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Tuesday, March 29, 2016

Africa must stop making bad investment deals

Africa is the second most attractive investment destination in the world, behind North America. According to the Nielsen report, which provides a ranking of business prospects for leading markets in Sub Saharan Africa, Kenya, Tanzania and Uganda are among the top investor destinations on the continent.

According to McKinsey, the rate of return on Foreign Direct Investment (FDI) is higher in Africa than in any other developing region. Moreover, with rising labor and production costs in Asia and elsewhere, manufacturers in China, Turkey and India turning to Africa with larger investments. However, FDI flows to Africa are imbalanced. Huge proportions of FDI have been directed to extractive resources (mining and hydrocarbons), infrastructure and services. It is estimated that more 2,000 Chinese companies have invested in Africa’s extractives, finance, construction, infrastructure, and energy sectors.

So far the benefits of increased FDI have been everything but equitable. The job market has been feeble at best, with a hundreds of thousands of poor quality, low wage jobs created in sectors like retail, transportation and hospitality. The surge of FDI has coincided with the longest run of jobless GDP growth. In Kenya, Uganda and Tanzania, inequality and poverty have deepened. This is hardly surprising because limited investments have been directed to sectors like manufacturing and agriculture, which potentially have the greatest multiplier effects in the larger economy.

The surge of FDI in Africa has without doubt sparked tremendous GDP growth. The tragedy is that this growth has failed to create good jobs for Africa’s large and growth youthful workforce. Something must be done to end this blistering summer of jobless GDP growth. In my view, Africans must deliberately plan their development path, and choose an optimal mix of FDI portfolios. It would be imprudent on our part to imagine that companies and countries that invest in Africa are angelic, full of compassion and have a preordained mission to help us.

Relations are sovereign or corporate and the currency is self-interest. In dealing with investors we must not be naïve. We need a simple criteria for negotiating investment deals; if does not drive quality GDP, with jobs and poverty reduction there is no deal. In Donald Trump speak, Africa is making some really bad deals and our so-called friends are ripping us off. We need to start winning.

Africans must begin to talk straight with potential investors. Priority investments should be in agriculture and manufacturing. A critical requirement for investments in the service sector must be to support the emerging agri-business and manufacturing sectors. Synergy must be the sine qua non for doing business and investing in Africa. No more primary products from the Africa. Products will only get onto the ship if they are semi-processed. For investors in our booming service sector, 40 percent of component parts must originate from the continent. Africa must be a warehouse economy no more.

But writing bold and tough deals alone won’t cut it. We must invest in building high caliber human capital. The masses of semi-literate youth we churn out of our school system will not do if we demand FDI in agri-business and manufacturing.

The curriculum reform that is afoot in Kenya must be about learning. The problem with 8-4-4 is not content. The problem is that students are not learning. Reforming the curriculum alone won’t cause students to learn. We need an army of well-trained, well-paid and dedicated teachers.

We must restore the joy of learning, shorten the school day and make transition from primary to secondary not conditional on national examinations. Moreover, standardized examinations, undermine learning, privilege rote learning and incentivize cheating.

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