Page 1       TOP OF DOC
43–103 CC








JUNE 18, 1997

Printed for the use of the Committee on International Relations

 Page 2       PREV PAGE       TOP OF DOC

BENJAMIN A. GILMAN, New York, Chairman
HENRY J. HYDE, Illinois
CASS BALLENGER, North Carolina
EDWARD R. ROYCE, California
JAY KIM, California
TOM CAMPBELL, California
JON FOX, Pennsylvania

LINDSEY GRAHAM, South Carolina
 Page 3       PREV PAGE       TOP OF DOC
ROY BLUNT, Missouri
SAM GEJDENSON, Connecticut
TOM LANTOS, California
PAT DANNER, Missouri
WALTER CAPPS, California
BRAD SHERMAN, California
BOB CLEMENT, Tennessee
BILL LUTHER, Minnesota
JIM DAVIS, Florida
 Page 4       PREV PAGE       TOP OF DOC
RICHARD J. GARON, Chief of Staff
MICHAEL H. VAN DUSEN, Democratic Chief of Staff

Subcommittee on Africa
EDWARD R. ROYCE, California, Chairman
TOM CAMPBELL, California

JIM DAVIS, Florida
TOM SHEEHY, Staff Director
GREG SIMPKINS, Professional Staff Member
JODI CHRISTIANSEN, Democratic Professional Staff Member


    Ms. Judith Aidoo, President and Chief Executive Officer, The Aidoo Group, Ltd.
    Mr. Andrew N. O. Owiny, Senior Vice-President, International Finance, Pryor, McClendon, Counts & Company, Inc.
 Page 5       PREV PAGE       TOP OF DOC
    Mr. Frank Savage, Chairman, Alliance Capital Management International
Prepared statements:
Hon. Robert Menendez, a Representative in Congress from New Jersey
Ms. Judith Aidoo
Mr. Andrew N. O. Owiny
Mr. Frank Savage
Additional material submitted for the record:
''Africa's Emerging Capital Markets,'' hearing background prepared by the House Subcommittee on Africa
Submission by Hon. Donald M. Payne, Weekly Compilation of Presidential Documents, June 23, 1997, ''Remarks Announcing the Africa Trade Initiative,'' by President William Clinton
USA Today, ''Africa's Stock Exchanges''
Panafrican News Agency, ''Expert Pleads in Support of African Capital Markets''
Panafrican News Agency, ''Foreign Investors Remain Active''

House of Representatives,
Subcommittee on Africa,
Committee on International Relations,
Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:06 p.m., in room 2255, Rayburn House Office Building, Hon. Edward R. Royce (chairman of the Subcommittee) presiding.
    Mr. ROYCE. This hearing of the Subcommittee on Africa will now come to order.
 Page 6       PREV PAGE       TOP OF DOC
    Today we look at Africa's capital markets. During the past few years African stock markets have blossomed. Seventeen are now operating, ranging in size from the Johannesburg Exchange, which is the world's tenth largest, to the markets the size of Botswana's with a dozen listings.
    Just 2 weeks ago, the Ugandan Exchange became the latest to open, and more are on the way. Zimbabwe is one of several African countries planning to open an exchange, and that is not bad for one of the world's poorest countries. In addition to equity, several African markets are beginning to trade government debt.
    This is a very positive development for Africa, a development that would not be possible were it not for the economic reforms that have taken place in many African countries.
    Stock markets provide the foreign and domestic capital that fuels commerce. They are a cheaper source of capital than debt financing, and they are important to the privatization process already underway in many African countries. Finally, and not to be underestimated, African capital markets represent an important psychological link to the international economy. This is important when many are speaking of the marginalization of Africa.
    There are great challenges, though. These markets tend to suffer from poor liquidity, poor information about traded companies, high transaction costs, and restrictions on foreign investment.
    Nevertheless, these stock markets have received much attention of late. Several U.S.-based funds have been started over the last few years to invest exclusively in African stock and bond markets, though this number pales in comparison to other emerging market funds.
    Africa's markets have received growing attention in the financial press, ever alert to pointing out new investment opportunities. It helps that, for the past several years, African markets have been the world's best performers. That will be pointed out by our witnesses today.
 Page 7       PREV PAGE       TOP OF DOC
    Many view Africa as the last emerging market and predict that American and other foreign investment in Africa will mount. Do not forget that the United States was once considered a pioneering and risky investment.
    Much attention has been focused lately on trade and investment with Africa. This Subcommittee marked up the African Growth and Opportunity Act a few weeks ago. Yesterday, the Administration unveiled its African trade and investment plan at the White House.
    The growing interest in Africa's capital markets reinforces the fact that we are all beginning to see Africa through a different lens; a lens of hope and opportunity. That the private sector is taking this view is most encouraging.
    This is not to overlook the very real challenges confronting Africa. We should not be naive, but there is a new spirit emanating from Africa, and this Subcommittee is honored that three people who embody that spirit are with us to share their insights.
    Our witnesses have considerable experience dealing with African stock markets, African funds and African bonds. They will give us a better understanding of the challenges that need to be met if African capital markets are to develop further, and they should also give us a sense of what role the United States might play in promoting that development.
    Before we proceed, I want to recognize Mr. Robert Menendez from New Jersey, the Ranking Member of this Subcommittee, and Mr. Donald Payne of New Jersey, and I am going to ask Mr. Menendez at this time if he has an opening statement that he would like to make?
    Mr. MENENDEZ. Thank you, Mr. Chair. Mr. Chair, in the interest of time I am not going to read my whole statement. I would like it to be included in the record.
