Smuts Ngonyama, chief strategic advisor to South African President Thabo Mbeki, offered some strategic advice to Americans during the
“Viable option” is not a phrase commonly associated with Africa, better known to Americans through recent news reports of wars, rampant corruption, the AIDS epidemic and widespread grinding poverty. But Ngonyama argued that despite those realities, “winds of change are blowing through the continent. Sub-Saharan Africa is not a single economic basket case” but rather “50 different countries with different policies,” some of which are bringing about “economic reform on a par with other developing nations of the world.”
The Wharton African Students Association, which organized the day-long forum, expressed the same modest but upbeat point of view in selecting the forum’s theme: “Investing in an Emerging! Emerging Market.”
According to speaker Stephen O’Connell, a Swarthmore college professor and advisor to the World Bank, there is little foreign investment in African countries today except in the traditional areas of natural commodities. Efforts by African nations to diversify exports with manufactured products have not been successful. However, he added, “diversifying from primary exports was not on the agenda of sub-Saharan Africa until the 1990s. And it is on the agenda now.”
O’Connell described his own take on Africa’s economic future as that of an “Afro-optimist,” explaining that “a pessimist thinks nothing good will happen in Africa, while an optimist isn’t certain about it.” In fact, good things have already happened in Mauritius, he said. “Tanzania is the best kept secret on the continent.” And Botswana is “the fastest-growing economy in Africa.” But these are tiny countries, O’Connell noted. Africa’s future rests on the success of the 10 largest (in terms of GDP and population) sub-Saharan nations: South Africa, Nigeria, Sudan, The Democratic Republic of Congo, Kenya, Ethiopia, Ghana, Cameroon, Cote D’Ivoire and Uganda. And these are countries that are just now in the process of “writing a new page in their economic history.”
In the past, said O’Connell, these countries offered a poor environment for fixed and irreversible investments, like building a textile factory. For oil, diamonds, copper and other minerals, “a police presence handles property rights and an agreement to divide mineral rents with the power elite substitutes for taxes,” he said. But manufacturing requires three basic conditions – peace, a fair tax system and enforceable property rights – to be able to fill foreign orders and develop domestic suppliers.
Recognition that these three conditions had to be met emerged only in the 1990s, according to O’Connell. Two things happened then. The people in these nations became disaffected by prolonged economic crises, and the end of the Cold War removed the props from many one-party and military regimes and thus encouraged political freedom.
“These countries have been learning that their narrow options for survival involve economic reform and an orderly expansion of civil liberties,” he added. This has led to state-led industries partnering with the private sector, to new central bank charters and to other policy reforms. Eight of the ten largest are now in the World Trade Organization.
So far neither economic nor political change has paid off in a significant increase in investment, said O’Connell. “Agencies that conduct external country risk assessments rate African countries lower than their fundamental economic statistics would indicate. I’m not sure why. Maybe they are waiting to see how that uncertainty is resolved. The African development problem is sticky because while we know what doesn’t work, the examples of success are small.”
In the view of Miguel Schloss, the Chilean executive director of Transparency International, the problem that discourages investment in Africa more than any other is corruption, a subject his organization studies around the world. “Over and above everything else, this issue must be dealt with to have development … Africa ranks second only to the former Soviet Union in corrupt practices,” Schloss said. And that, he maintained, is because the environment in many African countries encourages corruption.
“Human beings are the same the world over,” he added. “When we ask people whether they would keep a wallet if they found it when no one was looking, they say ‘yes’. When we ask if they would keep if they knew they would be caught and punished, they say ‘no’.” Thus, to diminish corruption, a society must emphasize the rule of law, define illegal acts, increase openness and maintain a level playing field when it comes to getting a license to do business or have other access. Africa, he charged, has been notorious for not dealing with these aspects of society.
However, X. P. Guma, chief advisor to the South African Reserve Bank, offered the opinion that this is now changing. In recent years, he said, an increased understanding has developed “that the maintenance of law is the starting point of economic growth. Everybody must know what the rules of the game are, and there must be a criminal justice system to deal with deviation from those rules … What’s needed are harsh examples of punishment for transgressors.”
Development itself will help Africans deal with the problem of corruption, commented Arona Butcher, a Kenyan who serves as chief of the Country and Regional Analysis Division of the U.S. International Trade Commission. “It may not eliminate greed at the top but many poor Africans are forced into an outside-the-law economy in order to survive. You need a higher standard of living to appreciate the rule of law. When there are jobs, other things will fall in place and much of the problem will go away.”
South Africa’s Ngonyama contended that investors are beginning to recognize Africa as an opportunity. Despite the serious challenges, development will come. “What is informing Africa today,” he said, “is a collective psychology that insists Africa will succeed. Rather than “throw their hands up in despair, Africans will change their society.”
