158 DOING BUSINESS IN AFRICA


Of these factors, corruption is the


most salient and the most worrying. It complicates the process of entry and, in combination with the other factors mentioned above, makes business operations difficult and more expensive. However, studies have shown that


the risk factor of corruption is quite often exaggerated. Assessments by private rating agencies have been criticized as being based on media reports and not on experience, as well as being “biased against poor or smaller countries” (Elizabeth Asiedu and James Freeman in the Review of Development Economics, 2009). This must not be misinterpreted to mean that the evil of corruption is being denied or downplayed, but it does mean that the investor should be circumspect.


Corruption and regulation Corruption is engendered by several factors that fall under the rubric ‘regulation’, according to Paolo Mauro, division chief at the fiscal affairs department of the International Monetary Fund (IMF). These factors are trade restriction, government subsidies, price controls, multiple exchange-rate practices, foreign exchange allocation, low wages in the civil service, natural resource endowment and psychological factors. The positive news is that the governments of African states are adopting the correct measures, where necessary, to deal with any adverse effect and provide investor-friendly regimes. Most countries in Africa have set


up agencies to fight corruption, and though success is uneven and commitment questioned in some cases, the populace is angry and pushing governments for firmer action. As an aside, do investors


unwittingly contribute to corruption? Do any come with a mindset conditioned by


INVEST IN AFRICA 2011


what they have read or heard, to join the rot in order to get through?


Political stability and security It is understandable that political stability and security should be concerns for the investor. It has been a difficult process, but clearly the Peace and Security Architecture of the African Union (AU) is largely succeeding in ensuring political stability in the continent by leaving no one in doubt that undemocratic accession to power is no longer accepted. The days when a


No investment has been lost as a result of regime change. Successor governments have respected agreements


subaltern went onto radio or television to ridiculously announce a ‘dawn-to- dusk curfew’, and a takeover of government by the military, are almost entirely over. Any military adventurer has to think long and hard, because he faces ostracism. And to avoid circumstances that


encourage military incursion, the AU is continually nudging those leaders that have overstayed to relinquish power. The process of democratic succession has not always been smooth, and where


elections have led to conflicts, the AU has stepped in to ensure justice. But the interventions of the ‘international community’ – the code phrase for the United States and the European Union – in some of the conflicts arising out of disputed elections have not always been helpful. They have been perceived to be partisan, and tend to subvert the best efforts of the AU for a solution. However, no investment has been


lost in Africa as a result of regime change. Successor governments have respected agreements with investors. What hurts investment is political instability that is accompanied by lack of security.


Labor market The labor market in Africa is thickly populated, with massive and debilitating unemployment. Many able-bodied young people are without work. University graduates sell prepaid mobile phone cards, some are newspaper vendors, and others operate the motorcycle taxi popularly known in Nigeria as the ‘okada’. Yet every year, people graduate from the tertiary institutions in increasing numbers. Ironically, the labor market lacks


the proper expertise needed to drive the economies of African countries. Without downgrading or deprecating the status of any discipline, the lack of opportunity for science education must be addressed, because a great many of those who read non-science subjects do so not by choice, but by necessity. Non-science education is not being diminished or given a lower status, but it must be recognized that the African labor market, for now, is skewed. Notwithstanding this lament, there


are brilliant people who can be assets to their employers, if given the chance. After all, Africans are running the various sectors of the economy. But the labor


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