    Having just come back from Africa on our trip, I think we can underscore what President Clinton said yesterday that there really is a dynamic new Africa out there, and this hearing continues to promote this Committee's views that there is a dynamic new Africa there.
    I do not think, at least in the 5 years that I have been here, that this is the type of hearing we would have had in that period of time. These are exciting possibilities. We are very optimistic about what is happening in Africa, and we are optimistic about the opportunities for trade and investment. We will be interested in hearing the panels.
 Page 8       PREV PAGE       TOP OF DOC
    I will have to leave at a certain point because I have another hearing. I do not want you to think it is for lack of interest. My staff member is here, and we will be reading your testimony as well.
    Thank you very much, and I ask that my statement be included in the record.
    Mr. ROYCE. Absolutely.
    [The prepared statement of Mr. Menendez appears in the appendix.]
    I am going to ask Mr. Donald Payne if he would like to make an opening statement?
    Mr. PAYNE. Thank you, Mr. Chairman. I, too, will be relatively brief, but let me thank you for calling this important hearing and also commend you on the recent trip that you took, along with the Ranking Member, Mr. Menendez, and other Members of Congress to Africa to be on a fact-finding mission.
    Just yesterday, as has been indicated by Congressman Menendez, the President had a conference where he talked about the opening of our doors to markets of countries in Africa. As a matter of fact, Mr. Chairman, I have the text of his remarks and would like to have it entered into the record.
    Mr. ROYCE. Absolutely.
    [The remarks of President Clinton appear in the appendix.].
    Mr. PAYNE. We have a golden opportunity now with Uganda growing at almost 10 percent, Ethiopia by 12 percent and, of course, we cannot fail to mention enough the Southern African Development Community, the SADC countries. For the first time in many years, the economies in every one of the 12 members of SADC grew, with eight of them by more than 5 percent. This year, SADC is expecting the same kind of returns and probably even better.
    However, Africa's rich minerals, timber, oil and crops must not be top-heavy, which keeps the people in poverty and inevitably keeps the country in real debt. Such examples, such as Gabon and Cameroon, two wealthy countries that have a tremendous amount of wealth, but failed elections; Nigeria, where Abacha and his military live off the $10,000,000,000 in annual oil exports; and the Sudan, which are examples of countries that have wealth, but it is not trickling down.
 Page 9       PREV PAGE       TOP OF DOC
    There can be more successes. We are looking for transparency. We are looking for the quality of life to improve for African people as we move forward with the trade and investment.
    Thank you, Mr. Chairman.
    Mr. ROYCE. Thank you, Mr. Payne.
    We would appreciate it if the witnesses would summarize their testimony and if you will restrict your remarks to 5 minutes.
    It is a pleasure at this time to introduce our distinguished panel, starting with Ms. Judith F. Aidoo. She is president of the Aidoo Group, Ltd., and is responsible for leading the firm's efforts in product development.
    She has worked extensively in structured capital market transactions in Ghana, Kenya, Zimbabwe, South Africa and Mauritius. Before establishing the Aidoo Group, she worked at Goldman, Sachs & Company where she executed more than $2,600,000,000 in fixed income portfolios.
    Mr. Andrew Owiny is senior vice-president for international finance for Philadelphia-based Pryor, McClendon, Counts & Company. He is the firm's lead banker with primary responsibility for developing its international finance capability in Africa.
    In his capacity at PMC, Mr. Owiny serves as a director on the board of MBAA Brokerage Services, Ltd., a brokerage firm with a seat on the Uganda Securities Exchange.
    Mr. Frank Savage is chairman of Alliance Capital Management International. It is a $183,000,000,000 investment management subsidiary of The Equitable Companies, Inc.
    Mr. Savage previously chaired Equitable Life's Equitable Capital Management Corporation subsidiary and prior to that served in the Middle East and Africa with the International Division of Citibank.
 Page 10       PREV PAGE       TOP OF DOC
    Ms. Aidoo.
    Ms. AIDOO. Mr. Chairman and distinguished Members of the Subcommittee on Africa, it is a distinct honor for me to testify about African capital markets, and I thank you for the opportunity.
    I am also grateful that my 6-year-old nephew, Ian Winchester, is here. One of my colleagues, Tom Acelles, is here, and in particular my father, Dr. Jude Aidoo, is present to witness this moment because my interest in Africa is directly attributable to him. He is from Ghana, and I attended boarding school there.
    I want to say that my interest in markets comes directly from my mother, because she had a business in Ghana when I was a child, and I worked with market women in Ghana. Those of you who have visited Ghana know how vibrant the markets are and how tenacious the women are there as entrepreneurs. I learned everything I know about the markets from those women.
    I have been, as you mentioned, an investment banker for 10 years, the last 6 in my own firm, focusing exclusively on Africa. We started off creating the stock exchange in Ghana and went on and did the feasibility study for the exchange in Zambia.
    We then have gone on to do a variety of transactions from privatization to debt restructuring to asset-backed securitization of trade loans affecting the PTA region, now called COMESA, which is the eastern and southern African trade block comprising 22 countries from Jabouti to Mauritius; Botswana and South Africa excluded.
    We have done a lot of transactions. We can get into any of the details if they interest you, but I just wanted to summarize my comments as you have instructed and just highlight a couple of points.
    One, when you look at Africa, and particularly when you look at capital markets, you will notice that agriculture forms 20 percent of our economies, as compared to 2 percent in the United States. Most of our markets, though, do not reflect that with some notable exceptions like in Kenya. That is something I expect is going to change.
