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FDI in Africa: Lessons from Sweden in Liberia

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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.

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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 184th out of 190 economies in the 2020 World Bank Doing Business Report in trading across borders, 184th in dealing with construction permits and 180th 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.

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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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Agriculture

Agriculture: Commission approves new geographical indication from Sweden

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The Commission has approved the addition of ‘Vänerlöjrom' from Sweden in the register of Protected Designation of Origin (PDO). ‘Vänerlöjrom' is made from vendace roe, a freshwater fish caught in Lake Vänern, in south-western Sweden, and salt. It is characterised by whole eggs that give a distinct ‘pop' if pressed to the roof of the mouth when tasting. It has a mild flavor and a clean fish taste of salmon. ‘Vänerlöjrom' obtains its specific properties from the minerals and nutrients in the waters of Lake Vänern. It also has a strong local connection. Every year various events linked to Lake Vänern and roe fishing, including Vendace Roe Day, attract large numbers of visitors. The new denomination will be added to the list of 1,565 products already protected in the eAmbrosia database. More information online on quality products.

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Biofuels

Commission approves one-year prolongation of tax exemption for biofuels in Sweden

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The European Commission has approved, under EU state aid rules, the prolongation of the tax exemption measure for biofuels in Sweden. Sweden has exempted liquid biofuels from energy and CO₂ taxation since 2002. The measure has already been prolonged several times, the last time in October 2020 (SA.55695). By today's decision, the Commission approves an additional one-year prolongation of the tax exemption (from 1 January to 31 December 2022). The objective of the tax exemption measure is to increase the use of biofuels and to reduce the use of fossil fuels in transport. The Commission assessed the measure under EU State aid rules, in particular the Guidelines on State Aid for environmental protection and energy.

The Commission found that the tax exemptions are necessary and appropriate for stimulating the production and consumption of domestic and imported biofuels, without unduly distorting competition in the Single Market. In addition, the scheme will contribute to the efforts of both Sweden and the EU as a whole to deliver on the Paris agreement and move towards the 2030 renewables and CO₂ targets. The support to food-based biofuels should remain limited, in line with the thresholds imposed by the revised Renewable Energy Directive. Furthermore, the exemption can only be granted when operators demonstrate compliance with sustainability criteria, which will be transposed by Sweden as required by the revised Renewable Energy Directive. On this basis, the Commission concluded that the measure is in line with EU state aid rules. More information will be available on the Commission's competition website, in the State Aid Register under the case number SA.63198.

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European elections

Swedish PM to step down in November ahead of 2022 elections

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Social Democrat leader Stefan Lofven speaks during a media conference after being re-elected as prime minister in Swedish Parliament in Stockholm, Sweden July 7, 2021. Christine Olsson/TT News Agency/via REUTERS

Swedish Prime Minister Stefan Lofven caught many off guard on Sunday, saying he would resign in November ahead of a general election in September 2022 to give his successor a chance to improve the Social Democrats' standing in the polls, write Anna Ringstrom and Simon Johnson, Reuters.

Lofven has been prime minister since 2014, heading two coalition governments with the Green Party that have lurched from crisis to crisis, unable to command a majority in parliament.

The most recent setback saw Lofven, a former welder and union leader, resign in June after losing a no-confidence vote.

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He was returned to office by parliament in July when the leader of the biggest opposition party, the Moderates, failed to get enough backing to form a new government. read more

"In next year's election campaign the Social Democrats will be led by someone else than me," Lofven said at the end of his annual summer speech. "Everything has an end and I want to give my successor the very best conditions."

He said he would step down at the party's congress in November.

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Lofven's Social Democrats have dominated Swedish politics for generations, but their support - like that of left-of-centre parties across much of Europe - has gradually eroded.

In addition, the rise of the Sweden Democrats, a populist, anti-immigration party, has made forming majority governments almost impossible.

The Social Democrats will probably benefit ahead of the elections from having a new leader, Uppsala University political scientist Torsten Svensson told Reuters.

"The fact he takes the initiative himself, not resigning after explicit demands for it, and the fact they get to launch the election campaign with a new face is a big plus," he said.

Lofven's possible successors include current Finance Minister Magdalena Andersson, Health Minister Lena Hallengren and Minister of the Interior Mikael Damberg, he said.

Lofven took over the leadership of the Social Democrats in 2012, when their support was at an all-time low and managed to return them to power after eight years of centre-right rule.

He got a second term in 2018, but only when two centre-right parties swapped sides, leaving Lofven caught between their demands and those of the Left Party, whose support he has also needed.

His successor is likely to have similar problems as opinion polls show the centre-right and centre-left blocs still deadlocked. The government currently does not have the support it will need to pass a budget in the autumn.

Magnus Hagevi, political scientist at the Linnaeus University, said the resignation was not a surprise considering that Lofven had been on the job for a long time.

"He does this at a time that gives the successor a chance to step into his shoes ahead of the next parliamentary election," he said, adding that possible successors include Energy Minister Anders Ygeman as well as Andersson.

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