The big challenge for Africa is to stay inside the globalisation process and provide the conditions that can attract FDI. Despite the efforts of the anti-globalisation protesters to play up the negative side of world economic integration, few governments see any benefits of being left out in the cold. In this context development agencies are doing their best to promote the conditions that will bring as many countries as possible into the fold.

Two key initiatives – both very much to the fore at the African Development Bank (ADB) annual meeting in Addis Ababa, Ethiopia in late-May – are concerned with keeping Africa on the globalisation track and promoting FDI.

The first concerns ratings. An ADB seminar held to discuss the conditions for African countries to get ratings was so packed that many delegates had to stand for the couple of hours that the discussion took.

The second is the New Partnership for Africa’s Development (NEPAD), a broad initiative to create the conditions for poverty reduction and sustainable development, but which lays great emphasis on African leaders setting the agenda (rather than having it imposed from outside) and in monitoring each other’s performance through the African Peer Review Mechanism.

Disparate approaches

At first glance these two measures may seem poles apart in their approaches: the first a narrow technical fix provided by international rating agencies that would improve access in the capital markets; the second an all-embracing strategy that plays well in rousing speeches but risks failure through being over-ambitious.

The common link is governance; and the detail of NEPAD does drill down to specific measures such as banking and financial standards.

On the ratings front, only a handful of African countries are rated, including South Africa, Botswana, Egypt, Morocco, Mauritius and Tunisia. Yet without this international stamp of approval the other 46 African countries are off the radar to many FDI investors and many institutions for whom rating is the key to putting in money.

Rating impact

On the face of it putting a manufacturing facility into an African country and arranging finance should not be dependent on having a sovereign rating. But, in a globalised world, where corporations all use the same measuring sticks and committees make decisions according to risk-adjusted criteria, the absence of a rating is a huge impediment.

Boyce Sebetlela, Botswana’s assistant finance minister, commented about his country’s decision to get rated: “We went for a rating as a way to diversify our credit and investment prospects. We did it as part of our efforts to diversify the economy and to assist us when we go out to sell Botswana.”

Sara Bertin, a senior analyst with Moody’s, said: “A rating commits a country to transparency and signals a willingness to participate in the global economy. It is an independent opinion not linked to financial institutions or private banks.”

African ratings have been given huge impetus by the decision of the US State Department and United Nations Development Programme to provide resources to finance the ratings process on the continent. Fitch and Standard & Poor’s will both be rating countries with their fees paid for in this way. This could result in as many as a dozen or more countries receiving ratings. The ADB is keen to foster the process and indeed has great experience in this area, having created its own internal rating system. “Our ratings take an insider’s view and our ratings are not disclosed even to the bank’s board of directors because of the desire to be free from political pressure,” says Tim Turner, head of risk management at the ADB.

Twin goals

The link between globalisation and governance was made most clearly by ADB president Omar Kabbaj in his opening speech. He said: “Clear differentiations are beginning to emerge with respect to the prospects of individual countries. About 30 African countries that have put in place sound economic and governance reforms are likely to make significant headway and will meet some – though not all – of the [Millennium Development] goals. The prospects for the remaining countries – particularly those in conflict – are, however, not promising.”

Governance is an essential part of the NEPAD initiative, along with bridging the infrastructure gap, developing Africa’s human capital and attracting large capital flows.