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The East African : March 31st 2014
44 The EastAfrican BUSINESS MARCH 29 - APRIL 4, 2014 We need an ‘Af≥icapitalism’ ≥evolution with a human face T he Eastern Africa region is currently enjoying an economic boom that has not been seen since the 1970s. Economic growth has been strong in most countries in the region for over a decade. But this strong performance has been accompanied by growing concerns over the quality of growth — particularly in terms of poverty reduction and employment creation. States are confronting a number of economic and social challenges resulting from accelerating urbanisation, population pressures and high degrees of income inequality. Put simply, despite an im- proved economic performance in the 2000s after two decades of economic stagnation, across the region, a lot of social and economic aspirations have not been fulfilled. Social cohesion — a term about which we will hear more of during this meeting — is still fragile in some parts of our region. One revealing manifestation of all this, cited in the UNECA’s publication, Tracking Progress Report 2013 — Towards High Quality Growth and Structural Transformation in the Eastern Africa Region, is that, although poverty has been reduced in relative terms in the region (from 65 per cent of the population in 2000 to 54 per cent in 2011), the absolute number of citizens living below the international poverty line ($1.25 a day) has actually increased from 155 million to 166 million. This paradox — growing wealth, but more poor people — is a testimony that more needs to be done to make sure that the proceeds of growth are invested well for the future development of the region. We need to speed up “structur- al transformation” of our economies, shift of economic activities out of low-return, low productivity sectors like subsistence agriculture, and into hi-tech, high productivity sectors like manufacturing, telecommunications, services and the like. For the Economic Commis- sion for Africa (ECA), this is our number one agenda: To help countries catalyse “structural transformation.” The emphasis on the need to prioritise manufacturing and industrialisation in Africa is undoubtedly right. Our conference of Ministers of Finance in Abuja discussed how to accelerate the pace of industrialisation on the continent. Nevertheless, the real chal- lenge is not simply involving foreign investors, but nurturing our own entrepreneurs and enterprises — or “Africapitalism” — whereby African nationals are at the forefront of efforts to develop our economy through business. The region has an impressive COMMENTARY ANTONIO PEDRO “National champions, which are deemed competitive nationally, regionally and globally, are key to transformation.” is a prerequisite to attracting FDI. Investment treaties are important internationally binding instruments; their signature does not necessar- ily increase FDI in the volumes and quality needed for Africa’s structural transformation. BITs are more focused on protecting investors than on the value addition that the investments could bring to the host country. Available data on the secto- list of firms that are competing. Firms like Ethiopian Airlines, or Equity Bank. In the DRC, the mining company Gecamines, has adopted an ambitious plan to restore its international competitiveness. In Jonathan Ber- man’s book Success in Africa, we find compelling personal accounts of 20 top risk-taking and successful business leaders who are benefiting from the growth opportunities arising from Africa’s improving risk profile and investor-friendly business climate, expanding purchasing power, rich natural resources and unmet developmental needs and aspirations. But to trigger Africa’s struc- tural transformation we will need to replicate these success cases across the continent. We need an “Africapitalism” revolution with a human face in a massive scale — a contradiction in terms, you would say. “National champions” — large- scale state or private national lead firms which are deemed competitive nationally, regionally and globally — are key to Africa’s transformation. But, nurturing “national champions” is no easy matter. It requires long-term strategic choices, embedded in comprehensive industrial policy and local content programmes. The first choice is the need to decide whether it will be possible, within a reasonable timeframe, to build na- tional capacities in a particular sector, or whether depending on the technological, financial and proprietary advantages of multinational corporations is a more realistic strategy. Both approaches have their advantages and drawbacks. Regarding the first, with some notable exceptions, the private sector of the region is generally characterised by its small-scale and, to paraphrase John Page, is handicapped by the “institutional and physical environment within which it operates,” of which policy failures, capacity constraints, infrastructure bottlenecks, and poor market reach and intelligence are challenges. Addressing these challenges must therefore be a key priority for governments. With regard to the second strategic response, the prevailing wisdom that most foreign direct investment (FDI) into our region is predominantly natural resource-based is not true. Despite widespread natural resource finds in the region, the bulk of FDI goes into secondary and tertiary sectors. Another perception that may need to be reviewed is the notion that the signature of bilateral investment treaties (BITs) ral composition of FDI suggests that its capacity to contribute to structural change is limited or has not been optimally harnessed. A key concern is its insignificant contribution to alleviating the employment challenges of the region. By nature, foreign investments to the region tend to be capital-intensive enclaves with little linkages with the local economy and, as a result, do not create many jobs. As a consequence, with insufficient flows of either private foreign or domestic capital, we argue that the state will have to retain a key role in catalysing structural transformation in Eastern Africa. I am talking of a new model The real challenge is not simply involving foreign investors, but nurturing our own entrepreneurs and enterprises.” of intervention, which does not necessarily legitimise the modus operandi of the past — that is, interventions through direct ownership. With the generally favourable macroeconomic context, we have a window of opportunity to change our fortunes permanently, and move out of the status of aid-dependent lowincome countries into middle-income status. But that window may not re- main open indefinitely. The risks to regional growth are multiple. Some are exogenous — for example, global commodity prices (upon which part of the improvement in regional performance has depended) may decline, or demand from Asia. But the more serious risks come from within. If job creation does not keep pace with the expanding work force, social unrest could end up undermining the whole growth process. Antonio Pedro is the Director, UNECA Sub-regional Office for Eastern Africa. Nakumatt, Kigali. Rwanda best ≥etail investment destination By KEVIN J KELLEY Special Correspondent RWANDA RANKS as the top choice in sub-Saharan Africa for retail investment, according to a recent survey conducted by an international management consulting firm. Tanzania, ranked fourth, and Ethiopia, at number 10, are the other East African countries identified as prime destinations for multinational retailers seeking opportunities in Africa. “Rwanda has an efficient government and strong macroeconomic indicators that reveal many opportunities for international retailers that can offer basic packaged goods,” says a report on the survey carried out by A.T. Kearney. Annual GDP growth in Rwanda, at about 8 per cent, is among the highest in Africa, the Chicago-based consulting firm added. But only a handful of formal grocers operate in the country, the report points out. Kenyan retailer Nakumatt runs two stores in Kigali. Tanzania’s vast size and its location on the Indian Ocean make it “an attractive market for international retailers seeking a regional base,” A.T. Kearney said. Most retail purchases in Tanzania are made in small shops, but supermarkets are becoming more popular, especially among higher-income citizens seeking variety and more sophisticated products. “As this more privileged group becomes more prominent, more will make purchases based on quality and service rather than just price,” said the report. Poor transport infrastructure is identified as one disincentive to retail investment in Tanzania. The state of the road network “has hindered the setup of efficient supply chains, particularly in more remote locations.” Ethiopia rivals Rwanda in rapid economic growth while offering a much larger pool of potential consumers — a population of 88 million, as compared to Rwanda’s 10 million.
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