Wednesday, 10 July 2013

The US, China and investing in Africa's development

This week Nigeria's president is in China, and last week the US president ended a week-long Africa trip.
Both the Obama visit and the China-in-Africa story raise questions about maximising the sustainable development benefits of prevailing high levels of foreign commercial interest in Africa, while mitigating any harmful inherent or incidental effects.

The last decade's growth in the quantity of foreign investment, trade, loan financing and other commercial interest in Africa has not always been matched by its quality.

By 'quality' I refer to developmental indicators that lie behind high headline GDP growth rates: foreign investment has not necessarily decreased inequality or insecurity, nor necessarily increased inclusivity, institutional capacity, or the integrity of governance processes (one could list other metrics, but I ran out of words beginning with 'i'...).

Such presumed links between investment-related growth and multi-indicator developmental gains require measurement and research; one aspect that requires more data is whether there are, in fact, relevant qualitative differences (seen from the perspective of Africa's inclusive and sustainable development) between investment from OECD and non-OECD countries.

The China-in-Africa story of course has myriad dimensions. This blog's interest is the business-government-society nexus: there is scope for further empirical research on the nature and efficacy of Beijing's current attempts to regulate the social, environmental and governance (ESG) impact of both state-owned and quasi- or non-state Chinese commercial initiatives and businesses in Africa.

A related question is whether -- and in what ways -- the ESG impact of Chinese firms (or funded projects) is materially different from US, EU, Japanese or other OECD firms (or indeed those from the BRICS, Gulf and other regions). It is often assumed that Western firms' ESG performance in Africa is bound to be superior because of their greater exposure (especially if listed) to regulatory and reputational pressures at home; it is also assumed and that this exposure constrains Western firms' commercial performance (competitiveness) relative to firms hailing from countries that pay less attention to how their companies behave abroad.

Statements by senior US officials reminding Africans to be wary of 'new' (Chinese and other) partners play off or play into such assumptions. They may be well-founded, and indeed they are assumptions that inform some of my previous posts (for example, here) on home-state regulation as an issue in strategic competition for access to African resources.

Such assumptions have an intuitively sound ring to them. However, they are largely working assumptions, sometimes laced with presumptions about the relative moral high ground of Western firms that might not be borne out by facts; if we are to be honest, more research is thus needed on whether there is any clear categorical connection between the national origin of a firm (sometimes, with globalised commodity firms for instance, a rather artificial linking) and its inclination to engage in social investment or to refrain from doing harm. Do we know in fact whether Canadian firms operating in Africa invariably have a superior net ESG impact and corporate responsibility profile than Chinese ones?

Turning to the Obama visit, it highlights the significance of a related trend relevant to this blog's subject-matter:

Policymakers For development/aid policy types in the West, austerity is catalysing a re-think about both 'the private sector's development role' (the role of the private sector in helping meet development goals) and 'private sector development' (the role of development agencies in developing local private commercial activity and/or improving the investment climate, not for its own sake but as a means to achieving traditional development goals).

Private sector For their part, firms are seeing African developmental needs and aspirations as a source of opportunity. Perhaps the biggest 'i'-word in contemporary Africa -- whether viewed as a matter of human development or from the (narrower) perspective of investment risk/opportunity -- is 'infrastructure'. Deficits in 'hard' infrastructure such as ports, roads, rail, electricity deter investment, but also represent an investment opportunity, either to meet pent-up local demand or to facilitate access to exportable natural resource opportunities. It is an issue closely tied to the China-in-Africa phenomenon. Obama's visit announced the 'Power Africa' initiative to fund US engagement in improving electricity generation and distribution on the continent.

There are reasons for some scepticism about the nexus between private commercial ventures and pro-development outcomes. Investors cannot and should not displace government obligations. But much of the scepticism goes too far; there is surely far more reason for those interested in African development to see tremendous opportunities for harnessing the self-interest of firms (and the strategic competition of superpowers) in pursuit of pro-social development goals.
Ultimately, too, debates over whether US or Chinese investors are more socially responsible and responsive in Africa can often miss the point, as I've argued elsewhere. The question is not so much the source of foreign interest, but the capacity and willingness of recipient African governments to ensure that private gain is not at the expense of the public interest.


ps - my first blogpost reflected on the difficulty of talking simplistically about 'the private sector' including where state-owned firms are increasingly active across Africa: here.

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