 |
| Image courtesy of Andy Newson / FreeDigitalPhotos.net |
For direct foreign investment, the 54 sovereign nations of continental Africa each have their own unique histories, present conditions and key risk factors to consider. There are a number of identifiable types of risks that can impact business operations -- applicable irrespective of operational locations. This includes compliance risk, liquidity risk, market risk, operational risk, and strategic risk.
Infrastructure
Physical infrastructure that is key to any supply chain is roads, waterway ports and airports. Data regarding transportation networks provide insights into potential operational risks. This also applies to the strength of the communication networks. The African Union's 2013 agenda centers on building trade-related infrastructure for intra-Africa trade. In 2012, governments in Kenya and South Africa announced investment initiatives targeting infrastructure projects, representing a policy pattern in various African nations.
Energy
While many African nations can boost having significant natural resources, nearly 7 out of every 10 African have no access to modern electricity, according to a 2013 Brookings report. Market risk and operational risk are both implicated by energy standards to power operations. For direct foreign investments, energy shortages have an adverse impact on heath and education within local markets, an impacts labor and production. From another perspective, this clean energy demand is seen as a supply side opportunity for the entrepreneur on the African continent.
Politics
By 2013, Africa reported increased religious warfare in Mali, an international hostage situation in Algeria, and internal terrorist acts targeting Christian churches in Nigeria. Public sector corruption remains a challenge in many African nations. As is often the case, the higher the risk the greater the potential returns. For example, the Democratic Republic of Congo has been described as the Saudi Arabia of minerals because of its natural resources in gold, columbite, tantalite, cassiterite and wolframite. This includes minerals central to the production of cell phones. Direct foreign investment, however, in nations with internal warfare raises all business risk factors. In contrast, countries like Ghana consistently report political stability with investment opportunities in areas like agriculture, mining and fishing.
U.S. Initiatives
In May 2000, then United States President Bill Clinton signed the African Growth and Opportunity Act (AGOA) to expand trade and investment with sub-Saharan Africa, defined as including 49 states. AGOA includes trade preferences between the United States for virtually all marketable goods produced in nations that fall under AGOA. As of June 2011, 37 sub-Saharan African countries were eligible for AGOA benefits and over 93 percent of imports from AGOA-eligible countries entered duty-free. Trade preference agreements that reduce trade costs help to mitigate investment risks in African nations.
FURTHER RESOURCES:
- Africa Growth Initiative at Brookings: Foresight Africa 2013
- Office of the United States Trade Representative: African Growth and Opportunity Act (AGOA)
- African Union: Action Plan for Boosting Intra-African Trade
- BBC: Ghana profile
- Ghana Embassy: Trade and Investment
