Where Investors Fear to Tread

It was the opening day of the World Economic Forum on Africa, and Presidents, finance ministers, tycoons, bankers and philanthropists from 42 countries had descended on Cape Town to discuss the future of the continent. To welcome them, South Africa's President, Thabo Mbeki, was hosting a dinner at which he would talk of his nation's rich potential. The free, first-come, first-served tickets for the meal had gone fast. Unabashed, an African executive in the queue beside me tried to bribe his way in. "I'll leave the money here," he declared. "Just tell me how much."

Neither of us managed to wheedle a seat at the dinner, so I ventured out instead. Leaving the bubble was a mistake. Seconds after my taxi dropped me off on a nearby street lined with restaurants, I was accosted by a woman who insisted on walking with me, then demanded money for her time. When I refused, she shoved her hand into my jacket pocket and tussled furiously with me in an effort to grab my cash. I got away, my money intact but my jacket in tatters, and headed back to the cocoon of my hotel.

It was, of course, just a random ugly experience — the kind of thing that can happen anywhere. But it was the first day I'd ever spent in South Africa, and it left an impression. As I'd discovered firsthand, it can be hard to escape the damaging clichés about Africa — about the perennial curses of bribery, corruption and lawlessness. These negative associations with Africa were much on the minds of people at the summit in Cape Town. "We are fighting an image problem," said Mo Ibrahim, a Sudanese-born cell-phone magnate who has created a multi-million-dollar prize to reward good political governance in Africa. Ngozi Okonjo-Iweala, an ex-Finance Minister in Nigeria known for fighting corruption, likewise lamented that the private sector "still sees Africa as a financial basket case, which it's not ... We need to focus on what's going right."

Indeed, there's much to celebrate. On average, the 53 countries in Africa racked up gdp growth of 5.5% last year, and it's projected to hit 6.2% in 2007 — the continent's fastest growth since the '70s. This resurgence has been powered by soaring demand for Africa's abundant natural resources, which has also boosted its strategic importance to trade partners as far afield as the U.S., India and China. Li Ruogu, head of the Export-Import Bank of China and co-chair of the forum, said his bank has invested in over 300 projects in Africa, from low-cost housing to schools to mining ventures. Li, a key player in the blossoming romance between China and Africa, said he's visited more than 20 African nations in the past year alone. Others are eyeing the region more intently, too. A panel of moneymen from companies like JP Morgan and Barclays Capital spoke of mounting enthusiasm among foreign investors for leveraged buyouts of African firms, prompting bullish talk that Africa may be private equity's "next frontier."

Yet for all this good cheer, it's worth keeping a sense of proportion. The World Bank says just 3% of global foreign direct investment flowed to sub-Saharan Africa in 2005. And most of the money has gone to only a handful of resource-rich countries like South Africa, Nigeria and Angola. Meanwhile, much of the continent remains desperately underdeveloped: only 22% of African households have access to electricity. That leaves plenty of opportunity for businesses to profit as the continent attempts to catch up. In recent years, for example, the number of mobile-phone subscribers in Africa has soared by over 50% a year. But Africa's dubious reputation is a huge obstacle to the development it needs. After all, who wants to invest in a place where they suspect the game is rigged?

It was no surprise, then, that when participants in a workshop at the summit were asked to identify the biggest barrier to economic progress, they overwhelmingly chose corruption. An Africa Competitiveness Report released at the forum also spoke of the heavy toll of such practices as "frequent bribes" and "political favors." The report, produced by the World Economic Forum, the World Bank and the African Development Bank, rates the competitiveness of 29 African countries. Zimbabwe is described as suffering "a complete absence of property rights, high levels of corruption and a lack of evenhandedness [in government] dealings with the public." Nigeria is said to have "deteriorating institutions, including a serious security problem." South Africa, where 28% of firms see corruption as a "severe problem," is said to be hobbled by "the business costs of crime and violence and the unreliability of police services to protect from crime."

So perhaps my experience wasn't so random, after all. Sure enough, a few days after the forum, I received an e-mail from a friend saying his home in Cape Town had just been burgled on his birthday and two laptops, four passports and $5,000 in cash had been stolen. He dubbed it "that extra-special South African birthday surprise." A new dawn may be coming, but it isn't here quite yet.