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Investing in Africa less risky than anticipated.

CAIRO: Investment risks in Africa are over emphasized, according to the Export Credit Guarantee Company of Egypt (ECGE), which reported that it had doubled credit cover to the continent in the past two years.

Alaa Gouda, General Manager of ECGE, told Reuters, "We have always been speaking of this part of the world (Africa) as high-risk, high-risk, high-risk, then we got the hit from somewhere else."

While businesses and banks in Europe and the United States were free to engage in risky practices that finally culminated in the global financial crisis and economic slowdown, Gouda points out that the urgency with which African countries needed to attract and maintain foreign direct investment (FDI) led to more responsible practices such as meeting payment deadlines.

Africa is the only region ECGE covers that experienced no defaults during the credit crisis, and the percentage of ECGE's portfolio based in Africa increased from 10 percent in 2008 to 25 percent by 2010.

Gouda explained to Reuters that, "Egyptian firms were targeting African markets because of upbeat growth forecasts, expanding populations and high returns."

Before the financial crisis, the risks associated with investing in Africa, whether perceived or real, have long been identified as one of the key hurdles to enhancing economic growth in the continent. In 2003, the American Undersecretary of the Treasury for International Affairs named key points in America's strategy to reduce the risks affiliated with investing in Africa: target the private sector, working with independent financial institutions to make the financial systems more investment-friendly, and to "challenge African environments to improve their investment environments."

Now that African countries such as Kenya and Tanzania have proven themselves more secure investments than former economic powerhouses like the United States, the tables appear to have reversed.

However, Gouda addressed political instability as one of the primary areas that continues to keep wary investors away.

"All the ratings agencies have been giving weak ratings for these countries and saying there's a lot of political risk," he said in an interview with Reuters. "You could find a lot of ethnic riots. It's always been there, but it does not paralyze economies."

"Those (African) markets have been booming," he continued.

According to Reuters polls, Kenya will see economic growth of 3.9 percent in 2010, and Uganda can expect GDP growth of 6.38 percent.

"For the coming two decades at least, foreign investors [in Africa] will be in a safe haven," Gouda said.

As of last year, leading insurance broker and risk advisor Marsh, Mercer and Kroll had issued a report ranking investment risks in Africa as equal to risks associated with the booming but sometimes volatile Asian market. --Reuters with additional reporting by Annelle Sheline for Daily News Egypt.

Daily NewsEgypt 2009

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Publication:Daily News Egypt (Egypt)
Date:Feb 23, 2010
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