Saturday, October 11, 2008

Africa Is New Frontier of Global Economy

Africa is the new frontier of the global economy, says John A. Simon, U.S. ambassador to the African Union.

Speaking to the U.S.-Africa Infrastructure Conference in Washington on October 8, Simon called on his audience to help make Africa a no-conflict zone by 2020. The theme of the 2008 conference is "Connecting the Continent."

Simon cited statistics and basic facts to tell what he called "the predominant story" about the developing continent of Africa.

Over the past 10 years the African continent has enjoyed an uninterrupted period of economic growth, with rates in the past five years exceeding 5 percent annually, he told his audience of business executives and potential investors. "Foreign investment has grown from $7 billion in 2002 to $53 billion last year - a more than sevenfold increase," he said.

He cited a recent report by Credit Suisse First Boston that African countries compare very favorably in terms of governance, education and economic policies to East Asia in the 1970s, a time that was followed by its period of dramatic economic growth.

If Africa is to achieve similar results over the next decade, he said, several gaps still need to be addressed: peace and security - what he called the sine qua non for economic development; energy and infrastructure; and professional capacity and connections to the global economy.

"From my perspective, the African Union can and indeed must be a critical element in bridging these gaps if Africa is to recognize the potential it has by 2020. In many ways the next few years will be extraordinarily decisive," he said.

Addressing the issue of peace and security, Simon, a former executive vice president of the U.S. Overseas Private Investment Corporation, said there is a lot of good news on this front.

"Relative to 10 years ago when more than a dozen conflicts raged across the continent, there are now basically three or four," and those are among the most intractable. He saluted the AU for taking a lead role in seeking to stabilize and resolve those conflicts, but he cautioned that the AU cannot be expected to bear this full burden on its own.

"If Africa is to move forward in the next few years, the international community needs to do more," Simon said. He called on his audience to work toward the goal of making Africa a no-conflict zone by 2020. "Ultimately," he said, "it is the absence of conflict that is necessary for there to be the type of economic growth that Africa needs to realize if it is to achieve the very ambitious goals that it has for the development of its people."

On energy and infrastructure, Simon said, "We have all seen the pictures of Africa from space at night: the only lights being visible are those in South Africa and a few that are scattered along the coasts."

And almost everyone doing business in Africa has had trouble shipping containers overland, he said. The cost often exceeds what it would cost to ship that same container to Europe or the United States.

Simon called Africa's shortage of energy and infrastructure a "brick wall" to development. But he acknowledged that progress is being made on a country-by-country basis, with governments putting in place the right environment that is encouraging investors to enter their markets.

What is needed, he said, is not only a large amount of investment capital but an equal amount of technical expertise. Institutions such as the African Development Bank, the Infrastructure Consortium for Africa and the African Union - through the creation of an investment bank - can play an important role in supporting progress, he said.

A new type of investor for Africa is also needed, he said, who will be satisfied earning traditional money profits as well as what he called developmental profits.

On the institutional capacity gap, Simon warned that "as African economies grow, the strains on their institutions - just like the strains on their infrastructure - can be a major impediment to growth."

More diverse economies require more sophisticated institutions to issue permits, enforce contracts, resolve disputes and plan for growth, he said. Africa is the fastest-urbanizing continent in the world, yet urban planning in most African cities is nonexistent. The African Union, he said, can again play a key role in strengthening these institutions on the continent.

On Africa's integration into the global economy, Simon said, "Connecting to the global economy is fundamental to Africa's future," and for that to happen requires "investing in entrepreneurship from all sources, the development of larger markets along regional lines, and the retention of its most gifted people."

On a positive note, he said, many members of the African Diaspora are now returning to the continent "to build its economies ... its businesses and ... its institutions."