SUB-SAHARAN AFRICA: OUTLOOK FOR THE FOREIGN INVESTMENT

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• Collection: General CIA Records
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• Document Page Count: 29
• Document Creation Date: December 27, 2016
• Document Release Date: July 9, 2012
• Sequence Number: 1
• Publication Date: March 1, 1988
• Content Type: REPORT

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Directorate of Confidential
Intelligence
Sub-Saharan Africa: Outlook
for Foreign Investment
A Research Paper
PROJECT NUMBER /944- 61 3 75 g
w 14,S
PAGE NUMBERS
parAL NUMBER OF COPIES 446,5
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EXTRA COPIES c72-
REOORD CENTER
JOB NUME3ER ?
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ALA 88-10018
March 1988
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,,,,AGN?4, Directorate of Confidential
e Intelligence 25X1
Sub-Saharan Africa: Outlook
for Foreign Investment
A Research Paper
This paper was prepared by
Office of African and Latin American Analysis. It
was coordinated with the Directorate of
Operations.
Comments and queries are welcome and may be
directed to the Chief, East Africa Branch, ALAI
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ALA 88-10018
March 1988
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Summary
Information available
as of 22 March 1988
was used in this report.
Sub-Saharan Africa: Outlook
for Foreign Investment
The growing trend toward privatization in many Sub-Saharan countries?
largely a product of pressure for economic reform exerted by multilateral
financial institutions and Western bilateral donors and lenders?has
created potential new opportunities for foreign private investment. Histori-
cally, the low incomes of Sub-Saharan countries have limited their ability
to generate savings to finance sufficient investment and promote economic
growth. As a result, these countries have been forced to rely heavily on ex-
ternal financing, particularly from the governments of industrial countries
and from multilateral financial institutions such as the World Bank. These
advocates of economic reform stress the need for a wider role for private
capital inflows?particularly by way of foreign investment?to ease Sub-
Saharan Africa's balance-of-payments pressures and to help finance
economic development in the region.
There are substantial obstacles, however, to the region's efforts to compete
with other developing and developed countries for foreign investment. The
most serious of these are the political risks present in many countries, with
unstable governments vulnerable to tribal rivalries, insurgencies, military
coups, or civil war. In addition, the region suffers from a relative lack of
educational skills, poorly trained manpower, inadequate transportation,
and poor communications. Domestic markets are usually small, with low
purchasing power. Manufactured products for export tend to be noncom-
petitive internationally because of overvalued foreign exchange rates and
high production costs. Foreign investors in most Sub-Saharan African
countries also face a discouraging maze of bureaucratic redtape and
administrative inefficiency that thrives on corruption. Foreign exchange
shortages often impede the repatriation of dividends and profits and
hamper the importation of material needed for production.
Nevertheless, we believe opportunities for investment?although limited
and uneven?will expand for the region over the longer term. Prospects for
increased agricultural processing are fairly good in most countries. A
few?notably Ivory Coast, Kenya, and Mauritius?have demonstrated
their capability in export manufacturing. In addition, Sub-Saharan Africa,
as a vast repository of desirable minerals, offers investment opportunities in
mine rehabilitation and new mining ventures if mineral markets recover
over the longer term. We believe, however, that the realization of these
investment opportunities will depend critically on a substantial and
sustained policy reform effort to make the region more attractive to foreign
investors. Without successful reform, the flow of foreign investment
probably will be limited.
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ALA 88-10018
March 1988
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Although British and French business interests are well entrenched in
former Sub-Saharan anglophone and francophone colonies, we believe
there is room for expanded US investment in the region, to the potential
benefit of US interests there. Opportunities exist particularly in agribusi-
ness and petroleum exploration and extraction, activities in which the
United States has demonstrated strength. Such investment may permit
establishment of a US business presence in key sectors of Sub-Saharan
economies. Washington may also gain from its association with African
economic adjustment programs designed in part to improve the investment
climate of the region.
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Contents
Page
Summary
iii
Scope Note
vii
Introduction
1
The Foreign Investment Pattern
1
Uses of Foreign Investment 1
The Investment Climate 2
Political Instability 2
Bureaucratic Obstacles 3
Unfavorable Market Conditions 4
Foreign Exchange Problems 4
Problems of Infrastructure and Skills 4
Other Obstacles 6
Foreign Investment Outlook 6
The Country Outlook 7
The Sectoral Outlook 8
Implications for the United States 10
Appendixes
A.
Sub-Saharan Africa: Direct Investment Flows, 1980-86 11
B. Sub-Saharan Africa: Leading Agricultural and Minerals Producers 15
C.
Sub-Saharan Africa: Economic and Business Profile, Selected 19
Countries
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Scope Note
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This paper is appraising Sub-Saharan Africa's 25X1
economic performance and problems, its efforts to implement reform, and
the implications of these developments for the region and for the United
States. The paper assesses the climate and prospects for foreign investment
in Sub-Saharan Africa?for the region, for individual countries, and for
different sectors of economic activity. 25X1
vii
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Figure 1
Investment Prospects in Sub-Saharan Africa
Cape
(5erde
North Atlantic
Ocean
The Gambia
Guinea-8
West ran
Sa
France
Black Sea
Morocco
nisia*
Mediterranean Sea
Algeria
Egypt
Mauritania
Sudan
Guinea
Sierra
TO
hana
Nigeria
Ethiopia
Central
African Republic
Equa. Guinea
Sao Tome & Principe
South
Atlantic
Ocean
Prospects
nil Good
Fair
Poor
Congo
Kenya
Rwand
Zaire
.13trrundi
Tanzania
Zambia
'Zimbabwe
South Africa
Namibia
Botswana
ambique
Svaziland
South
Lesotho
Africa
alia
Seychelles
Indian
Ocean
Matlitius
e W
0 1000 Kilometers
0 1000 Miles
Boundary representation is
not necessarily authoritative.
