Business Environment In Sub-saharan Africa 4q5t6r

Business Environment in Sub-Saharan Africa

Dr. Nicolas A. Koudou

Copyright © 2020 by Nicolas Koudou.

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Rev. date: 12/11/2019

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CONTENTS

Preface

Chapter 1 Overview of Sub-Saharan Africa (SSA)

Chapter 2 Business Environment of Sub-Saharan Africa

Chapter 3 Communauté Financière Africaine (CFA)

Chapter 4 Debate on the CFA Franc Utilization and Sustainable Economic Development in SSA

Chapter 5 Ethical and Moral Practices of Doing Business in Sub-Saharan Africa

Chapter 6 Foreign Direct Investment (FDI) Inflows to Sub-Saharan Africa

Chapter 7 Global Competitiveness of Sub-Saharan Africa

Chapter 8 Legal and Regulatory Environment in Sub-Saharan Africa

Notes

References

For Laurence Toilehi, my extremely patient, tolerant, and comionate wife, with much love.—ANK This manuscript is dedicated to my dear parents, Kossehi Deh and Koudou ZaZa, who have unconditionally given me the opportunity to be involved in Western education and break away from a most conservative African way of life. Their vision has helped me to be the ambassador of the moral values they have ed on to me that I am proud to share with the current and future generations. “Dedication and perseverance lead to success” (Ahilé Nicolas Koudou).

PREFACE

B usiness Environment in Sub-Saharan Africa is a reference book to assist multinational firm managers and students specializing in global business. The idea for this book was ignited when I took the leadership and wrote the white paper of the global business concentration of the graduate business Program at Park University. This book is timely as the world has observed intense variations in global trade in the past few years. The transformation of the global economy due to the decline of trade hurdles has converted domestic markets into a global marketplace. The sub-Saharan region of the African continent is this time the competitive battleground of the most advanced economies on the planet as it is well recognized for its endowed natural resources. Improvement in diverse areas of technology, trade, and financial flows has significantly enhanced concepts of distance, time, and markets. Unfortunately, it is obvious that formal books discussing the business culture in sub-Saharan Africa are either seldom or inexistent. The main purpose of this book is not only to assist students and/or learners who want to prepare themselves to meet the challenges of a global economy but also to help multinationals willing to invest in sub-Saharan African countries get the common ideas about the African business cultures and be prepared to tackle the challenges. This book gives its s more exposure on business practices in sub-Saharan Africa; and global firm managers will learn how complex economic, political, and cultural systems in the region and around the globe operate and interact. The manuscript will assist its s to enhance cognitive knowledge of business issues, social responsibilities, and ethical dilemmas and awareness on subSaharan region setting issues.

CHAPTER 1

Overview of Sub-Saharan Africa (SSA)

S ub-Saharan Africa is the area south of the Sahara economically separated from the northern countries by the severe climate of the world’s largest hot desert. It is home to forty-eight independent nations. The region is known as the birthplace of the modern man, Homo sapiens . Its climates are distinguished by annual rainfall variations rather than by temperature variations. It is a very rich area in of natural resources and biodiversity, although it is vulnerable to climate change. Sub-Saharan Africa is the most dynamic part of the planet in of population, but it is still striving to develop. Health and education issues still need close attention to reach the level of the economically advanced countries. Additionally, sub-Saharan Africa consists of forty-two mainland countries and six island nations, including Mauritius. They are classified into different regions, such as Central Africa (Democratic Republic of Congo, Republic of Congo, Central African Republic, Rwanda, and Burundi), East Africa (Kenya, Tanzania, Uganda, Djibouti, Eritrea, and Ethiopia), Southern Africa (Angola, Botswana, Lesotho, Malawi, Mozambique, Namibia, South Africa, Swaziland, Zambia, and Zimbabwe), West Africa (Benin, Burkina Faso, Cameroon, Chad, Côte d’Ivoire, Cape Verde, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone, and Togo), and African island nations Cape Verde, Comoros, Madagascar, Mauritius, São Tomé and Principe, and Seychelles. Although Sudan and Somalia are geographically located in Eastern Africa, they are classified as Arab nations. While sub-Saharan Africa is seen as an economically underdeveloped region, it is still well-known for its rich natural resource reserves, and many multinational companies from well-economically-established countries are investing in there as the region becomes a hot spot, a new frontier for business. Justifications include enhanced political environments, above-average GDP growth rates, and the promise of rich opportunities in a continent where everything still needs to be developed from scratch. However, the sub-Saharan African region, like any other emerging economy, is complex and difficult to enter for the following reasons. The region is huge and not connected economically but is made up of countless really isolated countries from both business and geographic points of view, each country often requires an independent approach and effort, and foreign firms will need to consider carefully which countries to enter. It is

lacking a common market and economic policies to facilitate the market transactions. For instance, each country has its own currency, and this factor alone can tremendously increase the transaction costs as multinationals are expanding their market space; and criteria like an abundance of natural resources, such as oil and gas, are critical for energy, construction, or industrial goods. Population size, a growing middle class concentrated around major metropolitan cities, or the degree of literacy may be good considerations for consumer goods companies. In such circumstances, it is imperative to have longrun strategies because sub-Saharan African economies are growing but are still small, and by comparison, the region’s economies put together are still smaller than the economy of the state of California alone. So companies do not expect big capacities and returns from the beginning. Moreover, making a business run effortlessly requires time and endurance. Definitely, a business organization will need time to overcome some key challenges, such as (a) getting around the complex political and regulatory context (b) and developing an extended operational perimeter and training local workforce. Thus, in the business or personal plan, some emergency time strategies must be added to reach the goals —at least according to experienced investors in the region, two to three extra years minimum is mandatory. For the local context, any organization that is willing to invest in the region must first identify clearly its local connection, and acquisition may be a great option because connections and local knowledge must be very important to excel going through the multifaceted system of approvals and regulations to get local resources such as land to manage and train local talents. The historical relationship existing between the former colonial powers and sub-Saharan African countries has often facilitated their business deals. The presence of successful French investors’ insinuations in their former colonies has been a norm in Francophone sub-Saharan African countries. Some other people, such as Indians with no colonial connection, are doing well in East African countries since before the independence of the African countries. However, it is very important to mention that piloting a business in sub-Saharan Africa means to plan more than it should be. Basic life-ing services such as power, water, and transportation—supplies that are widely available in developed and emerging countries— are often scarce in many sub-Saharan African countries, even in their metropolitan cities. As a result, any foreign firms willing to invest in the region will need to have their own power-generating unit or even sewage accommodation just like other foreign investors do. And to be efficient, most of the aforesaid services must be in-house to dream about success. The other key issue is shortage of local talent, which is by far one of the major problems in conducting efficiently a successful business in the region. This may be due to

brain drain or because of weak curricula in their school system, leading to the growing number of illiterate population. And because of the shortage of managerial and technological expertise, there is a huge competition for talent, and this commands salaries for managers and technocrats even larger than that in the industrialized, developed economies as a fact. One cannot rely on foreign managers and/or technocrats as they will only be a short-term solution, and their salary s are often associated with the risks of living in Africa and the high living costs. Sub-Saharan African cities such Luanda, Lagos, Abidjan, Nairobi, Maputo, and Johannesburg are among the most expensive in the world to live in with Western standards. Henceforth, talent development should involve not only local NGOs and national government but also the foreign multinationals doing business in the region to assist local universities and thread schools. In addition to the aforementioned challenges, such as talent development, the issue of corruption should not be overlooked. It can be seen as an element vital to the African culture, unfortunately. Like in many other countries in the world, corruption is active and practiced in sub-Saharan Africa. However, recently, an emerging African business community understood that corruption is not the best business practice, and doing the right things will likely lead to successful business growth. A best business practice must be in harmony with the public and open to the media in everything that is done. Hence, one can say that in many African countries, you have today well-developed digital media; and as a result, corrupt politicians are and will be very careful to stop good deals when the communities are aware of the benefits of the projects you propose. This book gives you a great opportunity to know the challenges and opportunities to conduct successful business in sub-Saharan Africa.

