Africa: Investment Risk Or Opportunity?

For American investors, Africa is the poor neighborhood in the global village. Some view it as a place to avoid, others as a great place to set up shop.

During his 12-day trip to six African countries, President Clinton is promoting the continent as a trading partner and investment opportunity, trying to start its sub-Saharan region on the same road from economic backwater to the global mainstream that Asian countries took four decades ago.

"This is not a far-fetched, feel-good thing," said Judith F. Aidoo, president of Aidoo Group Ltd., a Wall Street merchant bank specializing in Africa. She said big opportunities await investors in a number of African countries.

"We tell our investors there are a dozen countries where they can get in early and get a toehold, building on assets they already have," she said.

Coca-Cola, for example, is in the middle of a five-year, $600-million investment program in Africa. Other active U.S. companies on the continent are Caterpillar, the heavy-equipment manufacturer, and Mobil and Chevron oil companies.

But doing business in Africa can be risky, said Michael Sudarkasa of Labat-Anderson Inc., a consulting firm that has advised 33 sub-Saharan governments.

Some companies back off, because they are not ready for the "long haul to establish relations. They want a quick payoff," said Sudarkasa.

Difficulties include "a lack of roads, power shortages, an uneducated work force, currency fluctuations there's always an undercurrent of uncertainty," he said. "Investors in Africa have to be more patient than they are in Asia or Latin America."

When the Cold War ended, many Africans feared the United States and other industrialized nations might abandon them. But the end of apartheid in South Africa and the emergence of democracies from old dictatorships brought new hope to the region. Competition for investment in African companies and the continent itself is heating up.

Mary Swann, a spokeswoman for the Corporate Council on Africa, a group of more than 200 large and small U.S. companies doing business on the continent, said a new generation of leaders has come to power and realizes that "if they want to be in the global market they have to change privatize sectors such as telecommunications."

Even with no U.S. president having visited the continent in two decades, America's economic ties with African nations are extensive and growing rapidly, although they still are small in comparison with those of Europe and Japan.

In 1996, U.S. trade with the 12 countries of southern Africa totaled more than $9 billion, surpassing exchanges with the 15 republics of the former Soviet Union.

U.S. exports to all of Africa have grown over 20 percent a year in recent years, reacing $6.1 billion in 1996. But still, less than 1 percent of total U.S. exports go to Africa, while imports from the region represent less than 2 percent of U.S. imports.

U.S. market share in the region, at 6.7 percent, lags behind Japan's 7.2 percent and behind the European Union's 30 percent.

The Clinton administration believes many African countries are on the verge of breaking out of a vicious cycle of political instability and economic stagnation. It wants to enhance U.S. influence in a region traditionally dominated by former colonial powers such as France.

While many of the 48 countries south of the Sahara are posting annual growth rates of 4.5 percent, they need to do better to lift their people out of poverty and foreign investment can help.

"Recent progress is real," said Callisto Madavo, a World Bank vice president for Africa. "But it is still fragile and steady flows of private capital and aid to African countries are needed."

The administration plans to follow up the Clinton trip with a trade mission to Africa led by Commerce Secretary William Daley to build private-sector interest in the continent.

By Harry Dunphy
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