General sense of optimism about Africa among global business community has changed the perception of "Dark Continent" and its bleak future. Countries have fallen in line to venture into the treasure continent. Jayanta Sarkar investigates the sudden change in mood.

Dated: May 2003

IN SPITE of the large world reserves of a number of strategic minerals and abundance of agriculture crops, Africa was left behind in the global economy. The main reason behind this could be attributed to the over dependence on export of a few primary agriculture commodities, apart from petroleum exports by a few countries, combined with inadequate industrial base in most of the countries resulting into worsening terms of trade. Efforts towards value addition to exports were hardly made. Moreover the general economic condition of the region had been very poor by any economic or social indicator when compared with any of the world's major developing regions. Essential catalysts for attracting Foreign Direct Investment (FDI) viz., political stability, good governance, macro economic reforms and stability, free trade and foreign exchange, and level playing field for all entrants were missing.

Change in the perception began in the early 1990s, when most of the governments in this region started realizing that many of the inherited economic problems were soluble. Hence, they have taken up reform programmes both at the political and economic levels. Most of the governments in the region instead of being hostile to foreign entrepreneurs now actively seek foreign business involvement. The above initiatives taken by the governments indicate the beginning of sub-Saharan Africa's transformation towards economic recovery and sustained long-term development. In view of the above many observers view the region's trade and economic prospects as more favourable now than at any time during the past two decades.

Of late, the states in this region are engaged in constructive dialogue to revamp the existing regional groupings and trade blocs. The activation of trade blocs like Southern African Development Community (SADC), Common Market for Eastern and Southern Africa (COMESA), Southern African Customs Union (SACU), Indian Ocean Commission (IOC), East African Cooperation (EAC) and Economic Community of West African States (ECOWAS) has boosted expectations even further. Regional trade agreements can help countries build on their comparative advantages, sharpen their industrial efficiency, and act as a launch pad to integrate into the world economy.

A QUICK look at the World Bank figures will reveal that 13 sub-Sahara African nations (SSA) experienced GDP growth rate of 5 percent or more in the five-year period closing the 20th century. Incidentally, when this figure is matched with the population growth rates, it points towards an interesting phenomenon! The economic growth rates exceeded their respective population growth rates for the first time in decades - an important development indicator. Furthermore, markets in the developed world are getting saturated on the perception that investment opportunities in developed nations are mature - hinting to the fact that greatest risk-reward opportunities are to be found in newly emerging markets. There were desperate hunts for new investment destinations. Naturally, Africa's vast, untapped potential came in the picture frame. The United States and European Union (EU) started taking interest in the African market. These have been reciprocated by more FDI and international involvement in the economy.

New Horizon

The African Growth and Opportunity Act (AGOA) is a major plank of US initiatives towards the African continent. The Act aims at broadly improving economic policymaking in Africa, enabling countries to embrace globalization, and securing durable political and economic stability. AGOA offers increased preferential access for African Exports to the United States. Prior to AGOA, 48 sub-Saharan African countries were granted preferential access to the US market essentially paying a zero tariff (subject to certain conditions) - for a range of exports under the Generalized System of Preferences (GSP). In 2000, the GSP covered about US$4 billion out of Africa's total exports of US$23 billion. The margin of preference the advantage faced by African exporters compared with most-favored nation (MFN) supplier was about 5 per cent (the average MFN tariff rate). AGOA represents two advances over the GSP scheme. These are existing preferential access enjoyed by sub-Sharan African countries under the GSP scheme has been extended in time and there have been inclusion of new products (petroleum products and apparel products). The International Monetary Fund (IMF) observes that AGOA has the potential to raise Africa's non-oil exports by 8-11 per cent annually.

LOOKING at Europe, we find that it remains the biggest market for SSA's non-oil exports absorbing about 55 per cent and it is also the largest importer. A study by the Indian Institute of Foreign Trade (IIFT) reveals that presently about 80 percent of the imports of the sub-Saharan region come from western industrialized countries. Many of these goods, of similar quality, can be supplied in abundance and cheaper by Indian exporters. The study found that the investment opportunities for India in these countries include cement plants, exploration of minerals, light engineering industries such as auto components, bicycles and parts, software, telecom and drugs and pharma products. Items of import interest to India from these countries could cover petroleum (crude and products), gold, pearls, precious and semi-precious stones, cashew nuts and metals. As most of these African countries do not have very well-developed textile industries to carry out forward integration into garmenting, there is an urgent need of technology transfer as well. Project exports also have the potential in the textile sector. Realizing potentials of African nations, India's textile major, Arvind Mills has set up a base in the African nation of Mauritius. Mauritius has been trying to get more Indian textile companies to set up base there.

To reap the benefit of the emerging market which has opened new routes for Indian goods to US and EU, the Government of India embarked upon an ambitious trade promotion strategy; "Focus: Africa", last year. The programme is primarily aimed at sub-Sahara, with added emphasis on seven major trading partners of the region viz. Ghana, Nigeria, South Africa, Mauritius, Kenya, Ethiopia and Tanzania. Under this programme Export Promotion Councils (EPC) are carrying out market surveys for the items which may have tremendous export potential in the sub-Saharan African Region and disseminate information to its members through their publications. The respective councils are also encouraging members to participate in specialized International Fairs. Commodity specific seminars in selected industrial centres are being conducted. The EPCs are bringing out promotional literature in local languages for greater dissemination of product specific information among the local trading community. Besides providing special benefits and facilities, including some special concessions under the Market Development Assistance, the Government of India has also been taking a large number of initiatives by way by of visits by senior policy-makers and diplomats to some of the important sub-Saharan countries.

Conclusion

As regards to international trade, the region has improved its share in the world trade from 0.87 per cent in 1995 to 1.32 per cent in 1999, which is still very low compared to around 5 per cent recorded during 1980s. It is, however, reported that in the year 2000, the share in the world trade improved to about 2 per cent and would further recover in the forthcoming years. Its share in the total trade of Africa also rose significantly from 45 per cent in 1995 to 71 per cent in 1999. This bears testimony to the fact that the rise in the share in international trade is mainly due to the shift in the policies of most of the governments from inward oriented to market oriented.

The winds of change are blowing across the entire African continent, however, much needs to be done for its sustained growth in order to claim a driving seat in the world economy in the 21st century. According to the World Bank, these include improving governance and resolving internal conflicts among the states, investment in human resources for accelerating poverty reduction, increasing competitiveness with diversification of economies and reduction of aid dependence. Observations made by the Regional Integration Facilitation Forum of the trade bloc COMESA, indicate that Africa's investment performance have to be raised from its current rates which is a little below 20 per cent of GDP, to an annual investment rate of 25 per cent. Looking at the FDI figure, what we find is the Net Foreign Direct Investment as a percentage of GDP is little over 1 percent. This when compared with the potential the economies in this region have, looks very negligible. Certainly, there remains enough room to explore the untapped potential. FDI with technology transfer for setting up the manufacturing bases in the region will ultimately results in employment generation and will contribute to the general well being of the Africans. Technological effort is vital to Africa. Using new technologies is not an automatic or simple process. It entails the conscious building of 'technological capabilities', a mixture of information, skills, interactions and routines that firms need to handle the tacit elements of technology. Hence, much of Africa's success depends upon development of its human resources as well.