CHAPTER 2

Business Environment of Sub-Saharan Africa

I n sub-Saharan Africa, great opportunities are accessible for trade and investment, and this may be easy to investigate and understand. It is reported that the economic slowdown became obvious in the region in 2015, and they have since started to recover. In recent years, the countries of sub-Saharan Africa experienced a modest economic recovery. This slight economic improvement of the region is due to the economic performance of the region’s major economies, such as South Africa, Nigeria, and Angola. This positive result of the major economies was sustained by better commodity prices, which were favorable to global financing conditions. The properly managed inflationary conditions in the aforementioned African countries helped the growth of household demand, though the economic expansion was somewhat sluggish because the region of sub-Saharan Africa is still dealing with undesirable per capita income growth, fragile investment opportunity, and low productivity. It is also observed that oilproducing countries in the sub-Saharan region continue to experience the oil price’s repeated decline. Growth occurred in metal-producing countries; as metals prices increase, so does the mining output. The commodity-producing and commodity-exporting countries remain stable, ed by infrastructure investment and crop production. Sub-Saharan African countries enjoyed spending cuts in 2017 by oil-producing and oil-exporting countries, namely, Nigeria and Angola, for example. Consequently, government debts were growing in the region compared to 2016. Many countries were borrowing to finance public investment.

Perspective of the Region

ed by the hardening commodity prices and progressively strengthening domestic demand, the growth in the region will continue to rise slightly over 3 percent in 2019. Even with the modest economic growth, the overall economic

expansion of the region will remain under the meltdown averages due to the struggle in the larger economies to inspire private investment. South Africa is expected to grow to 1.1 percent in the near future from 0.8 percent in 2017, and we think this trend will expand in the long run to solidify and improve the business sentiment in the investment, though the poor government policies will continue to slow down the structural reforms in the country. Nigeria, the economic powerhouse of the region, is projected to accelerate its growth in the coming years, and oil production will continue to improve. Thus, the economic reforms will invigorate non-oil-sector growth as well. Evolution in Angola is projected to continue as a successful political shift improves the possibility of reforms that will enhance the business environment, and non-resource-intensive countries are likely to magnify at a solid pace, helped by robust investment growth. For instance, if peace continues to prevail in Côte d’Ivoire, its impressive growth will be above 7.5 percent in 2019 and beyond. Countries such as Ethiopia, Senegal, Tanzania, and Kenya will enjoy their economic growth as inflation is very well controlled. As the regional population is exponentially growing and the investment trends are not growing at the same pace as the demographic trends, it will be imperative to think about better structural reforms to inspire potential sustainable economic growth in coming years in sub-Saharan Africa.

Opportunity and Threat Conditions

Regional arrogance can be somehow subject to external and domestic menaces, which can lead to an economic hitch. While better economic performance here home in the United States and European Union could stimulate regional growth forward due to higher export activities and increased mining and infrastructure investment, an unforeseen economic decline in China could also generate adverse spillovers to the sub-Saharan region through reduced commodity prices. African countries must be aware that unnecessary outside borrowing without forward-looking budget management could degenerate debt dynamics and hurt growth in many sub-Saharan countries. An anticipated shrinking of global

financing conditions could also lead to a setback in capital flows to the region. Extended political and policy uncertainty could further hurt confidence and deter investment in some sub-Saharan African countries. Hence, mounting government debt levels highlight the importance of fiscal adjustment to contain fiscal deficits and maintain financial stability. Structural policies in areas such as education, health, labor market, governance, and business climate reforms could help sustain potential economic growth within the sub-Saharan African region.

Role of Casual Economy

The unconventional economy is a main component of most economies in subSaharan Africa. It carries the largest share of the sub-Saharan countries’ GDP and s for an average of 60 percent of total nonagricultural employment. While global experience indicates that the segment of the unconventional economy drops as the level of development increases, most economies in subSaharan Africa are likely to have large unconventional sectors for many years to come, presenting both opportunities and challenges for government policy makers. The precise nature of the unconventional economy will be different from country to country due to each level of economic expansion. The unconventional economy is defined as follows: household enterprises that have some production at market value but are not ed and, more generally, seditious production, where productive activities either are performed by ed firms but may be concealed from the authorities to avoid compliance with regulations or the payment of taxes or are simply unlawful. The unconventional economy, as broadly defined, exists to varying degrees in all countries, but the narrower definition of the informal economy is likely more prevalent in low-income countries. We refer to the finer definition as the casual sector or household enterprises and the wider definition as the casual economy. Effectively, the casual sector provides a welcome number of jobs—this is particularly important in the subSaharan economies where the demographics are such that there is an important group of growing working-age population that outperforms the bounds of job

creation in the casual sector. Simultaneously, still, the casual sector tends to contain relatively low-productivity activities so that a large casual sector perpetuates low productivity in the economy. Thus, as the percentage of the casual sector increases—either by growth of casual sector entities or through the movement of casual sector entities into the casual sector—productivity gains are likely to happen, and the tax base is likely to grow, enabling the revenue mobilization required to finance public services to sustain the development process. The challenge for policy makers then is to create an economic environment in which the casual sector can thrive while creating opportunities for those working in the casual sector to maintain or improve their living standards. To evaluate and identify the steps required to create such an environment, we will first examine the size of the casual economy in subSaharan Africa and see how it compares to other regions. As there is considerable dissimilarity in the estimated sizes of the casual economies in subSaharan African countries, this observation then pursues to identify factors that are associated with their relative sizes. It also explores the interaction between casualty and economic performance and finally draws on this analysis to identify policies that could promote the expansion of proper sector activity and, in the process, unleash productivity and create jobs. In such circumstances, one must say that the size of the informal economy is large in sub-Saharan Africa, especially in oil-exporting and fragile states, averaging 38 percent of GDP during 2010–2018. The share of casual employment averages 60 percent of total nonagricultural employment. As informal enterprises act as a safety net for the large and growing working-age population, policy makers need to apply a balanced approach in their policies to formalize the informal sector, focusing on nurturing productivity gains rather than attempting to upsurge tax revenues from informal enterprises. On the other hand, for businesses that are above the tax threshold but choose to avoid taxes either partially or fully, tax policy and revenue istration should work together to improve tax compliance to stimulate the economic growth and increase the standard of living of the citizens.

