Opinion: Blowing Africa's Vuvuzela

(Aug. 6) -- The World Cup showcased Africa's ability to host a contest of world-class scale and stature. It was a boon to South Africa's economy -- the flood of foreign fans and huge investments into infrastructure will boost the nation's GDP by an estimated $2 billion this year. The event created an estimated 160,000 jobs.

The loud chorus of vuvuzelas has quieted, though, and the visitors have gone home. Will anything be left?

The answer, perhaps surprisingly, is yes. Over the past decade, a quiet revolution has taken place across the African continent. According to a recent McKinsey report, African GDP has grown by an average of 4.9 percent annually over the past decade. Construction, the telecom industry, and the retail sector have done especially well. And investment into the private sector has increased steadily over this period.

Some of Africa's economic growth has come from increased demand for commodities from the industrialized world -- but this only accounts for about 30 percent of the continent's GDP.

According to the McKinsey report, there are three main drivers of African growth: improved governance; the end of most armed conflicts; and the adoption of business-friendly policies, like public debt reduction and anti-inflation reforms.

These changes are welcome, of course. But impediments to sustained growth still linger.

The World Bank's "Ease of Doing Business" report ranks 183 countries based on how well their regulatory environment supports the creation of businesses. In the most recent installment, only three African nations were in the top 50: Mauritius, South Africa and Botswana. Tellingly, 22 of the bottom 25 countries were also in Africa.

The Legatum Prosperity Index, the world's only global assessment of wealth and well-being, tells a similar story -- the bottom quartile is dominated by countries in Africa.

There are a number of well-rehearsed reasons for this. Unfortunately, international aid has often played a nefarious role in African development. No-strings-attached foreign dollars have encouraged corruption, entrenched poor governance and stifled innovation and growth. As the global economy teeters toward double-dip recession, the challenge of growing Africa (and for that matter Western nations) out of poverty becomes even more pressing.

This challenge requires a mindset change from policymakers to home in on creating prosperity, not reducing poverty.

A focus on eliminating poverty is myopic and does little to create the environment for long-term growth. Some African countries have learned this lesson and are reforming their economies accordingly. Rwanda, for instance, ranked a dismal 143rd in the Ease of Doing Business index in 2009. This year, it jumped 76 places to 67th, an extraordinary achievement in such a short space of time.

There also needs to be increased emphasis on injecting indigenous private capital into the economy. Money will always flow to places where it will be welcomed and protected. Improving local governance and financial institutions will entice money out from mattresses and into productive activity.

Entrepreneurship is the best means by which ordinary people can determine their own economic future and solve the problems of their community in a sustainable and scalable way. Entrepreneurs create jobs and wealth, improve local living conditions and generate the social stability crucial to reinforcing the rule of law and eliminating corruption in government.

Rwandan Janet Nkubana, for example, started the crafts firm Gahaya Links four years ago, hiring and training local women to make artisan baskets, jewelry, mats, and ornaments to be sold in Western department stores like Macy's. She started with just six employees recruited from local churches. Today, she has a workforce of over 3,400 -- and has expanded her product line to include textiles, house wares and woven artwork.

Now is the time for Western countries to shift their focus from aid-based development toward working with African governments to institute policies that enable and encourage entrepreneurship -- improving property rights, sanctity of contract and an impartial judiciary -- while persuading investors to reward regions that have created relatively healthy business environments by directing capital their way.

This pro-growth approach will yield better long-term economic results and begin to address some of Africa's governance challenges where it matters.

Africa is open for business. Now is the time for global institutions to take notice and to start blowing the continent's vuvuzela.

Alan McCormick is a managing director of Legatum, an international investment firm. Legatum runs the African Awards for Entrepreneurship (www.africaawards.com), an annual program that gives $350,000 prizes to promising African entrepreneurs.