Monday, March 10, 2008

The rock star and political activist stood inside a stone-tiled changing room next to the presidential swimming pool in Rwanda, preaching about Africa’s potential to a few members of the White House press corps.

“There’s a whole continent to be built here,” Bob Geldof said. “The 21st century will play itself out on this place here.”

  • Tanzania embraces an entrepreneurial, capitalist spirit

    During a weeklong visit with President Bush last month to five sub-Saharan African nations, Mr. Geldof pointed to the continent’s increasing stability but lamented the lack of U.S. business-sector investment.

    “What is it that the Chinese get that we’re missing?” he asked.

    The rate of Chinese trade and investment in Africa is exploding, and while it is driven mostly by the government in Beijing, the private sector is increasingly involved.

    U.S. investors and businesses have not caught on to the growing potential in Africa, business and government leaders said.

    The consequences of this disparity could be of far greater importance for Africa than for either the U.S. or China. Opportunities abound for Washington and Beijing, but their different approaches to investment and business expansion could reap vastly different outcomes for African nations.

    Much of the U.S. government-backed investment is aimed at working with African institutions and companies, and there are some U.S. efforts to painstakingly build the African middle class from the bottom up (see accompanying article), which is key to the continent’s long-term stability.

    Chinese investment, however, is delivering quick fixes to immediate infrastructure needs on a continent where many road systems, ports, railways and other means of transportation have been destroyed by years of conflict and neglect.

    So far, Chinese loans have been tied mostly to the country’s mining and oil projects, and they usually involve Chinese labor and technology and could prove to be unsustainable.

    Mr. Bush has stressed that the U.S. and China are not competing in Africa, but a senior Bush administration official said recently in an interview that as African governments see the outcomes of the two models, their enthusiasm for Chinese investment will dampen.

    “The Chinese are coming in with money to invest, but they’re not investing in local companies or using local labor,” said the official, who asked not to be identified.

    “They import, like, the nails,” the official said. “I think they look at it as a jobs program.”

    China, analysts said, understands that Africa is the last development frontier and that the continent is poised to skyrocket over the next decade. Not only does it have vast and often untapped natural resources, Africa has about 900 million potential consumers and what one U.S. businessman called a “new entrepreneurial spirit.”

    China also knows that good governance is growing, and Africa is far more stable than it was a decade ago. For example, 2007 was the fifth straight year African markets posted what one financial research group called “mouthwatering returns.”

    African markets, excluding South Africa, posted 54 percent gains last year, compared with 47 percent in Latin America, 12 percent in Europe, 10 percent in Asia and 6 percent in North America, according to Databank, a Ghana-based financial services firm.

    Per capita growth across Africa has been at about 3 percent over the past five years, after adjusting for inflation and population growth, according to multiple sources. This follows a decade of less than 1 percent rate of growth.

    China, which has had a significant presence in Africa for decades, has ramped up its trade and investment relationship with many sub-Saharan nations over the past several years. In 2006, for example, Angola replaced Saudi Arabia as the largest exporter of oil to China.

    Compared with China, the U.S. imports more oil from Africa, but China is quickly catching up.

    Last year, China surpassed France to become Africa’s second-largest trade partner. The U.S. is Africa’s largest trade partner, but China is expected to take the top spot by 2010 after posting a 66 percent growth in trade since 2004, according to a report last month by the Corporate Council on Africa (CCA).

    But the story of Africa’s emerging economies goes far beyond just oil.

    “The kind of companies that are experiencing rapid growth, well beyond the possibilities in any other geography, are cell phone companies, regional banks and infrastructure related companies,” said Jon Halverson, the Tanzania representative for the U.S. African Development Foundation (ADF), which provides seed grants to growing African entrepreneurs.

    Mr. Halverson said there are about 300 million cell-phone users in Africa. Jon Halverson, with the U.S. African Development Program in Tanzania, talks about the emerging middle class in that country and the potential for economic growth in Africa, on Sat., Feb. 16, 2008.

    He also said that “Internet usage has exploded.” In 1998, he said, there was one Internet user for every 30,000 Africans; today, the ratio is one Internet user for every 150.

    “The biggest deals in the last few years are in telecom,” said a senior White House official, who identified Nigeria, Congo, Ghana, Tanzania and Kenya as the top five countries ripe for business investment.

    Thomas R. Gibian, chief executive officer of Emerging Capital Partners, the largest U.S. private-equity firm focused solely on Africa, said his company has been investing in the continent since 2000 and has raised more than $1.2 billion in capital.

    “It will be a little longer before the evidence is fully in, but … if you’re running a business in Africa like we are, and your antennae are picking up all the signals, it feels like the opportunity is getting bigger, not smaller,” said Mr. Gibian, whose firm invests in oil companies but also in telecommunications, financial services and health care, among other ventures.

    “Doing a deal in Africa doesn’t mean there’s one less deal to be done. It feels like there’s two more deals to be done,” he said in a telephone interview from his D.C. office.

    Yet, while countries in Europe and the Gulf Coast are “tuned in” and China is going full steam ahead, Mr. Gibian said, “the U.S. is lagging.”

    “The important businesses are banking, insurance, telecom and logistics, and the U.S. is not particularly well-represented,” he said.

    U.S. businesses also have done a “poor” job of moving into the massive business opportunities in aviation and infrastructure sectors in South Africa, which is hosting the 2010 World Cup, according to the CCA report.