Successful Expansion in Formal Economy

Countries such as Mauritius and Rwanda have improved their economic wellbeing by their economic informality. This great effort made in their economic

development allowed them to reach the levels of the Organization for Economic Co-operation and Development (OECD). The economic efforts in the aforesaid countries allowed them to move from traditional family businesses to conventional small- and medium-sized enterprises (SMEs). This reform stimulated a business environment for SMEs to flourish, eliminating the barriers to formalization and strengthening the capacity of these enterprises to become more competitive. Based on these observations, one can say that Rwanda as a country has done well by reforming its commercial law, amending regulations to facilitate access to business credit and accelerating trade and property registration. As a result, Rwanda outpaces OECD standards in of the procedures to start a formally ed business. As for Mauritius, it promoted economic reforms in early 1980s that benefited the country’s economic performance. Thus, successive governments have commendably ed SMEs by improving access to financing, providing free export market intelligence, and developing industrial parks. These efforts were strengthened in response to the loss of trade preferences in textiles and sugar and the inception of the global financial crisis in early 2000s. Hence, the labor market reforms were more profitable to workers than to jobs while loosening access to the global pool of both skilled and unskilled workers. In close consultation with the business community, programs were set up to share risks with the banking system to enable SMEs to obtain credit at the prime rate. Registration of firms was computerized to allow same-day creation, and SMEs were provided a one-stop shop to assist with financing, information, and the delivery of permits and licenses. Tax reform facilitated compliance by SMEs. The playing field was leveled through extensive computerization, including for paying taxes online, by the minister of finance giving up his powers of discretion and via regulations moving from ex ante authorization to ex post verification. Despite the global financial crisis and the other shocks, employment in SMEs continued to grow in Mauritius in 2005 and beyond, contributing more job growth than larger firms. More importantly, SMEs play a significant role in the economy, representing close to 40 percent of GDP and about 45 percent of total employment, reflecting the success of the policy initiatives to the development of SMEs in the formal sector.

CHAPTER 3

Communauté Financière Africaine (CFA)

O ne cannot discuss the business environment of sub-Saharan African countries without referring to the Communauté Financière Africaine of fifteen countries. The CFAF remains the dominant sign of reliance on the former colonial master. This currency used in west and central regions of Africa is guaranteed by French government and safeguarded by the Euro. CFA or Communauté Financière Africaine or African Financial Community is currently and primarily used by Francophone West African and the Central African countries. The CFA franc still used today in West and Central African countries is somewhat different, but it is substitutable and has a fixed exchange rate to the euro. The CFA franc in present day is used in fifteen countries, thirteen of which are former colonies of . During the colonial rules, African countries were required to use currencies linked to the French franc. Thus, after their independence, several former French colonies in sub-Saharan and Northern African regions decided to leave the franc zone, and these countries were Guinea in 1959, Tunisia in 1958, Morocco in 1960, Algeria in 1964, and Madagascar and Mauritania in 1973. Since its independence, Comoros has been member of the franc zone. Even its currency, the Comorian franc, is different but also hooks to the euro as the CFA franc. The difference between these two currencies is their exchange rate. Equatorial Guinea, a former Portuguese colony, ed the CFA zone, as did the Guinea-Bissau, the former Portuguese colony, in the late 1990s. Thus, there are two most important monetary unions in Africa: the Western African Economic and Monetary Union (WAEMU) and the Central African Monetary Union (CAMU). Both institutions use the CFA franc but do not have a formal arrangement to manage their currency. The special characteristic of the CFAF is that the African money is managed by the French treasury and, as a result, is directly linked to the euro. This explains why the Africans themselves do not have any oversight of their own money. Both central banks hold external reserves on behalf of their individual areas, 65 percent of which are in turn held in the operations in Paris. In the early days of the independence of member countries, 100 percent of the reserves of member countries were held in treasury. African banks are given the opportunity of credit facilities, and the convertibility of the CFA franc to the euro

remains constant since then as it is assured by the French government. The only leader who discarded the offer was Ahmed Sékou Touré of Guinea-Conakry. Then he obtained his country’s independence in October of 1958, two years before the other colonies, and set up its own currency and central bank. The currency is currently used by 150 million African people in West and Central Africa. Even with the aforementioned evidence that African countries do not have the destiny of their economic sustainability, some Francophone African leaders are either lacking courage and/or the most important qualities, such as integrity and ability, or are often subject to several contradictory influences from their former main colonial powers to request changes in their country’s economic performance because of economic stakes that the continent of Africa represents for its natural resources. In reference, these resources are oil, gold, diamonds, uranium, coltan, bauxite, iron, timber, and so on. It is not by chance that the word politician has been perceived with negative implications anywhere in human societies. Nevertheless, it has been shown that there are still some few who come near to the leadership standards and who can be seen as good examples of tangible political leaders. Henceforth, leadership can be a deciding factor in the effective and efficient management of people and public affairs. Societies that benefited from progressive leadership have experienced a sustainable development. Unfortunately, poor leadership practice is hunching down in distress, which is a direct consequence of deprived political management of Francophone African nations that identify themselves in this classification because after five decades of independence, it is still difficult in most of the countries to acknowledge genuine leadership acumen among these leaders. Thus, this leadership deficit is due to the fact that the concept remains vague in the mentality of Africans because of the consequence of the interventionism and the resulting imitation. This deficiency is imposing Francophone Africa to resist the colonial past to adapt the leadership notion capable of defending its population’s interests in the most effective manner based on solid respect for different state institutions by ignoring and/or challenging the tenacious domination of French political elites. Leadership philosophy must be well thought, decisive, and very determined if one wants to gain positive outcomes of sustainable economic development in Francophone Africa. To better understand the aforementioned issues, this manuscript will further discuss the Francophone African leadership and the immediate reaction of the former colonial masters using the political and economic means to reach their aims.

