U.S. Biz Urged To Invest In African Infrastructure

U.S. Companies Urged To Invest in African Infrastructure

Opportunities are being missed due to excess caution, experts say: U.S. and African business leaders and officials are encouraging U.S. companies to take a bolder approach to investment opportunities created by rapid economic growth in Africa.

At an October conference on infrastructure organized by the Corporate Council on Africa (CCA), they urged U.S. companies not to wait for an ideal business climate but to consider investing now in up-and-coming sub-Saharan countries.

With lower inflation rates, improved budgets and economic policies, and greater political stability, sub-Saharan nations have a better chance than ever to sustain growth, according to an October report by the International Monetary Fund.

African leaders are particularly keen on foreign investment in infrastructure because their countries cannot afford to develop, modernize or maintain roads, ports, airports, electricity grids and power stations. The needs are great, experts say, because infrastructure in sub-Saharan Africa never has been well developed and civil strife often has damaged what existed.

To reach international goals of reducing poverty and hunger, African countries need to double their investment in infrastructure to about $40 billion a year, according to the World Bank.

Without substantial infrastructure improvements, African nations will have difficulty diversifying their economies and facilitating international trade, experts say.

The head of the Export-Import Bank of the United States (Ex-Im Bank), James Lambright, said that, during his recent trip to South Africa and Namibia, he learned about "immense" infrastructure plans.

"Even if only some of them come to fruition, there will be tremendous need for financing," he said.

Ex-Im Bank provides loan guarantees, credit insurance and loans to U.S. companies exporting to developing markets.

Complex and capital-intensive infrastructure projects with relatively long payback periods are difficult to put together and finance, experts say, particularly in countries where financial markets are underdeveloped and political risk is high. That is why such projects, which can cost billions, often are developed by public-private partnerships and involve foreign and local partners.

Forming such partnerships requires knowledge of local markets and their peculiarities as well as confidence and trust among potential partners.

Lambright said sometimes it is possible to sell capital equipment to a less well-known company in a developing country if that company has a local or regional partner that is better known.

But in many other cases, an honest broker or "deal champion" is necessary to bring together multilateral banks; export credit agencies; private companies, banks or funds; and the host-country government, experts say.

CCA President Stephen Hayes told USINFO that South African banks and investment funds increasingly vie to play such a role for U.S. companies and those based in other nations.

Also, U.S. agencies that support trade have begun targeting infrastructure projects in Africa. By providing technical assistance, credit guarantees and political risk insurance or by financing feasibility studies, they have backed projects ranging from a railway and hydropower and geothermal power stations to telecommunication networks, pipelines and housing projects.

Hayes said U.S. companies can compete successfully in several areas -- such as housing, roads, hotels and water and sanitation systems -- where great opportunities exist.

Yet "we don't deploy private equity aggressively enough and early enough," said Robert Mosbacher, the head of the Overseas Private Insurance Corporation (OPIC). OPIC provides political-risk insurance to U.S. companies doing business in developing nations.

Hayes said the United States has not been keeping up with South Africa, China, Europe, India and Gulf countries, which all have been investing heavily in Africa. U.S. corporations' and banks' cautious approach to investment in the region stems from predominantly bad publicity it receives in the U.S. media, he said.

Another obstacle is the limited opportunity to finance African projects, particularly those concerning infrastructure, Hayes said.

Hayes sees signs of budding interest in such projects, though. Oracle and Citibank have positioned themselves in South Africa to take advantage of the burgeoning opportunities on the wider African continent, he said. Several Wall Street firms have established investment teams to explore infrastructure opportunities in developing countries that may consider African projects.

In addition, Delta Air Lines in December 2006 began the first regular service between Atlanta and Johannesburg and plans to expand U.S. connections to more African destinations. (See related article.)

But Hayes said the U.S. government needs to be more engaged and give more support to U.S. companies to get them to push more aggressively into Africa. So far, he said, it has not supported U.S. private sector efforts as strongly as the governments of China, India and South Africa have supported efforts by their own companies.

Lambright of Ex-Im Bank said, however, that there are limits to what the U.S. government can do.

U.S. companies and export credit agencies are disadvantaged, he said, because they are bound by Organization for Economic Cooperation and Development (OECD) good governance regulations and other rules, which do not apply to firms from emerging markets. OECD, with 30 member nations, represents developed countries committed to fostering prosperity and fighting poverty through economic growth and financial stability.

ENDS

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