When considering Africa’s associations with the rest of the world, most minds automatically tThink of the ties to the former colonial powers of the United Kingdom and France, or the Cold The war powers of the United States and Russia fighting for influence, or the modern commercial giant of China. Few people would think of Sweden; However, the Nordic nation’s measured and constructive approach to investing in Africa is an example to all of how partnerships can flourish.
Foreign Direct Investment (FDI) is a critical factor in unlocking the potential of Africa, a continent full of entrepreneurial talent and projected as the home of 26 percent of the world’s population by 2050. However, the continent has never been a major recipient of FDI, attracting less than 3 percent of global FDI in 2019. FDI flows to Africa have declined further over the past year, hampered by a combination of a lack of effective prioritization by international investors and the failures of national governments.
As Africa begins to emerge from the pandemic, countries should consider how best to attract and use FDI. The pandemic has particularly slowed down Chinese FDI on the continent, opening up the possibility of new investors and new investment models. New models and investors will determine the continent’s path to prosperity.
Sweden’s investment history in Liberia provides a useful case study. In this partnership, we have a proactive and commendable international donor, but a host country whose government has inhibited the potential of the relationship.
Liberia has experienced several waves of crises in recent decades, from a civil war to Ebola and now COVID-19. This has decimated the country’s economy, underdeveloped infrastructure across the country, and led to endemic corruption. President George Weah’s administration has neglected uphold governance and the rule of law. As a result, despite the frequent saying by leaders that “Liberia is open for business,” the country was ranked 184th.th out of 190 economies in the World Bank Doing Business Report 2020 in cross-border trade, 184th in the treatment of building permits and 180th in the land registry. Clearly, Weah has not done enough to improve the business environment and his lack of business experience or a sophisticated policy platform is having an impact. detrimental effect on the future of your compatriots as a result.
However, Liberia is full of potential. The country is rich in natural resources including water, minerals, and forestry. The country also has a young population, as well as a climate conducive to agriculture.
Like many counterparts in Africa, Liberia requires significant investment to reach its potential and achieve its ambitions. Sweden has been especially proactive in using FDI to help Liberia achieve its goals and has based its participation in FDI on two key priorities: long-term engagement and critical sector development.
FDI should aim to foster long-term links between donor and recipient countries, while avoiding the creation of an extraction or exploitation relationship reminiscent of colonialism. In December 2020, the Swedish Cabinet also committed around USD 213 million for a five-year Swedish development cooperation with Liberia. The plan, which runs from 2021 to 2025, covers several development areas, including supporting inclusive economic development. This aims to integrate the economy into global production chains by creating decent and value-added jobs, enhancing the skills base and competitiveness of the Liberian economy to enable its long-term access to markets.
Second, by targeting critical sectors, FDI can be more effective in transforming host countries and addressing inequalities at the national level that stand in the way of progress. The former Swedish Ambassador to Liberia summed this up in the ‘Three Rs’: Representation, Rights and Resources. In June 2021, Sweden and UNDP signed an agreement grant USD 4.8 million to support civil society groups with special emphasis on election observation, and support women’s political participation, civic and electoral education, as well as the prevention of electoral violence. This has produced a balanced and comprehensive support package for the country’s development, encouraging other donors to look beyond purely economic gains to issues of social sustainability and fundamental rights.
These priorities have underpinned the initiatives that have led Sweden to become one of Liberia’s largest foreign aid donors. However, to maximize this positive offer of mutually beneficial FDI, African countries must ensure that they are doing everything possible to improve the investment climate in their nations. This is not the case in Liberia, where measures taken by the Weah government to date have had a negative impact on business confidence and the broader economy, which remains hampered by the lack of clear direction.
To maximize the benefits of these initiatives, countries must develop a proactive diplomatic and trade environment that allows positive FDI partnerships to work automatically. Together, African nations have begun to show their ambition to harness the potential of international cooperation through a series of summits in recent years, such as the Africa-China Investment Summit, Africa-UK Investment Summit, and the Africa-US Investment Summit USA. More initiatives in this space will promote these positive results.
In a similar spirit, promoting and electing African leaders with business experience, who have the skills and knowledge to create a positive environment for foreign investors, could attract billions of dollars in FDI. The election of Hakainde Hichilema in Zambia this week is a good start, while Liberia has a candidate with similar business experience in Alexander B. Cummings, former global managing director of Coca Cola who led the growth of its business in Africa. People like these, with global merit-based knowledge and experience, can be supported by the African diaspora, which includes 165 million people around the world, which can play a supporting role to the continent. Choosing talented men like Hichilema and Cummings who have a personal record of business success can create harmony in international partnerships, win the attention and trust of the international business community, and introduce business insights to improve governance. In the long term, they would be in the best possible position to design policies that support the smooth integration of domestic and foreign companies into global supply chain networks.
Countries in Africa, and indeed globally, should regard this Swedish model of proactive FDI in Liberia as a success story, but be aware of the domestic work that must be done to create fertile ground for long-term partnerships. By working with the right leaders in strategic partnerships, the continent can recover from the pandemic towards a more prosperous future.