Business Environment and Tax Anxiety in CFA Franc Zone

The most significant impact in the economic and political life of Frenchspeaking African countries is the utilization of a common currency, CFA franc. As we mentioned before, the currency pegged to the euro defines the political agenda of African leaders because before approved the African requests for independence in 1960s, it cautiously structured its former colonies (CFA zone) in an arrangement of compulsory solidarity to oblige the former colonies to put more than 60 percent of their foreign reserves in the operations s controlled by the French treasury, plus another 20 percent for financial abilities. This means that out of all the Francophone countries, thirteen of them have access to only 20 percent of their own money. No information is disclosed to any African leaders as to where these funds are invested and whether there is a profit on these investments. This inappropriate practice makes it impossible for African countries to regulate their own monetary policies and to enable them to be able and manage their own economic development programs. This monetary manipulation alone can be one of the reasons why the sustainable economic development is lasting to materialize in sub-Saharan Francophone African countries and political leadership has been without tangible and/or suitable results. it it as true or not, claims the first right to obtain or discard any natural resources found in the land of French-speaking African countries until today. So even if the Francophone countries can get good bargaining prices elsewhere, they cannot sell or make a deal with anybody until approves it. Having said that, the French companies must receive the government contract first before any other countries can be awarded government contracts. This is viewed as the payment of colonial tax for the benefits of French colonization. The French believe that Africans benefited from French colonization by acquiring schools, nurseries, public istration buildings, and research institute instruments; and therefore, Africans should definitively pay colonial taxes. And unfortunately, they do not talk about what they received from Africa during their colonial rules. Hence, the conception and maintenance of the French-speaking African countries are the product of a long-lasting French colonialism and the learned dependence of the Francophone countries. This

system is contested by the new generation of French-speaking African elites or political leaders. Thus, the former president of Senegal, Abdoulaye Wade, stated his concerns in the following words: “The African people’s money stacked in must be returned to Africa in order to benefit the economies of the Central Bank of West African States [BCEAO] member states. One cannot have billions and billions placed on foreign stock markets and at the same time say that one is poor, and then go beg for money.” In the context of the aforementioned quote, former president of Côte d’Ivoire, Laurent Gbagbo, sought a second estimate from the Chinese, who offered to build the third bridge on the lagoon in Abidjan at half the price quoted by the French company. But unsurprisingly, the French said, “No, you can’t do that.” Since then, the faith of President Gbagbo was known.

CHAPTER 4

Debate on the CFA Franc Utilization and Sustainable Economic Development in SSA

O ne believes that since the independence of the sub-Saharan Francophone nations, the CFA franc has played and continues to play a very important role in more than thirteen countries of former French colonies. The monetary policies of the CFA franc compromise the economic independence of the African countries to establish a sustainable economic development platform. Under the of the agreement signed by French and African authorities, the central banks of the African countries are obliged to keep at least 60 percent of their foreign exchange reserves in an operations held at the French treasury as well as another 20 percent to cover financial liabilities. This harsh practice makes it impossible for CFA franc economies to regulate their monetary policies and tackle efficiently their socioeconomic development. In addition to the exploitative control of the African monetary policies, the economies of the CFA franc zones are in the hands of French multinationals. They control the construction of new infrastructure, such as roads, bridges, ports, and the communication industry. The development toward a multipolar world and the incompatibilities of the capitalist system engender a new reoccurrence of the financial and monetary system order. These systems have been continuously entrenched in the globalization that began with the economic order decided on at Bretton Woods in 1945 and in the last forty years of neoliberal globalization. A rise of monetary defiance is growing not only at social bases but also at the national and regional level, resignifying monetary systems and reorienting them toward new social and geostrategic pathways. One energetic illustration of this movement has been coming to light since late 2016 in a group of fifteen African countries in West and Central Africa, where a monetary system inherited from during the colonial era is in vigor. Hence, numerous activist groups and sectors of the African diaspora have decided to pick up once again the debate about the Communauté Financière d’Afrique (CFA), which include two major economic blocks: UEMOA and CEMAC. This sophisticated monetary structure was formed since 1945 with the promise of attaining monetary constancy and a quick transition toward economic

development. Two mechanisms, well-known in other regions, form the basis of this economic interventionism: the emission of debt in association with the restriction of national budgets orchestrated by the IMF and the World Bank and monetary oppression, both legitimized by a subtle machine of communicational and institutional influence, a strategy that renowned African economist Nicolas Agbohou has no hesitation in describing as monetary Nazism. Incontestably, the facts show that the financial control implemented since the inception of the CFA franc is comparable to that levied by the Nazi regime during the Second World War in different occupied European countries. What does this mean today in the CFA franc zone economies? Ultimately, this is a question of a planning of technical, institutional, and legal control, tying at one end the printing of money in Chamalières, , outside of the jurisdiction of the African countries at the pleasure of French diplomacy and at the other end the handling of monetary flows based on four mechanisms: fixed parity between the euro and the CFA franc acting as leverage to generate austerity and programmed devaluation, the centralization of exchange and operation s under the protection of the French treasury to capture African currencies, the free convertibility of the CFA franc to euros to neutralize the capacity to issue money without their existing internal convertibility of the CFA franc among the two major African economic blocs, and finally, the free transferability of African capitals to Europe, normalizing capital flight at institutional level. As a consequence, many of these African countries are at the back of the queue of the world human development index and are caught in a spiral of impoverishment or rather in a sophisticated meandering of extraction of wealth and the funding of the economies of Western and Central African countries. Let us recall that in the 1960s, the GDP of most of the Francophone African countries was comparable to the GDPs of South Korea, Cambodia, and Vietnam. It is estimated that $50 billion are taken out of Africa every year, and this is the equivalent of 3 percent of the GDP of Mali, 1 percent of Senegal, or 6 percent of Ivory Coast. Moreover, sub-Saharan economies have not been competitive and balkanized, confined by the old belief of controlling inflation, unable to consolidate intraregional trade relations and having only less than 15 percent internal economic transactions, and without giving greater consistency to the emerging continental bloc project within the African Union. Eventually, as emphasized by the African activists involved in this current citizen movement, the trading of

political sovereignty for economic submission at the time of independence ended up watering down that same sovereignty. Nonetheless, the current cycle of world depression and depreciation of prime materials is causing even more crashes to appear in this economic pact. This misconduct of French political elites has allowed such economic and monetary subjugation to endure over time when other African countries have been able to show another way is possible. Monetary stability tied to the euro may be an important factor if it is not the main reason the economic and monetary repression is prevailing in sub-Saharan Africa. The weight of the postcolonial realpolitik and of the feudal pact of deference in exchange for diplomatic protection is also a key factor. Though few countries left the CFAF monetary union—such as Morocco, Madagascar, Algeria, Tunisia, and Mauritania—the African leaders who rebelled against this colonial order were silenced by military force or other kinds of pressure. The last two cases were former Libyan president Muammar al-Gaddafi, who sought to establish a PanAfrican project and currency, and Laurent Gbagbo in the Côte d’Ivoire, who promoted the nationalization of the financial system of a country that represents 40 percent of the monetary mass of the subregional bloc UEMOA and CEMAC. Based on the above observation and if we take into consideration the analysis of the economists such as Nicolas Agbohou and Bernard Lietaer, it is worth confirming that the monetary systems in Africa were designed in the last century with a clear conscience of being a factor of homogenization and creation of monopolies at the service of the colonial master, a conscience that appears today to have been weak over time for different social actors and citizens in general.