    One explanation for this is that reliable and sustained data on business in Africa is just beginning to emerge, and that in many cases, comprehensive statistics are not available.

    Low U.S. private-sector investment in Africa also can be attributed to U.S. perceptions that Africa is defined by its civil unrest.

    The White House grew exasperated last month during Mr. Bush’s trip when press coverage focused on the more than 1,000 postelection killings in Kenya. The administration sent a top State Department official to brief the press corps on Air Force One.

    “I do think that there is a misperception about the, you know, ‘Africa in flames,’ ” Jendayi E. Frazer, assistant secretary of state for African affairs, told reporters on the flight from Benin to Tanzania.

    Miss Frazer, citing reports by the Heidelberg Institute for International Conflict Research, said Africa was beset by seven wars in 2001. Those have been reduced to two: one in the Darfur region of Sudan and the other in Somalia.

    “The region,” said an International Monetary Fund report last fall, “looks well-poised to sustain its growth momentum.”

    Robert Mosbacher Jr., chief executive officer of the Overseas Private Investment Corp. (OPIC), said some in the U.S. business community are slowly catching on.

    “There are enough places on the continent that look good. People are coming to the conclusion that there is money to be made and we need to get in the game,” said Mr. Mosbacher, whose quasi-independent agency is the U.S. government’s “main instrument for investment of private capital in Africa.”

    Over the past 37 years, OPIC has provided $5.3 billion in financing and political risk insurance to 364 projects in Africa. OPIC also has “provided $900 million in financing to 12 Africa-related investment funds with a total capitalization of more than $3.1 billion since 2000,” an agency spokesman said.

    But while the U.S. private sector slowly wakes up to Africa’s potential, China is pressing ahead with its expansion into oil markets and rewarding its African business partners with massive loans for much-needed infrastructure projects.

    Last year, the Chinese government-controlled Export-Import Bank (Ex-Im Bank) authorized $13.3 billion in loans for African projects, according to the Corporate Council on Africa report.

    In Angola alone, Ex-Im Bank has loaned $2 billion to fund more than 100 infrastructure projects since 2004, and last fall agreed to loan $2 billion more for another 100 water, telecommunications, public works and other projects, according to a recently released report by the Center for Strategic and International Studies.

    In addition, there was a 30 percent increase in visa applications among Chinese businessmen traveling to Angola in 2006 and 2007, the CSIS report said.

    There are concerns in the West about Chinese investment.

    The government’s loans often require that Chinese firms be used to do the work, and the firms usually hire primarily Chinese workers, depriving Africans of jobs.

    Technology transfer also is a concern when Chinese engineers are building African infrastructure. When the central air conditioner recently broke at Angola’s new Finance Ministry building, parts had to be imported from China to fix it, the CSIS report said.

    In some U.S. sectors, there is worry about the Chinese loans, which the CSIS report described as “opaque.” China does not belong to the Paris Club, which sets terms for international loans and provides transparency and accountability.

    The full extent of Chinese loans, and any strings that might be attached, are not known, said a senior White House official.

    “That feeds into fears and worries. Do the Angolans owe China $1 billion or $10 billion? And then you get into whether or not they’re putting political conditions on it,” the official said.

    Advocates are afraid that progress made over the past several years to cancel the debt of Africa’s poorest nations might be negated if the same countries fall back into unsustainable debt with the Chinese.

    One private-sector official involved with U.S. development assistance labeled the Chinese involvement in African nations as “colonialism in a different package.”

    “China wants and needs the resources that Africa has but has no interest in the well-being of the poor,” said the official. “They have seduced many African leaders into believing they have benevolent intentions.”

    Some analysts said what Africa needs most are immediate reconstruction projects and financial capital, which the Chinese are providing.

    “People who follow Chinese investment say they’re doing a lot of things that nobody else is doing, so let them do it. They’re spending a lot of money on infrastructure. We’re not doing that,” said Michael A. Samuels, a former U.S. ambassador to Sierra Leone who runs an international trade consulting firm.

    Yet Mr. Samuels said that low-cost Chinese imports to Africa are making it difficult for African entrepreneurs to compete.

    The Bush administration has tried to help build up infrastructure, too.

    But the U.S. approach is conditional and has been slow to get off the ground. The U.S. has agreed to give $3.8 billion in infrastructure and development aid to nine African nations under the Millennium Challenge Account (MCA) since its inception in 2002.

    MCA, however, requires that recipient countries take steps to root out corruption in their governments. It also has been plagued by slow disbursements, and analysts said the program did not start moving until the current director, John J. Danilovich, was appointed in 2005.

    The U.S. also is making small strides toward building Africa’s middle class through ADF, which gives no-interest loans of up to $250,000 to small businesses and works with them to improve their products and connect them with distributors.

    ADF manages about 250 investments, which it says have created more than 110,000 jobs.

    “We don’t just teach Africans ‘how to fish,’ we help African entrepreneurs own a fleet of boats and market their production,” said ADF President Rodney J. MacAlister.

    William Massawe, who manages a Tanzanian business consulting firm that receives money from ADF, talks about the need for more small and medium-sized businesses to close the gap between the lower class merchants and the giant industry firms, on Monday, Feb. 18, 2008.
    Flotea Massawe, a married mother of five, demonstrates how she started her textile and accessory business in her living room, and is now filling orders of between 15,000 and 25,000 products for Macy’s and Hallmark, on Monday, Feb. 18, 2008.

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