"Measuring attractiveness on the basis of governance rankings success, a country like Rwanda should be a veritable magnet for foreign capital, while Nigeria should be the reverse."
This article is not intended to question the role of governance in development. On the contrary, it assumes that improvements in the rule of law, pluralism, democratic participation and other indicators are indispensable components of successful economic and social development.
Yet the equation is not so simple when it comes to the commonly held assumption that improvements in governance are a prerequisite for countries in Africa to attract foreign investment. Rankings that measure the ease of doing business, corruption and political stability are routinely cited as key metrics in this regard.
At the top of the list are indicators such as the World Bank's Doing Business ranking, Transparency International's Corruption Perception Index and the Ibrahim Index of African governance. The guiding principle? The easier you make it for the investor, the better.
Many countries feel pressured to perform well on such indicators, regardless of how they relate to national development priorities. In some cases, this leads to policies so geared towards the assumed desire of investors that the country's interest barely registers.
Measuring attractiveness on the basis of governance rankings success, a country like Rwanda should be a veritable magnet for foreign capital, while Nigeria should be the reverse. In 2010 the former was the top reforming country globally in the World Bank's ranking, and placed 45th in the 2012 tables, ahead of Brazil, China and India. Rwanda also placed 25th on the 2011 Ibrahim Index and 49th on the 2011 CPI. Nigeria's performance in each of the indicators was far less impressive: 133rd, 41st and 143rd respectively.
Yet Nigeria routinely trumps Rwanda on the list of preferred target markets cited by international investors. A recent survey of investor sentiment on Africa carried out by Invest AD and the EIU found that more than 51 percent of respondents identified Nigeria as the market offering the best overall prospects for investment returns over the next three years. Just 6 percent picked Rwanda.
That is in part because of Nigeria's natural resource wealth and the sheer size of its market, but there is something more at play. The reason is simple enough, says Cambridge economist Ha-Joon Chang. "The problem with these indices is that they are built on a particular theory of what is good for investment and growth (basically the view that the closer an economy is to the idealised version of the Anglo-American economy, the more investment there will be), which is not a very good theory," he argues.
In his latest book, 23 Things They Don't Tell You About Capitalism, he notes that South Korea required up to 299 permits to open a factory in the 1990s. Yet then, as now, it attracted high levels of foreign capital. "Strange as it may seem... businesspeople will get 299 permits...if there is enough money to be made at the end of the process," he writes. "If there is little money to be made...even 29 permits may look too onerous."
Nigeria attracts the interest it does because investors make a calculated decision that its notoriously difficult business environment is worth navigating because of the potential return its 160 million person market offers. This is not to say that countries should not make an effort to improve business and policy environments. If anything, Nigeria attracts interest despite its operating environment, rather than due to any conscious effort to define terms of engagement beneficial to its long-term development.
Many African countries, regardless of their size, have compelling investment opportunities to offer. Identifying and pricing these appropriately by balancing investor expectations with a country's development priorities is the challenge. As Africa attracts more foreign capital, it is a challenge countries should not shy away from.