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Sub-Saharan Africa: Outlook
for Foreign Investment
Introduction
Sub-Saharan African countries historically have de-
pended heavily on foreign capital inflows to support
their economies.' Low income levels in these countries
have limited domestic saving as a means of financing
investment, necessitating additional resources from
abroad. For most impoverished black African coun-
tries, these foreign resources have come principally as
economic assistance in the form of bilateral and
multilateral loans and grants. Since 1980, foreign
lenders and donors?including the International Mon-
etary Fund and the World Bank?have promoted
economic reforms in the region that espouse divest-
ment of government enterprises and a growing role for
the private sector in economic activity. In turn, this
increased emphasis on the private sector has raised
interest in the potential for foreign entrepreneurs and
businesses both to acquire existing government enter-
prises in African countries and to make new invest-
ments in a more receptive policy environment.
The Foreign Investment Pattern
Senegal, while British-affiliated enterprises are prom-
inent in anglophone countries such as Ghana, Kenya,
Nigeria, and Zambia. United States investment inter-
ests are more widely dispersed in countries such as
Angola, Ivory Coast, Kenya, Nigeria, and Zaire.
South Africa has wide-ranging investment interests in
neighboring Botswana, Lesotho, and Swaziland.
Uses of Foreign Investment
Key categories of foreign investment in Sub-Saharan
Africa traditionally have included agribusiness and
various stages of processing agricultural production,
banking, mining, petroleum exploration and extrac-
tion, and transportation. As a matter of policy, most
African governments require that foreign investment
have African participation, usually a majority share,
with the local co-owners often including the govern-
ment itself. This pattern has produced a wide range of
foreign investments in the region. For example:
The sources of foreign investment in Sub-Saharan
Africa to a large extent reflect the continent's colonial
heritage. Many current foreign investment enterprises
were established during the colonial period and have
adapted to changing conditions since independence.
For example, Belgium's Banque Belgo-Zairoise, in
one corporate form or another, has held an important
banking interest in Zaire for over 70 years, while
Brooke Bond, the United Kingdom multinational,
began tea trading in Kenya in 1922.
Given their preeminent colonial role in Africa, France
and the United Kingdom have maintained the most
extensive foreign investment presence, with France
dominating the foreign investment in francophone
countries such as Cameroon, Gabon, Ivory Coast, and
' We define Sub-Saharan Africa to include all countries on the
continent (except Algeria, Egypt, Libya, Morocco, South Africa,
and Tunisia) plus Cape Verde, Comoros Madagascar Mauritius,
Sao Tome and Principe, and Seychelles.
1
? In 1987, the interests of the United Kingdom
conglomerate Lonrho, probably the most diverse
foreign investor in Africa, included 45 percent of
Ashanti Gold Fields (Ghana); 40 percent of John
Holt (Nigeria), a manufacturing and agribusiness
concern; plus agricultural interests in Benin, Mala-
wi, Swaziland, Tanzania, Zambia, and Zimbabwe,
among others, according to press reporting.
? Banque Nationale de Paris, France's biggest bank,
has the largest foreign banking presence in Africa,
with interests in Burundi, Cameroon, Congo, Dji-
bouti, Mauritius, Rwanda, Zaire, and other
countries.
? In petroleum production, US firms have significant
investment in Angola, Ivory Coast, and Nigeria,
while French state-owned petroleum interests are
active in Angola, Cameroon, Congo, Gabon, and
Nigeria
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Sub-Saharan Africa: The British
and French Connections
Although British influence in Sub-Saharan Africa
dates back to 16th century trade with West Africa,
the rapid expansion and consolidation of British
influence in the region occurred in the late 19th
century during the European "scramble for Africa."
By the end of World War I, roughly one-third of the
region's present 45 countries was under British con-
trol. Although former British colonies achieved inde-
pendence during the early and mid-I960s, most still
retain at least parts of inherited trade patterns and
legal systems that reflect the British colonial influ-
ence and give present-day British investors an edge.
France's links to Africa can be traced to trade with
Senegal in the 17th century, but its considerable
influence in Sub-Saharan Africa stems primarily
from its competition with Britain and other European
powers during the late 19th century. Unlike the
British, whose colonial holdings were distributed
throughout the continent, French colonial influence
was largely concentrated in West and Central Africa.
The French colonies became independent in 1960.
? French interests own all or part of more than three-
fourths of all commercial firms in francophone
Africa.
France maintains extensive commercial and political
interests in its former Sub-Saharan colonies, particu-
larly in West and Central Africa:
? France has military bases in eight francophone
countries that protect its commercial interests as
well as pro-French African governments.
? France underwrites the Franc Zone, a monetary
union in which the currencies of 13 francop hone
Sub-Saharan countries and Equatorial Guinea are
linked to each other and the French franc.