Summary and Recommendations

We all know that the colonial pact upheld the French control over the economies of the sub-Saharan Francophone nations; takes possession of their foreign currency reserves, controls the strategic raw materials of the countries, stations troops in the country with the right of free age, requires that all military equipment be purchased in , takes over the training of police and army, then wants that French business be allowed to maintain monopoly enterprise in

key areas such as water, electricity, ports, transport, energy, and communication. It is obvious that puts limits on the imported goods from outside the Francophone countries but decides the minimum quantities of goods and services imported from . These types of political arrangements still prevail today. In this chapter, I believe it is worth defining the relationship existing between and its former black colonies in Africa and then developing suggestions to overcome the Françafrique political ideology. It is also described as the relationship of with its former colonies in sub-Saharan Africa in which it s unpopular African leaders for the sake of its economic interests in the continent. This relationship is an inhuman, brutal, and evil tale of corruption; massacres; dictators ed and progressive leaders murdered or removed from power and/or imprisoned in the International Criminal Court (ICC); weapons smuggling; cloak-and-dagger secret services; and spectacular military operations. Thus, to provide some recommendations of sustainability to the African states, we must involve as it represents the root of the problem of poverty in Francophone Africa even if this is not the best approach. must understand that besides the interest of its nation, the political ethics must also prevail. should think in of the long run when defining its politics vis-á-vis its ex-colonies. We are all living in a global society where the interaction among all citizens of earth is inevitable. The exploitation of the excolonies will not stand forever. It is time for to think of strategies that will allow the nation of to deal sustainably with its economic problems rather than cruelly exploit its former colonies. Instead, sub-Saharan Francophone nations must be more realistic and put up front the interest of their nations. The dependence and traitor behavior should be minimized to better think about the development of their nations. This is where the notion of social capital should play an important role in the advancement of African societies. Hence, the concept of social capital encourages values through education and health. Investing in education has been viewed as an essential piece of economic policy. These reasons encourage the new generation of African leaders to make important investments in the amassing of social capital as hope for growth and sustainable development. Therefore, African nations must train a new generation of political leaders who will value determination, courage, dedication, integrity, and productivity coupled

with result-oriented conduct. These types of leaders will then embrace the transformational leadership concept to better defend the interests of their population within the context of enduring respect of their different state institutions. The new generation of African political leaders should work hard enough to overcome the lack of technology and promote widely the idea of competent citizens of their respective countries to become skill-abundant-worker countries. African diaspora can be found in different corners of our planet, such as Europe, USA, Canada, and other parts of the world. The diaspora could be useful to Francophone Africa in particular and in general to Africa in some very important areas as follows: enhancements in curriculum, technical competence and university teaching, and drawing financial resources for development and better representation of Africa in the world through collaborative efforts that the diaspora has already established in the advanced societies. The advancement of a new generation of leaders suggests the rise of elites that bring together different abilities such as integrating the current debate on sustainable development, attaining new knowledge that is missing in Africa, adopting a long-term approach and using good negotiating skills, gaining new information and communication technologies, and espousing the new developmental values with those of equality, integrality, good governance, and shared management of wealth available. Thus, the evolution of new leaders will not happen unless many convoluted circumstances and issues are taken into . These leaders must be prepared for the global competition to allow their confidence and real social capital to be built, which is still missing in Africa. The last aspect, but not the least, of social capital is that of values, which serve as a foundation of society, such as the values and attitudes regarding work, government institutions, and money.

CHAPTER 5

Ethical and Moral Practices of Doing Business in Sub-Saharan Africa

S ub-Saharan Africa is a region well-endowed in vast amounts of natural resources like precious stones and minerals and even diamonds. It is primed for ethical and moral issues and understanding how to do business. However, the region is of paramount importance for multinational corporations (MNCs). Any multinational corporation that is looking to establish a footprint in the SSA region must have a common understanding of the culture, not just from a business perspective but from a moral and ethical perspective as well. But to realize these very important issues, it is vital to understand how the people in the region value the ethical and moral practices. Still, the MNCs should continue to promote their work ethics in the region and manage its local resources just as it would manage them at their headquarters. Take South Africa, for example. This country has long been plagued with corruption, inflation, and racism. Corruption has also been a major issue in the country, making South Africa somehow less competitive in the geopolitical environment. So far, very limited academic work has been done in the field of business ethics in the region. In particular, the limited amount of work in academia has not quite filtered down to the levels that are necessary for countries and MNCs alike to have a set of rules and ethical standards to follow while dealing with the region’s ethical and moral issues. Another aspect that leads to a lack of ethical and moral principles is inflation. Inflation in sub-Saharan Africa has long been known to be much worse than the international average. One must say that almost 90 percent of sub-Saharan African nations’ business schools now provide some kind of training in the area, and yet the business ethics is still largely irrelevant to most managers. Hence, the issues of inflation and, to another extent, corruption, seem to go hand in hand. Inflation, as noted by the World Bank, leads to drastic changes in the local economies of SSA countries and ultimately filters to economies that could in fact be doing much better. In addition, the crossing of borders and moving of commercial goods and services between SSA countries lead to the advent of currency exchange that may lead to the devaluation of one’s currency based on not only the lack of understanding of a viable exchange rate but also not understanding inflation and lends itself to corrupt practices that hinder

commerce at a greater level. Hence, the corruption perception index of Transparency International (TI) views South Africa as the fifth least corrupted country in the sub-Saharan African region. Yet bribery, corruption, and fraud are still considered to be problems in the country’s business environment, and the most common ethical concerns about misconduct of doing business include bribery, discrimination, fraud, and harassment. Another aspect of unethical behavior, though not widely discussed in SSA but prevalent particularly in South Africa during the oppressive times of apartheid, is racism. Prejudice has long been an issue that has not widely been spoken about but continues to be a major issue that affects companies when dealing with moral and ethical standards. Furthermore, this issue can be broken down to gender inequality in which in most countries in SSA, women are not afforded the same opportunities as men. In addition, some areas require certain positions of power to only be run by men, thus lending itself, once again, to a level of ethical and moral standards that countries like South Africa need to break away from.

Norms of Ethical and Moral Practices

Any firms that do business in sub-Saharan Africa have the moral obligation and wherewithal to carry out ethical and moral practices when conducting business. Company policy should be as it is at its headquartered location and, as such, should be followed in accordance with its corporate policy on ethical standards and values. Furthermore, creating programs that teach managers at all levels the value of morals and principles as they are taught at their many other locations is a position that carries a significant amount of importance to them. For instance, if a company is to expand in a country such as South Africa, its first order of business should include laying the foundation for the ethical and moral practices that have made them successful to this point. South Africa has achieved a great deal since the times of apartheid, but on the other hand, that is not to say that they still have a long way to go. Therefore, establishing programs and policies that are in line with their national practices would be of great benefit when looking at expanding internationally. This level of growth and development is a great resource for MNCs to utilize and therefore add to the organizational value of their international operation.

To stimulate the MNCs’ investment interests in SSA, a study was conducted by the Ethics Institute of South Africa. The results reveal that there is a wide gap among regulation on ethics management, the level and quality of reporting, and the actual implementation and influence on strategic decision-making within the business. For these reasons, the South African government published the general procurement guideline. The guideline prescribes a minimum set of standards that emphasizes openness, effective competition ethics, and fair dealing in the public sector procurement business. There are high expectations for companies to contribute significantly to social development. Under the government’s B-BBEE Act (2003), companies doing business with public bodies are required to show how they are sharing wealth with South Africa’s poorest. There are other organizations, such as NACF, SIU, PSC, and SARS, that help control corruption in both the public- and private-sector businesses.

