4 ★ FINANCIAL TIMES Wednesday28 August 2019

When Ethiopian Prime Minister Abiy

Ahmed departed for his first official

state visit outside of Africa in May 2018

he did not travel to Washington, London

or Beijing but to Riyadh, the Saudi capi-

tal, before heading to Abu Dhabi in the

United Arab Emirates. That was

followed by a trip to the Qatari capital

Doha and return visits to Riyadh

and Abu Dhabi, all within his first year

in office.

That Mr Abiy eschewed the tradi-

tional global centres of capital by head-

ing instead to the Middle East was sym-

bolicof the new freedom enjoyed by

African governments tochoose sources

of foreign direct investment, as compe-

tition for opportunities in Africa’s fast-

growing economiesintensifies.

Largely dependent on government-

backed investment from China for

much of the past decade, Mr Abiy, since

coming to power in 2018, has promised

to liberalise Ethiopia’s economy and

open various sectors to new sources of

foreign investment.

In downtown Addis Ababa, the capi-

tal, an Abu Dhabi-based real estate

group is developing 4,000 apartment

units, three hotels and a mall on a 36-

hectare plot surrounding the city’s

former train station. By the end of 2018

some 200 Turkish companies were

operating in the country, according to

Turkey’s foreign ministry.

Later this year when Ethiopia

invites investors into its telecommuni-

cations sector for the first time, compa-

nies from the UK, France, South Africa

and the UAE are all expected to bid for

either spectrum or a stake in state-

ownedEthio Telecom.

“We’re seeing investment interest in

Ethiopia from almost every corner of

the world,” says Ashley Elliot, managing

partner at advisory business Sofala

Partners. “But it is not just

Ethiopia, this diversification in investor

origin is happening right across the

continent,” he says.

Attracted by the continent’s vast nat-

ural resources, but also its fast-growing

populations, under-developed markets

and open attitude to innovation, coun-

tries from Russia to India to Qatar are

vying for opportunities and influence.

On the continent, this heightened

level of investor interest has given

African statesgreater agency and more

power to shape the composition of

the foreign direct investment

they receive, says Abebe Abebayehu,

head of the Ethiopian Investment

Commission.

“In the past, any walk-in investor

would get his investment permit from

the commission, but now we actually do

sectoral studies and we identify coun-

tries that have successful performance

in that particular sector,” he says. “We

will try to draw lessons and even adopt

certain policy instruments that may

have worked in that country.

“We would also zoom in to the specific

companies that may have driven the

growth of that specific sector in those

countries and then we will try to

approach those companies.”

Suchheightened competition has

provoked a new investment arms race

as old donors and new partners seek

to strengthen their commercial

relationships with African countries.

This year the US is set to bolster its

influencein the region through the crea-

tion in October of the US International

Development Finance Corporation,

which will boast a $60bn budget and

mandate to invest in developing coun-

tries. CDC Group, the UK’s over-

seas investment arm, has

committed to investing

£3.5bn in African busi-

nesses between 2018 and

2021, while Russia is

expecting to host dozens

of heads of state at its first Russia-Africa

summit in October in the Black Sea

resort of Sochi.

The competition is not only drawing

in new investors but pushing existing

players into new markets, says Andrew

Jones, head of the Africa group at UK law

firm Linklaters.

“You’re also seeing existing Africa

investors going to places in Africa that

they hadn’t thought of going before.

South Africans in francophone Africa,

the French in English-speaking Africa,”

he says.

In 2017, Emmanuel Macron became

the first French president to visit

English-speaking Ghana in 60 years.

This year he organised state visits to

Ethiopia, Kenya and Djibouti trailed by

a delegation of French executives.

Mr Elliot says the push-pull factors

driving each strand of foreign direct

investment are different. “It’s a mix of

motives. The aggressive push into Afri-

can markets we’ve seen from the Gulf

and especially Morocco is about state-

craft: strategic investment bound up

with political promises,” he says.

“We’ve seen an uptick in investment

from places like Turkey and South

Africa — my hunch here is that higher

investment risk at home is driving firms

to diversify into sub-Saharan markets,”

he continues. “Next [I expect] is the

surge in African deals from the big

Japanese trading houses, perhaps look-

ing to catch up in the race for African

opportunities.”

The result will be positive for

Africa’s development, says Ethi-

opia’s Mr Abebe, if countries

are strategic and able to man-

age the new competition

effectively.

“We are not exclusively

catering to China, or the EU

or America... we try to have

a pragmatic approach in our

investment selection drive,”

he adds. “There is so

muchpotential.”

