FDI in Africa: Lessons from Sweden in Liberia

When considering Africa’s partnerships with the rest of the world, most minds automatically think of ties to former colonial powers of the UK and France, or the Cold War powers of the US and Russia battling for influence, or the modern trade behemoth of China. Few people would think of Sweden – yet the Nordic nation’s measured and constructive approach to investment in Africa is an example to all for how partnerships can flourish.

Foreign direct investment (FDI) is a critical factor for unleashing the potential of Africa, a continent full of entrepreneurial talent and projected to be home to 26 percent of the world’s population by 2050. Yet the continent has never been a major recipient of FDI, attracting less than 3 percent of global FDI in 2019. FDI flows to Africa have further diminished over the past year, hampered by a combination of lack of effective prioritisation from international investors, and the failings of domestic governments.

As Africa begins to emerge from the pandemic, countries should consider how FDI can be best attracted and utilised. The pandemic has particularly slowed Chinese FDI in the continent, opening the possibility of new investors and new models of investment. New models and investors will determine the continent’s trajectory towards prosperity.

Sweden’s history of investment in Liberia offers a useful case study. In this partnership, we have a praiseworthy and proactive international donor, but a host country whose government has inhibited the potential of the relationship.

Liberia has experienced several waves of crisis in recent decades, from a civil war, to Ebola, and now to COVID-19. This has decimated the country’s economy, led to the nationwide underdevelopment of infrastructure, and resulted in endemic corruption. The administration of President George Weah has neglected to uphold governance and the rule of law. As a result, despite leaders frequently saying that “Liberia is open for business”, the country ranked 184^th out of 190 economies in the 2020 World Bank Doing Business Report in trading across borders, 184^th in dealing with construction permits and 180^th in registering property. It is evident that Weah has not done enough to improve the business environment and his lack of commercial experience or sophisticated policy platform is having a detrimental effect on his countrymen’s future as a result.

Yet Liberia is full of potential. The country is rich in natural resources including water, minerals, and forestry. The country also has a youthful population, as well as a climate hospitable to agriculture.

Like many counterparts across Africa, Liberia requires significant investment to reach its potential and achieve its ambitions. Sweden has been uniquely proactive in using FDI to assist Liberia in reaching its goals and has based its FDI engagement on two key priorities: long-term engagement and developing critical sectors.

FDI should aim to foster long-term links between the donor and host countries, at the same time avoiding the creation of an extractive or exploitative relationship reminiscent of colonialism. In December 2020, the Swedish Cabinet also committed around USD 213 million to a five-year Swedish Development Co-operation with Liberia. The plan, running from 2021-2025, spans several development areas including support for inclusive economic development. This aims to integrate the economy into global production chains by creating decent and value-adding jobs, enhancing the skill base and competitiveness of the Liberian economy to enable their long-term access to markets.

Secondly, by targeting critical sectors, FDI can be most effective at transforming host countries and addressing nationwide inequalities which bar the path to progress. Sweden’s former ambassador to Liberia summed this up in the ‘Three Rs’: Representation, rights, and resources. In June 2021, Sweden and the UNDP signed an agreement to give USD 4.8 million to support civil society groups with a particularly emphasis on election observation, and supporting women’s political participation, civic and voter education, as well as prevention of electoral violence. This has produced a balanced and comprehensive package of support for the country’s development, encouraging other donors to look beyond purely economic gains to questions of social sustainability and fundamental rights.

These priorities have underpinned the initiatives that have led to Sweden becoming one of Liberia’s largest donors of foreign aid. However, to maximise this positive offering of mutually beneficial FDI, African countries must ensure that they are doing everything they can to improve the investor climate in their nations. This is not the case in Liberia, where the steps taken by the Weah government to date have had a negative impact on business confidence and the economy more broadly, which continues to be hobbled by lack of clear direction.

To maximise the benefits of these initiatives, countries should develop a proactive diplomatic and commercial environment enables positive FDI partnerships to function automatically. Together, African nations have begun to show their ambition for harnessing the potential of international cooperation through a string of summits in recent years, such as the Africa-China Investment Summit, Africa-UK Investment Summit, and the Africa-US Investment Summit. More initiatives in this space will further these positive outcomes.

In a similar spirit, the promotion and election of African leaders with a business background, who have the skills and know-how to create a positive environment for foreign investors, could attract billions of dollars in FDI. The election of Hakainde Hichilema in Zambia this week is a good start, while Liberia has a candidate with a similar wealth of business experience in Alexander B. Cummings, the former global chief administrative officer of Coca Cola who led the growth of its African business. Individuals like these, with global expertise and experience based on merit, can be supported by the African diaspora – comprising 165 million people worldwide –which can play a role in supporting the continent. Electing talented men like Hichilema and Cummings who have a personal history of business success can create harmony in international partnerships, gain the attention and trust of the international business community, and introduce the commercial know-how to improve governance. In the long-term, they would be in the best possible position to tailor policies to support a smooth integration of domestic and foreign firms into global supply chain networks.

Countries across Africa, and indeed globally, should look to this the Swedish model of proactive FDI in Liberia as a success story, but be aware of the domestic work to be done to create fertile ground for long-term partnerships. Working with the right leaders in strategic partnerships, the continent can recover from the pandemic to a more prosperous future.

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