? The stable currency relationship of the currency
union facilitates trade and investment flows be-
tween its members, although international trade
and financial reporting indicates that these flows
are predominantly between France and individual
African Franc Zone member states.
? French personnel occupy key government positions
in countries such as Gabon, Ivory Coast, and
Senegal where they favor French interests, in our
judgment.
The Investment Climate
Political Instability
In our judgment, the chronic political instability that
has characterized most Sub-Saharan African coun-
tries since independence comprises the most serious
impediment to increased foreign investment. Insur-
gencies and civil war as well as rapid and often violent
changes of government have contributed to a poor
investment climate. Extensive damage to Uganda's
communications and other infrastructure, for exam-
ple, has substantially worsened Kampala's investment
prospects in the medium term, according to US
Embassy reporting. Uganda also continues to suffer
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from a shortage of professional and business exper-
tise?in part a legacy of two decades of misrule by
Presidents Amin and Obote, who killed or expelled
many of Uganda's most skilled and educated citizens.
Sudan's potential as the breadbasket of Africa funded
by large-scale foreign investment remains unfulfilled
largely because of a long-running civil war.
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Bureaucratic Obstacles
Although most African governments have actively
sought out foreign investment, the maze of bureau-
cratic redtape and the inefficiency that plague most
countries have hampered potential investors. Even in
relatively well-run Cameroon, for example, one for-
eign investor with a $30 million project was still
waiting last August for a work permit for which he
had applied in April, according to open source report-
ing?
Although it is difficult to measure its impact with
precision, we believe the corruption that thrives in
such bureaucratic settings dramatically increases the
cost of doing business and reduces the incentive for
future investment.
with-
out paying bribes, businessmen often are unable to
disentangle government regulations, gain needed work
permits, and obtain import licenses. In our judgment,
the absence of conflict-of-interest laws in Kenya
allows influential bureaucrats or politicians to block
investment ventures inimical to their financial inter-
ests and to promote favored enterprises. In turn, this
leverage enables local investors to buy into foreign
investment projects on privileged terms to the poten-
tial disadvantage of the foreign investor.
Inconsistent government policy further adds to the
uncertainty of doing business, even in countries that
ostensibly favor private-sector activity. In Ghana, for
example, the Rawlings government supports privati-
zation under its economic reform program, according
to IMF and press reporting, but maintains the right to
control employment levels in enterprises?a reflection
of its basic socialist orientation. The resulting inabil-
ity of businesses to control labor costs has prompted at
least one foreign investor to reject an offer to take
over Ghana's state-run steel mill, according to a press
report.
3
African Official Positions on Foreign Investment
African government positions on foreign investment
range from enthusiastic acceptance to strong opposi-
tion, and are volatile and often subject to dramatic
shifts with abrupt changes in governments. In general,
Embassy and press reporting indicate that the franco-
p hone Sub-Saharan governments are favorably dis-
posed toward foreign investment. In our judgment,
this is because of the French Government's continuing
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political leverage in these countries and Paris's strong
support for French business interests there. In Ivory
Coast, for example, President Houphouet-Boigny,
after 28 years of rule, remains a strong advocate of
foreign?particularly French?investment. Indeed,
some African leaders contend that the country's
openness to foreign investment has come at the
expense of Ivorian influence in economic affairs.
Presidents Biya of Cameroon, Bongo of Gabon, and
Diouf of Senegal also publicly endorse foreign invest-
ment, and the Governments of Madagascar and Mau-
ritius support it as part of the development strategy
they have pursued for several years with IMF- and
World Bank?supported economic programs.
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Outside the francophone group, the Governments of 25X1
Botswana, Kenya, Lesotho, and Swaziland also wel-
come foreign investment as an impetus to develop-
ment. Even the Marxist countries are pragmatically
seeking foreign investment. Angola has long permit-
ted foreign investment in its petroleum industry and
in recent months has sought investment in other
economic sectors. Ethiopia and Mozambique also
have provided for foreign investment in their econo-
mies. In Zimbabwe, left-leaning Prime Minister Mu-
gabe regards foreign investment as exploitation, a
financial drain on the economy, and a threat to the
country's sovereignty, according to Embassy report-
ing.
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Unfavorable Market Conditions
Unfavorable market conditions for both domestic and
export production comprise yet another major disin-
centive to foreign investment in Sub-Saharan Africa.
The region's small internal marketing base and low
purchasing power make it generally unattractive for
new investment in production for domestic markets,
industrial production in Sub-Saharan
Africa consists largely of a limited range of basic
manufactured products such as food, beverages, to-
bacco, textiles, and apparel. These import-substituting
industries, nurtured as a matter of government policy,
are dependent on tariff protection and on imported
materials, usually bought at overvalued exchange
rates. Although most of these industries are competi-
tive within a limited region where similar production
conditions and costs prevail, they are not competitive
in wider export markets and, as a result, offer limited
scope for new foreign investment at present.
Foreign Exchange Problems
The foreign exchange controls imposed by most Sub-
Saharan countries also discourage foreign investment.
Although these controls are designed to allocate
scarce foreign exchange, the expanded bureaucracy
required to administer the system contributes to inef-
ficiency, They intro-
duce additional redtape in dealing with government,
restrict outward remittances of funds, and produce
uncertainty in the importation of needed materials.
