Monday, May 25, 2009

Rush to an African Market

Generally, when we speak of foreign direct investment in an African country, we’re talking about American, European, Middle Eastern or Asian investment. Increasingly, however, other African nations are investing on the continent, and this has its positive and negative aspects.

Uganda, for example, is experiencing a rush of investments from throughout Africa, but primarily from South Africa. There currently are 50 South African companies registered in Uganda – from the telecom firm MTN to Digital Satellite Television, the country’s only pay television company, to Game Store, the largest retailer in Uganda, to South African Airways.

Other African investors also see Uganda as a prime new market. Several Nigerian banks are now operating in Uganda: Bank PHB, United Bank of Africa and Global Trust. Kenyan banks also have entered the scene: Kenya Commercial Bank, Equity Bank, Uchumi and Fina Bank, as well as Kenya Airways. Investors from Botswana, the Democratic Republic of Congo, Egypt, Eritrea, Ethiopia, Sudan, Tanzania and Zimbabwe also have expressed interest in investing in Uganda.

This tide of investment comes despite Uganda’s bad roads, collapsed railway network and erratic power supply. And it doesn’t seem affected by the continued war against the Lord’s Resistance Army in the North. Sounds like a net gain for Uganda, doesn’t it? Well here’s the bad news.

Uganda’s Nile Bank and many other major firms have been bought by African investors. Meanwhile, the Uganda Development Bank has failed, and the country’s commercial banks are reluctant to give investors long-term loans. Uganda’s market is being flooded by counterfeit products, which endangers citizens, undermines investment and destroys innovation.

Still, African investment in Uganda is a positive trend for cross-border commercial partnerships. African countries just need to figure out how to nurture local companies without putting up the protectionist shield and hindering foreign direct investment. Of course, that’s easier said than done, and even countries like the United States have had difficulty managing that balancing act. If ever there was a situation in which World Trade Organization technical assistance could be useful, this is it.

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