 Page 11       PREV PAGE       TOP OF DOC
    Those 15 countries that currently have markets now, and Uganda recently started, they have been trying to set up a market now for about 5 or 6 years, and I am grateful to hear that it is actually working. I will be there in about 2 weeks.
    Still, these markets are relatively small. All of Africa in total is about $285,000,000,000 in market capitalization, which, of course, 85 percent of which the Johannesburg Stock Exchange counts for. That compares, for example, to Malaysia of $307,000,000,000. All of Africa combined is $285,000,000,000 compared to Malaysia's $307,000,000,000.
    That is particularly noteworthy because Ghana and Malaysia achieved independence in the same year, 1957. At the time, Ghana had a higher per capita income than that of Malaysia. They are roughly the same climate, the same number of people. Something dramatic has happened in those intervening 30-odd years or 35-odd years, and it is something worthy of reflection.
    I just also wanted to mention that these markets, now that they have been established, some as far back as 100 years ago and some as recently as 2 weeks ago, obviously have different levels of technological development, different sophistication, different capital bases even of the brokers.
    You cannot have a thriving market unless you have brokers who are well capitalized, who are doing research, who understand the concept of value. Similarly, those brokers will have to go out of the communities and actually sell the role of the exchanges. There have always been market-based economies in Africa, even in socialism, so I think the issue is really making those markets relevant to the people.
    If you look at some of the indices, for example, whether or not how fast these markets are growing—not whether or not they are making investors money, but whether or not they are fulfilling the function of raising capital—you will notice that very few of these exchanges are actually adding new companies every year.
 Page 12       PREV PAGE       TOP OF DOC
    Last year, the No. 1 adder, if you will, or stock exchange that added new companies was Tunisia with four new issues. Mauritius, Morocco and Zambia added three new firms; Namibia, Ghana and Nigeria two. South Africa and Egypt actually delisted some securities.
    By contrast, China added 217 new companies to their stock exchange, which, as you know, is not very old. India added over 800 new companies. You want to get some sense of just how fast these markets are really fulfilling the function of distributing capital to grow the local economies.
    The other point that I think is important to note is that these stock exchanges are relatively illiquid. That is for all emerging markets, just more so in the case of Africa. South Africa is no exclusion.
    I think the performance, as you noted earlier, is extraordinary. Every single year for the last several years at least four or five countries are in the top 20 markets in the world, and we expect that to continue. The other thing is that African stocks are very cheap relative to their corollaries in other regions of the world, Latin America, Asia. They are at least half the price.
    The other thing that we notice is that there is actually no correlation or, in fact, negative correlation to the performance of African markets relative to the U.S. market so that if I am an American investor, I can actually reduce my risk by investing in Africa since there is very little change that will occur, or at least the changes in Africa do not seem to track the United States and, in fact, in some instances, as I mentioned, it actually works the other way, so it is a good hedge.
    Privatization, as you noted, is the key to developing these markets. There is no other way around it. When you have had centralized economies, the only way to add new company listings is to develop the private sector, which in turn comes through privatization. In order to do that, you need normally money, people who have money, particularly locally.
 Page 13       PREV PAGE       TOP OF DOC
    We will talk a little bit about that, but I think the issue of local savings, is a critical issue that must be addressed. Savings rates not only in America are low, but in Africa they are tragically low as compared to in Asia, for example.
    The other thing you have mentioned that I think is very important is that a number of African governments have started accessing the capital markets, the debt markets. They have been getting ratings from Standard & Poor and Moodys. This is important. When these companies get these benchmark ratings, companies in these countries can actually start also to access the markets because they have a benchmark against which they can price their issues.
    Ashanti Goldfields of Ghana is a notable example very well received in the marketplace and now listed on five or six different exchanges, including New York, the first African company in history to be listed on the New York Stock Exchange.
    There are a number of positive developments that I have noted in my document here. I think we should also point out the fact that $3,600,000,000 has actually gone into Africa in 1996. We are happy for that. Most of it, of course, went to South Africa, but again it pales by comparison to Asia.
    I think the other comments that I have made I just would like to have reflected in the record, and I thank you sincerely for the opportunity.
    [The prepared statement of Ms. Aidoo appears in the appendix.]

    Mr. ROYCE. Thank you very much, Ms. Aidoo.
    Mr. Owiny.
    Mr. OWINY. Thank you. Mr. Chairman and Members of the Committee, I am honored and pleased to have been invited here to testify before you. Like Judith, I am from Africa. I am from Uganda. It is definitely an honor to appear before the U.S. Congress.
 Page 14       PREV PAGE       TOP OF DOC
    Of special note is our firm's affiliation with the Corporate Council on Africa, that you, I am sure, are very familiar with and has done a lot with regards to building American business interest in Africa.
    The topic of the day is very pertinent, now more than ever, given the positive development trends that are beginning to grace the African continent today. In addressing this topic, I will largely draw from the experiences of my particular firm.
    As we approach the turn of the century, the stirrings of economic development that have lifted economies in Asia and Latin America in recent decades at last are coming to Africa.
    One of the main drivers of this development is the rapid surge in private capital flows to the continent, which speaks of a newfound confidence in the emerging markets. The capital flows are largely facilitated by the globalization of the universal capital markets and the liberalization of cross-border financial transactions.
    Despite the catalytic role played by globalization, shifts in governments and economic policies have equally been important in over two dozen sub-Saharan countries, contributing to the high growth that, Mr. Chairman, you talked about in Uganda and in Ethiopia.
    A number of African countries have a sincere commitment for the first time in creating an enabling environment for both private sector development and capital market development. By undertaking monetary policies and fiscal policies that are conducive to development, they are beginning to display a level of maturity and discipline unseen for a long time.