For example:
? In Nigeria, government foreign exchange restric-
tions prevented a brewery with foreign investment,
which was attempting to exploit export markets,
from importing sufficient grain; as a result, the
enterprise faced closure in 1986, according to the
press report.
? Chronic foreign exchange shortages in Tanzania
have prevented its five fuel distributors, all with
various levels of foreign ownership, from repatriat-
ing dividends for the past 10 years, according to
diplomatic reporting.
? In Zambia, businessmen bidding for foreign ex-
change in the government auction before its suspen-
sion last year, had to meet a long list of require-
ments that included a 40-percent deposit at no
Confidential
interest; original invoices from at least three differ-
ent suppliers; certificates supporting payment of
past import duty and sales taxes; an income tax
clearance certificate; and proof of utilization of
foreign exchange within 120 days after the previous
auction.
Even in the 14 Sub-Saharan member countries of the
Franc Zone, where curbs on foreign exchange trans-
actions are minimal, investors sometimes experience
foreign exchange problems at the hands of individual
governments. One French-affiliated bank in Camer-
oon, for example, has reported undue delay in repatri-
ating profits, allegedly because local officials opposed
the profit-taking, according to a press report.
The tendency of Sub-Saharan African currencies to
depreciate relative to those of developed countries
introduces additional uncertainty into business projec-
tions. Growth in sales and profits in local Sub-
Saharan currencies may translate into losses in terms
of hard currency if the rate of depreciation is greater
than the rate of growth.
Problems of Infrastructure and Skills
Shortages of skilled labor and underdeveloped infra-
structures also stymie foreign investment in Sub-
Saharan Africa. The region lags the rest of the
developing world in the education and training of
workers. For example,
41 percent of primary-school-age children are en-
rolled in Sub-Saharan schools, compared with 78
percent for all developing economies. At the second-
ary level the respective ratios are 21 percent and 38
percent; and for higher education, 2 percent and 7
percent. Sub-Saharan
Africa also compares unfavorably with other develop-
ing areas in productivity-related measures such as the
availability of medical care and food. In 1981, Sub-
Saharan Africa had 27,760 persons per physician,
compared with 5,560 for all developing countries
combined. In 1983 the region's calorie supply per
capita was 82 percent of the Third World average and
only 68 percent of that of upper-middle-income
LDCs.
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Figure 2
Sub-Saharan Africa: Currency Devaluations,
Selected Countries.
Index: 1980=100
Botswana
Cameroon
100
Ghana
Kenya
100
1981 82 83 84 r85 86 87
Malawi
100
1981 82 83 84 85 86 87
Nigeria
100
1981 82 83 84 85 86 87 0 1981 82 83 84 85 86 87
Zaire
100
80
60
40
20
Zambia
100
80
60
40
IMMMN. .111
0 1981 82 83 84 85 86 87 0 1981 82 83 84 85 86 87
3 Indexes of period average US dollar value of domestic currency.
Source: International Monetary Fund.
20
0 1981 82 83 84 85 86 87
Sierra Leone
1981 82 83 84 85 86 87
Tanzania
100
100
80
80
60
60
40
40
20
20
I NE
0
1981
82
83
84
85
86 87
0
1981 82 83 84 85 86 87
5
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In addition, transportation and communications net-
works throughout the region remain relatively unde-
veloped outside urban centers, restricting the develop-
ment of domestic and export markets. Existing
infrastructure in most countries is in a state of
disrepair, in many cases, because financially pressed
governments have neglected maintenance or because
of damage inflicted by insurgents.
Other Obstacles
Although investment incentives have the potential to
make Sub-Saharan countries more attractive to for-
eign investors, we believe tax revenue constraints in
many cases dampen the potential gains.
Sub-Saharan governments are too reliant
on taxes on income and profits for revenue to grant
generous tax concessions to businesses in the face of
widespread budget deficits. For example, Ghana had
in 1987 a base 45-percent corporate income tax rate
even for priority investment areas such as agriculture,
construction, manufacturing, and tourism. Accra's
capital gains tax rate in 1987 was about 55 percent,
and its dividend tax rate varied between 35 percent
and 55 percent. Similarly, despite Lagos's announced
policy of inviting foreign investment, Nigeria's corpo-
rate tax rate remains at 40 percent.
The scarcity of foreign exchange also has diluted the
impact of investment incentives, in our view. Al-
though protected by investment guarantees, foreign
investors may be unable to transfer profits because
the authorities do not have sufficient foreign ex-
change. In addition, businesses in many Sub-Saharan
countries are required to sell their foreign exchange
earnings to the banking authorities and to obtain
foreign exchange through auctions or other govern-
ment-controlled mechanisms. Under these arrange-
ments the businesses become net contributors to the
pool of foreign exchange and are only free at best to
retain a percentage of their foreign exchange earn-
ings. In Ghana, for example, mining companies in
1986 were allowed to keep a negotiable share of
foreign earnings from mineral sales, ranging between
25 and about 45 percent.
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Foreign Investment Guarantees
Several industrial countries?including the United
States, Australia, Canada, Denmark, France, West
Germany, Japan, the Netherlands, Sweden, Switzer-
land, and the United Kingdom?offer guarantees for
private investment in other countries. The United
States'?dating from 1948?is the oldest; Japan's,
the most extensive.
