Ferial Haffajee

Bad roads, debt and corruption drive up business costs, but change is in the air Africa is dear because it is poor. And it remains poor because it is dear. This is the continental bind and it's why we're at the bottom of the economic pile. Business in Africa is too expen Until the continent builds private sectors of decent size, there is no escape from the underdevelopment trap. Aid, investment and trade are the golden triangle that could point to prosperity.

Most of the world's poor live in sub-Saharan Africa, on less than a US$1/day. Unless there is growth of 3,9%-4,4%/year, the World Bank estimates that 345m people could still be living in poverty by 2015.

The picture is not hopeless. The UN Economic Commission for Africa (ECA) says Africa weathered the aftershocks of September 11 better than expected. "Africa grew faster than any other developing region in 2001, reflecting better macro-economic management, strong agricultural production, higher oil prices and the cessation of hostilities in several countries," writes Shamika Sirimanne in ECA's 2002 "Economic Report for Africa". But the growth comes off a low base. Per capita annual income slumped from a high of about $1500 during the commodities boom of the Seventies and early Eighties to less than $400 a year ago. Debt crises, wars and corruption (endemic because the State is a source of survival to some of its citizens, and not just a provider of services) has left little over for building infrastructure and institutions that allow economic development. Estimates by the ECA show that a civil war strips GDP of 0,22%/year. On the upside, peace is a growing trend. And a business class in sub-Saharan Africa is also a new development. But Africa is still expensive, even if the returns are good. "I pay $200 for a room in a hotel, for the same one that would cost me $60 in the US and less than $40 in SA," says Shoprite MD Whitey Basson. His company has opened 11 stores across the continent and is to open its 12th — in Luanda, the most expensive city in the world — later this year. In most countries, Shoprite has become the dominant player, illustrating that returns on investments are good if the product's right. SA business is putting its faith in Africa and is now responsible for almost half the FDI flows into the continent. Economic policy liberalisation has spurred growth by making it much cheaper to do business in Africa than it was in the closed Eighties, says Tara O'Connor, the Africa regional manager for Control Risks Group, a consultancy to blue-chip UK, European and SA companies.

But often the very agencies working for development (and economic liberalisation) can put up unintended business hurdles. In many African capitals , O'Connor has found that institutions such as the World Bank and the International Monetary Fund pay hard-currency rentals comparable with New York and London, which pushes up business property costs. Because African currencies are often not tradeable, the greenback has become the de-facto African currency. This drives up costs. So while the private sector is growing, high costs mean it has not taken off on any scale; by last year, Africa's global share of foreign direct investment (FDI) had dwindled to less than 1% of world flows. And steep prices are fuelled by a lack of infrastructure: it is four times more expensive to fly into and around Africa than Asia. That region's a good benchmark because, like Africa, it's also classified as "emerging" from an era of national economies into one of globalisation.

One Asian nation, India, has 800km of rural roads/1000km²; in Africa, we have 55km. So companies must charter planes to fly to places or spend too many business hours on the roads. Four-wheel-drive vehicles are the main mode of travel in most of the continent — another cost driver. Fourteen countries are landlocked — the highest number in the world — which also drives up transport costs, already high since machinery and retail goods are mostly imported. Electricity is intermittent, so telecoms operators such as Econet and MTN provide their own generators to power cellular phone base stations. The costs are passed on to a nascent entrepreneurial class in African growth nodes such as Nigeria and Uganda. "The upfront investments are high and shareholders want returns on these investments. Once you have the numbers, the costs will come down," says Vodacom Group CEO Alan Knott-Craig. Cell phones are filling the gap in telecoms. Africa has fewer telephone lines than Manhattan, but every country (barring Eritrea) had an Internet service provider by last year. But weak infrastructure and little competition means five hours on the Internet costs $60 on average in Africa, compared with $29 in the US. From the Cape to Cairo, there is hunger for economic infrastructure that will fuel an African recovery. Research by the World Bank has found that rail freight costs are double those of Asia and that our ports are among the most expensive in the world.

This is where the New Partnership for Africa's Development (Nepad) comes in. Infrastructure provision is the foundation stone. Leaders such as President Thabo Mbeki and Nigeria's Olusegun Obasanjo hope to get public- and private-sector support for infrastructural development at the G8 meeting in Canada in June. Another crucial aspect is to make it possible for Africa to trade at critical mass. The Doha round of trade talks must bring down nontariff trade barriers to be successful. If the US, the world's largest cotton producer, stopped its annual subsidies of $2bn to domestic producers, west and central African producers' revenues would swell by $250m/year, by World Bank calculations. The EU continues to subsidise its farmers by about $1bn/day, which makes African agricultural exports less competitive. Debt relief remains a challenge; highly indebted countries still pay more in debt-servicing than on infrastructure and social services.

The ECA report shows five strong economies at the southern and northern tips of the continent which can anchor growth. Fourteen countries have growth potential; the rest need a helping hand. Parts of Africa can succeed if business and trade grow, but much of it still requires aid. Rough calculations show that these parts of sub-Saharan Africa need $36bn/year between now and 2015 to beat poverty.