Recommendations

Based on the data provided and presented within this consultative analysis, the recommendation for MNCs is to utilize their current practices and take them to their international locations, specifically in sub-Saharan Africa, when looking at expanding. And while there are still some issues with expansion to sub-Saharan Africa, particularly in South Africa, there are some serious concerns such as corruption, inflation, and to some degree, bigotry. However, opportunities still exist, and data is available to show that such a move would be of great benefit. Furthermore, understanding that moral and ethical values may take some time for the sub-Saharan African region to adapt and do not make it a subject that is left and forgotten about. On the contrary, moral and ethical education should be at the forefront and, in the end, would lead to a level of prosperity that is achievable and can lead to business ventures that are beneficial for all parties involved. The best practice of ethical behavior requires the input of all stakeholders and one that is believed to be successful. Thus, ethical behavior is directly correlated with the employability skills, such as honesty, ability to work cooperatively, respect for others, pride in one’s work, willingness to learn, dependability, responsibility for one’s actions, integrity, and loyalty. They must be adequately followed.

Communication and training on codes of conduct and ethics and ethical policies need to be improved. Companies need to assess the adequacy and effectiveness of their ethics, management structures, and processes regularly in order to improve their ethical management. Leaders must set the tone by visibly and audibly committing themselves to the ethical standards of the company. Strategic alliances are recommended. Business ethics and corporate social responsibility are very important to the success of a business that is trying to operate in subSaharan African countries in general and, in particular, in South Africa.

CHAPTER 6

Foreign Direct Investment (FDI) Inflows to Sub-Saharan Africa

F oreign direct investment (FDI) occurs when an individual or business establishes ownership of business assets in a country other than its own. FDIs are either horizontal, vertical, or conglomerate strategies to establish a controlling interest in another country. Generally, FDI is either the purchase of an existing business or the establishment of a new business within a foreign country and requires a significant capital investment. In other cases, the investor may make provisions for business resources or use managerial influence to gain influence over the foreign business through t ventures, mergers, or subsidiaries. FDIs can also occur when the individual or business leverages the foreign country to acquire materials and resources for its related business activities. According to Ernst & Young’s Africa Attractiveness survey, sub-Saharan Africa is the second most attractive FDI destination based on changing investor perceptions of the African marketplace. Sub-Saharan Africa is attractive to FDI for several reasons. Investors want to exploit Africa’s abundant natural resources, such as coal, oil, and natural gas as well as gold, diamonds, and mineral deposits. Political stability in developing countries and strong business regulations that protect intellectual and real property rights are important to gain investor’s confidence. The sub-Saharan African region has a significant labor force with varying degrees of skill level and lower overall labor costs. Additionally, investors want to tap the purchasing power of sub-Saharan Africa’s growing middle class. As a result, FDI inflows began to rise in consumer-related sectors as well as in extractive industries. In 2016, African FDI projects included business services, infrastructure, real estate and electricity, and gas and water followed by chemical manufacturing, renewable energy, textile and clothing, and automotive industries. The top 5 FDI inflow host countries in SSA are Angola, South Africa, Nigeria, Ghana, and Ethiopia. These countries attracted 57 percent of Africa’s total inflows in 2017. Additionally, Angola’s natural resources, hydrocarbons, minerals, and fisheries are attracting FDI. South Africa’s new ANC istration is expected to encourage more FDI than previous istrations due to changes in land protection laws. South Africa’s

demographics, economy, abundant natural resources, transparent legal system, and political stability have attracted FDI in the financial, manufacturing, mining, automotive and transportation, and retail sectors. Nigeria attracts FDI inflows because of its natural resources, large and diverse population, tax system, and low labor costs. Additionally, Nigeria’s president, Muhammadu Buhari, has been courting private companies to encourage them to increase the FDI projects to help the country’s weakening economy. Nigeria has recently made strides to attract foreign investors into the country. Under the Industrial Development Based on Income Tax Relief Act and according to Standard Bank (2018), pioneer companies “can enjoy an income ‘tax holiday’ for a period of up to five year.” Nigeria has an enormous population that provides an unlimited workforce pool as well as consumer base. There are also incentives to manufacturers that can source their raw materials locally. Nigeria’s information and communication technology services have booming potential as the country ranks as one of the fastest-growing internet s in the world, and Nigeria is working toward involving the country in information communications and technology services (ICTS). Private education in the trade is in demand as Nigeria suffers from vast underemployment. Profit for education has a high potential for investment returns and could focus on offering distance learning or night schools. Ghana has been attracting FDI for many years and is the fourth-largest subSaharan African host country of FDI inflows primarily from agriculture, mining, and oil exploration. Investors are attracted to Ghana because of its democratic political ideology, inexpensive labor force, abundant natural resources, and improving macroeconomic environment. Ghana’s telecommunication is also booming, with estimates of mobile phone ownership reaching sixteen million. The opportunity exists within the tower managers and telecom investors to provide for the growing market. The oil and gas sectors require improved to build their infrastructure to enhance their quality and stability. The industrial sector has enormous potential for growth from car production to gas liquefaction. The information and communication technology (ICT) sector struggles to meet the needs of the growing private sector businesses, and investors could capitalize greatly on investing into this service base. In 2017, Ethiopia attracted $3.6 billion from investors, making it the secondlargest recipient of FDI inflows in sub-Saharan Africa. The Ethiopian government’s economic reforms, commitments to liberalization, improvements

in transportation infrastructure, and electricity production encouraged FDI to increase. Ethiopia has maintained a high FDI inflow due to several other contributing pillars. One is the construction of industrial parks where investors can begin production in as little as two or three months. With such expanding infrastructure and development, the mere capacity has increased the economic growth of Ethiopia between 8.5 and 10 percent annually. Ethiopia has investment policies suitable for protecting these new business ventures and providing these businesses the assurance their companies will be profitable. In addition, improved power supply as well as government incentives are enticing for businesses to want to enter the market. Countries must continue to work toward making each country politically and economically stable. Revamp business laws to favor investor relations, trade partnerships, and easement of land acquisitions as well as develop tax benefits and incentives to infrastructure improvements for the country. Work to eradicate crime and corruption in each country to provide security and protection for safer business operations and continue to develop better working conditions and laws for both the employees as well as the investor. Develop means to attract investors to provide education and training for employees in trades as well as the industrial and agricultural sectors.

