Obama in Africa: Too much talk about ‘investment’, not enough about political economy

Obama is touring Africa, and all the talk has been about how this is meant to lay the stage for an increased American effort to invest across the continent.  More specifically, it is investment and business development that is meant to counter the weight of China’s interests in Africa.  But there needs to be more to Obama’s tour than that – if this is just a ploy to try to go toe to toe with China in Africa on economic terms, I think the U.S. will be missing a bigger opportunity to affect poverty reduction and growth in a much larger way.

The first thing that deserves some critical analysis is what we mean by “investment.”  Are we talking about commercial investment?  How about investment specifically aimed at reducing poverty?  Telecoms are pretty active across the continent, and there are pockets of technology industry in Kenya, Nigeria, South Africa and Ghana.  But none of these are developed enough to be strategic sectors for investment at volumes that investment banks deal with, except perhaps in South Africa.  Furthermore, I’m not sure there’s really a market in Africa, whether it’s bonds or industrial, that is developed enough economy of scale for money center banking entities to get involved (again, except for South Africa).  This could be where well thought out venture capitalism can be useful, especially if it’s homegrown, but big, debt-oriented investment from external sources hasn’t proven particularly good at stimulating poverty reducing growth in sub-Saharan Africa and likely won’t for some time.

If we are talking about investment as a mechanism to compete with China, we might want to pause and think further about that too.  First, does China really “invest?”  Indeed they extract raw materials and in exchange build infrastructure.  But they’re a manufacturing economy, and the materials they take out aren’t meant for resale on the global commodities exchange.  They also send in their own labor to do all this.  What they take out goes back into their production industry.  The U.S. can’t compete with that since our economy isn’t geared around manufacturing.  What about petroleum?  American oil companies have been in Africa for years, but again, is that poverty reducing investment?  It’s hard to claim that multinational corporation-led oil extraction benefits African citizens, either economically, or politically.

Instead of ‘investment’ perhaps we should be talking about ‘political economy’.  Does a country like the Democratic Republic of Congo or Mali have the economic fundamentals to make investment useful for both the local population and the investor?  These include things like a stable currency, cash reserves, the ability to sell central bank bonds, business-relavent infrastructure, a tax system, and socio-political stability.  Without these basics, venture capitalism and investment won’t spur growth, they’ll just trap African economies in the same kind of debt cycles that the World Bank and IMF dropped on the continent with in the 1980s and 90s.  If we want to invest sustainably and compete with China in Africa, we need to see investment in African countries as more than frontier bankers getting double digit returns, and start seeing it as the long term commitment to supporting fundamental political economic processes where poverty reduction and good governance are the key indicators of success.

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One thought on “Obama in Africa: Too much talk about ‘investment’, not enough about political economy

  1. Pingback: China to United States: We’ll see your “investment” and raise you a peacekeeping deployment | Blue Helmets, Big Data

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