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Attractiveness to investors
Since the collapse of communism in Russia and Eastern Europe, individuals and institutions with capital to invest have had a balance of power in the money and capital markets. Countries in need of investment have to compete for investors worldwide.
In the magazine BBC Focus on Africa for October-December 1005 we read of an overseas organisation called Standard & Poor (S & P) which rates 13 African countries with regard to their ability to attract investors. These countries are Benin, Botswana, Burkina Faso, Cameroun, Egypt, Ghana, Madagascar, Mali, Morocco, Mozambique, Senegal, South Africa and Tunisia. S & P does not rate the rest of the African countries. It considers them unworthy of the trouble.
Institutional and portfolio investors do not want to invest in countries where they are likely to face unbearable risks. They rely on the information they get from organisations like S & P on the eligibility of countries for investment.
Investors interested in oil and minerals are facing slightly a different situation. While the risks may be high the profits and dividends may be higher still. Oil and mineral companies therefore use different yardsticks in making investment decisions.
Of the 13 countries surveyed by S & P South Africa, Botswana and Tunisia score highest marks. South Africa is admired for its macroeconomic policy and its truly independent central bank, the Reserve Bank. South Africa, moreover, has a well developed and highly efficient capital market. Its external debt is only 20 percent of the GDP which is low enough by world standards. This is a rare situation in Africa.
Botswana has a small population but plenty of diamonds. Its finances are well-managed. It has frequently achieved the highest rate of foreign reserves in relation to the size of its population.
Both South Africa and Botswana are not however as perfect as paradise. They are among the worst affected by HIV/Aids. This scourge pruned the flowering youth so essential in the management of an economy.
Quite a few attributes either attract or repel potential investors. Top on the list, of course, is peace. Who would wish to go out and invest in a country where people are perpetually killing one another? Peace must be preserved at all costs because without it there can be no meaningful economic and social development.
If a country is to attract customers it must have political stability. Investors want to be sure that the government with which they are signing a contract will be there at a certain future date to review the contract. Frequent changes of government often involve repudiation of agreements on matters like repatriation of capital and profits.
It is better that changes of governments should be spaced according to constitutional provisions. There must be political tolerance and willingness to compromise. Diplomats have recently made observations that the quarrels between leaders in Malawi may scare away capital donors and investors. We wonder whether our leaders have taken heed of this. The chances are that most of the vocal among them are indifferent to what might happen.
The availability of natural resources is an initial advantage. Countries with minerals attract venture capital. Foreign direct investors will often go to countries with minerals or oil but rather short on political stability. They have been known to go to countries once troubled with civil war as Angola and Sierra Leone. In such cases they usually bribe the combatants not to attack them.
In the world of today inadequacy of natural resources is not as much a disadvantage as it was before the era of industrialisation, Japan, Singapore and Mauritius have been industrialised and are enjoying high standards of living though they did not start with abundant natural resources.
A literate and skilled population attracts certain kinds of investors known as offshore. Multinational companies shift some of their plants from high cost countries to lower cost countries. India has been attractive to many American British and Japanese multinationals because it has a highly skilled English speaking workforce that can do the jobs at a fraction of the wages paid in the home countries of the multinationals.
A country attracts investors if it has an efficient and corruption free government. In some of the development countries it takes several months or years to acquire a trading licence which in developed countries is just a matter of days. Red tape and bureaucracy frustrate would-be investors who all the time are racing against time. The wrangle in Malawi between the opposition and the government in Parliament over the K5 billion scheme is a typical case of what waste can put off potential investors.
A country in which corruption is rife is unattractive to investors. Corruption takes place at the time of granting tenders, customs or drawbacks. Officials tend to delay processing a business application unless the applicant gives them a bribe. They do not of course call it a bribe. They call it something else.
The prevalence of crime is an obvious obstruction to investors. When a visitor comes to a country and is robbed he goes back home and warms others not to go there. The existence of robbers armed with AK 47 rifles is a bad image for Malawi. Surprise military checks called Operation Bwezani (Surrender the unlicensed weapons) appear to have made little difference. Gun trafficking still goes on.
The macroeconomics must be right. Investors from abroad enquire what local banks charge for loans. Countries where banks charge high rates of interest are not very attractive to investors. Besides high rates of inflation shortages of foreign reserves also deter investors. A government that wants to attract foreign investors must therefore take measure to stabilise both the internal and external value if its currency. Not that it is easy to do so.
The physical infrastructure must be in place and up to date. That is railways and roads. Transportation must not be expensive. Malawi suffers from being landlocked. President Bingu wa Mutharika assures the nation the Shire River Project that will connect Port Nsanje in Malawi to Port Chinde in Mozambique will result in reduced costs of exports and imports. Let us hope that there will be adequate investment in the catchment area for traffic otherwise we may be faced with a white elephant.
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