Investment arms race breaks

out in developing markets

Foreign capital

Countries from Russia to

India to Qatar are vying for

business opportunities and

political influence across the

region, writesTom Wilson

Ethiopia’s PM

Abiy Ahmed has

courted Middle

East investment

African Development

A

fter more than a year of

delay, Nigeria last month

signeda continent-wide

trade agreement, super-

charginga pact that sup-

porters believe could transform busi-

nessacross Africa.

As Africa’s largest economy, most-

populous country, biggest crude pro-

ducer and cultural powerhouse, Nigeria

has long been seen as essential to any

pan-African deal, which has had broad

support among business leaders across

the continent. But President Muham-

madu Buhari, a protectionist at heart,

heeded calls from his country’slabour

and manufacturing trade groups to

study the deal’s effects before signing.

Amy Jadesimi isone of the few among

Lagos’s business elite to support Mr

Buhari’s deliberative approach because,

she says, of how important the deal is.

“We need a continental-focused solu-

tion that is developed by the [African

Union], and targets making the trade

agreement a mechanism for local indus-

trialisation,” says Ms Jadesimi, manag-

ing director ofLadol, a Lagos-based

industrial free zone.

“That should be the aim of this trade

agreement, rather than just something

broad and high level abouteconomic

growth or prosperity — those things

won’t come if, underlying all of this, we

do not create jobs and lift our economies

through industrialisation,” she adds.

Supporters argue that the Africa Con-

tinental Free Trade Area (AfCFTA) has

the potential to spur economic growth

in a bloc of nations with a combined

gross domestic product of more than

$3tn, creating the world’s largest free

trade zone.

But major challenges remain, and

sceptics such as Ms Jadesimi argue that

any pact mustoffer incentives to boost

African manufacturing or it will fail —

an outcome that could turn the conti-

nent into a dumping ground for cheap

Chinese, US or European goods.

“Are we going to create an entirely

new paradigm for trade, that is Africa-

centric, that is controlled by African

countries, and that disincentivises for-

eign companies and countries outside of

the continent from importing — are we

going to do that?” she asks. “That’s going

to be really tricky.”

The African Union summit in Niger in

July was a landmark momentfor the

pact whose roots stretch back decades.

Although the deal officially came into

force on May 30, the implementation of

any final agreement isat least three

years away and specifics on everything

from rules of origin to intellectual prop-

ertymust be agreedbetween adiverse

group oflargely fragmented economies.

The agreement must also contend

with a history of regionaltrade agree-

ments that have largely flopped and

done little to bolster trade integration —

the AfCFTA will need to be harmonised

with eight such regional pacts.

Beyond the issue of whether the costs

of an open market outweigh the benefits

to specific countries, there is also the

question ofwhether it is possible for

Africa to overcome itsstructural chal-

lenges to trade.

The agreement aims to remove 90 per

cent of tariffsto create a single market

with free movement of goods and serv-

ices. However, sceptics question how

under-resourced governments — newly

deprived of that tariff revenue — will be

able to afford to upgrade poor infra-

structure. “The bigger problems with

intra-African trade is not really tariffs —

it is the poor infrastructure, extremely

poor customs co-ordination, lack of

access to finance and lack of export

orientation,” says Amaka Anku, Africa

head for Eurasia Group, a consultancy.

“I’m stunned that all over the conti-

nent people are like, ‘Oh, trade agree-

ment, yay let’s sign it’,” she says. “Trade

agreements don’t benefit all. There will

be winners and there will be losers, and

sometimes people who lose will never

win, some sectors will be killed and you

could end up substantially increasing

inequality. And what happens when you

do that? Unrest, social unrest.”

Foreign investors have largely shied

away from Africa, which receives about

a tenth of the foreign direct investment

received by developing Asia,according

to UN data. A single market would pro-

vide them with economies of scale,

allowing companies to spread the risk

of entering some of Africa’s smaller

markets, says Arancha González, execu-

tive director of the International Trade

Centre, the joint UN-WTO development

agency. But it is only a first step in driv-

ing development in Africa, she adds.

“It’s a necessary but insufficient con-

dition [for developing the continent] in

that you still must do much more than

the AfCFTA — you must work on secur-

ing finance flows for companies to take

advantage of the AfCFTA, you have to

build ease of doing business at home,

you have to build the hard infrastruc-

ture connectivity, in terms of roads,

grids, harbours, airports,” she says.

“It’s insufficient in that it’s not the

only ingredient.. .[but] without it

the rest would not be as powerful

as they could be in modernising the

economies of the African continent.”

Continent-wide

trade deal aims

to create $3tn

single market

International tradeSupporters say pact will spur

economic growth across region, writesNeil Munshi

The African

Union, based in

Ethiopia’s capital

Addis Ababa,

was instrumental

in brokering the

AfCFTA

Alamy

‘I’m stunned

that all over

Africa

people are

like: “Oh,

trade deal,

yay let’s

sign it’.”

Amaka Anku,

Eurasia Group

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