By Ngozi Okonjo-Iweala
The Dynamism of Africa
For investors, Africa is an exciting place to be. I am glad that many of you are already there. The continent has tremendous investment opportunities given its natural and human resource abundance.
Pre crisis, between 2002 and 2008, Africa was already growing at 5 percent or more. Post crisis, Africa is projected to grow by 5 percent in 2010 and 5.5 percent in 2011, faster than the developed world as well as Eastern Europe and Central Asia, and the Middle East. Today, Africa is among the front-runners in economic growth in the world.
China is part of Africa’s growth story. The economic relationship between Africa and China has been expanding rapidly. Chinese investment can be found in most African countries. One unofficial estimate suggests that more than 1500 Chinese companies have established branches in Africa.
Making Smart and Responsible Investment From China we have interest and demand. From Africa resources and investment needs. The challenge is to make this marriage of mutually beneficial mining investments between China and Africa a lasting one.
Investment in natural resources is a peculiar kind of investment after all. Sunk costs are high and the assets are not mobile. Companies always have to operate within local communities. Discontent from communities or policy reversals by governments is costly.
Investment in mining in Africa has a mixed history and we should learn from it. There are five principles that can be distilled from the past that can help you in making smart and responsible investment decisions. These principles are applicable to every investor working not only in Africa but also anywhere else in the world.
Align investments with countries’ development priorities The first core principle is to make investments consistent with national development priorities. If you want a country to welcome you, think smart and think of the country’s overall development agenda. Ask yourself how your investment fits within the country’s overall development objective and strategy.
Above all, this means to create jobs locally. The only labour brought in from outside must be those people whose skills are clearly missing in a country. This is the path to help ensure governments fully welcome your investments as an integral part of their economic development agenda.
For this to happen, the host countries need to have credible development plans. So for the ministers here today from African nations and other developing countries, I hope you are armed with your countries’ development and investment plans, and are ready to work within them to identify opportunities consistent with your needs and priorities.
The second and most critical principle in making a smart and responsible investment is transparency. It is my experience that the best way to secure a stable environment for your investment is to enter into arrangements with host governments and local communities in a transparent and legally sound manner consistent with international norms.
This is also the best way to manage risks. Many of you are operating in some challenging markets. In the event of problems with the population or government, you want recourse to adequate legal support to resolve the issue. That can’t and won’t happen if transactions are mired in secrecy. You need to let the people know the scope and broad terms of your engagement.
If the public doesn’t know what you do, they will turn against you as they do not see the benefits of the investment or when accidents happen. My own country Nigeria may serve as an example. Dysfunctional relationships between the local community and oil companies led to disruptions in operations in the Niger Delta, and the cost of investment increased exponentially due to security issues.
The need for transparency is even greater when mining contracts are awarded in exchange for infrastructure and other investments. Today, many big Chinese construction companies are developing infrastructure projects in Africa. Some of them have proposed infrastructure investments to be backed by mineral resources.
We all would agree that support for infrastructure is much needed as the continent faces an infrastructure financing gap of $31 billion a year. But investments in infrastructure in exchange for long-term contracts for minerals are inherently difficult to value. It is precisely in these cases that the agreements must be fully transparent so that citizens can form their own judgment on the basis of full information.
The third principle of smart and responsible investment is supporting the development of a value chain. Mining companies should not just come in to extract natural resources in a raw form and ship them away.
This is colonial history. Today, they should establish some degree of processing adding value to the raw materials. This creates employment, develops skills, and leads to more buy-in from the local people. Development in the mining sector also provides growth opportunities for other linked sectors.
If all the associated services can be sourced to domestic providers such as domestic food production for miners, uniforms made from national cloth by local manufacturers, and domestic transportation services, it would put your investment squarely in the center of local economy.
Pay What is Due and Do What is Right
The fourth and very important principle is to pay what is due and do what is right. Investors must pay taxes and avoid falling into well known tax evasion techniques such as transfer pricing or bribes to a few high level officials. Bribe paying is not only abhorrent but is counterproductive in the longer term. Many developing countries need tax revenue to invest in their people – a move which will lead to easier investment for you, but for that to happen, you must pay your proper taxes and royalties. It is impossible to imagine today with all the mining going on in DRC, for example, that the revenue to GDP ratio is only 8 percent. We owe the people of DRC more.
To do business in Africa, you don’t have to pay bribes. My good friend, and one of the most successful African businessmen, Mo Ibrahim, is a living proof of that. Mo was the founder of Celtel, which is now one of Africa’s largest mobile operators worth some $10 billion with some 20 million subscribers in 15 countries. He can tell you that successful investments can be made with clean hands. In July this year, the U.S. finally passed the financial reform bill that requires oil, gas and mining companies to disclose payments they make to foreign governments. We hope other countries do the same.
At the World Bank, we are working with countries to encourage them to sign on to the Extractive Industry Transparency Initiative (EITI) principles. This requires they publish revenues from mining resources and agree to use these resources efficiently for the benefit of the people. Today, twenty African countries have signed on to these principles. When I was the Finance Minister in Nigeria, one of the key actions I took to restore people’s belief in their government was to work on a sound public