The guarantees?which usually apply only to devel-
oping areas?typically insure the investor against
political risks including:
? Future losses resulting from imposition by host-
country governments of exchange controls that pre-
vent, for example, the remittance of earnings, royal-
ties, and the proceeds of disinvestment.
? Expropriation of investor property.
? Losses due to war.
To complement the investment-guarantee schemes of
individual countries, the World Bank has organized
the Multilateral Investment Guarantee Agency
(MIGA), an autonomous institution open to member-
ship by Bank members and Switzerland. Finalized in
1987, the MIGA will insure new medium- and long-
term investment in developing countries against risks
similar to these covered by existing schemes.
Foreign Investment Outlook
In our view, increased flows of foreign investment to
Sub-Saharan Africa will require a drastic improve-
ment in the investment climate?in large part a result
of Sub-Saharan government policies rather than ex-
ternal factors. A key factor will be widespread eco-
nomic reforms, without which we doubt much foreign
investment will be forthcoming. We see little evidence
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so far, however, of successful reform efforts to spur
African economic recovery, create conditions for sus-
tained economic growth, and render the region more
attractive to foreign investment. In general, govern-
ments in the region have adopted administrative
reforms such as exchange rate adjustments and the
easing of trade restrictions, but they continue to
largely sidestep the fundamental institutional changes
required to reduce corruption, increase bureaucratic
efficiency, and promote market-oriented economies.
In addition to domestic factors, we believe the pros-
pects for foreign investment also will depend on the
future economic performance of the foreign markets
that absorb African exports. Foreign markets?influ-
enced by economic growth in industrial countries?
are likely to remain weak, at least through 1989,
according to IMF forecasts of slowing growth in
industrial nations for the next two years. Although we
expect Sub-Saharan Africa to benefit as these mar-
kets recover over the longer term, the initial increase
in exports from the region probably will be generated
from currently underutilized productive capacity. As
such, the growing export market will offer only
limited scope for new foreign investment in the medi-
um term.
The Country Outlook
In our judgment, Africa as a whole probably will
remain at a disadvantage for the foreseeable future
compared with more dynamic competitors from the
rest of the Third World, but the investment climate
and opportunities in Africa will continue to vary
considerably. We believe investment prospects are
likely to be better than average in Cameroon, Gabon,
Ivory Coast, and Mauritius, all of which have imple-
mented substantial economic reform and have a dem-
onstrated commitment to free market principles.
Cameroon, for example, has the potential to expand
the processing of its agricultural products while Ga-
bon is well poised to exploit its substantial resources of
oil, fishing, mining, and timber. Ivory Coast and
Mauritius have good prospects for increasing manu-
factured exports on the basis of raw material supplies,
infrastructure, and labor force.
7
Sub-Saharan African Investment Codes
Both multilateral institutions and bilateral official
donors have encouraged Sub-Saharan countries to
provide foreign investment incentives as a part of
their economic development programs. The record of
foreign investment expropriations in Sub-Saharan
African countries has made provision of an invest-
ment code?offering a legal framework and protec-
tion for foreign investment?a key element of these
incentives. Recent African investment codes, there-
fore, usually:
? Include safeguards against confiscation or expro-
priation without compensation.
? Exempt designated enterprises from customs
duties, export taxes, and taxes on profits provided
certain foreign investment criteria are met.
? Provide preferential treatment for investment in
certain economic sectors.
? Permit the transfer of profits and the repatriation of
capital.
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The Mauritian investment code, in our view, illus-
trates the benefit of such provisions. Together with its
skilled and trainable labor force and fairly good
infrastructure, Mauritius's code has been effective in 25X1
attracting foreign investors to businesses such as
tourism and textile and clothing manufacturing, ac-
cording to Embassy reporting. In contrast, Sierra
Leone's outdated investment code, based on a 60-
year-old British law accompanied by an inert bureau-
cracy and a dearth of skilled labor, provides little
incentive to foreign investment. Reporting from US
Embassies in Africa indicates that most countries are
drawing up or are revising investment incentives as
part of the economic adjustment programs they have
undertaken. Madagascar and Somalia, for example,
recently have drawn up new investment codes, the
Central African Republic expects to complete a new
code in early 1988, and Ugandan President Museveni
recently concluded that his country needs a new code.
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At the other extreme is a large group of countries with
poor foreign investment prospects based on a variety
of factors. Among them, Angola and Mozambique
will continue to experience serious political instability
from major insurgencies that have greatly impaired
economic activity, with no solution in sight. Uganda
will need several years to recover from some two
decades of misrule under Presidents Amin and Obote
and the devastating effects of civil war. Some coun-
tries, such as Cape Verde and Comoros, probably will
continue to stagnate with few resources and marginal
infrastructure. Prospects for foreign investment in
Sudan and Uganda are likely to remain poor as a
result of serious political instability and economic
mismanagement.
We judge that many Sub-Saharan countries fall
between the two extremes, with positive attributes
tempered by problems that, on balance, give them fair
foreign investment prospects. For example:
? Botswana has large and mostly unexploited reserves
of copper-nickel, potash, and sodium sulfate, in
addition to well-established cattle processing and
diamond mining industries; the country is ham-
pered, however, by lack of water, high energy costs,
an undeveloped transport system, and high econom-
ic dependence on South Africa.
