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A Ten-Year Strategy for Increasing Capital Flows to Africa

Commission on Capital Flows to Africa

June 2003

Posted with permission from The Commission on Capital Flows to Africa
The background papers commissioned for this study can be accessed on:
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Executive Summary

Africa is a vital region of the world. With more than 800 million people and vast natural resources, the region’s op-portunities and accomplishments are frequently overshad-owed by crises, conflicts, and chronic poverty. As a result, Africa is not a primary destination for global, especially American, capital. But without significant amounts of capi-tal, Africa’s development objectives will not be achieved.

To address this challenge, the Corporate Council on Africa and the Institute for International Economics, together with the Council on Foreign Relations and the Joint Center for Political and Economic Studies, assembled a high-level Commission on Capital Flows to Africa. James A. Harmon, former chairman of the US Export-Import Bank, is the commission’s chairman. The commission has 28 members from North and Central America, Asia, Europe, and Africa with leadership experience in business, banking, policy research, government, academia, nongovernmental organi-zations, and international institutions.

The commission was launched in September 2002 and has held seven meetings in Washington, DC, and New York City as well as a briefing session at the US Sub-Saharan Africa Trade and Economic Cooperation [AGOA] Forum in Mauritius in January 2003. (The forum is an outgrowth of the African Growth and Opportunity Act, AGOA.) The members received formal papers and pre-sentations from a number of experts from the Institute for International Economics, the Center for Global Develop-ment, the World Bank, the International Finance Corpora-tion, the African Development Bank, and the Economic Commission for Africa. The result of the commission’s intensive deliberations is a Ten-Year Strategy for Increas-ing Capital Flows to Africa.

This report does not make recommendations on issues that are better addressed by others, even though the com-mission comprises members with an extraordinarily broad range of skills and experience. The HIV/AIDS pandemic, for one, has profound and far-reaching consequences not only for those living on the continent but also for compa-nies doing business there. Nevertheless, the role that the private sector might play in combating the disease needs to be addressed more carefully and thoroughly than this commission has the capacity to do. The commission tried to maintain a focus on immediate steps that the US and other governments should take to spur foreign direct in-vestment as well as other capital flows to Africa.

The commissioners are aware that Africa’s circum-stances are not homogenous, and one approach will not work everywhere. Nevertheless, the steps outlined here provide the basis for encouraging new capital flows to Africa and can thus contribute to fighting poverty and encouraging economic growth across the continent. The most salient elements of the Ten-Year Strategy for Increas-ing Capital Flows to Africa are as follows:
  • The US African Growth and Opportunity Act should be extended for ten years beyond its current expiration date of 2008 and allow for all products from Africa to enter the United States duty and quota free;

  • The United States should seek to complete a free trade agreement (FTA) with Africa in ten years. Fol-lowing the completion of an FTA with the Southern Africa Customs Union—and as Africa accelerates its efforts to create subregional markets—the United States should negotiate more FTAs with other subre-gional organizations;

  • The US Congress should reduce to zero the tax on repatriated earnings on new investments by US com-panies in Africa during the ten-year period;

  • The Overseas Private Investment Corporation (OPIC) should be permitted to support investment in all sectors in Africa for ten years, including sectors currently categorized as “sensitive,” such as textiles and apparel, electronics, agribusiness, and industrial products;

  • OPIC should be permitted to support investments that promise to provide net benefits for the US econo-my rather than prohibiting it from supporting projects in which US jobs are lost;

  • The United States should encourage the Organisa-tion for Economic Cooperation and Development (OECD) to enable export credit agencies to allow 20-year repayment terms (instead of the current ten years) for African projects and to raise the ceiling for local costs from 15 to 50 percent of the export value;

  • A portion of US ODA funds should be devoted to the establishment of long-term, low-rate financing vehicles for small businesses in Africa as well as to the provision of related technical assistance;

  • The United States should support an appropriate process to review the Heavily Indebted Poor Country (HIPC) initiative and to consider whether it is desir-able to pursue debt relief proposals that go beyond HIPC;

  • Working with the New Partnership for Africa’s Development (NEPAD), the United States should (1) encourage an acceleration of privatization, (2) empha-size technical assistance for training African profes-sionals to manage the complexities of the privatization process, and (3) explore the means to mitigate the risks for African investment including, but not limited to, the more complex privatization of infrastructure enterprises.;

  • The African Peer Review Mechanism, together with the NEPAD secretariat, should be encouraged to pub-lish a set of “best practices” for African governments seeking to increase foreign direct investment, and all African countries should be encouraged to seek a sovereign credit rating by an international credit rating agency;

  • A significant portion of official development as-sistance (ODA) should be invested in strengthening the environment for growth in Africa’s private sector, especially because it relates to the development of Africa’s human capital; and

  • The United States, in conjunction with other OECD governments and private-sector entities, should create an African Financial Fellowship Exchange Program that would send professionals with financial, capital markets, corporate finance, or economic policy ex-perience to African countries to work in public and private institutions for a certain period. In exchange, each participating African country would commit two individuals for training for up to two years at qualified investment or commercial banks in the United States or other OECD countries.

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