    One of the things that we draw from is being able to invest in Africa, but more so toward institutions or corporations that are largely owned by Africans. We sort of step in and provide technical assistance and the know how from the States into Africa. Now, we find that in doing this, we tend to build the local exchanges from the private sector point of view, as opposed to the public sector point of view.
 Page 15       PREV PAGE       TOP OF DOC
    The importance of being competitive and enhancing Africa's ability to compete with the other continents is now something that the governments are beginning to recognize and are beginning to take active steps toward achieving a sense of or a pull toward the world investment community.
    As the Chairman said, the most recently established stock exchange in Africa is the Uganda Securities Exchange launched about 2 weeks ago. We are members of the exchange and are actively involved in establishing it. We tend to draw on the experience of the Nairobi Stock Exchange, given that it was formed in 1954, 40 years ago.
    One of the key supporters is the U.S. Agency for International Development. By stepping in and providing funds for training, you find that they are able to create a base of development and recognition among not only the brokers, but also the population.
    One of the concepts that I think will help Africa is the regionalization of stock exchanges being undertaken by, for example, the East African States. You find that East Africa is not the only place that this concept is being touted.
    You find in West Africa in the Abidjan Stock Exchange there is a focus on having it represent the franco-phone countries. You find that the markets are rather small and, therefore, it tends to create economies of scale in markets that lack liquidity, as Ms. Aidoo pointed out and as you, Mr. Chairman, pointed out.
    Our involvement in Africa's capital markets goes beyond Uganda into Ghana, into Zimbabwe, into Egypt, in terms of the investments that I mentioned just a bit earlier in merchant banks, discount houses and in the Import-Export Bank.
    You find that a lot of these institutions have brokerage affiliates that have worked on the exchange and, therefore, contribute toward the formation of capital and the flow of foreign and local capital into their respective markets.
    Now, liquidity is something that I think can be addressed. It is going to be difficult, but one of the things is the African countries' ability to attract foreign capital to be able to create a level of activity that will sustain the activity on those particular exchanges.
 Page 16       PREV PAGE       TOP OF DOC
    You find that the stellar performance like Ashanti Goldfields tend to be few and far between in terms of recognition in the international markets, but if you go into countries like Zimbabwe, there are stocks that you do not hear about that actually perform pretty well.
    I will give you one example. I have a friend who has nothing to do with the financial sector.
    Mr. MENENDEZ. Is this a tip now?
    Mr. OWINY. Sorry?
    Mr. MENENDEZ. Is this a tip now?
    Mr. OWINY. It is a tip. It is a tip.
    Mr. MENENDEZ. All right.
    Mr. OWINY. She decided to invest in a security on the Zimbabwe Stock Exchange. In 6 months, the value of that investment went from $3,000 U.S. dollars to $13,000. She cashed in, having borrowed the $3,000, and had $10,000.
    In summary, we think the future for Africa's emerging markets is success which lies in the markets' ability to conform to the characteristics of the global capital markets. Adequate systems, rules and regulations, ability to enter and exit, fiscal incentives and sound macro economic policies will make Africa internationally competitive.
    I thank you very much.
    [The prepared statement of Mr. Owiny appears in the appendix.]

    Mr. ROYCE. Thank you, Mr. Owiny.
    Mr. Frank Savage.
 Page 17       PREV PAGE       TOP OF DOC
    Mr. SAVAGE. Thank you very much, Mr. Chairman.
    In 1960, the winds of political change swept over the continent of Africa. At that time, I was a student here studying African affairs at Howard University. I consider that to be a very historic moment.
    Today we have the winds of economic change sweeping across the continent of Africa, part of the global change and move toward market economies. Again I think this presents a tremendous opportunity not only for us to facilitate the economic development of Africa and improve the lives of millions of people, but also it affords very attractive opportunities both to American corporations and to American investors.
    Alliance Capital, of course, manages a significant amount of money internationally and in emerging markets. Quite frankly, we are very anxious to try to identify new investment opportunities around the world. We think Africa represents one of the greatest areas of potential opportunity.
    We made an investment in South Africa in 1994 prior to the election. After we had done a significant amount of work, we determined that South Africa had a very bright future both for investors and for the citizens, so we raised $92,000,000 and invested that money in the stock market. Today our investors are very happy.
    Equally, earlier this year we raised another $130,000,000 to invest in Egypt, again responding to a country's market-driven policies which have moved that country forward quite rapidly.
    We have almost $250,000,000 on the African continent. We really want to try to find some other additional opportunities, and we are really focusing now on sub-Saharan Africa to try to see what markets we should try to enter.
    I will say that as we look at the stock markets and look at the economies, we are convinced that the only way that these stock markets will take off is if the United States, both the government and the business, steps up to the plate and takes a leadership role. We cannot avoid it because we are the biggest global power in the world. We can make things happen both politically and economically and financially.
 Page 18       PREV PAGE       TOP OF DOC
    The U.S. Government needs to take a leadership role in order to encourage the transition which is taking place in Africa, and I want to applaud this Committee, as well as the President, for the initiative that they have embarked upon, which I have never seen in my years that I have been living here in Washington.
    We have talked about the growth rates that we have seen in the African nation. Quite frankly, the growth rates have been very, very impressive of late and in some cases approaching the growth rates of some of the countries out in the Pacific Basin which to some extent may be tending to sort of plateau a little bit.
    When you look at the stock markets, you have to be impressed with what is happening there. Now, I should point out that 5 percent growth sounds impressive, but it is not adequate enough to overcome the problems of these countries, the infrastructure problems, the health problems, and it is not attractive enough to compete with the competition for global capital either. Returns have to exceed what they are generating right now in order to be able to attract capital, so there is still a long way to go.
