By Robert Rubin
On Feb. 15, my fellow members of the Africa Progress Panel and I went to Paris to urge President Nicolas Sarkozy to unlock much-needed private investment flows to Africa as part of his G20 development agenda.
Africa¡¯s problems have long dominated its image and the view of investors, resulting in considerably less focus than was warranted by the potential rewards. However, recent success stories and an increased interest in frontier markets are changing perceptions.
Both public and private investors are increasingly prepared to look beyond the continent¡¯s problems, including weak governance, instability and high risk ratings, and to focus instead on the business opportunities and high rates of return Africa has to offer.
As a result, foreign direct investment (FDI) into Africa has increased to new heights, with an ever-increasing share coming from the continent¡¯s newer partners such as China.
This is (mostly) good news. Increasing FDI is a sign of growing confidence in Africa¡¯s economies and policies, encouraging national governments to continue often politically difficult macroeconomic and private-sector reforms.
It also means more money for much-needed improvements in transformative sectors such as transport and energy, as well as increasing access to capital for the continent¡¯s burgeoning private sector.
But despite these positive developments, access to capital is still insufficient and investment in growth sectors is still too small for Africa to overcome some of the structural impediments that have been slowing its progress for decades.
For example, the World Bank estimates the annual financing need for the construction and maintenance of crucial infrastructure in Sub-Saharan Africa to be around $93 billion.
Even though there are data showing that profits on outward investment are substantially higher in Africa than in the rest of the world, over a third of this infrastructure need remains unfunded.
This is also despite several promising facilitating initiatives, including home-grown ones by the AU New Partnership for Africa¡¯s Development, the African Development Bank and the Investment Climate Facility. As a result, infrastructure deficits remain among the biggest obstacles to African progress.
The same is true for the access of Africa¡¯s private sector to financial capital. There are huge pools of capital sitting in hedge funds, private equity funds and some of the more risk-friendly traditional investment entities.
International credit markets are also gradually unfreezing. However, many African businesses, particularly the all-important small and medium-sized enterprises, still struggle to mobilize the resources they need to grow and drive job creation and economic growth.
Naturally, African businesses, governments and regional organizations must lead the way in bringing down the risks to investment, communicating a more balanced view of Africa to the investment world, and improving the investment climate.
However, the members of the G20 have a major role to play in unlocking investment flows to the continent. Their recent efforts to do so ¡ª including the Invest in Africa Initiative and the Small and Medium Enterprise Challenge ¡ª are steps in the right direction but simply do not go far enough.
The G20 could extend its efforts by helping to promote private capital flows to Africa through better informing portfolio and FDI investors about the opportunities, offering guarantees to leverage additional flows, and supporting the Invest in Africa Initiative.
The G20 could also support the development of legally enforced regulatory frameworks with African countries which will reduce risk for foreign and domestic investors.
It could expand the G20 Small and Medium Enterprise Challenge initiative into an SME Investment Fund supported by private investors, and could facilitate the expansion of mobile-phone banking and other innovative methods of increasing access to finance. Much of this involves effectively targeting foreign assistance toward promoting growth.
G20 member states, in line with the Development Consensus for Shared Growth they signed in Seoul, should work toward Africa becoming a major consumer market, a destination for investment and a new pole of global growth.
Distorting exchange-rate regimes, trade impediments, and bloated agricultural subsidies are some of the barriers G20 members can, and should, tackle on the way. As the Seoul Consensus points out, promoting economic growth in Africa is very much in the self-interest of G20 members.
Robert Rubin is co-chairman of the Board, Council on Foreign Relations and former U.S. treasury secretary and member of the Africa Progress Panel.