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Business in Africa
ROLAND AMOUSSOU-GUENOU
The world has been astounded in recent weeks by the impact of the "hamburger crisis" that started with massive mortgage defaults in the United States and has since brought huge financial institutions to their knees.
As Wall Street and other financial centres are melting down, many investors are questioning the wisdom of committing trillions of dollars in the United States.
At a recent meeting in Paris, Kenyan Prime Minister Raila Odinga remarked that "when America sneezes, Europe catches a cold, Asia develops pneumonia and Africa's tuberculosis gets worse".
In many aspects, the situation reminds us of the 1997 Asian financial turmoil famously known as "Tom Yum" crisis. This time, no country may be immune from the crippling consequences of the credit crunch.
The leaders of the world are trying to assure that hard-won economic gains are not lost, especially in the developing world. Meanwhile, fingers of blame from around the planet are pointing at America.
What matters for Asian investors in general and for Thai traders in particular, is that it is still possible to mitigate the consequences of the crisis by chasing new opportunities.
No region can claim to be protected against bad news, but the purpose of this article is the highlight some positive aspects of the situation in Africa.
Let me start with the bad news.
The cost of the crisis for Africa is said to include a sharp decline in economic growth which was estimated at 6.2% in 2008 by the Economic Commission for Africa (ECA) in its 2008 report. It may also involve a drastic reduction in foreign direct investment (FDI) flows (US$36 billion in 2007), the scaling back or abandoning of development pledges and the slowing of progress in attaining the UN's Millennium Development Goals.
Many benefits of recent African progress may be lost along with a global economic slowdown and recession, as the IMF has warned.
Let's now look at the good news.
As many are searching for safer harbours for their investments, the African continent in general and its southern part in particular may offer interesting, even exciting alternatives.
The reasons why African financial institutions have, so far, been spared by the market collapses in the developed world are in fact very simple.
According to Wiseman Nkhulu, the head of Pan-African Capital Holding in Johannesburg, African banks have not engaged in high-risk lending as seen in the US, in Europe and, to some extent, in Asia.
In addition, most African retail banks have increased management efficiency and are awash with cash. Therefore, it would be a wise business decision for Asian exporters, especially rice traders from Thailand, to redeploy their trade and investment strategies toward African markets.
The 2010 World Cup in South Africa is perhaps the highest-profile example of the exciting economic lures. With a population of 47 million and GDP growth of 5% last year, South Africa is ranked as a middle-income nation. It has abundant natural resources and a well-developed business environment and infrastructure.
The next great global sporting event after the 2008 Summer Olympics, the World Cup is bringing a sense of pride, excitement and optimism to South Afrida. Beyond that, the country and the region are expecting tangible business opportunities in tourism, construction, infrastructure, information technology, banking and financing, insurance, security and energy, to name just a few.
According to a report by the consultancy Grant Thornton, the expected benefits of the World Cup include 7.2 billion rand (US$790 million) paid in tax, 21 billion rand in contributions to GDP, and 12.7 billion rand in spectator and tourist spending, and 159,000 new jobs.
The private sector is expected to provide most of the 2.3 billion rand needed for infrastructure upgrades - cement and power generation for example - for 2010 in expectation of substantial returns.
The World Cup will also lift the country and help change the negative perceptions that many foreign investors hold of Africa and South Africa.
South Africa can be an effective gateway to a regional bloc of 14 nations called the Southern African Development Community (SADC), established in 1980. Pretoria's neighbours are also competing to attract business around the 2010 World Cup. This is also good news.
Despite the global financial crisis, Africa still offers exciting opportunities for Asian businesses.
Dr Roland Amoussou-Guenou is a lecturer at the Asian Institute of Technology (AIT) and the Founder and Director of Asia-Africa Business Consulting Co. He can be reached at r.amoussou@2abiz.com or http://www.2abiz.com
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