Events

Business Summit Will Urge American Companies to Invest in Africa

By Stephen Kaufman
Staff Writer
Washington —

As African leaders and U.S. investors prepare to convene in Washington for the U.S.-Africa Business Summit, an official from the federal Millennium Challenge Corporation (MCC) says investment in Africa is now more appealing for companies than before the global financial crisis.

From the private sector perspective, Africa is “the natural next frontier” for investment, and partnerships between investors and donors on the continent create win-win situations for both as they share the investment risk, says Jeri Jensen, the managing director for private-sector initiatives at the MCC.

The International Monetary Fund expects Africa’s economic growth to be 3.4 percent during 2009, which is higher than many other areas of the world that were hit harder by the global financial crisis. Jensen told America.gov that she is hearing from some U.S. companies that partnering with a donor in Africa “is more appealing now than it was before the crisis,” due to greatly reduced consumer demand in Europe and the United States, and the desire by more visionary companies to “get in on the ground floor of Africa” with long-term investments.

According to press reports, the business summit, which is held every two years, is bringing African government leaders, including 10 heads of state, together with American private-sector representatives who are interested in starting or expanding their investments on the African continent. The summit will be held September 29–October 1, and is co-sponsored by the MCC and the Corporate Council on Africa, which represents private-sector concerns
For many U.S. investors, Africa is unexplored territory, Jensen said. Countries currently participating in the MCC’s programs are “already ideal investment partners” because participation requires meeting a series of standards on ruling justly, investing in people and economic reform.

“We’ve seen that foreign direct investment in MCC countries is significantly higher than investment in other developing countries,” Jensen said. “For the private sector, MCC countries are really … a gateway, as they get their toes wet when they’re thinking about an Africa strategy.”

In his July 11 speech in Ghana, President Obama said good governance is the key to Africa’s economic development, and he urged private-sector partnerships to move the continent toward greater self-sustainability and prosperity. (See transcript.)
Obama also raised the issue of country ownership, which is a unique feature of MCC agreements, or compacts, Jensen said. “When a country is deemed eligible for a compact, they are responsible for developing a proposal and implementing the investment, and accountable for the results from those projects,” she explained.
Along with allowing the country the flexibility to reassess the projects as they meet or fail to meet their targets, the MCC projects are also attractive to private investors because they enjoy five years of predictable funding and are tied directly to the country itself, rather than to the donor.

“It is a capacity-building exercise that goes on, and our MCC partners implement these projects, and from a private-sector perspective, it creates better partners … who are more capable of attracting investment down the road,” Jensen said.
The MCC is trying to diversify African exports to the United States as most exports currently are petroleum products. Jensen said that in Tanzania, the MCC is using part of a $700 million compact to help lay the groundwork for a public-private partnership in hydropower. The MCC has also helped Africa’s Standard Bank team up with the Alliance for a Green Revolution in Africa to make $110 million available in loans to small farmers and agricultural businesses in Ghana, Mozambique, Tanzania and Uganda who had previously been considered too risky for lenders.

There is much opportunity for growth. Africa’s problems largely stem from the need of its countries to build their infrastructure, Jensen said.
For example, Jensen said, manufacturing costs are significantly higher in Africa than in Asia due to the longer time needed to move a product in or out of the continent. Infrastructure problems also help explain some of the trade barriers among African countries themselves, she said. “Just going from one end of a country to the next can take three days, and it takes less than a day to get to Europe,” she said.

Jensen says her organization wants to use the U.S.-Africa Business Summit to increase American private-sector awareness of MCC programs “and the fact that we are helping our countries develop projects that will involve the private sector.”
There are also new procurement opportunities becoming available. “We have probably about a good 50 percent of our $6.4 billion of commitments for 18 countries that will be going out for bid in the next 18 months to two years,” she said, adding “you can expect over time greater private-sector participation in MCC projects, and we’re a natural partner for the private sector in Africa.”