In an effort to generate economic growth, African leaders are lobbying the world for investment capital, promising political and free-market reforms in return.

The continent desperately needs outside capital to jump-start stagnant economies, a trio of African leaders told Wharton students during a discussion moderated by James Harmon, chairman of the Export-Import Bank in the second Clinton administration. The African officials were in Philadelphia to attend the biennial summit of the Corporate Council on Africa. The Council is made up largely of Fortune 500 companies doing business in Africa and chaired by diamond magnate Maurice Templesman.

Chris Okemo, Kenya’s minister of finance, said African nations require international investment because their nations are too poor to generate their own capital from domestic savings. And investment is crucial if Africa is to develop basic infrastructure such as roads, railways and electric power – all resources that companies need to encourage new business and provide jobs.

“Without such infrastructure it is expensive for companies to operate in Kenya or other African countries [which means our goods] are unable to compete in the world arena,” said Okemo. “We are going in circles.” After decades of operating state-controlled economies, he added, African nations now believe they must provide an “enabling business environment” for private investment. Governments in turn must offer a stable macroeconomic environment with disciplined fiscal and monetary policy that results in stable prices and low inflation.

According to Okemo, countries need to grow at a rate of 7% a year to reduce poverty. In Kenya, the economy contracted by 0.3% last year. This year, he is hoping for growth of 1%. Meanwhile, population growth has been 2.6%. “So [we] are progressively getting poorer,” he said.

Harmon, former chief executive of Wertheim Schroder & Co., told the students that in the 1950s and 1960s, many Wall Street firms considered themselves international companies. “That meant we went to Western Europe or maybe Tokyo. None of us knew anything about the developing world during that time.” In his four years at the Export-Import Bank, Harmon said, funding rose from $50 million to $1 billion. But, he added, “We have only scratched the surface of what needs to be done.”

In a speech at the summit, Harmon called on governments to create a Marshall Plan for Africa. He said the initiative would need $200 billion a year in trade finance from the world’s richest countries.

Prior to Sept. 11, Harmon had planned to argue that private capital needs to step up more than ever to assist Africa. “In the long-run I still believe this to be true,” he said. “But in the aftermath of Sept. 11, at least for the short- and medium-term, I firmly believe that the major responsibility now rests with the public sector – principally the government of the United States and the other G-7 countries.”

The investment will pay off, he contended, in a growing and politically stable Africa. “It is not only the right thing to do, but by improving living standards we could also improve national security.”

Okemo pointed out that the world’s wealthy nations who make up the Group of Seven contributed just 0.75% of their combined GDP to poor countries. “I don’t think they’ve done enough to help the developing world.”

In general, the African panelists said they are pleased with the African Growth and Opportunity Act (AGOA) signed by President Clinton in May 2000. The act gives 34 eligible countries expanded access to U.S. markets through reduced tariffs and quotas in exchange for economic and political reform. Okemo said the premise of the act is on target. “The answer lies in trade and investment so you don’t become aid-reliant.”

Mustapha Bello, Nigeria’s minister of commerce, said there are some implementation problems with the Act, but it appears they are being ironed out in Washington. “The U.S. Congress is working on these areas that create distortion.” Harmon noted that he, too, was frustrated with some aspects of AGOA, which he said had a long, tortuous path through Congress before emerging with many compromises. Still, “there is more good than bad in AGOA.”

Africa is not likely to crack international agricultural tariffs anytime soon, said Bello. “The U.S. is with us on this issue, but the EU doesn’t seem to be willing to move an inch.” In response to global demands for structural reform in emerging markets, Bello said Nigeria is attempting to create a “level-playing field” for investors. For example, the country is reworking its legal system to protect investors with intellectual property codes and is liberalizing commerce in its free-trade zones.

Nigeria, with a population of 120 million, should be an appealing domestic market for investors. “But they need certain guarantees,” Bello said, adding that his country’s reputation as a homeland for swindlers, for example, has also made it difficult to attract business investment. But he noted that the government has recently cracked down and complaints about business scams now come about once every three months rather than four or five times a week. When asked about civil unrest in the region of Jos in Nigeria, he dismissed it as “communal clashes” between civilians made up of a large number of former military men.

Okemo said corruption continues to be a big problem in Africa, but is not unique to the continent: “It exists in Africa. It exists in America. It exists everywhere.”

Girma Asmerom, Eritrean ambassador to the United States, suggested that Africa’s late arrival on the world economic scene may help it avoid mistakes made by other nations as they pulled themselves up the economic ladder. His country has just completed a survey of its natural resources that indicate it is producing way below capacity. For example, he said, Eritrea has the potential to catch 80,000 tons of fish a year, but it now only catching 4,000 tons.

Fish and other resources go untapped in Eritrea because the country lacks capital. “I don’t have the technology. I don’t have the machinery,” he said. “I don’t have the know-how.” African nations, he added, also need to invest in their people, not just the physical infrastructure. “Human capital development is a must. Otherwise the investors will not come.” While some countries are rushing to expand vocational and technical education in Africa, he said that needs to be carefully phased into an overall development plan. “We can open the schools, but if there are no investors the students will only join the unemployed army.”

Within Africa Harmon expects to see more regional cooperation on major projects, such as gas and oil pipelines. “In the next decade we will see a lot more of these unity projects. That’s the whole direction.”

The African economic leaders said they did not fear that tax holidays and other breaks offered in free trade zones will attract mobile investors who will pack up at the first sign of trouble. They pointed out that Chinese investors are coming into Africa with garment-making technology – the same industry that helped start China’s industrial revolution in the 1980s. “China is an active investor in Kenya,” said Okemo. “Their technology is more relevant to Kenya than the G-7 countries. We need investment, but we also need the technology and expertise that is relevant to our level of development.”

Bello noted that U.S. companies rarely enter African free trade zones. Some of Nigeria’s best investors are local, he said, even if they have moved offshore. “They know the environment. That may make them a more patient investor than an outsider would be.”

The speakers agreed that their current embrace of free-market principles and foreign partners does not sell out the independence of African economies. Okemo said Africa does not have the luxury right now anyway. “If you can’t invest your own money, you need to get it from elsewhere.” Added Bello: “I believe the fear of putting your economy in the hands of non-Africans is no longer real since the world is getting smaller.”

The panelists all complained that the global media has painted Africa as hopeless and that this portrayal hurts when it comes to raising capital. “The media need deeper analysis. They only describe the surface,” said Asmerom. “The opportunities do exist in Africa,” added Okemo, “except for the perception.”