Chinese, more Arab investors.”
China’s growing appetite for investment outside the oil and metals sectors was marked when its biggest lender ICBC proposed to buy a fifth of South Africa’s biggest banking group Standard Bank for $5.6 billion in cash earlier this year.
Debt relief and economic reform have helped foster sub-Saharan Africa’s highest growth rate in three decades. The IMF predicts growth will accelerate to 7 per cent next year from 6 per cent in 2007, as world demand for commodities intensifies.
But with a credit crisis in the United States spurring fears of a slowdown in the world’s largest economy that sent shock-waves through financial markets this week, Bio-Tchane said Africa’s export-driven economic growth remained fragile.
“There are downside risks,” Mr Bio-Tchane said.
“If there is a recession next year not just in the US but in the other major developed countries, then we need to reassess our projections.”
While rising foreign investment could help curb poverty in Africa, large capital inflows also test African governments’ ability to ensure transparency, control inflation and the exchange rate, Bio-Tchane said.
“Designing policies to respond to this pressure may present some authorities with real challenges.”
Many companies operating in Africa complain that unreliable utilities, lack of skilled labor, labyrinthine bureaucracy and corruption remain major obstacles to doing business.
Mr Bio-Tchane said Ghana and Kenya had made recent strides in improving their business environment, but elsewhere much remained to be done.
While West African countries such as Cote’Ivoire and Nigeria had made progress in developing their domestic debt markets, most sub-Saharan Africa financial exchanges were hampered by a lack of legal security and were unable to finance investment.

SOURCE: DAILY NATION