South Africa and Africa
Where man-made mischief stopped, natural disasters took over. Drought and floods in relentless measure ravaged Africa. Corruption thrived as dictators looted treasuries. Not even Africans wanted to invest in Africa. An estimated 40 per cent of the continent's private wealth fled to European banks in the 1980s.
To make matters worse, the end of the Cold War and the dismantling of state-run economies in Eastern Europe gave Africa's former colonial masters good reason to channel their investment priorities closer to home.
South Africa's political transition could not have come at a better time. Having been frozen out of the global economy for nearly 20 years as a result of sanctions, South Africa had a surplus of capital that could be invested in Africa.
As the African crises waned in the early 1990s, South African firms seized the new business opportunities. South African corporations now invest more in the rest of Africa than companies anywhere else. Since 1994, more than $1 billion a year has been poured primarily into mining, retail, construction, financial services, telecommunications, and leisure. Africa now ranks as the second most important destination for South African exports, after the European Union.
South Africa's penetration of the African economy has also been facilitated by the political role played by Pretoria through the revitalised African Union and the NEPAD initiative. On a more practical front, South African institutions such as the Industrial Development Corporation are providing soft funding and sharing risk in pan-African projects.
The fact that African assets are generally cheaper than European ones has encouraged even the most reluctant of South African institutions to explore new opportunities. On the negative side, there is ample evidence that some South African corporations have been engaging in bad business practices in Africa. A number of South African mining houses were recently accused by the United Nations of looting mineral resources in the Democratic Republic of Congo.
Furthermore, the business relationship between South Africa and many of its African neighbours is largely one-sided. South African exports to the rest of Africa are five times greater than imports. Trade with Kenya for instance in 2003 amounted to some $136 million in exports and less than $4 million in imports. Kenya believes that huge barriers are put up by Pretoria to prevent the entry of its goods and services to the South African market (see page 26)
Even without trade barriers, many African countries have little or nothing to sell to South Africa. Sub-Saharan Africa is largely a consumer market. Nigeria for instance produces crude oil but imports refined petroleum. It produces timber but imports furniture. Until recently, Nigeria imported biscuits and toilet paper. Despite the availability of technology and a greater willingness for knowledge transfer, many African countries continue to rely heavily on imports.
Although several of the conflicts that blighted Africa in the 1980s have now subsided, it still remains the world's poorest continent. It accounts for only one per cent of total world economic output and two per cent of world trade. What to do? Honest and major structural changes are needed. The initiative must come from within Africa. Such initiative must be aligned to the urgent need to invest in people, add value to natural resources and create partnerships that work.
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