Address by the Minister of Foreign Affairs, Dr NC Dlamini Zuma at the Gordon Institute of Business Science, University of Pretoria, Illovo Campus, Sandton, 26 July 2004

Chairperson,
Professor Nick Binedell, Director of the Gordon Institute of
Business Science,
Distinguished Guests,
Ladies and Gentlemen,

Firstly, I would like to thank Professor Binedell, Director of the Gordon Institute of Business Science, for inviting me to address this esteemed audience on a topic of "The Politics of Investment in Africa: Risks and Returns"

Investment in Africa is critical to the realisation of the African Renaissance - a peaceful, stable and prosperous Africa. This can only be realised through the collective efforts of Governments, business and civil society.

When talking about the politics of investment, one cannot escape looking at Africa's history, the present and the dream and vision of the future. Slavery, colonial and apartheid rule on the Continent can only be described as the most brutal and systematic period of asset stripping in modern history. The best of Africa's human capital and natural wealth has been ruthlessly exploited for the benefit of a small elite and foreign countries.

That is the past, of course, one cannot sit and lament the past forever. The African leadership in the 60's took the decision to unite and struggle until all the African countries are liberated. That, by and large, has been achieved with the exception of Western Sahara.

Our history poses great challenges for all of us in the 21st, which we have called the African century.

At this point in time, Africa has a critical mass of leadership that has understood what needs to be done to create a sustainable investor-friendly environment and to meet the general requirements of the African Renaissance. Africa also needs business leadership who has dreams, creativity and a vision that will enable the Continent to confront these challenges.

What is being done to ensure that such an environment is created and sustained?

On the Continent we have witnessed very fast and positive developments that have seen the transformation of our Continental organisation, the OAU to the AU. In line with the notion that it is all in the genes, organisations like the OAU had to make sure that its genetic make-up is able to evolve with the challenging environment and demands of the 21st century.

Borrowing from the Financial Mail article, "It's all in the genes", the OAU "like Professor Bindell and others was of the belief that its DNA is changeable, it learned how to debrief itself and abandoned old attitudes, behaviours and practices and was not only able to absorb new information, new behaviours and habits but was able to abandon these that no longer served it and hence the movement from the OAU to the AU.

Amongst these major changes, it has realised that the Continent will never reach its full potential of development if it continues to marginalise women and leave them out of the decision-making echelons, both at the AU level but also at the national level and hence the bold decision to have gender parity at the Commission level and in all AU institutions and at the national decision-making structures, e.g., Parliament, the executives, civil servants, courts, public universities, diplomatic corps, etc and that all Heads of State have to report every year at the Summit on progress in this regard.

The AU has not only the new structure but has a new vision, new strategy and new policies that will guide it through the coming decades. All these efforts are important in producing an environment, which promotes sustainable development.

The sceptics said that this does not mean anything: we have only removed an O from the OAU and everything will remain the same. But now there is consensus that the AU is definitely different from the OAU. That beyond just the change of name, the genetic make-up has been transformed.

Two broad priorities which are the two sides of the same coin have been identified, peace, stability, security on our side; development and economic prosperity on the other, both underpinned by democracy, respect for the rule of law and human race and good governance.

Let us have a look at what has been achieved.

The Assembly, the Executive Council, the Commission and the Committee of Permanent Representatives are now fully operational. The creation of a Peace and Security Council gives both a political and legal framework for dealing with the full spectrum of conflict resolution from the early warning stage to conflict resolution to post conflict and peace management and post conflict reconstruction.

Darfur is one of the first conflicts that we have to deal with. It has also taken on all the other conflicts and is giving leadership and action where necessary.

The inauguration of the Pan African Parliament as one of the fundamental institutions for nurturing values of democracy, respect for human rights and good governance has taken place.

South Africa has been provided with an historic opportunity by the African Union to be the Permanent Seat of the Pan African Parliament, which will have its Second Session in this country in September 2004. The AU's offer for us to host this Continental Parliament is, indeed, an indication of confidence in our abilities to host, but more importantly in the sustainability of our democracy and stability.

You are equally aware that the Peace and Security Council (PSC) was inaugurated on 25 May 2004 in Ethiopia. The launch of the PSC was a historic moment giving us a framework for conflict prevention, management and resolution and for peacekeeping and peacebuilding. This new organ signifies our determination and unwavering commitment to rid the Continent of any form of instability and to ensure that enduring peace reigns on all corners of our Continent. A well functioning PSC bodes well for a continent in the midst of an unprecedented renewal. An Africa renewing itself.

