Paul Kruger, tralac Researcher, discusses foreign investment in Africa

Is foreign investment good for Africa? This was the subject of a survey conducted by Globescan at the beginning of the year. The findings of the global survey showed that many people are comfortable about foreign companies purchasing long-term rights to African natural resources and land with a majority rating such investments as either “very good” (19%) or “somewhat good” (44%). Interestingly enough, of the 21558 people surveyed, Africans were among the most positive of the prospects for foreign investment, with Nigerians rating it as a good thing for Africa (85%), a view shared three in four Kenyans (75%) and Ghanaians (72%) (Globescan 2012). But like every other survey, the results really depend on who you ask.

Ask the African governments on the other hand, and you will most likely receive a carefully qualified answer. They support foreign investment, but are more supportive of domestic investments that seem beneficial to the local economy. But how do countries know that the spill-over effects of foreign investment support the economic goals of the host country? For African countries is it is a double-edged sword – they want to be seen as open economies to attract foreign investment, but at the same time they need to ensure that the entry of foreign firms has a positive effect on the local economy. This was one of the reasons why the South African government and labour unions sought to impose domestic content requirements on the merging parties of Walmart and Massmart; the purpose of which was to protect the market share of the local suppliers. One problem with such an approach is that these preferential procurement or ‘buy local’ policies have the potential to conflict with both GATT and GATS rules. Combined with the practical complications of managing these measures and the possible negative reception from potential investors, these kinds of policies remain difficult to implement. It can further be argued that policies should not strive to protect the market share of local suppliers, but rather to increase their market opportunities.

Exploiting the local supplier network through voluntary means may prove to be more effective than trying to impose a localisation strategy on foreign investors. As part of the merger proceedings in the Walmart/Massmart case, a suppliers’ fund was proposed to develop the capabilities of emerging small and medium businesses to trade with the merged entity; something which was considered by the Competition Tribunal as a ‘more practical solution’ to the local procurement debate. The initiative delivered it first tangible results last week as the first harvest from the direct farm project was celebrated. The idea is to develop and equip smallholding farmers to support Massmart with fresh produce, with the eventual goal of integrating 1500 farmers in the procurement process by 2016. Similar initiatives have been established in India where 2000 farmers are currently involved in directly supplying Walmart.

Retail analysts view Walmart as the best supply chain operator of all times, and the benefits of being involved in the Walmart symphony of global distribution cannot be overstated. Local suppliers have the opportunity to prepare and condition themselves to the level where they are able to meet international standards. This could be beneficial for everyone, as it is likely that the most efficient suppliers could be more closely integrated in the Walmart supply chain. At the very least, this initiative will expand the knowledge of smallholder farmers and provide them with some experience of how to operate as part of a global supply chain. If done right, this kind of public-private partnership has the potential to create meaningful spill-over effects for local businesses.

Tell us what you think.

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Source:

Globescan 2012. Foreign Investment Global Poll. Available at: http://www.globescan.com/images/Reports/bbc2449_africa.pdf