Lanre Akinola is the Editor of This Is Africa
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The west wants too see governance they consider subourdinate venal and ready to be exploited! These are the qualities the west often looks for. Let us not fool ourselves the capitalist system is bankrupt corrupt overly corrupt to be true" Western dictators have for many years encouraged a policy of overthrowing independent minded governments that were not western freindly?? We just saw this same thing happen to us in real time in our life span in our documented recent history; Libya,Cote d' Ivoire!!! Africans are still shying away from it!! A s it has become noted recently that country was not bound by the Rome staute. "We have a kidnapped President who was independent minded!! they overthrew him kidnapped him and classes him as criminal? 'yet they do not sight that their actions were criminal acts" and then they went even further and murdered another President 'who was open for business !but was not ready to be dictated to !!!!! "These are the realities on the ground". "It seems to me they are always comming with thier superiority complexes, we must make adjustmenst for them??? One thing the author did note is that S.Korea had many obstacles that the west had to jump thru and they did in order to make money. "The same thing goes for indigensation in all African nations ", they need this to empower the people and kep them from being exploited. We need to bring the professors to Africa' instead of we going there. We have already did our part in the persons of teh MOORS they educated taught manifested laws culture nobility in Europe so Africans need to wake up and stay on top of your extermely dignified cultures. I will remind Africans that with design and purpose the Europeans destroyed every city every school every important institution that was black and AFRICAN They started in Euorpe by repainting works of art they reconfigured all the monuments of blacks in Europe claiming thier works of literature and science underminded their persons thier humanity then set out to enslave erase them from history delegating them to be known as slaves savages!!!!!! They came into AFRICA DURING BOTH CRUSADES WITH IMPERIAL COLONIALISATION ENSLAVEMENT OF BOTH PHYSICAL AND MENTAL ATTRIBUTES DESTROYED OR TRIED TO!!!!? REWROTE HISTORY PLAGIARISING GREAT LITERATURES AS THIER OWN BEGAN IMPERSONATING PEOPLES OF ANTIQUITY !!! ALSO BY REMOVING MAIPULATING MOST NOTICABLE MONUMENTS OR OBJECTS IN AFRICA; ie: SPHYNXX'S AS WELL AS PAINTING OVER SOME OF THE MURALS OF THE BLACK SKINNED EGYPTIANS" . WHAT WE HAVE SEEN IS COLLABERATION WITH MANY so called a Arabs? They feel its their duty to lecture us on good governace how can a dictator and enslaver minister to a free minded people?? There goes the BULL S***T out the window. AFRICA needs to develop strong and RIGHETOUSS INSTITUTIONS THAT WHEN THESE CLEVER BUT NOT VERY SMART TRICKSTERS COME TO AFRICA WE HAVE A ROOYAL PRISON FOR THEM. These criminals who calls themselves business people are stealing defrauding exp[loiting destroying paying off corrupt governments to wage wars on people around the globe and act as if they are teaching aany one anything? other than the TRUTH?!!!THEY ARE NONE OTHER THAN MANIPULATERS RAPIST PILLAGERS LOOTERS PLUNDERERS PIRATES FRAUDSTERS SWINDLERS PLAGIARIST IMPERSONATERS MURDERERS CONNIVERS HOMOSEXUALS COVETERS ; I HAVE NOT RECOGNISED 1 NOBLE OR HONEST TRAIT FROM AMONGST THESE PEOPLE!!! HAVE YOU??? THESE ARE THE FACTS OF WHOM WE ARE DEALING WITH, ROTTEN TO THE CORE'. HAVE WE NOT JUST SEEN THE DUMPINMG OF THAT BIOLOGICAL NUCLEAR WASTE SEWAGE IN WEST COAST OF AFRICA??? "THESE ARE SOME OF THE EARTHS SCUM UNSCRUPULOUS BASTARDS AND THEY DO NOT RESPECT THE BLACK MAN". THEY HAVE DONE EVERYTTHING TO EXTERMINATE YOU FROM HISTORY MENTALLY ACADEMICALY INCLUDING USING GERM WARFARE IN THE EBOLI DISEASE AND THE AIDS VIRUS, DONT YOU GET IT??? WE NEED TECHNOLOGY THEY HAVE IT, THEY STOLE IT BOTTOM LINE IS THEY HAVE IT!!! THIS IS WHAT WE NEED AND WHAT WE SHOULD PAY FOR. WE NED TO START BRIBINBG THEM FOR THE TECHNOLIGIES THEY HAVE THEY HAVE NO LOYALTIES ; AT LEATS WE HAVE NOT SEEN IN IN PAST CLOSE ENCOUNTERS OF THE 500 YEARS THEY HAVE DICTATED TO US???WE NEED TO WAKE UP