African countries should continue focusing on improving the business climate to attract Foreign Direct Investment (FDI) and to increase the revenue accrued to governments, says the World Bank country director, Ruth Kagia.
Kagia highlighted that while the presence of natural resources remains a key FDI driver to Africa, investment climate variables such as economic, political and policy options matter as well in attracting investment.
“Reforms should be focused on making doing business easier by creating an efficient, better legal environment, incentives and creating a sound and stable macroeconomic environment,” said Kagia.
She said the attractiveness of Africa as an investment destination has been positively impacted by a number of developments in the regulatory environment affecting potential new entrants to markets, infrastructure development and the presence of professional services firms, which have experience of the complexities the continent poses.
Kagia underscored that African countries should continue to reform business environment to promote better investment climate.
“The results may lead to better adoption of technology, greater link to the world market, more employment and more resources for financing development and economic transformation in Africa,” she said.
A World Bank report last month showed how African countries were losing out on billions of dollars in potential trade earnings every year because of high trade barriers with neighbouring countries, and that it was easier for Africa to trade with the rest of the world than with itself.
“We should adopt a regional approach because our best trading partners are our neighbours,” she said.
She said the continuing adverse impacts of the financial crisis are still playing out three years later.
“Economic growth is down, pressures in the Euro zone are on the rise, and governments across Africa are seeking ways to sustain the momentum of economic growth,” she said.
The World Bank’s forecast for Africa, barring a serious downturn worldwide, is likely to see growth surging to 5.3 percent in 2012 and 5.6 percent in 2013, compared to pre-crisis average of 5 percent.
However, she said growth is rebounding, after Botswana suffered its worst recession in 2009 due to the global crisis. The economy continued its robust recovery in 2011, driven by good mining sector performance. Botswana recorded a real growth rate of 7.2 percent in 2010, and grew at an annualized rate of 6.7 percent in the first three quarters of 2011.
“The knock-on effects of the financial crisis translated into a precipitous drop in the demand for diamonds, a key export commodity and dominant sector of the economy,” said Kagia. Diamonds account for 76 percent of total goods export and the mining sector contributed close to 36 percent of real GDP growth in 2011.
“Given Botswana’s continuing economic dependence on diamond exports, it remains vulnerable to recessionary trends in Western countries, particularly the United States which is the largest importer of its diamonds,” said Kagia.
In addition, she emphasized that reforms adopted needed to enable small and medium enterprises (SMEs) to flourish as growth engines.