World recession hits Africa's investment dream

Investors were just starting to take notice of these countries when the global financial crisis hit



Rwanda’s president, Paul Kagame, cited the Dubai investment as one of many that his small East African country had managed to attract in its effort to reduce its dependence on aid in favour of private investments.

But just last month, Dubai World ratcheted back its ambitious investment plans, its coffers strained by the global financial crisis. The company says it will go forward with only two of the eight projects it had planned in Rwanda, and the Kigali hotel and Akagera eco-lodge didn’t make the cut.

“The scaling back of foreign investments like Dubai World certainly impacts the things that the government of Rwanda wants to do in terms of raising the standards of living for all Rwandans,” said Clare Akamanzi, Rwanda Development Board.

When the credit crisis erupted in September, many experts thought that Africa would be spared the financial turmoil of the American and European financial systems, because African banks had almost none of their assets tied up in the global subprime market.
But it has recently become clear that Africa is being hit hard. The World Bank estimates that its economies will grow an average of three per cent this year, compared with an annual average of six per cent from 2004 to 2008.

Roll-back

“The crisis could not have come at a worse time,” said Jose Gijon, Organisation of Economic Cooperation and Development (OECD). “Before the meltdown, many African countries had made significant progress in attracting foreign investment and private capital, and this could derail those efforts.”

Many investment projects have either been delayed or cancelled as credit has dried up, according to the African Development Bank )ADB). A project in Tunisia between British Gas and ETAP, the Tunisian national oil company, fell apart because the financing did not materialise. And Congo, which expected $2.4 billion in foreign investment this year, now anticipates about $600 million.

Continentwide figures for foreign direct investment so far this year are not available. But in the sub-Saharan African countries, the International Monetary Fund estimates, foreign direct investment will drop roughly 18 per cent in 2009 from about $30 billion in 2008.
“The decline in investment will reduce the ability of African governments to fund health, education, infrastructure and nutrition programmes,” said Leonce Ndikumana, ADB.
According to OECD, the amount of private investment going to Africa had begun to outpace aid. M Nathaniel Barnes, Liberia’s ambassador to the United States, says that while foreign aid is still crucial for African countries, it usually focuses on humanitarian issues like emergency food and shelter or medical supplies. In contrast, he said, foreign investment provides long-term sustainability and growth.

While acknowledging that foreign direct investments have contributed to sustained growth, Emira Woods, a native of Liberia and co-director of Foreign Policy in Focus, a publication at the Institute for Policy Studies in Washington, says the benefits do not always trickle down to the local populations. She notes that significant numbers of people are still trapped in poverty in countries like Nigeria and Angola, two of the top recipients of investments.

Most of the foreign direct investment in those countries is in ‘extractive industries’ like oil, gas, or metals, she says, rather than in infrastructure. Private investors were just starting to take notice of the economically poor but resource-rich continent when the global financial crisis hit.

In 2007, more than $53 billion in foreign direct investments flowed into Africa, up from $9 billion in 2000, according to the UN Conference on Trade and Development. The estimate for 2008 is more than $72 billion. And according to a UN report, investments in Africa had the highest rate of return of all developing regions in 2006 and 2007.

Job opportunities

Projects like the dam provide a perfect example of why private investment is needed in African countries, says Barnes. Not only do they hire people to do construction work, they also help to create hundreds of other jobs as new service businesses spring up.

Before work on the dam began two years ago, Jinja was known primarily for the nearby Bujagali Falls, a series of thundering white-water rapids that attracts rafters from around the world. Many residents near the dam site made their living just as their ancestors did, by raising goats and cattle or fishing for Nile perch, which can grow as long as six feet, and tilapia. They are two of the more than 200 species of fish in the river. Some had small farms, growing matoke — a small green banana — or corn, avocados and mangos.
Now 1,000 people from Jinja and surrounding areas have be en hired to work at the dam site in various jobs. Some do basic construction work — like crushing stones from the river bottom into cement; others are drivers, cultural liaisons and lower-level managers.
And even some people who were forced to relocate say they have benefited from new housing and water supplies and better schools and health facilities. For instance, some locals who previously lived in mud huts have moved into sturdy cinderblock homes.
When it is finished, the dam will provide some much-needed power to a country where only five per cent of homes have access to electricity.

The project has generated some opposition. Frank Muramuzi, National Association of Professional Environmentalists, a local environmental group, says the dam will not provide electricity to a vast majority of Ugandans and will be a further drain on Lake Victoria, which feeds the Nile and where water levels have dropped in recent years.

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