Mobilising finance for Africa’s Industrial revolution
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| Photo: CIFOR | Flickr Creative Commons |
Indeed, Africa is not some sort of village or jungle with no portable water, internet, or power supply as perceived by some individuals, and even as I derive joy in clarifying this fact, It is also vital that I point out how the continent is still far behind in terms of industrialization and infrastructure advancement. Although the continent has witnessed significant growth in the last century, its share in the manufacturing global value chain is just a tiny fraction when compared to its peers.
How can African governments attract the necessary funds and investments for industrialization?
Obviously, Industries don’t just fall from the sky. Also, Industrialization and infrastructural development are not mutually exclusive. Poor infrastructural development in a country makes it more costly and less efficient for businesses to thrive and discourages investors. Let’s take a simple example, I am an investor who wants to create a Tomato processing plant in the Northern part of Nigeria and would be citing the plant close to a nearby farming village due to its proximity to fresh tomatoes. However, the location doesn’t have good road networks and there’s no stable electricity as commonly obtainable in reality, what this means is that I will encounter challenges transporting the raw tomatoes from the farm to the processing plant due to the bad roads and if I need to preserve the tomatoes in a refrigerator, I might need to purchase a fuel generator due to unstable power supply.
To explain further, While citing my company, I plan on attracting the best talents to work in my plant and the workers need to move with their families, unfortunately, there are no good hospitals around for their families to receive treatments, nor are there any standard schools the children of the staff can attend. These are just some of the factors smart investors consider when they want to invest in a continent, other factors include safety & security, business regulations, economic policies, and political stability amongst others. African leaders need to ensure the security of their countries, Implement sane economic policies, create a favorable business climate, and fix their continent’s basic social amenities and infrastructures as these are very crucial for growth and development. If all of these are resolved, no doubt Africa will become a top investment spot in the world as there are still vast underexploited market potentials waiting to be harnessed.
Now that we have simplified the process of attracting investors, let’s talk about raising funds to finance infrastructural development. Financing remains one of Africa’s greatest impediments to development, the continent has always been dependent on Western countries, multilateral development organizations (IMF and the World Bank), and the Chinese government for loans and grants to finance its key infrastructural projects.
What this means is that the continent needs to dance to the tunes of its sponsors, precedent to and subsequent to the contractual agreements. I’m actually in favor of the strategies employed by these lenders, given that most African leaders are known for their imprudent attitude and callousness when it comes to managing public funds. Notwithstanding, the downsides to these requirements are that they trample on the sovereignty of the country and give external parties the power to determine what for and how the funds are to be used. In some cases, it becomes a threat and a trap if the countries can no longer service their debts or pay interest on their bonds.
The good news however is that African countries do not have to wait for external development institutions, the Western or Asian countries to finance their infrastructure needs, these funds can be mobilised from within. Nigeria alone has over 14.2 trillion Naira worth of pension assets, Holding other factors constant, part of these assets can be invested in infrastructure-tailored financial products which can then be used to finance capital projects. Doing so could be risky, but it is not impossible, a lot of work needs to be done in building a strong and formidable capital market.
This doesn’t mean that Africa should totally neglect external funding options, We need to create more development institutions within Africa that understand the political landscape and terrain and would be able to negotiate sustainable debt instruments that meet the needs of the African markets as well deliver attractive returns for the investors. Another major problem African countries face when raising funds is a poor credit rating, Investors demand higher interest payments and impose stringent regulations on how funds are disbursed when the country in concern has a poor credit rating. And of course, they can’t be blamed for that, there are no friends and families in business.
This is where African development institutions come in. I am very much aware that there are some prominent development institutions in Africa such as the African Development Bank (AFDB), West African Development Bank, African Finance Corporation, and several others, but considering Africa’s level of infrastructural development and the position of its peers in these markets, there are lots of gaps to be filled.
In essence, Africa needs to look inward and think outside the box. And this should be not just in the areas of infrastructure but also in private equity and venture capital. While I am happy that African startups are attracting a lot of funds, I am also concerned about profit repatriation if these companies become successful. We need to start playing an active role in mobilizing funds internally to support our startups and companies.
We have read about slavery in the past, but what we don’t realize about these concepts is that slavery isn’t just the act of trading human beings. I would like to define slavery as the act of hijacking a nation’s most vital resources by a stronger nation for the sole aim of making profits. During the colonial periods, Africa’s human resources were its most vital treasure. Today, nothing has changed, Human resources are still our most vital treasure. However, civilization and human rights efforts have made it unethical to trade and chain humans. But there are no restrictions in trading ideas and businesses.
Have you ever thought about what would have happened if African leaders had resisted trading slaves and instead mobilized able-bodied men to develop the continent instead of going to work in the fields of foreign lands? Africa needs to start believing and investing in the power of its abundant resources. It is said that Charity begins at home.