Foreign Direct Investment from Northern Africa to Sub-Saharan Africa

Although the amounts are not as sizable as FDI from developed countries, there is some FDI from Northern Africa into the sub-Saharan African region. The most notable country investing into the southern region from the north is Morocco. In 2015, Morocco has invested and continues to invest heavily into Tanzania, Guinea, Gabon, and Zaire. A remarkable 85 percent of all FDI from Morocco goes back into the continent of Africa, specifically the sub-Saharan African region. These numbers have tripled from 2006 to 2016. A more recent look of the top countries that Morocco specifically has FDI going toward in 2016 include Mauritius, Ivory Coast, Nigeria, Senegal, and Mauritania. Although there were many scandals around the leaders of Libya, the country has

also invested heavily into sub-Saharan African countries. Overall, the top destinations for FDI from Northern Africa into sub-Saharan Africa tend to be the Ivory Coast, Mauritius, Nigeria, Senegal, and Mauritania, and these are mostly from Morocco. Libya’s economy has virtually stalled as a result of political conflict. Many reasons exist that African countries may choose to invest right back into their own continent, even if they are in different regions than one another. The biggest reason has to be for the expansion of the continent as a whole. Morocco’s king was open about the investments into sub-Saharan Africa, stating that the commitment to solidarity-based field action and economic and human development will help the betterment of the continent. Many of these southern African countries in the sub-Saharan African region are a hub for trading and exporting goods. Connecting the link among the entire continents is key for everyone involved. The southern countries have potential in of security, stability, and infrastructure to become integrated development hubs for the entire continent. The northern countries also notice the potential that the developing sub-Saharan African region has. The developed countries are all investing and profiting greatly from their FDI here, and it is only smart for North Africans to help develop their continent as a whole as well as get a return on their investments. This is beneficial for both parties (North Africa and sub-Saharan Africa) and only makes sense. It is imperative to note that as of 2018, a new major regional trade agreement went into effect, encoming almost fifty nations in Africa. The African Continental Free Trade Area (AfCFTA) will be the world’s largest free trade area and is expected to boost African economies by liberalizing trade across subregions and at the continental level. RTAs encourage investments aimed at bolstering trade opportunities. This is especially true when the participating countries are of unequal economic status. Free-flowing trade can only happen in climates of peace and prosperity. With restrictions lifted across the continent, AfCFTA is expected to have an exponential effect on foreign direct investment. With increasing amounts of capital, a revived banking system is expected. Additionally, in the SSA region today, many global firms have more expertise than domestic companies to develop local resources. Across the continent, this is a common theme due to the many lucrative opportunities in natural resources, infrastructure development, and human capital. The continent of Africa has continuously been the source of a good amount of FDI. However, the FDI flows to Africa as a whole decreased in 2017 to $42 billion, which was a 21 percent decline from 2016. Challenges

remain for both regions as many foreign investors struggle with regional political uncertainty and security tensions. FDI net inflows remain unequally distributed across the continent, with only five countries (Angola, South Africa, Nigeria, Ghana, and Ethiopia) hosting 57 percent of the continent’s total FDI inflows while Africa s for 3.4 percent share of global FDI. The majority of the decrease can be related directly to the oil industry and the weak oil prices. In Northern Africa, the FDI inflows were down 4 percent year over year to $13 billion. This is a result of investments in Egypt declining, while Morocco was up 23 percent to $2.7 billion, thanks to sizable investments in the automotive industry. FDI in the sub-Saharan African region took a big hit due to the commodity bust in prices. Inflows declined 28 percent to $28.5 billion. It was down almost across the board in all the countries in the region. Central Africa decreased 22 percent to $5.7 billion, West Africa was down 11 percent to $11.3 billion, and East Africa was down 3 percent to $7.6 billion. The African FDI inflows by the subregion of the continent, Southern Africa s for the biggest inflows of FDI year after year. In focusing on some of the specific countries, there are a few highlights of the FDI inflows from last year. Nigeria fell 21 percent to $3.5 billion, which hurt the Central African segment number due to their economy remaining depressed. Out of the $7.6 billion in East Africa, Ethiopia was the recipient of half of the amount at $3.6 billion, which was down 10 percent. This makes Ethiopia the second-largest recipient of FDI in all of Africa (UNCTAD, 2018). Kenya saw a great increase of 71 percent at $672 million due to strong domestic demand and inflows for the technology industry. FDI into Angola actually turned negative, down to −$2.3 billion from the $4.1 billion they received in 2016. Furthermore, investors have highlighted the agricultural sector as having the greatest potential for growth in the next two years across several nations in both regions. Infrastructure is also viewed as another multiregional growth sector. In short, FDI inflows into Africa provide an opportunity for investment through strategic partnerships with local organizations. Foreign direct investment inflows in North Africa have been relatively dominated by Egypt since 2012. This is due in part to the sociopolitical revolution in 2011. Since that time, Egypt has shown steady growth rates with promising new discoveries in the energy sector, and it ranked 128th out 190 countries in the 2018 Doing Business report of the World Bank. More than half of total net FDI inflows in Morocco are focused in the real estate sector. Morocco is doing well as it is among the top 69 best economies in the world. Algeria hosts large concentrations of natural resources and has proved to

be economically stable throughout the last decade. Thus, FDI is mostly concentrated in energy, infrastructure, and telecommunication sectors. Algeria was ranked 166th out of 190 countries in the Doing Business 2018 report published by the World Bank.

Top Countries of Foreign Direct Investment Inflows

The United States and China both heavily dominated the world’s foreign direct investment inflows in 2017. Hong Kong, Netherlands, and Ireland rounded out the top 5 recipients of FDI inflows globally. These top 5 nations have established a reputation for investment competitiveness. This is done because these countries are stable economic powers with large international financial centers. The FDI into the developing countries, like sub-Saharan Africa, continues to stay level or at a slight decrease; however, the other countries that are looking to just sustain have decreased greatly over the years. Europe saw a 27 percent decrease, and United States saw a 33 percent decrease as well. As you can see in figure 2 on the next page, the United States led the way with $311 billion of FDI, followed by China at $144 billion. Rounding out the top countries worldwide receiving FDI are Hong Kong at $85 billion, Netherlands at $68 billion, Ireland at $66 billion, Australia at $60 billion, and Brazil at $60 billion. In areas such as infrastructure, energy, and natural resources, it can generate additional sustainable investment. In conclusion, the FDI into Southern Africa has been productive and beneficial for both the investing parties as well as helps to improve the infrastructure in sub-Saharan Africa. These investment projects and corporations help to improve road conditions and boost the economy. Although the region is still not quite as high for FDI inflows as the developed economies, they will continue to rise up the charts and become an even higher investment opportunity to investors worldwide. With the increasing educational focus, the skilled and cheap workforce, and the advancing infrastructure, subSaharan Africa is a very attractive FDI opportunity.

CHAPTER 7

Global Competitiveness of Sub-Saharan Africa

C an we discuss the business environment in sub-Saharan Africa without discussing the index of global competitiveness? The best answer to this question is no because it measures the set of policies, institutions, and factors that establish the sustainable current and medium-term levels of economic success. It can also provide a comparative overview of the economic and business potential of nations and/or regions. In the Global Competitiveness Index, the sub-Saharan African region makes up 17 of the bottom 20 nations. While the medium score is 60, the median is 45.2, the lowest for the sub-Saharan region. It is also important to clarify that the index used for this analysis is based on twelve pillars, such as ing environment, market, innovation ecosystem, and human capital. It is clear to mention that 140 countries are ranked based on the score of 100. Mauritius and South Africa are, respectively, the African leaders as they are ranked on the top half of the competitiveness index. Thus, Mauritius’s top ranking is justified by scoring high on one of the pillars—strong institutions— and its score of 62.9 on institutions is particularly viewed as a very important competitive advantage in the region as more than 65 percent of economies in sub-Saharan African countries score below 50. And among the top 10 ranked African countries, 8 countries are located in the sub-Saharan region, and 2 are from Northern Africa, Tunisia, and Egypt (see table 1 below).

