LOCAL RESOURCES remain the best bet for capital injection into Africa's infrastructure and business sectors, negating persistent efforts by governments to rope in foreign investors who are increasingly put off by the continent's perceived political risks.

An open conference on improving physical and regulatory infrastructure in Africa was told in Nairobi last week that privatisation policies should encourage small local investors, a tangible break from the recent past when the Bretton Woods institutions insisted on the inclusion of "strategic investors" during public divestiture. 

Michael Klein, chief economist at the International Finance Corporation (IFC) said that developing countries risked crowding out domestic firms from big projects despite their vast knowledge of the domestic market. Mr Klein's comments come in the wake of a heated debate in Kenya over privatisation of public assets, with the prevalent view being that Kenyans should be empowered to buy the institutions through credit schemes. Attempts to sell strategic interests in state corporations like Kenya Reinsurance Corporation and Telkom Kenya have strengthened the case for local ownership, especially given the token offers by overseas companies for fairly solid parastatals.

The government had to call off the privatisation of both Kenya Re and Telkom Kenya after receiving low offers, leaving Kenya Airways association with KLM, brokered through the IFC, as the only showcase for divestiture through strategic partnership in the country.

The other strategic partnership, between Vodafone and Telkom Kenya, in the country's leading mobile phone service provider, Safaricom, is a joint venture in which divestiture was not involved. With attention shifting towards physical facilities, the government is considering the concessioning of Kenya Railways and Kenya Ports Authority through performance-based management contracts to utility operators.

Experts say that African countries fail to attract private capital for developing business and infrastructure citing policy lags and reversal as a key hindrance. "Market, financial, regulatory and institutional constraints are issues that African governments need to address," said Nick Allen, Corporate Finance and Privatisation Strategy head at PriceWaterhouseCoopers.

Mr Klein says that such affirmative measures may not be sustainable and prefers the parcelling out of big projects into manageable unit which small local investors can take absolute control, reduce financial and operation costs and reduce costs to consumers. Energy minister Ochillo Ayacko told investors recently that bulk sale of power to distributors who would then sell the energy to consumers may be introduced in the Kenyan market by 2006 but whether this would reduce tariffs is quite debatable.

Experts say that African countries fail to attract private capital for developing business and infrastructure citing policy lags and reversal as a key hindrance. "Market, financial, regulatory and institutional constraints are issues that African governments need to address," said Mr Nick Allen, Corporate Finance and Privatisation Strategy head at PriceWaterhouseCoopers.

Improving physical and regulatory infrastructure is considered essential in lowering the cost of business in Africa but the public sector is constrained to finance the upgrade. Kenya, for instance, needs Ksh100 billion to bring its road network to an acceptable standard and another Ksh10 billion ($128.2 million) for annual maintenance. Roads and Public Works minister Raila Odinga lamented last week that the Ksh8 billion ($102.6 million) raised from the Fuel Levy Fund was not adequate for maintenance alone.

While Africa looks to foreign investors to bridge the resource gap, interest from private capital movers is dwindling despite the region registering the highest returns on investment in the world. In 2002, Africa received a measly 1.7 per cent ($11 billion) of the global foreign direct investment inflows. Erratic business laws, taxation structures and government involvement in business have been blamed for the poor inflows and high capital flight rates. 
 

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