Contributed Articles
Africa: An ideal continent for Foreign Direct Investment( FDI)
By Berhane Asgedom
Jul 30, 2008, 5:56am

It is unfortunate that many people outside and inside Africa, portray Africa as a continent of political turmoil, civil unrest, war, poverty, starvation, and disease. This is not a true picture of the majority of African countries; even though in some countries these unfortunate conditions prevail; what is true about the continent, however, is that as a result of weak economic performance over a long period of time, Africa has lagged behind that of other developing regions.

In numerous development discourses it is explained that the insignificant foreign direct investment inflows in the continent as one of the main reasons for its low economic growth. Most Africa governments seem to have agreed to this notion.

It is widely believed that foreign direct investment in Africa can make an important contribution to the economic development of the continent. Most governments in Africa recognize that Foreign Direct Investment (FDI) is necessary for the development of their countries; they consider that without FDI there will be no growth, for FDI, among other things, promotes efficient management of resources, technology, competition, and access to global markets. In general, therefore, the private sector is perceived as the engine of growth by many African countries. Thus, to achieve economic development through trade and investment, African countries have exerted their utmost effort and done much to create a business-friendly environment to promote local as well as foreign investment.

It is this perception, the indispensable role of Foreign Direct Investment in development, which propelled virtually all African countries to actively seek and welcome FDI. Consequently, African countries have made considerable efforts over the past three decades to improve their investment climate and thereby attract foreign investment. To mention but few: they have liberalized their investment regulations and have offered incentives to foreign investors. As far as efforts to attract foreign investment in the continent are concerned, the Africa saying which goes as follows explains the situation better.
Every morning in Africa, a gazelle wakes up. It knows it must run faster than the fastest lion or it will be killed. Every morning a lion wakes up. It knows it must outrun the slowest gazelle or it will starve to death. It doesn’t matter whether you are a lion or a gazelle. When the sun comes up, you better start running (Thomas L. Freidman 137:2006).

Despite all efforts to attract potential investors, however, apart from traditional sectors, such as the mining and petroleum, transnational corporations discount the African continent as a location for investment because of the widely spread negative image of the continent. As a result the existence of tremendous investment opportunities in many African countries remain concealed.

The fact that Africa is a continent endowed with abundant natural resource, cheap labor, favorable climate, and strategic location, would make it highly profitable for foreign investors. Therefore, I do not see any economic justification why most foreign investors simply write Africa off their list as a location.

From business/profitability point of view one could list a number of Africa countries to be ideal locations for investment; if objectively and closely examined Eritrea would be one of the best location for foreign investors in the Easter Africa for the following reasons:

• First and foremost, the country recognizes the role of the private sector in economic growth and development. Consequently, the Eritrean government has heavily invested on infrastructure developments to promote domestic and external interconnectivity, thereby enhancing trade. More importantly, cognizant of the paramount importance of peace and security in the realization of economic development, the government has committed itself in various ways to assisting the efforts of regional initiatives to attain durable peace and stability in our region (The Horn of Africa).

•The other thing which could give Eritrea the advantage of being an investment location is its strategic location. Eritrea’s strategic location along the Red Sea provides ideal exposure to tone of the world’s busiest shipping lines and established linkages to other areas of the region and beyond. The Port of Massawa is a transit point for goods to the Middle East, European and Asian Markets. The development of the Ports is poised to bring about potential gains to trade. Furthermore, the establishment of Free Port Zone at Massawa is further expected to boost trade prospects within the already established Middle Eastern and African markets. The Massawa Airport is equally capable of facilitating traded goods in transit to regional and global destinations (COMESA, 2007).

•As far as investment opportunity is concerned; the country has untapped potential in agriculture, exploration activities (mining), manufacturing, tourism, and services. Besides, Eritrea is a member of different regional organizations, among which COMESA is one. According to COMESA’S report, Eritrea participates in the COMESA Free Trade Area (FTA); subsequently goods originating in Eritrea attract a customs duty of 20% in the FTA. Furthermore, Eritrea has signed the COMESA Re-insurance Company (CEP-RE charter as well as the Leather and Leather Products Institute (LLP) Charter. Eritrea’s membership to various organizations suggests its regional commitment. This implies that investors in the country would have the opportunity for accessing a large market in the Africa continent.

In conclusion: I presume the above positive aspects, which are highly relevant for foreign investors found in Eritrea are little known. Therefore, foreign investors need to explore Africa and consider the countries individually; because profitable investment opportunities are to be found in Africa, in particular in Eritrea.

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