? Zambia is self-sufficient in hydroelectric energy and
has an extensive manufacturing sector, which offers
the potential for growth as part of a long-term
strategy to reduce the country's dependence on
copper. The country's recent retreat from economic
reform and its move to expand the copper industry
rather than diversifying the economy have clouded
its investment outlook.
The Sectoral Outlook
For the Sub-Saharan region as a whole, we see mixed
prospects for foreign investment in various types of
economic activity over the longer term. We believe
Sub-Saharan Africa's economic recovery programs,
with their emphasis on a resurgence of agriculture
and the development of export industries, offer scope
for investment in the expansion of export-oriented
agribusiness, including higher levels of food and raw
materials processing. The manufacture of finished
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goods for regional or international export probably
offers similar opportunities in countries such as Ivory
Coast, Kenya, and Mauritius, which already have
demonstrated an export manufacturing capability.
Development of the region's transportation and distri-
bution networks, in our view, also offers foreign
investment opportunities. Although these sectors have
languished as a result of relatively high costs and low
levels of overall economic activity, we believe their
investment prospects will improve if individual coun-
tries?probably including Cameroon, Gabon, and
Kenya?achieve economic recovery and sustained
growth over the longer term.
In our view, the banking sector in Sub-Saharan
Africa also promises expanded investment opportuni-
ties, even though foreign investors in most countries
probably will be restricted to minority participation.
Although relatively well advanced in countries like
Kenya, Nigeria, and Togo, Sub-Saharan banking
remains substantially underdeveloped outside urban
centers. We expect, however, that the development of
an adequate financial system?widely regarded by
academic experts as a crucial ingredient for economic
development?will play a growing role in Sub-Saha-
ran Africa's economic future as an increasing propor-
tion of the Sub-Saharan population is drawn into the
modern economy.
Although mining conditions in Sub-Saharan Africa
are currently depressed, we believe the mining sector
could become more attractive to foreign investors over
the longer term. mineral
markets will improve over the longer term?presum-
ably on the basis of past cyclical patterns as well as
improved economic performance in industrial coun-
tries. In turn, the recovery of mineral markets will
enable the region to absorb substantial amounts of
foreign capital for the rehabilitation of neglected
mining facilities and the launching of new mining
ventures,
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uonnnentm
Figure 3
Agriculture as a Share of Gross
Domestic Product in Sub-Saharan Africa
North Atlantic
Ocean
Cape
(1.63rde
The Gambia
Guinea-13
Wes
Se
Sierra
Belgiurlf.
, France
Morocco
T nisia'
Mediterranean Sea
Algeria
Egypt
Mauritania
Sudan
Guinea
Nigeria
Central
African Republic
ha
Equa. Guinea
Sao Tome & Principe
South
Atlantic
Ocean
Gross Domestic Product
Share
less than 10%
10-20%
20-40%
40% and above
data not available
Kenya
Gabon
Rwand
Zaire
(Th
Seychelles
Indian
Ocean
Zimbabwe
South Africa
Namibia
Botswana
ambigua
Mauritius
(4)
aziland
South
Africa
tho
0 1000 Kilometers
0 1000 Miles
Boundary representation is
not necessarily authoritative.
9
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Implications for the United States
Private US investment has the potential to make an
identifiable contribution to Sub-Saharan economic
growth, afford US business interests a foothold in key
sectors of African economies, and increase the role of
US technology in the region. Increased US invest-
ment, however, carries with it the potential of more
direct competition with French and British business
interests that are economically and politically en-
trenched in the host countries. These firms will
continue to occupy key positions in agriculture, bank-
ing, mining, and manufacturing and, in our view,
almost certainly will offer strong opposition to poten-
tial competitors through their political influence with
Sub-Saharan states.
The US foreign investment presence in Sub-Saharan
Africa presents both opportunities and risks for US
investors. US investors would be particularly well
positioned to exploit opportunities in new agribusiness
and petroleum exploration and extraction, for exam-
ple?activities in which the United States has demon-
strated strength. At the same time, US investors face
Confidential
substantial financial risks in a region broadly charac-
terized by political instability, administrative ineffi-
ciency and corruption, and an uncertain economic
future.
Although, on balance, Washington stands to benefit
from an expanded US investment presence in Sub-
Saharan Africa, its role as a leading proponent of
economic reform programs may also carry some risks.
To the extent that African leaders see the outcomes of
these programs as beneficial?and in fact enjoy some
benefits?US influence in the region is likely to be
enhanced. Should the African economies continue to
falter, blame may focus on both reform programs and
their foreign backers, with Washington as a potential
scapegoat. In that event, some African states probably
would look to Washington for more aid with which to
offset the damage allegedly inflicted by US-backed
policies; others might either reverse economic reforms
they have undertaken or distance themselves from the
United States diplomatically.
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Appendix A
Sub-Saharan Africa: Net Direct
Investment Flows, 1980-86
This appendix provides data on net flows of direct
investment to individual countries in Sub-Saharan
Africa since 1980. The table indicates that foreign
investment flows have been concentrated in a small
number of countries and that the flow of direct
investment capital to the region has been relatively
small.
