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Attracting Capital To Africa--Part Two

© Bryan Johnson

Editor's Note: This is part two of a two part series to see Part One go here BTJ

Having just returned from Houston as one of 22 people presenting a paper before some 600 participants at the "Attracting Capital to Africa" summit organized by the Corporate Council on Africa I have a fresh perspective as to what many Africans feel is necessary in order for the continent to achieve economic growth.

Indeed, many representatives of almost every Africa nation, including several heads of state, senior government officials, ambassadors and others attended the summit. Moreover, many of the attendees were Clinton Administration officials, including Secretary of Commerce Daley and Secretary of Transportation Slater. Finally, there were many representatives there from the World Bank, the International Monetary Fund, the U.S. Import-Export Bank, and the U.S. Overseas Private Investment Corporation.

Surprisingly, the overall theme of the summit was how to attract capital to Africa by utilizing the market more, and relying on official development assistance less. After my briefing on my paper, "Regulation in Sub-Saharan Africa: Prospects for Growth," for example, I met with a gentlemen who represented an African group called, "The Organization for the Harmonization of African Business Laws" (OHADA).

This organization was created by treaty in 1993 and signed by 14 African countries. Essentially, OHADA is aimed at creating a single, modern, flexible, well adapted and reliable business law; an arbitration system that promotes the idea that arbitration is an appropriate and trustworthy way to settle disputes; and provide highly-trained and competent judicial members and court staff.

Indeed, OHADA members said that much of the lessons taught in the Index of Economic Freedom were germane to the experiences of many Africa nations. Specifically, OHADA representatives mentioned that one of the biggest single deterrents to attracting capital to Africa is the lack of a sound property rights system and the rule of law. One participant mentioned that no African country scores well in this area in the Index.

Several Fortune 500 business representatives that mentioned a particular problem with investing in Africa supported this sentiment. Not only is the rule of law lacking, but also the size of the market in each country forces most companies to conclude that the investment risks outweigh the potential gains. In particular, the judicial systems, commercial codes, and basic business laws are so different from one African country to the next, it forces investors to look at Africa by individual country only. It is near impossible to have a regional strategy.

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