The U.S. Chamber of Commerce and the Baird Communications Management Consulting (Baird CMC) firm have issued a news release about a study that investigated the reasons why multinational corporations are hesitant about investing in Africa.
The United Nations Conference on Trade and Development issued a report in 1999 which reached similar conclusions.
The U.S. Chamber of Commerce’s news release identified 5 preventing multinational corporations from wanting to contribute foreign direct investment (FDI) in Africa:
- Rule of law — A strong consensus exists among the respondents that the rule of law does not prevail to the degree required to make Africa an attractive investment destination. This applies to corporate, societal, and criminal law.
- Attraction — Africa does not offer a sufficiently large middle class of consumers or show consistent economic growth that could promise a future market. Most African countries are small and have poor markets, and there are barriers to regional markets — such as taxes and the freedom of movement of people and goods. However, Africa does offer enormous natural resources and that is an attraction.
- Risks versus rewards– Given the currently perceived risks in Africa, the rewards have to be very high to make it worthwhile to invest. Presently, U.S. corporations say that there are very few visible promises of future returns high enough to justify significant interest in investing
- Supportive business framework–Transportation and communications infrastructure, trained or trainable human resources, and equitable trade and employment practices are insufficient to support corporate investment
- A welcoming environment– African countries are not doing a sufficient job of providing education and health services to the potential workforce, which makes the potential hire-able local insufficient to support investment.
Points to consider
The question is who should benefit from this investment. The reports, from the U.S. Chamber of Commerce and the United Nations, suggest that the improvements suggested will be largely for the benefit of the multinational corporations.
Also, the desirable actions that the multinational corporations cite may conflict with the expectations of the population. This recently occurred in the United States. Recently, a rule of law argument was heard within the continental United States—the sanctity of contract. This argument was raised in the public’s opposition to the American International Group, Inc. (AIG) use of bailout funds to pay bonuses to traders unraveling AIG’s complex investment positions in derivatives. The public sought the return of the bonus money.