Africa’s Diaspora: A Key to the Continent’s Middle to Upper Income Status

By Uganda Investment Authority

Businesses in Africa are increasingly opting for foreign companies and private equity firms to raise both capital and technical expertise for their development needs. This is majorly due to the high cost of investment funds in most of the countries. Although this trend has shown positive impact in the area of job creation and transfer of skills, the downside is that foreign direct investment (FDI) can lead to foreign domination of local businesses. Most of these foreign companies have the advantage of accessing favorable investment loans with low interest rates of between 3 to 5% as opposed to local interest rates which, for instance in Uganda, range between 24 to 30% per annum.

The benefits accruing to the companies that have accessed funding and technical expertise from foreign joint ventures and foreign private equity firms are evident. However, Africans in the Diaspora are increasingly transferring resources, knowledge and ideas to their home countries and integrating them in the global economy. These remittances and technical knowledge/experience can be an alternative source of capital to drive African economies to middle and upper income status. Various reports from Bank of Uganda indicate that from 2015 to 2016, Ugandans in the Diaspora remitted over one billion US dollars back home.

The African Union (AU) describes the African Diaspora as comprising ‘peoples of African origin living outside the continent, irrespective of their citizenship and nationality and who are willing to contribute to the development of the continent and the building of the African Union’. Africans in the Diaspora hold substantial financial assets beyond their income; in savings and retirement accounts, as well as property. There is therefore a need to establish a sustainable program aimed at tapping into private equity, donations, joint ventures or strategic partnerships from Africans in the Diaspora to contribute to the development of their home countries.

Their participation in the development of the economy requires an enabling business climate. It is incumbent upon the African economies to establish concrete and formalized institutional linkages that are aimed towards sustainable and productive cooperation between the various actors involved in the fields of migration (national and international) and economic development. These may include forums or platforms for information sharing, ranging from simple websites, large-scale conferences to crowd funding platforms. Such an enabling environment enables countries to benefit from their large and successful Diaspora communities. Developing networks is crucial for deepening communication and building strong partnerships between the Diaspora and professional communities at home. This will help elevate the quantity and quality of global knowledge circulation in the home country.

Regulatory reforms geared at encouraging Diaspora investment, like the relaxation of legal barriers and capital flow restrictions faced by Diaspora when investing in home country business opportunities and in the property market. Investments will be encouraged by improvements in global rankings regarding reduced perceptions of corruption, improvement of the business environment, good practice governance and the quality of institutions.

The constant development of the financial services sector in Africa, and in this case Uganda, is encouraging remittance flows. There is access to wider financial services that has been made possible by enhancing the integrity of money transfer systems, improving the infrastructure of domestic and cross boarder payments, implementing policy reforms, technical improvements and regulatory changes. When all these developments are sustained and the African in the Diaspora are able to see the tangible results of their remittances, the flow of remittances will undoubtedly increase, giving African economies the least costly alternative to the much needed investment funds, especially for domestic investment.

Peter Mulira

Uganda Investment Authority