As a member of the PSC, South Africa will do all that it can to ensure effective functioning of this important instrument of African Peace. As such, we shall continue to contribute to the various conflict resolution and post-conflict reconstruction efforts that we are engaged with on the Continent. We shall do so, because we remain steadfast in our assertion that peace and sustainable development are the necessary conditions that will give meaning and content to our desire to ensure a better life for all Africans. Through these efforts we are certainly investing in Africa's present and future, bringing forward the dawn of a better tomorrow.

The PSC held its first session at the level of Heads of State and Government, where it took a decision to deploy AU military observers and members in Darfur, in Western Sudan. The AU through its Peace and Security Council also intends to deploy about 300 troops to protect its observers and civilians in Darfur soon.

Significant work is in progress in respect of establishing an African Standby Force which can be rapidly deployed and an Early Warning System to bolster the effectiveness of the Peace and Security Council.

Africa is, indeed, currently engaged in profound and fundamental processes of renewal. This is part of the second wave of democracy to sweep the continent in recent years beginning with the liberation of South Africa in 1994. The over-arching objective is to break the vicious cycle of political instability, poverty, and underdevelopment, as well as to strengthen Africa's capacity to defend and advance her interests in the global arena. The key building blocks of this strategy are increased political unity and concerted action through the new African Union, and accelerated socio-economic transformation through the New Partnership for Africa's Development (NEPAD), which is the AU's programme.

To this end, in May this year, African leaders met in Maputo, Mozambique, as Heads of State Implementation Committee to review the progress made in respect of NEPAD. Among others, they agreed on accelerating the priorities of NEPAD in general and the building of infrastructure and the provision of food security in particular. We assert that NEPAD is an integral part of the African Agenda designed for Africa's regeneration and renewal, whose success is dependent upon the collective ownership by all Africans on the continent and in the Diaspora.

It is on the basis of NEPAD that Africa continues to interact and partner with both the developed and developing world with a view to pushing back the frontiers of poverty and under-development. In keeping with the recent practice of the G8 leaders to engage with African leaders on NEPAD, we have just returned from the USA, where we explored with the leaders of the G8 Africa's increased access to support, financial and institutional, for the implementation of NEPAD.

NEPAD is also endorsed as the framework for South-South cooperation. In this regard, our President, President Thabo Mbeki has been invited to address fora such as the Asia-Africa Sub-regional Organisations Conference (AASROC) - explain - the China-Africa Cooperation Conference Forum, and the Non-Aligned Movement on the NEPAD. NEPAD also provides us a framework of operation in our interaction with our partners in the recently formed India-Brazil-South Africa Dialogue Forum (IBSA). These initiatives are important because they also signify a South Africa and an Africa that is looking East and also looking South for investment opportunities and economic potential as well as seeking investment from these largely untapped markets in its own economies.

NEPAD has also been endorsed by the United Nations (UN) and is now the framework for all UN involvement in Africa.

Ladies and Gentlemen

In the pursuance of good governance, accountability and transparency, an African Peer Review Mechanism (APRM) has been established to promote the sharing of best practice and peer learning.

The primary purpose of the APRM is to foster the adoption of policies, standards and practices that lead to political stability, high economic growth, sustainable development and accelerated sub-regional and continental economic integration through the sharing of experiences and the reinforcement of successful and best practice, including the identification of deficiencies and an assessment of needs for capacity building. In other words, APRM is our unique way of peer reviewing ourselves, learning from ourselves, correcting ourselves and doing what we believe is right.

Participation in the APRM is voluntary and open to all member-states of the AU. It is envisaged that participation in the APRM will expedite social, economic and political reforms, consolidate democracy and sound economic management, enhance transparency and the accountability of leaders and deepen trust and cooperation among governments and countries.

The determination of criteria, standards and indicators and the modalities for operationalising the process have been finalised and the first set of reviews have begun, starting in Ghana.

Twenty-three (23) AU member-states, including us, have signed up for review, and still others will be inspired to join as it success becomes evident. We are anticipating that the results will have a very positive effect on investor sentiment.

The APRM process will also focus on accelerating the transformation of public service institutions and increasing their effectiveness and efficiency in service delivery. Thus, the review process will examine aspects of socio-economic delivery and performance.

What is the progress on other institutions?

The Protocol of the African Criminal Court and Court of Human Rights has been completed. The African Court for Human Rights is in the process of being established - judges are being recruited. For the criminal court, the Protocol is in the process of being ratified by the national parliaments. The statutes for the economic and social and cultural commission has been completed, and is now being set up. All this has happened in only two years. This is unprecedented to reach consensus on so many major issues in such a short space of time. Even in smaller organisations, they took years to accomplish what we have in exactly 2 years.

