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Esther Galiana, School of Economics and Business Administration, University of Navarra, Spain.

Can the World Cup save Africa?

Sun, 25 Jul 2010 12:10:47 +0000 Published in Expansion (Madrid)

This World Cup has been unbeatable for Spain and the thrill of victory still lasts.
But I am not going to go into whether Spain will improve its productivity thanks to La Roja. I will focus on whether Africa can emerge from economic underdevelopment thanks to the World Cup.

In the last three months alone, renowned consulting firms such as McKinsey and Boston Consulting have published reports on topic: Can the World Cup revive investment in Africa? As FIFA President Joseph Blatter said at the opening ceremony, hopefully the World Cup will inspire confidence in South Africa and the rest of the continent.

In reality, we cannot speak of Africa as a homogeneity of countries, since there are large differences between countries in terms of economic development . Few countries, less than 40%, have debt rated by an international rating agency.

Despite all the current doubts about rating agencies, having a grade credit rating remains an important factor for a country to attract investment and external financing.

According to Standard & Poor's, only five countries have Degree investment grade external debt: Botswana and Libya are rated A-, South Africa BBB+, Tunisia BBB and Morocco BBB-. The rest, the few that have a rating, are in the B+/B range. As can be seen, the countries of sub-Saharan Africa are the ones with the weakest economic status , with the exception of South Africa and Botswana.

It is an immense market and the great beneficiaries of its economic development would be the countries of the North: new potential markets, less illegal immigration, greater security, etc. Perhaps the time has come to think realistically about this market. The African continent is full of promise, with abundant human and natural resources. But so far, with some exceptions, it has unfortunately remained a promise. A World Bank study reveals that production in Africa is 20% more expensive than in East Asia.

The difference is due to the so-called invisible costs, such as the poor infrastructure, the shortage of credit , and administrative obstacles, including corruption and legal uncertainty in Africa. This explains the inadequacy of productive infrastructure and low foreign investment.
Few countries have been able, or have known how, to do profitable business in Africa. China and India stand out.

As industries, the extractive sector, among others, stands out. But it is criticized that these investments, or these commercial relations, do not contribute as would be expected to the economic and social - integral - development of the countries in which they take place or of the communities in which they operate. China, for example, exerts its influence in Africa through international trade, government aid and foreign direct investment in the continent.

What does Africa have that China does not have? Natural resources in abundance. What does China have that its southern partner does not? Manpower and technology. This explains why Africa exports mainly oil, minerals, cotton, etc., and China exports low-cost manufactured goods such as electronics, household equipment or textiles. This subject situation hinders the transfer of know-how and technology necessary for African countries to develop diversified and stable economies.

Ethical implications

Companies wishing to establish themselves on the continent must take these aspects into account. They must also be aware that economic decisions are not ethically neutral, as Benedict XVI says in his social encyclical Charity in Truth. Therefore, if any investment has ethical implications, in Africa it carries a special responsibility.

In this sense, some of UNCTAD's recommendations regarding the Africa-China axis are applicable to these investments: enhancing African productive capacities in various sectors; attracting manufacturing projects that use local labor; diversifying foreign direct investment, which is highly concentrated in the extractive sectors; favoring the relationship between foreign multinationals and local companies in order to strengthen the latter.

On final, foreign investment must contribute to training local talent and promote capacities so that a true and diversified industrial fabric is created in Africa, in a stable institutional framework and respectful of the rights of the individual. Let us hope that in order to achieve this, it will not be necessary to wait for more global organizations on the other side of the Strait of Gibraltar.