Education Is Key to Increasing Investment in Africa

May.21.09 | About: SPDR S&P (GAF)

A new report sponsored by the US Chamber of Commerce looks at why Africa has received a disproportionately small share of Foreign Direct Investment (FDI) and what needs to be done to change that fact.

Africa is the world’s second largest and second most populous continent after Asia, yet Africa remains the world’s poorest and most underdeveloped continent.

Since the early 1980s, Foreign Direct Investment (FDI) flows to Africa averaged only 2.2% of the global total, while Asia received no less than 17.3% of the total. Africa is home to 14% of the world’s human population.

Key findings of the report:

  • Corporate America is interested and watching Africa closely; they see pockets of great potential
  • US Technology companies are most attracted to investing in Africa
  • Overall, the business case for investing in Africa is less compelling than for its competitors
  • To make itself more attractive for US investment, Africa should:
    • Invest in education, health and infrastructure
    • Ensure the rule of law and a business-friendly climate for all investing companies
    • Show it is serious about attracting foreign investment
    • Market itself as aggressively as other regions of the world
    • Demonstrate opportunity cost of not investing

American companies are more interested in Africa than before, because the African market appears increasingly attractive, but Africa has tough competition and high hurdles for US investment.

Education is at the top of the US corporate wish list for Africa; “educate your people so that we can employ them”

The African countries that hold most interest are South Africa and some countries in the North, like Egypt; there are also some pockets of interest in West Africa, most notably Ghana, Nigeria and to some extent Angola; while some in the South (Botswana and Mozambique) and East (Uganda and Kenya), are also being watched.

Also, in INTERNATIONAL: FDI collapse hits African growth, Oxford Analytica notes that the sharp decline in net capital flows to sub-Saharan Africa during 2008 will have a debilitating impact on African efforts to bridge the continent’s infrastructure deficit in power, ports, roads and railways.