Next we shall be embarking on the development of the protocols of the financial institutions:

African Central Bank
African Development Bank
African Monetary Fund
This will then complete the major institutions of the AU.

Ladies and Gentlemen,

Africa today is beginning to have the sort of profile that we would all like to see. It has moved to the centre stage of the international agenda and features prominently at all major conferences.

The international community, led by the UN and the G8, the latter through its Africa Action Plan, has welcomed current positive developments in Africa. Countries on our Continent continue to enjoy preferential access to Europe (under the Anything but Arms Initiative). Economic relations with the US are guided by the African Growth and Opportunity Act (AGOA). The latter has recently been extended to 2015.

The issue of market access is crucial at this time, as the parties in Geneva at the World Trade Organisation (WTO) attempt to reach a framework agreement for the resumption of the Doha Development Agenda. Central to these attempts is the issue of how to improve agricultural market access for developing countries. As we all know, this is affected not only by tariffs and other trade barriers, but also by subsidies, both through domestic support measures and through export subsidies. These latter measures have rightly received widespread condemnation for the pernicious effect they have on African producers. They make it unproductive for farmers to continue working in their own countries by undercutting the prices at which it is economical to farm. It would seem that there is acceptance in Geneva now that export subsidies must go, and this is certainly encouraging.

However, market access, with trade-distorting subsidies removed, will not by itself solve Africa's problems. We have seen how little difference tariff-free access for practically all products has made to the Least Developed Countries in Africa. What they have lacked is investment: investment in productive capacity to help them improve and develop their products so that much greater value can be realised. Without this investment, they will be condemned to forever sell their unprocessed products, at sometimes wildly fluctuating prices, to others with capital, who can process them and realise their full added-on value.

Capital flows are crucial to the industralisation of the continent. At this point in time the majority of countries that need capital are still nett exporters of capital. This clearly needs changing. Let me share with you something I find very interesting. According to the World Bank remittances which ordinary African workers while working abroad send home to their families constitute the 3rd most important sources of external finances for the continent. The other 2 of course are Bilateral Aid and foreign direct investment.

According to the World Bank's annual report of 2003 workers remittances reached 4 Billion Dollars in 2002. This means that the many thousands of ordinary African men and women who often work under very difficult circumstances what they are investing in their home continent exceeds the entire amount of loan capital that the private sector made available to Africa in the same year.

The total amount of remittances has doubled every 2 years, if this trend continues the amount may reach 6 Billion Dollars in 2004/2005. This is a contribution to poverty alleviation.

The ordinary people of Africa lead the business world by example. Now the environment should be conducive enough for the private sector to invest a lot more.

What are some of the Risks to Investment

  • Conflict or war, but this is being vigorously addressed where it exists
  • Unpredictable legal and policy environment and high dependency on personalities rather than entrenched systems and institutions
  • In some places there is entrenched corruption
  • Weak or bad Government and bureaucracies
  • Unpredictable tax system
  • Currency volatility
  • Poor transport infrastructure (rail and air)
  • Weak private sector
  • Low skills base in some countries
  • General underdevelopment

There are also misconceptions:

Generalisation: Inability to differentiate the strengths and weaknesses of each country. Treating the continent not only as a solid geographical place but also as though it was one country.

International NGO's: These sometime exaggerate situations so as to raise money in their parent countries for an example in 2003 several well known NGO's based in the United Kingdom had to withdraw their claims that Southern Africa was in the grips of a famine of biblical proportions. After an independent review showed that these claims were made public because of internal funding pressures on the NGO's themselves.

Misconceptions about crime, diseases and conflict. We have to battle with these misconceptions all the time. The truth of the matter is that opportunities and returns outweigh the risks.

The good thing is that most of the risks can be turned into opportunities.

  • Africa is very rich in raw materials, which it gets very little for. The major issue is how do we make sure that it adds value and is beneficial the raw material. How do we change it into an industrial continent?
  • How do we change Africa into a place of scientific and technological innovation?
  • Africa is very rich in oil but it does not even have a big oil company to speak of.
  • It is a big producer of gold, the majority of which is refined outside the continent. Other precious metals include diamonds, platinum, cobalt, to mention a few.
  • Africa also has a significant number of cocoa plantations but hardly has any chocolate factories. Most of its cotton is exported raw and so is its coffee and so on. Many countries still sell cattle on the hoof to other countries - there is no meat industry. There no facilities for food storage. There is no agro industry and the fruit cannot be turned into juice or dried fruits, to mention a few problems.
  • Dairy products are imported even though they have milk.
  • Timber logging companies from outside the continent even exploit the lack of capacity to monitor quotas.