    Countries like South Africa and Egypt are on the way. They have a lot of liquidity. They are attracting foreign investment. If you look around at the other stock markets, as my colleagues have talked about today, you see a mixed bag. Most of them are small. There is very little liquidity. They do not stay open except for 2 or 3 days a week. They are very, very small.
    The point is that it is very important for them to take a first step to show the commitment to a market driven in open economy. I think that it is something that we should applaud and something that we should encourage, and that is what this Committee and the President want to do. I think it is a very appropriate action.
    Now, South Africa, of course, the capitalization they have is putting them, quite frankly, up in the top 12 stock markets in the world. If you look at a country like Nigeria, which is a very, very rich country, the market capital is only $1,300,000,000. As we know, Nigeria has been very slow to privatize. Companies are State-owned. Quite frankly, it is not an investor-friendly country.
 Page 19       PREV PAGE       TOP OF DOC
    In Lusaka, Uganda and Ghana, I think we have to really take our hats off to the steps that these countries are taking with privatizations and removing restrictions on foreign investment.
    If we look at the stock markets, we really have to look at the state of the underlying economies. We have to understand that in order to create the liquidity and the opportunities for companies, both local and international, to take advantage of the stock markets, we have to focus on developing the underlying economies. We need to have strong underlying economies, and we need to have governments which pursue very prudent macro economic policies, thus creating an investor-friendly environment.
    The Council on Foreign Relations, of which I am a member, recently created a task force to look at this whole issue of the U.S. economic policy toward Africa. We are focusing on three areas that we thought needed attention. One was trade and investment, sustainable economic development and debt reduction.
    I do not want to read through all of the testimony that I have here, but essentially we think that we are off to the right start here in the United States in terms of the types of policies which were enunciated yesterday.
    We need more of it, but I think that the most important underlying theme of the program is that we will reward those countries who show that they are committed to opening up their economies to provide opportunity not only for foreign investors, but, more importantly, for local businesses.
    Whenever I go into a country, the first thing I look at is how is the government treating its own local business people. If they are not treating their local business people well, then I am sure they are not going to treat me any better than they treat them.
    We need also aid. I think that today in the program that we are talking about there is a lot of emphasis on trade and investment. We need that. There is a lot of emphasis on debt reduction. We need that. Still, we have to try to bridge the transition from the state of these economies today to a fully emerged market economy that can be integrated into the world economy.
 Page 20       PREV PAGE       TOP OF DOC
    In order to do that, we need to have aid going to help to build up the infrastructure because without infrastructure, without telecommunications, without roads, without proper water, it is not an investment-friendly environment.
    Those are the three things that we think absolutely need to happen. We agree with the full court press, as I call it, that you are mounting and that the President is mounting. It cannot be a one-dimensional effort. It has to be three or four dimensions, and I think that if we continue to go in this direction, that we will be very pleased with the evolution of the stock markets.
    Ultimately they have to bring in private capital. Direct investment from governments will not do the job. We need to get the private capital flows in, both direct and portfolio. This program that you are announcing will help to facilitate that, and I think it will be successful.
    Thank you very much.
    [The prepared statement of Mr. Savage appears in the appendix.]

    Mr. ROYCE. Thank you, Mr. Savage.
    I wanted to just take a moment and introduce the vice-chairman of the Committee, Mr. Amo Houghton of New York, who has joined us, and also Mr. Steve Chabot from Ohio, who is with us as well.
    Let me just ask the panel because a point was made about the assistance given by the U.S. Agency for International Development in getting the market in Nairobi up and running.
    In your experiences around the financial markets of Africa, what is your impression of the U.S. Government's support of these developments as demonstrated by our embassies, what is your view of our aid programs, and do you feel that there is an American effort to help along the development of African capital markets? I address my questions to the panel.
 Page 21       PREV PAGE       TOP OF DOC
    Ms. AIDOO. Yes. Thank you. I think the U.S. Government certainly has taken a leadership role in setting up these markets. Having been working in them from the inception, there is something missing. It is not only about money.
    Maybe it is the way it is being directed, but I think there is certainly technical assistance. The USAID puts out a variety of investor guide handbooks, if you will, on investing in specific markets, which are particularly useful.
    In terms of actually strengthening institutions and training people and moving savings, domestic savings, and Mr. Savage referred to this, how do you grow an economy? It cannot only be foreign investment. Some of it has to be domestic.
    There is something. There is a gap there that I think needs to be bridged, and perhaps there are some ways to tinker, if you will, with what USAID and the U.S. Government is doing to enhance both training on the ground and helping smaller savers channel their money into the local market.
    Let me also mention this. I think this issue of training is so important. Particularly, we are talking about political stability. If you have 50 percent of your population under the age of 21 and agriculture is your real base, money must be channeled into agriculture, and you probably need to figure out some way to process that agriculture.
    I am not seeing enough of that happen. I still see a lot of people selling trinkets from other parts of the world in this region. There is something missing there, and I think some attention should probably be directed there, too.
    Mr. SAVAGE. Mr. Chairman, let me just say that if I go back and draw upon my experience over the last 30-odd years in this area, I would say up until a few years ago that you could not get much out of the U.S. Government and the embassies or anyone. I mean, there was just not a sensitivity to commercial issues in general.
    What I have been so pleased about over the last several years is that I now know that I can get help from government agencies, that I can get guidance from agencies here and in the field. Quite frankly, up until a few years ago over all these years I have been living abroad I had very rarely walked into an American embassy because I did not think that they could really help me. I did not think that they were in touch with what was happening on the ground.