11
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Table A-1
Sub-Saharan Africa: Net Direct Investment Inflows a
Million US $
1980
1981
1982
1983
1984
1985
1986
Angola
Benin
Botswana
109.2
88.6
21.1
25.1
62.4
52.1
90.5
Burkina
0.0
2.4
1.9
2.0
1.7
Burundi
Cameroon
137.1
134.5
102.5
205.2
17.0
317.3
Cape Verde
Central African Republic
5.3
5.8
8.8
4.0
4.9
2.4
-1.3
Chad
-0.4
-0.1
-0.1
-0.1
9.2
53.4
31.4
Comoros
Congo
40.0
30.8
35.3
56.1
34.9
12.7
22.4
Djibouti
Equatorial Guinea
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Ethiopia
Gabon
23.5
47.5
127.0
106.1
4.8
11.1
114.3
Gambia, The
0.0
2.3
0.0
0.0
0.0
0.0
0.0
Ghana
15.6
16.3
16.3
2.4
2.0
5.6
4.3
Guinea
Guinea-Bissau
Ivory Coast
94.7
32.8
47.5
37.5
3.0
29.2
Kenya
77.9
8.3
3.4
9.2
3.9
12.7
27.8
Lesotho
4.0
5.0
4.0
4.0
5.0
3.0
4.0
Liberia
0.0
0.0
35.0
49.0
36.0
-16.0
-6.0
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Table A-1 (continued)
Million US $
1980
1981
1982
1983
1984
1985
1986
Madagascar
0.0
0.0
0.0
0.0
0.0
Malawi
0.0
1.1
0.0
Mali
2.4
3.7
1.5
3.1
4.1
4.5
4.3
Mauritania
27.1
12.4
15.0
1.4
8.5
7.0
3.1
Mauritius
1.2
0.7
1.7
1.6
4.9
8.2
7.5
Mozambique
Niger
54.3
-5.5
24.9
2.2
0.0
0.0
0.0
Nigeria
-734.0
543.0
430.0
345.0
200.0
353.0
199.0
Rwanda
16.4
18.0
20.7
11.1
15.1
14.6
17.6
Sao Tome and Principe
Senegal
12.9
19.6
10.1
-33.1
27.2
Seychelles
5.7
2.8
5.1
5.9
5.9
1.1
8.4
Sierra Leone
-18.7
7.5
4.7
1.7
5.9
-31.0
Somalia
0.0
0.0
-0.8
-8.2
-14.9
-0.7
-0.1
Sudan
0.0
0.0
0.0
0.0
9.1
-3.0
0.0
Swaziland
16.7
34.8
5.5
-14.4
2.0
25.9
18.9
Tanzania
0.0
0.0
Togo
42.3
10.1
16.1
1.5
-9.9
0.0
0.0
Uganda
0.0
0.0
0.0
Zaire
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Zambia
62.0
-38.0
39.0
25.0
17.0
Zimbabwe
1.6
3.6
-0.8
-2.1
-2.5
2.9
5.1
Reverse Blank
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Appendix B
Sub-Saharan Africa: Leading
Agricultural and Minerals
Producers
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Figure 4
Sub-Saharan Africa:
Leading Agricultural Producers
Cashew
Nuts
Cocoa
Coffee
Corn
Cotton
Palm Oil Peanuts
Rice
Rubber
Sugar
Cane
Angola
?
?
Benin
?
?
Botswana
Burkina
?
?
Burundi
?
?
Cameroon
?
?
?
?
?
?
?
Cape Verde
Central African Republic
?
Chad
?
?
Comoros
Congo
Djibouti
Equatorial Guinea
?
Ethiopia
?
?
Gabon
Gambia, The
?
Ghana
?
?
?
Guinea
?
?
?
Guinea-Bissau
Ivory Coast
?
?
?
?
?
?
?
?
Kenya
?
?
?
?
Lesotho
Liberia
?
?
?
?
Madagascar
?
?
Malawi
?
?
Mali
?
?
Mauritania
Mauritius
?
Mozambique
?
?
?
Niger
?
Nigeria
?
?
?
?
?
?
?
Rwanda
?
Sao Tome and Principe
?
Senegal
?
Seychelles
Sierra Leone
?
?
Somalia
Sudan
?
?
?
Swaziland
?
Tanzania
?
?
?
?
?
Togo
?
Uganda
?
?
?
Zaire
?
?
?
?
?
?
?
Zambia
?
Zimbabwe
?
?
?
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Figure 5
Sub-Saharan Africa:
Leading Minerals Producers a
Bauxite
Chromi-
urn Ore
Cobalt
Ore
Copper Diamonds
Ore
Gold
Ore
Manganese
Ore
Petroleum
Tin Con- Uranium
centrates
Angola
?
?
Benin
Botswana
?
Burkina
Burundi
Cameroon
Cape Verde
Central African Republic
?
Chad
Comoros
Congo
?
Djibouti
Equatorial Guinea
Ethiopia
Gabon
?
?
?
Gambia, The
Ghana
?
?
?
?
Guinea
?
Guinea-Bissau
Ivory Coast
Kenya
Lesotho
Liberia
?
Madagascar
?
Malawi
Mali
Mauritania
Mauritius
Mozambique
Niger
?
Nigeria
?
?
Rwanda
?
Sao Tome and Principe
Senegal
Seychelles
Sierra Leone
?
?
Somalia
Sudan
?
Swaziland
Tanzania
?
Togo
Uganda
Zaire
?