Africa:

  • Has a very long coastline but fisheries are rudimentary;
    Marine transport is also an area of importance, but neglected;
  • Rail development for movement of goods and people;
  • Tourism - Africa is a world in one Continent, every type of tourist can find what they are looking for;
  • Pharmaceutical industry and medical equipment. Different variety of animal and plant species and megadiversity;
  • Leather industry;
  • ICT is a growing industry but needs to even catch up with other Continents. These are just a few examples of what is available on this wonderful Continent of ours;
  • Telecommunications;
  • Because there is nothing, everything is an opportunity.

Opportunities for domestic and international investors abound as the NEPAD infrastructure and agriculture projects come on line. The infrastructure projects are in the energy, transport, ICT and water and sanitation sectors, among others. It is important to note that the World Bank Board approved funding for two major projects in November 2003, namely the Southern Africa Power Market Project and the Southern African Regional Gas Project. In this way, the foundation is being laid for harnessing Africa's resources for Africa's own benefits.

These are just examples of a few of the opportunities.

  • Labour is abundant and reasonable
  • If we develop industries - very skilled African human resources in the developed countries will have incentives to come back
  • Africa is a large market
  • Regional integration will also consolidate the regional markets and simplify trade
    High demand for manufactured goods
  • Demand for the banking sector

It is clear that the opportunities far outweigh the risks.

Business leadership and investment is very important for turning this situation around. A hard-nosed businessman confronted Marcel Proust, the French philosopher and author. The businessman who had no time for ideas told Proust that a little dreaming is dangerous. Proust responded as follows "if a little dreaming is dangerous the cure is not to dream less, but dream more and dream all the time".

Today we all accept that great new business ventures are built on dreams. Business history demonstrates clearly that to invest successfully in new ventures requires boldness, the ability to dream and a vision of doing things in a new way. The ability to be able to adopt and endure the genetic make-up of the company.

Africans are pursuing their dreams. They are taking the initiative to invest in Africa and are helping each other. They are shaping their economic security and prosperity for the future.

The Captains of industry have to play a critical role in assisting in pursuing these dreams. I am glad that a lot of South African companies are already doing exactly that.

What are the Risks?

Of course we have to work in partnerships so that we can assist in bilateral agreements that are needed to protect investments, deal with taxation and a whole range of other enabling agreements. We believe that our continent is now a place of hope. We are expanding our presence in our continent, with the hope that in about 5 years we shall be in almost every country. To date we are in 32 countries.

Partnership with government is important. One of the biggest opportunities in our own country came about there's a small collective investment between Industry, Government and Sports. The return on that modest was the spectacular wining of the 2010 World Cup. Africa will host the biggest sporting festival, the World Cup. The real return will be large.

The good news is that the World Bank forecasts 7% real GDP growth for the whole of Sub Saharan Africa for 2005. A third of Africa's states have sustained economic growth rates above 4% for more than a decade. Africa is not, as often stated, only dependent on the extractive industries. Many countries have developed sophisticated and diversified economies. According to Standard Bank's research financial and business services are now largest contributors to South Africa's GDP (21%) followed by manufacturing (19%) and general government services (16%). The mining sector contributes 6% of GDP. The same holds true for Nigeria, sub Saharan Africa's second largest economy where a recent study shows that the manufacturing sector attracts more than half of the country's FDI projects.

It is therefore not surprising that the World Bank in its most recent annual report finds that Africa offers the highest return of foreign direct investment anywhere in the world. Similarly, a recent study of investment by American transitional corporations in Africa over the last 12 years shows that their FDI returns have averaged 29% annually with higher returns than any other of the regions world-wide.

In conclusion, I believe that you, the captains of industry, have a central role to play in unlocking the potential of our African Continent and participating in its growth and development. The imaging and dream of a new Africa cannot be that of Government alone, but ought to be as a result of the collective thinking of a range of sectors and players on the continent.

Indeed, as Callisto Madovo and Jean-Louis Sarib, Vice Presidents of the World Bank has observed in 1997 in their paper entitled A New Africa is Generating Success and Hope, Africa is on the move. "From Mali to Uganda to South Africa, hope and real success are transforming the continent. A new spirit of social and economic progress has energised much of the region".

Let this spirit be part of who we are and why we do what we do. For the sake of our children who are Africa's children, and for the sake of our future which is Africa's future, let us work together and invest in the present so as to build a better tomorrow, an Africa not in the throes of poverty but indeed in the midst of an enduring Golden Age.

Thank you very much for your attention.

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