 Page 22       PREV PAGE       TOP OF DOC
    I must say that commercial diplomacy, sensitivity, and Ron Brown had a major impact on that sensitivity and building that sensitivity in the government, the importance of trying to help American companies compete against our European competitors who really do this quite effectively.
    Mr. ROYCE. Mr. Owiny.
    Mr. OWINY. My comment is actually along the lines of what Mr. Savage said. I think it is more of a private sector push that will help in developing these markets. You find that if those private sector entities are coming from the States, then the support of the government is key. The embassies are beginning to do an excellent job. In Uganda, working with the embassy has been great because there are areas that I cannot reach within the government, and the embassy has stepped forward.
    In terms of the government stepping forward and offering money, I do not think that is the way. It is definitely by supporting the private sector to go up against the colonial powers.
    Mr. ROYCE. We have been joined by our newest Member on the Committee, Mr. Jim Davis of Florida, who is with us now.
    I have a further question. Several African stock markets have been established over the last few years. Are there any lessons to be learned by comparing the development of these different markets? Has one country excelled in the process, in your view?
    Ms. AIDOO. I think Ghana probably started the first wave. Botswana was 1989. Ghana was 1990–1991. Ghana probably has done a little bit more in terms of getting more companies.
    I think the biggest issue, because I spent almost a year in Ghana last year trying to set up a bond market, is there are some structural economic issues. Despite its positive growth, the economy is still fairly thin, and I do not think we can ignore that.
 Page 23       PREV PAGE       TOP OF DOC
    Even though the market cap is about $1,500,000,000, that is a small cap company in America. Let's put it in perspective. They have done very well. Those strides are important. It is not deep enough. That is point one.
    Point two is I think that this issue of channeling savings is more than a notion, and I think that somehow or another the importance of savings in terms of developing an economy has to be brought home. I am not sure that has been marketed very well.
    We visited with the President of Ghana and his ministers and many members of the private sector. We went to Malaysia. Many of those members, by the way, have been to the United States, many as recently as last week in North Carolina, as a matter of fact. The bottom line is I think Malaysia really drummed home what Ghana could have been if it had chosen a different route.
    This issue of education and building, creating wealth, literally deepening an economy by producing and enhancing something, I think that could have helped in Ghana because really now on the stock exchange, despite the fact that it is the second largest exporter of cocoa, there is no cocoa-related company listed on that exchange. Until Ashanti Goldfields got there, there was no gold market, no gold company listed on the exchange.
    Those are the top two earning industries, if you will, or sectors for the country, so you can get a sense that the exchanges are there almost now as instruments. They are not really penetrating the economy yet and directing capital.
    Mr. ROYCE. Thank you.
    I am going to allow the vice-chairman to ask a few questions.
    Mr. HOUGHTON. Thank you very much, Mr. Chairman. First of all, I want to thank you very much for having this meeting. I really think I have been in an awful lot of meetings on the individual countries and the problems and the continent, and I think this is probably as unique a meeting because it gets right to the core of the thing that everybody wants, which is economic development. The other question is how do you get it? It all involves money.
 Page 24       PREV PAGE       TOP OF DOC
    The question really is how does that money get there? What is a full court press? What do you mean by a leadership role? If it is really private funds, what does this Committee do because you are not talking to the Council on Foreign Relations or the Business Council or other corporate groups. You are talking to this group. What does this group do to be able to enable more private funds?
    Also, what do you do and we do to encourage African governments to put things in reasonable, understandable form so they create a document for attractive investment for American companies? Many times you take a country in sub-Saharan Africa that has tremendous assets of people and climate and mineral sources and skills and all sorts of things, but they are very specific. They are unique.
    Malawi has something entirely different than Zimbabwe, Zimbabwe from Zambia, Zambia from Uganda. What are they? What do I as a businessman want to know? Many times that information is not available.
    Those are two questions. First of all, what do we do here who are not private—we are public servants—to help in this process? Also, what do you do or do we do together to try to help the African governments put something on a piece of paper or in a form where it will encourage that investment?
    Mr. SAVAGE. Mr. Vice-Chairman, I think actually the Committee is doing exactly what it should be doing. You cannot actually encourage us as private investors to put money into a country, into a project. We have to make an assessment of that project and make a decision.
    What you can do and what I think you and the President want to do when you have the G–7 meetings next week is to impress upon all of our G–7 partners that we have to try to enhance the transition toward what I call an investor environment.
    An investor-friendly environment covers a multitude of areas. It covers having to write policies. It covers appropriating money. It also covers having the proper internal infrastructure inside the country which enables me to go into that country and to do business in that country.
 Page 25       PREV PAGE       TOP OF DOC
    I think, for example, we need to remove some of the trade barriers that we have, to give these countries the opportunity to ship their products here to the United States on a non-tariff basis, to help to facilitate the reduction of debt so that they can take the debt they are using for the payment of debt and use it to invest in infrastructure.
    In other words, in order to attract us as portfolio investors into countries, we have to see that the conditions are right. I do not think that the private sector's role is to maybe correct some of those problems in infrastructure, so we need the governments and the multi-nationals to——
    Mr. HOUGHTON. Let me just interrupt here a minute.
    Mr. SAVAGE. Sure.
    Mr. HOUGHTON. You know, you are probably right that it is the role of the government to foster and encourage and create that type of information, but you know that there are not many Ron Browns around, and it is not happening.
    Mr. SAVAGE. I know.
    Mr. HOUGHTON. If you want it to happen, you have to help us make it happen.
    Mr. SAVAGE. I will tell you. In our case——
    Mr. HOUGHTON. We want it to happen.
