Investment and Aid Developments in Africa

Sources:

Private Equity Increases

G8 not Clear on Aid Goals

The G8 is set to meet in Hokkaido, Japan in July. An initial draft of the summit’s agenda fails to mention it target goal of increasing African aid to $25bn a year by 2010. This annual African aid goal was set back at the G8’s summit in 2005, and was again repeated in Germany last year.

The failure to explicitly list its target aid goal is seen by critics as a failure to honor the commitments it made in 2005. A majority of the G8 countries’ aid budgets have decreased and this may mean that they are unable to live up to their promises of increasing aid abroad. This comes at a time when many health organizations are relying on the aid to implement their plans designed to reduce Aids, malaria, and tuberculosis in Africa.

While aid from the G8 is likely to fall behind past benchmarks, foreign investment in African private equity is increasing rapidly. Private capital flow to sub-Saharan Africa has increased four-fold from previous years to a level of $53bn. The investors cite the spread of stable democracy and rapid economic growth as reasons for the rise of private equity across Africa. There is also an emerging middle class in Africa with higher levels of disposable income that create attractive investment opportunities across the continent.

Questions:

It is likely a good thing for Africa that private foreign investors are becoming more willing to invest in the region. However, foreign investors are likely to invest in service oriented industries such as telecommunications. Will this type of investment make up for reduced foreign aid that is often designed to help the continent’s poorest people?

Did the recent events in Zimbabwe influence the G8’s willingness to offer aid to Africa? Would it be right to offer less aid to poor citizens in warring countries as a way to punish the totalitarian leaders? Would foreign private investors be more successful in applying pressure to these rogue nations? Would they have any incentives to do so?