Published: December 07, 2005

Energy Forum Speakers Cite Ways Africa Can Attract Investment

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By Bruce Greenberg, Washington File

Angola, Nigeria presented as examples of improving business climates

Washington - Although factors such as social instability and political corruption discourage overseas investment in Africa's plentiful supplies of oil and natural gas, there are ways to mitigate the damage to the continent's economy if Africans insist on fiscal responsibility in their governments. This was the consensus of panelists at a recent energy forum held in Washington.

The panel of economists and a U.S. State Department official attended the 2005 Oil and Gas Forum co-sponsored by the Corporate Council on Africa (CCA) and the U.S. Department of Energy. Their discussion took place November 30.

Many of the oil-rich nations of western and central Africa rely principally on their exports of energy resources to sustain economic development and growth, according to Charles McPherson, senior adviser on oil, gas and chemicals for The World Bank Group. But often, because of high levels of corruption and bribery among local and national officials, he said, those resources rarely benefit the populace.

"These countries characteristically have a very high dependency on oil -- as much as 75-80 percent of their revenues coming from this sector -- yet they have below average [personal] income, and their scores on human development indicators are below average as well," he said.

Often there is a link between these factors and political instability and violence, he added, providing limited incentives for foreign investment.

These conditions can be mitigated, McPherson said, if Africans insist on good governance, fiscal accountability, implementation of anti-corruption statutes and enforcing the rule of law. He mentioned Nigeria and Angola as nations where business and political transparency have improved.

BRITISH INITIATIVE PRAISED

All the participants stressed the crucial role played by the Extractive Industries Transparency Initiative (EITI), launched in 2002 by British Prime Minister Tony Blair. Its mandate is to support improved local governance in resource-rich countries through full disclosure of their national revenues from oil and gas mining.

Implementing these incentives can result in an improved international investment climate with benefits directly affecting civil societies, according to the EITI Web site. EITI works closely with the World Bank and the International Monetary Fund, and has the support of many of the world's largest oil and mining companies, as well as private donors.

McPherson said Nigeria, an EITI member, is a "regional leader" in West Africa "for adhering to [EITI] tenets, supported by the president and national legislature." He added that a comprehensive audit will be published soon in Nigeria. In Angola, he said, "there are also very vigorous tax and fiscal audits being conducted by qualified international personnel."

Paul Brown, deputy director for the Office of Investment Affairs in the State Department's Bureau of Economic and Business Affairs, said he works with U.S. corporations to integrate U.S. economic interests with U.S. foreign policy objectives.

His department also helps enforce the regulations of the Group of Eight (G8) Anti-Corruption Transparency Initiative and the EITI. "The extractive industries are part of the solution in promoting transparency," he stressed.

Brown said that transparency initiatives are "a work in progress," using various channels to achieve transparency and accountability and fight corruption.

"Multilaterally, we work with the G8, OECD [Organization for Economic Cooperation and Development], the World Bank, [and] IMF [International Monetary Fund]. Regionally, we work with APEC [Asia-Pacific Economic Cooperation] forum, OAS [Organization of American States], the U.N. Partnership for African Economic Development; and bilaterally with the MCC [Millennium Challenge Corporation]," Brown said.

"We strongly believe that developing countries have a key role to play in making certain that their [domestic businesses] don't support corruption," he said. He also mentioned the declaration by the G8 leaders in July at Gleneagles, Scotland, to resolve the development challenges facing the African continent, and a peer review process set up for African governments instituting reform measures. "And we see the G8 countries as vigorously prosecuting violators, as we would do," he added.

Brown said his department also strives to make certain that there is a greater transparency on the part of U.S. corporations and agencies that extend credit to foreign governments. He cited the MCC as targeting those countries for economic assistance that govern justly and encourage economic freedom.

"The MCC [precepts] are based on the concept that eligible countries will design their own development programs, set benchmarks and goals, and that we will help them achieve these goals through assistance. Thus far," he added, "the MCC has awarded five contracts totaling approximately a billion dollars to developing countries, including [the African nation of] Madagascar."

Specifically referring to sub-Saharan Africa, Brown mentioned the Bush administration's program of African economic assistance in the form of trade entitlements known as AGOA (The Africa Growth and Opportunity Act). "We are going through an annual determination process now to establish [updated] eligibility requirements for how countries measure up to anti-corruption, rule of law, [and] democratic governance," he said.

"Finally, we have the USAID [United States Agency for International Development], which has extensive programs on good governance and rule of law, many of which are working with national and local governments, along with private partnerships that focus on extractive industries," he added.

For additional information, see Trade and Economic Development.

Source: U.S. Department of State