    Mr. SAVAGE. Right. We do our own work. We do our own due diligence. I go to Africa. I go to all of these places.
    Mr. HOUGHTON. Right.
    Mr. SAVAGE. I do not care what the conditions are. I go if I think there is a business opportunity.
    The fact of the matter is that the legacy that these nations have has left a lot of these countries in shambles. Some of it was self-inflicted, but some of it was because of other factors.
 Page 26       PREV PAGE       TOP OF DOC
    Mr. HOUGHTON. Absolutely.
    Mr. SAVAGE. The opportunity is there. I mean, the wealth is there. The people are there. The territory is there.
    By the way, it is in our interest, just as after World War II we had a Marshall Plan to recover from the war, just as we opened up the doors to the Asian countries and said anything you can produce we will buy. We brought them into our economic world and increased our opportunity for sales.
    It is in our enlightened self-interest, I think, to try to help these countries get up to a level where private capital can feel that they can prudently invest in these nations.
    Mr. HOUGHTON. Let me just interrupt a minute, and then I will be quiet because other people want to ask questions.
    You are absolutely right. Nobody can disagree with you. The point is it has to get done. Who does it? How do they do it?
    Mr. SAVAGE. They all do it together.
    Mr. HOUGHTON. When do they do it? Yes, but what specifically? What do I do? What do you do? What do we ask the Secretary of Commerce to do? What do we ask the USTR to do? Everybody has a role here.
    What do we ask the economic ministers in the various African countries who come into my office day after day and say we want investment and hands across the sea and America and XYZ country are good friends?
    Somehow the linkage is not there. I really think because of people of your knowledge that you not only can do this yourself, but help us to do this.
    Ms. AIDOO. Mr. Houghton, if I may, I would like to just add a couple of thoughts. There are some specific things that you can do.
 Page 27       PREV PAGE       TOP OF DOC
    Under the McDermott/Crane/Rangel bill I believe that is proposed, I think there is roughly $650,000,000 in that bill allocated between private equity investment on the one hand and infrastructure. Let's understand, however, if I can be completely frank, that that is not enough. We have 56 countries, and you have roughly $600,000,000. That is roughly $10,000,000 apiece. That will not make a mile-worth of road. I do not know how much, but not enough.
    I am certainly grateful, and I think everybody in Africa is excited about all this interest in the United States and around the world, but I think we should also be very clear about the nature of this investment.
    If we really want to create roads, and we will say like the British did in the old days, create a road or railway from the gold mine to the port, at least when we refurbish that that will be much more than $560,000,000 for most of those countries.
    Some people say more important than power is in telephony. That is going to cost billions of dollars. I think that the $560,000,000 or roughly $600,000,000 that has been allocated if possible should be topped up and be a little bit more realistic, if I can put it that way, to the task.
    I say that respectfully, but I think the nature of the magnitude of the problem is such that band-aids or sort of half steps will not do the job. I do think America can play an important role, and perhaps that capital can both be topped up, if possible, and in fact leveraged.
    Mr. HOUGHTON. All right.
    Ms. AIDOO. That is one of the things we do in our business. That money could be used as a guarantee to enhance private capital as well.
    Mr. HOUGHTON. My time has been up a long time ago. You can answer somebody else's question.
    However, we are lucky to get that money at all. A lot of us fought, as you know, in the whole African development for the foundation and things like that for that money. We are lucky.
 Page 28       PREV PAGE       TOP OF DOC
    Also, you can say what you want about infrastructure, but telecommunications can be done on a private basis. Furthermore, I think the basic information that you gave us was that it was a private issue rather than government.
    Mr. ROYCE. I am going to let you get back to that point, but first I want to recognize Mr. Donald Payne of New Jersey and let him ask his questions.
    Mr. PAYNE. I do not want to break off the continuity, so, Mr. Savage, if you wanted to bring out a point?
    Mr. SAVAGE. No. Please, sir. Please go right ahead.
    Mr. PAYNE. There was talk about the micro enterprises and the Ghanan women and that whole area. Are women being more included today in the economy, and do they have access to loans and the capital? How do you see this new initiative being able to support the micro enterprise?
    Ms. AIDOO. That is actually an excellent question, Mr. Payne. I would say this because I have traveled throughout the region. In the Gambia, for example, one of the issues for women getting credit is the fact that they have to be able to read in order to go to the bank. In other words, you cannot get a bank loan if you cannot read. The literacy rate for women is extremely high.
    Again, if you go to any of these markets, most of the women will not be able to speak English, but they can trade five different currencies for you on the spot. That is a real live issue.
    I think there is a big problem when you give a lot of money. The World Bank has this problem. Everybody does. Most of these institutions cannot in fact channel that money to the micro enterprises. There is a big gap.
    Many of the NGO's, non-governmental organizations, that are tasked with this are not bankers, so there is not a specific institution to help finance micro enterprises, whether in Gambia or in South Africa for that matter.
 Page 29       PREV PAGE       TOP OF DOC
    I think women, unfortunately, have not really participated in the larger or more sophisticated mechanisms in most of these countries. You do not really see them very much, though on some of the exchanges you see a lot of women trading. In terms of women entrepreneurs, they by and large have not benefited, and I think it is because of that gap.
    There need to be institutions created to channel funds specifically for smaller businesses. I think that is very, very important. In fact, they have to be compensated to do that because most bankers, if they have to make a $1,000,000 loan or a $1,000 loan, it is the same amount of work. They, of course, want to make the $1,000,000 loan to make more money, more fees on it.
    There is an NGO gap that needs to be filled or a private sector gap that needs to be addressed as well.