?
?
?
?
Zambia
?
?
Zimbabwe
?
?
?
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Appendix C
Sub-Saharan Africa:
Economic and Business Profile,
Selected Countries
This appendix table presents an economic and busi-
ness profile of Botswana, Ivory Coast, Kenya, Tanza-
nia, and Zaire. We believe these countries are repre-
sentative of the variety of business situations in Sub-
Saharan Africa, ranging from the relatively promising
Ivory Coast to the limited potential of Tanzania.
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Table C-1
Sub-Saharan Africa: Economic and Business
Profile of Selected Countries
General Characteristics
Economic and Business
Profile
Major Industrial
Corporations
Comments
Botswana
Area: 224,700 sq. miles
Population: 1.1 million
Bordered by Namibia,
Zambia, Zimbabwe,
South Africa.
Agriculture dominated by
livestock production, partic-
ularly cattle.
Extensive mineral deposits:
coal, copper, diamonds,
nickel, potash, soda.
Small domestic market.
High energy costs.
Shortage of skilled
manpower.
Principal exports: copper-
nickel matte, diamonds,
hides, meat and meat prod-
ucts, textiles.
Botswana Meat Com-
mission (meat
processing).
Botswana RST, Ltd.
(holding company for
copper, nickel mining).
De Beers Botswana
Mining Company (dia-
mond mining).
Arid, landlocked.
One of the fastest grow-
ing countries in Sub-
Saharan Africa.
Dependent on South Af-
rican electricity supplies
and transport system.
Competes with South
Africa in production and
exports.
Vulnerable to South Af-
rican economic pressure.
Ivory Coast
Area: 124,500 sq. miles
Population: 10.7 million
Bordered by Burkina,
Guinea, Liberia, Mali,
Togo.
Relatively diversified econo-
my, with extensive agricul-
tural production.
Large manufacturing sector
with agricultural processing,
light manufactures.
Virtually self-sufficient in
petroleum.
Good infrastructure and
communications.
Principal exports: cocoa,
coffee, cotton fabrics, pre-
served fish, petroleum prod-
ucts, rubber, wood.
Abidjan-Industrie (agri-
cultural equipment).
Compagnie Africaine de
Preparations Alimen-
taires (cocoa, coffee
products).
Compagnie des Scieres
Africaines (wood
processing).
Societe lvoirriene de
Raffinage (petroleum re-
fining and distribution).
Societe Ivoirriene des
Tabacs (cigarettes,
cigars).
Most economically im-
portant country in fran-
cophone West Africa.
Popular regional head-
quarters for foreign sub-
sidiaries serving West
Africa.
Kenya
Area: 219,700 sq. miles
Population: 22.4 million
Bordered by Ethiopia,
Somalia, Sudan, Tanza-
nia, Uganda.
Economy based on agricul-
ture, but has substantial
manufacturing and service
sectors.
Wide variety of agricultural
cash crops.
Extensive road, rail, coastal
and inland water, and air
transport systems.
Principal exports: cement,
coffee, corn, hides and skins,
petroleum products, pyre-
thrum, sisal, tea.
Consolidated Holdings,
Ltd., holding company,
(printing, paper mills, of-
fice equipment
distribution).
East African Portland
Cement Co., Ltd.
(cement).
Firestone East Africa
(tires).
Kenya Breweries (beer,
malted barley).
Most industrially devel-
oped country in East
Africa.
A major regional
exporter.
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Table C-1 (continued)
General Characteristics
Economic and Business
Profile
Major Industrial
Corporations
Comments
Tanzania
Area: 364,900 sq. miles
Population: 23.5 million
Bordered by Burundi,
Kenya, Mozambique,
Rwanda, Uganda, Zaire.
Relatively small manufac-
turing sector.
Banking system, major in-
dustries, distribution and
marketing nationalized.
Major transportation prob-
lems because of large size,
poor infrastructure, and
sparsely populated interior.
Principal exports: cloves,
coffee, cotton, diamonds, si-
sal, tea, and tobacco.
Aluminium Africa, Ltd.
(metal fabrication).
Esso Standard Tanza-
nia, Ltd. (petroleum
products).
Tanzania Breweries,
Ltd. (beer).
Williamson Diamonds,
Ltd. (diamond mining).
One of the least urban-
ized countries of Sub-
Saharan Africa.
One of the world's 25
least developed
countries.
Zaire
Area: 905,400 sq. miles
Population: 32.3 million
Bordered by Angola,
Burundi, Central Afri-
can Republic, Congo,
Rwanda, Sudan, Tanza-
nia, Uganda, Zambia.
Reverse Blank
Has most extensive, but
badly deteriorated, trans-
port system (river and land
based) in Sub-Saharan
Africa.
One-half of country covered
by largely unexploited
forests.
About two-thirds of popula-
tion live outside the modern
economy.
Produces wide variety of
manufactured goods for do-
mestic market.
Has wide range of impor-
tant mineral deposits.
Principal exports: cobalt,
coffee, copper, diamonds,
palm oil, crude petroleum,
zinc.
BRALIMA (beer, ice,
soft drinks).
GECAMIN ES (mining
parastatal).
MARSAVCO ZAIRE
(vegetable oil products).
Societe BATA Zairoise
(shoe manufacture).
Among the world's 10
poorest countries on a
per capita basis.
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