I. Introduction

A panel discussion on the theme of “Capital Flows to Africa: Potentials for Financing New Partnership for Africa’s Development” (NEPAD) was held on 15 October 2003 at the United Nations headquarters in New York. The panel discussion was organized by the Office of the Special Adviser on Africa to coincide with the General Assembly joint debate on the “New Partnership for Africa’s Development: Progress in implementation and international support”; and the “causes of conflict and the promotion of durable peace and sustainable development in Africa”.

The panel discussion was co-moderated by Mr. Ibrahim Gambari, Under-Secretary-General and Special Adviser on Africa; and Professor Wiseman Nkuhlu, Chairman of the NEPAD Steering Committee. The panellists included: Mr. James A. Harmon, President, Harmon & Co., Former Chairman, US Export-Import Bank and Chairman of the Commission on Capital Flows to Africa; Mr. Alan J. Patricof, Vice-Chairman, Alax Partners, Inc and Vice-Chairman of the Commission on Capital Flows; and Mr. Zephirin Diabre, Associate Administrator, United Nations Development Programme. The main objective of the panel discussion was to reflect on the report of the Commission on Capital Flows to Africa entitled A Ten-Year Strategy for Increasing Capital Flows to Africa, an independent study representing the shared efforts of 28 African, European, Asian and American individuals from the business and government sectors. The report was published in June 2003.

Mr. Gambari welcomed the participants and the co-moderator—Professor Nkuhlu. He recognized in the gathering the presence of H.E. Mr. Leonardo Santos Simao, Minister of Foreign Affairs and Cooperation of Mozambique and Ambassador Said Djinnit, Commissioner for Peace and Security in the African Union, and invited them to make a few remarks. In alluding to the importance of addressing the issue of capital flows to Africa, Mr. Djinnit emphasized the need for a bold and innovative approach, involving resource mobilization from the various stakeholders, including the international community private sector—domestic and foreign, and the African Diaspora. Minister Simao underscored that a key element in Africa’s development is the availability of adequate financial resources to give greater impetus to African efforts at addressing the challenges of development, including those of post-conflict development. Private capital flows, including the financial resources of the African Diaspora, can be an important source of the much-needed financial resources for Africa’s development.

In their opening remarks the co-moderators stressed that Africa had historically benefited the least amount of direct foreign investment, averaging about 4% per annum. They highlighted the fact that since the 1980’s, foreign direct investments and capital flows to Africa had decreased further. This was despite the situation at the national, regional and continental levels that indicated the need and opportunity for increasing investment. In addition, recent developments in Africa, primarily NEPAD, had opened the way for creating an enabling environment for increased investment, by establishing an African leaders forum on developing and implementing nationally owned development and governance programmes, with the objective of ensuring an accelerated rate of economic development. In setting the context for the panellists’, the co-moderators highlighted that recent international commitments to Africa, notably the G8 Africa Action Plan had pledged financial and technical support for Africa; it remained necessary to develop a bold and imaginative longer-term strategy on increasing capital flows and foreign direct investment to Africa.

II. Highlights of the presentations by the panellists

Mr. James Harmon: Starting his presentation against a brief background to the setting up of the Commission on Capital Flows to Africa, Mr. Harmon noted that the banks in the US had done little in providing credit to African countries, for example sub-Saharan Africa receives less than 1 per cent of the $70 billion credit from OECD countries, the Export-Import Bank provided credit of about $1 billion dollars in 2002 to sub-Saharan Africa. He alluded to a number of recommendations made in the Capital Flow report, and noted some encouraging response to them by members of the US Congress, especially in the areas of market access (extending AGOA to all African countries). He said that the Capital Flows to Africa initiative was a compact between US/other OECD countries/ African countries and the private sector. If African countries could provide an enabling environment, OECD countries would need to also make some policy changes to leverage investment to Africa. He underscored the importance of the requisite knowledge in African countries about how to raise capital for productive investment. In this regard, he alluded to the recommendation in the report on African financial fellowships to train Africans in the capital markets area. He noted that this recommendation was not yet picked up and perhaps the coordinated efforts of the African diplomatic Corp and the United Nations could move this recommendation forward, without cost to the US public sector, while leveraging private sector support for this initiative.