2018 Competitiveness Index Table 1: Top 10 Ranked African Countries

Countries Rank Mauritius 49 South Africa 67

Score 63.7 60.8

Seychelles Morocco Tunisia Botswana Algeria Kenya Egypt Namibia

74 75 87 90 92 93 94 100

58.5 55.6 54.5 55.6 54.5 53.8 53.8 52.7

Source: World Economic Forum 2017

It is very obvious to state that the sub-Saharan region shows the weakest average regional performance on ten out of the twelve pillars evaluated, including information communications technology adoption and the human capital pillars of health and skills. The downside is that the internet costs are currently unsustainable in the region than everywhere else, and the internet speed across is far less than the global minimum standard. Nigeria, identified as Africa’s largest economy, ranks 152 out of 157 countries assessed, and all region s for only the bottom 10. Improving scores on future indexes and creating more competitive economies will depend on the developmental pillars, such as weak institutions, poor infrastructure, and skill deficit-are resolved.

2018 Competitiveness Index Table 2: Eight of the ten least competitive economies globally are in SSA.

Country Score Mauritania 40.8 Liberia 40.5 Mozambique 39.8 Sierra Leone 38.8 DR Congo 38.2 Burundi 37.5 Angola 37.1 Haiti 36.1 Yemen 36.4 Chad 35.5

Source: World Economic Forum 2017

Assessing the competitiveness index on a global scale, we realized that eight out of the ten least competitive economies are in the sub-Saharan African region (see table 2). This confirms that there is still room for improvement for the region if countries believe in sustainable economic development. These eight poorly ranked countries should work hard enough to develop their competitiveness index pillars. Countries such as Mauritius, Rwanda, and South Africa are the real examples in this situation.

CHAPTER 8

Legal and Regulatory Environment in Sub-Saharan Africa

T he scope of government regulations and legal obligations is immense and has far-reaching effects into all sectors of an economy. This holds true in the SSA region as many developing nations need clear operating rules to run and function efficiently. Without a sound legal and regulatory environment, corruption and manipulation can take hold, stifling growth throughout entire regions. Historically, growing diverse economies of scale and a sound regulatory environment are mutually exclusive. A sound legal and regulatory environment is typically characterized by a level playing field, transparent and ive rules and regulations, as well as strong enforcement institutions that promote a system of checks and balances. Hence, sub-Saharan Africa s for the largest number of regulatory reforms, making it easier to do business in the past year, with 75 of the 230 documented worldwide. Yet despite broad regulatory reform agendas, challenges persist in the region, where business for multinational corporations continue to be costlier and more complex on average than in any other region (World Bank, 2014). Mauritius has had a reduction in the unemployment rates over the past three years. This is due to its economy, which is steadily expanding year after year. Expansion efforts are driven by key sector growth in the financial service, information and communication technology, retail and wholesale trade, and food processing arenas. The economic outlook for Mauritius is promising. This economy is expected to diversify further into other higher value-added sectors, such as medical tourism and higher education services. “A favorable business environment and recently adopted business-friendly regulations, such as the Business Facilitation Act, are expected to contribute to higher growth in foreign direct investment flows to the economy” (African Development Bank Group, 2018). Moreover, there is an anticipated improvement in global economic demand of many exports from Mauritius. This is likely to boost exports of goods and services, as well as tourism arrivals and receipts.

While unemployment rates in sub-Saharan Africa (SSA) are hotly debated and highly contested, the fact of the matter remains: despite massive investment in infrastructure to drive economic growth, job creation in the region is simply not taking place. SSA is riddled with governmental and legal issues that SSA is not only grappling with runaway unemployment but the majority of the jobs are also in the informal sector, and the few unemployed people are actually living in poverty. And while the main focus of government regulators is to reduce unemployment, there are various legal issues that need to be addressed. Foreign direct investment (FDI) in SSA has seen a steady growth year after year, yet the region cannot dig itself or its population out of severe poverty. Conversely, this is exactly what the region needs to improve on current conditions and make it possible for people of the region to excel in and get out of the vicious cycle that is poverty. In order to achieve this, regulatory changes need to take place, such as improving on educating and training the local populace. And while Devlin (April 2013) states that secondary school enrollment in SSA from 2005 to 2011 was close to 30 percent lower than the rest of the world, the same time frame showed that the southern African region was close to 20 percent higher than the rest of the world. And while Devlin (April 2013) goes on to state that one of the reasons for high unemployment rates is the lack of jobs, clearly, SSA lacks in training the population to a level commensurate with those skills required for highly advanced and technical positions. For example, in developing foundational, transferable, and technical and vocational skills, the legal and regulatory environment can inspire economic growth and, for SSA, reduce unemployment rates. With a vast array of natural resources, vocational skills in areas like agriculture and natural minerals would be beneficial in a way that would allow for further development of the region to include technical skills, such as computers, carpentry, and medicine. But the level of these skills must first be developed, and they are heavily relying upon the first two skill sets previously described: transferable and foundational skills. Take, for example, Côte d’Ivoire, which, regardless of the many years of political turmoil and civil wars, has prospered in their economy. In fact, Côte d’Ivoire is ranked sixth among the forty-seven SSA countries, and their overall economic index score is higher than the region and world averages (Heritage Foundation, 2018). Côte d’Ivoire is rich in natural resources; 62 percent of their GDP is centered around imports and exports. It is the eighty-third-largest economy in the world, and in 2017, their GDP hit an all-time high of $40.39

billion (OEC, 2018). This directly impacted their overall low unemployment rate and, along with the level of FDI in the country, ensured that their economy did not sputter as did the economies of other SSA countries. Therefore, as a consultant, I would recommend that FDI in SSA be highly concentrated in Côte d’Ivoire. With its vast natural resources and once-again stable infrastructure to include geopolitical stability, Côte d’Ivoire is a leader in the region and one in which a positive recommendation can be made for market penetration, and the growth possibilities for the country are far better than most of the region.

Summary and Recommendation

For many countries, there is a need to fight corruption at all levels to ease investing and business ventures into the region. This will stimulate the economic growth and minimize its decline. Bad government and political leadership can turn around a country’s economic growth quickly and put it in a decreasing spiral. It is recommended to revisit and possibly renew property rights, business laws and regulations, as well as regulatory efficiency and tax and tariff rates. Having a skilled workforce to pull from would also be a benefit for the region. It is also advised to acquire trade schools to offer and develop a nation of skilled workers through internships, apprenticeships, workshops, etc. As a general statement, it is highly recommended that nations in the SSA region collaborate in diverse areas of legal system to create a legal and regulatory environment that is both reliable and functional. Collaboration across nations will allow for a historical context of what has worked and what will not. Governments, policy makers, and executives from the private sector must make steadfast commitments to ensure economic growth. Doing so will allow critical market sectors to stimulate a better business environment and keep unemployment rates to a minimum in the region for any country of the region.

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