Africa Needs Foreign Investment, but Not Just Any Will Do

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Earlier this month, during a visit to Uganda, the Hollywood actor Terrence Howard held a press conference with local journalists and senior Ugandan government officials, including President Yoweri Museveni, in attendance. In a clip that was shared by Uganda’s state broadcaster and quickly went viral, Howard claimed to have invented a new hydrogen technology that could help Uganda “defend the sovereignty of a peaceful place and a peaceful people.” The dubious nature of Howard’s claims made for some comic relief among Ugandans and other observers alike, with many Twitter commenters—including me—making allusions to investment schemes promoted by the Senegalese-American singer Akon that have drawn comparisons to Wakanda, the fictional city in the blockbuster movie “Black Panther.” Howard’s exploits similarly recalled a 2018 meeting between Museveni and the rapper Kanye West, who announced plans to build a “world class tourism school” in the East African country. It also reminded of a 2020 incident, this time in Ghana, featuring two young, aspiring urbanists, also from the U.S., who claimed to want to “build the next great city.” The pair eventually secured a meeting with Ghana’s vice president, despite having no background in city planning and knowing very little about Ghana and West Africa—indeed, neither had ever even been there before. These anecdotes might seem like isolated incidents in what is a large continent, but they point to a familiar pattern that many Africans recognize. Howard was simply the latest in a long line of foreign entertainment stars, investors and businesspeople—almost always, but not exclusively, Westerners—who travel to African countries and bypass virtually all government agencies to get facetime with senior government officials, including presidents and royal figures, in order to pitch a business plan that doesn’t stand up to scrutiny. Uganda in particular has long exercised a considerable attraction in this regard, thanks to its image as one of Africa’s best economic success stories and Museveni’s reputation as a key U.S. partner in the strategically important East Africa region. Uganda is often described as one of the most pro-business economies in Africa, with the country said to boast one of the highest percentages of female business owners on the continent. But indexes and statistics don’t tell the full story. In Uganda, as is broadly true across much of Africa, women are generally clustered in micro and small enterprises with a low base of capital and labor, and as a result a lower barrier to entry. They also earn much less than their male counterparts, do not always have the skills to scale up their firms and generally become entrepreneurs not out of a burning desire to build a business, but because of a lack of employment opportunities. These women also must contend with labyrinthine bureaucracy, a high-tax environment, the lack of an institutionalized lending culture and a state with little to no respect for property rights and the rule of law. An article written in one of Uganda’s newspapers a few days after the Howard press conference spelled out many of the frustrations felt by entrepreneurs in Uganda, pointing to the contradictions of a government that purports to be open to business, but gives preferential treatment to foreign investors only. But the Howard incident also points to more substantive debates about the nature of foreign investment in Africa and elsewhere in the Global South. Since the 1980s, when structural adjustment programs backed by the World Bank and the International Monetary Fund were imposed on African countries, governments on the continent have embraced foreign investment as a driver of economic growth. The Washington Consensus—a list of market-oriented policy reforms championed by the two international financial institutions as well as the U.S. Treasury Department during the so-called SAP era and beyond—included abolishing barriers to foreign direct investment as one of its key prescriptions.

Africa’s desperation for the attention of foreign investors points to a lack of discernment over investments that African governments should instead be more cautious about.

In the 40 years since then, Africa has experienced a transformation of its politics and its economies. The continent’s democratization wave dislodged military dictatorships and single-party rulers, ushering in a transition to multiparty democracy that, though spotty and at times fragile, remains mostly intact. Since the turn of the millennium, African countries have also hit remarkable strides in economic growth, poverty reduction and technological innovation that has fueled the emergence of a domestic middle class as well as talk of Africa as the next frontier of economic transformation. At the same time, foreign investment into Africa has increased dramatically as new sources of investment have opened up and emerging sectors have expanded on the continent. Today, there are several “Africa +1 summits,” typically featuring a major economic powerhouse on one hand and African countries—usually grouped as a bloc—on the other, and a significant number of these gatherings are completely focused on trade and investment. These include the U.K.-Africa Investment Summit, the U.S.-Africa Business Summit and the Turkey-Africa Economic and Business Forum. There is also the Africa Investment Forum, held annually by the African Development Bank, which typically attracts the same participants as the other summits. And in recent years, Ghana’s “Year of Return” has opened up more discussions about increasing diasporic investment and building tourism industries across Africa. As a result, the assumption that more foreign investment is an unalloyed good for African countries, and that their governments should be taking more steps to make their economies more attractive to foreign investors, goes unquestioned. African countries certainly are desperately in need of large volumes of capital to close their infrastructure, industrialization, energy and climate gaps. But as the Howard incident and others like it underscore, this seeming desperation for the attention of foreign investors, particularly Western ones, points to a lack of discernment over investments that African governments should instead be more cautious about. It bears noting that Africa is already attracting more—not less—foreign investment, in absolute as well as relative terms. In 2000, Africa attracted only 1 percent of global foreign direct investment outflows; that share is now up to 5.2 percent and hit a record $83 billion in 2021, according to United Nations figures. But as in previous years, a significant portion of those investments flowed to extractive and service industries in large markets like Nigeria, Egypt, South Africa, Ghana and the Democratic Republic of Congo, although there were noticeable investments in manufacturing and renewables as well. Extractive industries tend to have a crowding out effect that in turn stifles domestic capital formation, wage growth and jobs creation in the wider economy. And that is without mentioning the adverse effects extractive industries have on the political economy of resource-rich countries like Nigeria and Congo, where an overdependence on extractives for government revenue, foreign exchange and export earnings inhibits the state’s ability to structurally transform the economy, while fueling political corruption and the use of state resources for political patronage. Despite years of reforms implemented in Nigeria, Congo and many other countries, those problems continue to persist in their natural resources industries. This suggests, at the very least, that foreign investment is not the panacea it is often portrayed to be for Africa. The reality of Africa’s economic picture essentially dictates that it has little choice but to rely on massive amounts of foreign investment to achieve the economic goals that African governments have set. But for foreign capital to work better within African economies, it needs to be more evenly spread across local industries. To do that, governments must work with those local industries as well as civil society to identify the areas where foreign investment can most effectively be channeled to, as well as the necessary policy reforms that must be made to do so. But most importantly, African governments must be more discerning about what kinds of investments—and investors—they are willing to entertain. And that must begin with giving less airtime to foreign celebrities with little expertise in business, investment or technology.

Chris O. Ogunmodede is an associate editor with World Politics Review. His coverage of African politics, international relations and security has appeared in War on The Rocks, Mail & Guardian, The Republic, Africa is a Country and other publications. Follow him on Twitter at @Illustrious_Cee.