Mr. Patricof also noted the serious problem of attracting private capital in Africa. Private sector, he added, operated traditional (large) businesses in Africa, which were not representative of the reality on the ground. It is the SMEs and the informal sector, which predominate in Africa, and they face difficulty in raising capital. He also noted that private equity capital players in Africa were few and operated in a narrow range of activities, e.g. cellular phones, as most of them found it difficult to put their capital to work. He emphasized that the local business conditions were a deterrent to attracting foreign private capital, and that the legal and administrative procedures were not supportive to businesses. Additionally and more importantly, weak ability to enforce laws was an important constraint to attracting private capital, including domestic private capital. He suggested that NEPAD should address the issue of the enforcement of the legal system to attract private capital. He also underscored the importance of creating confidence in the African economies to attract private capital.

Mr. Diabre alluded to the important role the private sector played in wealth creation. He emphasized that while African countries needed to put in place good reforms, they were not automatically accompanied by private investment. He also alluded to the high rate of return to investment in Africa, and despite this African countries were unable to attract private capital flows. He underscored the need to make investment related information available to potential investors. It was important that a proactive strategy be developed to bridge information gap on positive developments in Africa. In this regard, he alluded to the UNDP initiative, facilitating visit of representatives from the African capital stock markets to the New York Stock Exchange to share information on the African capital stock markets. He asserted that the exchange of information on Africa triggered some interest from the investors in the US about exploring investment opportunities in Africa. He also referred to the UNDP initiative on free credit rating for African countries to attract private investment. This initiative too resulted in generating interest in investing in Africa. He concluded by underscoring the importance of combining the “pull” and “push” strategies to attract private capital.

Mr. Gambari summed up the main points of the presentations and invited Mr. Maurice Templesman, Chairman of the Board, Lazare Kaplan International of New York, Mr. Isaac Aluko-Olokun, Presidential Representative of Nigeria on the NEPAD Steering Committee and Mr. Patrick Hayford, Director, Executive Office of the Secretary-General to make interventions, followed by general debate.

III. Main issues in the discussion

The discussion covered, among others, the following:

The importance of on-going dialogue between the NEPAD secretariat and the Chairman of the Commission on Capital Flows to Africa was stressed. In this regard, it was also emphasized that any discussion on capital flows should be frank and open
There was need to differentiate between different types of capital flows, e.g. FDI, export credit, short-term flows (portfolio investment)
The Commission on Capital Flows to Africa should be involved in advocacy, for example, it can talk about the extension of the AGOA both in terms of its duration as well as coverage, the operationalization of the Millennium Challenge Account (MPA), the issue of reduction in agricultural subsidies, including removal of subsidies on cotton to help African farmers and cotton growers compete in the global market. In this regard, African countries can coordinate their efforts in pushing for the operationalization of the MPA, removal of agricultural and cotton subsidies. These matters can be accelerated by the public sector to attract private sector investment
Need to revive the bond markets and capital markets in Africa to leverage private capital
Need to clearly define the obligations of African countries to encourage capital flows. For example, in addition to creating an enabling environment, there is the need to have transparent and good accounting system and the enforcement of laws to mobilize not only foreign private capital but also local capital. The enforcement of laws give confidence to investors
There is also the need to develop business skills in Africa through training in business management to accelerate the ability of African businesses to operate in the global businesses
How to efficiently mobilize the resources—knowledge, financial and contacts, of the Diaspora? The UNDP TOKTEN programme is aimed to encourage skilled Africans from the Diaspora to impart their knowledge to locals, and also to work in Africa. Need to create the confidence in the economy to attract the financial resources of the African Diaspora
How to mobilize the financial resources for the development of the informal sector in Africa?
The need to break the stereotypes on Africa, and provide information on the positive developments unfolding in African countries. African success stories of investment initiatives should be publicized as these can have a positive psychological impact on potential investors
African missions can help in disseminating some of the positive developments in their countries and thus make potential investors aware of investment opportunities in Africa
Need to take bold action to get stolen capital back to Africa. In this regard, the UN Convention on preventing and combating corrupt practices and transfer of funds of illicit origin and returning such assets to the countries of origin, particularly the aspect relating to illegally acquired wealth, would be an important mechanism for retrieving such assets

Conclusion:

In concluding the panel discussion, Mr. Gambari summed up the recommendations of the panellists by reinforcing on the need for a longer-term strategy that addressed in a creative, yet holistic, manner the challenge of low levels of investment, including the need to deal effectively with corruption and increase national investment and savings as an integral aspect of creating an enabling environment for increased external capital inflows. It was also agreed that engendering dialogue and advocacy of Africa’s success stories as well as making sure that accurate and updated information concerning the business environment and business opportunities in Africa were available was important.