    Mr. PAYNE. I certainly agree as to the amount of funds needed. You know, at one point there was a question of perhaps even decreasing the amount of aid to put into the investment bill.
    Of course, I strongly opposed that because I certainly do not feel that the amount of aid is adequate in the first place, but to even reduce that in order to move this other vehicle, as important as it is, was, I thought, a step in the wrong direction. I think now there has been more of a balance.
    The whole question of infrastructure is a very, very key question. I just wonder whether you feel or any one of you feel that there could be attractive offers done with the privatization or appealing to private capital to come in, for example, to repair the Barre Carde, for example, from Zambia down to Mozambique.
    What do you think has to be done by the individual countries to try to create a better climate so there may be someone coming in to invest?
    Mr. OWINY. If you do not mind, I think in this case you are right in saying that the onus is really on the countries themselves, as opposed to the United States coming in and trying to scare them in the right direction.
 Page 30       PREV PAGE       TOP OF DOC
    You will find that now the countries realize that in order to attract that internationally competitive capital, they have to put up structures or institutions that will help to channel that capital into the economy to the productive sectors.
    You find the creation of an enabling environment, whether it is the legal structures, I want to feel that in financing infrastructure I can work in. If anything goes wrong, I can go to the courts and nothing is going to happen. Justice will be served.
    In a lot of cases right now, that is not the case, so I think what government can do is impress it upon the various institutions—government institutions and the governments themselves—that there are certain things that need to be put into place that would make the investor feel comfortable about walking into your country and offering a certain amount of money for development.
    Mr. SAVAGE. Can I just add one thing? Alliance Management is the largest privatization fund in the world. It is called the Worldwide Privatization Fund. It is larger than the New York Stock Exchange. We raised $1,200,000,000. We have invested it all over the world.
    I can say to you today that privatization is one of the most effective ways to stimulate a stock market to attract foreign investors to your marketplace. I think that these countries have the opportunity to attract additional capital through the privatization of telecom, through the privatization of roads, ports, airports and the like.
    These types of privatizations lend themselves, as Mr. Houghton has said, to finance in the normal traditional marketplace. The other types of just basic on-the-ground infrastructure such as health, such as housing, such as water, can be financed by perhaps multi-national organizations because they have a much longer life to them, and they do not lend themselves to being created or securitized.
    You are absolutely right, both of you, in thinking that this has to be a public/private sector type of effort, and I think that the African nations are beginning to understand that the money is out there. That is not the problem. What you have to do is create the opportunities.
 Page 31       PREV PAGE       TOP OF DOC
    I know that we invest in the Middle East in privatization. We have done some privatizations in Africa, and we would welcome the opportunity to do some in other countries. We would love to see Nigeria get to a point where we feel comfortable because of the opportunities they had with the big industries that the State owns.
    Mr. PAYNE. That is two of us.
    Mr. SAVAGE. Yes.
    Ms. AIDOO. If I might add, I should also point out that we are talking about 56 different countries almost as if they were one.
    Of those 56, there are probably a third of them that actually have done all the things that we want them to do. They have been doing structural adjustment for Latin American countries even before, frankly, we knew what it was and before Eastern Europe even got its freedom.
    Many of these countries have written facts. By the way, USAID has published I think in all the major countries a handbook, a business person's handbook. I have forgotten the name of it exactly. I have actually used it on several occasions. It is very well done. It is a very effective manual.
    In fact, this is an instance where the U.S. Government has channeled resources, and there is a direct end product. Somebody can pick it up, and it is very easy to use. The people at the Commerce Department are phenomenal. They are extremely good at helping the private sector.
    Let me also say this. Many of the governments that I advise to help them with their privatization program say Judith, we have done all these things, and nobody is coming. What does it take?
    I think one of the big issues is actually accessing the markets. When Egypt gets a credit rating or Mauritius gets a credit rating, that is helpful. To the extent that Eximbank can be restructured, because many African countries, by the way, are off limits to put evidently any new capital because of a variety of reasons. I think the State Department ranks these countries. Some of them are in fact off line. I think that has to be looked at as well because we need what we call credit enhancement.
 Page 32       PREV PAGE       TOP OF DOC
    Many of these governments for the Ghanas of the world, which, by the way, does not have a credit rating, need to access the market. It does have some very good companies. We need to basically let them borrow against what they do have, which, of course, is exports.
    That is a very direct way that we can help them, and Eximbank should be able to assist in that. I think the way they are currently structured, my understanding of it, is many of these countries in fact are off line, so they are not being used.
    I think the other thing is when an investor has $1,000,000,000 and can go anywhere in the world, of course they are going to put some to Africa, but they are going to focus on China, on India and some other sexy markets, which may not in fact be the most attractive.
    When I talk to investors, none of them rarely know, and these are global investors, that there are four or five countries every year, African countries, that are routinely among the best performers in the world. They are paid to know that, but most of them do not know that.
    There still seems to be an information gap. Again, this hearing is critical. The Economist this week is running the cover article on Africa, ''Africa Emerging.'' These are important initiatives, but I think specific things are we have to look at ways of being creative.
    The U.S. Government does give up money whether through EX-IM, through OPEC. We have to find a way of leveraging that capital into that region and in fact leading the charge.
    Mr. PAYNE. I think my time has expired. I will wait for the next round.
    I do think also that the focus at the G–7 or G–7+1 or G–8—I do not know really what they are calling it now. Some say G–8. Some are still using G–7. The President said G–7 yesterday, so I should tell him you said it was G–8.
 Page 33       PREV PAGE       TOP OF DOC
    Anyway, I think that this focus there with all of the countries talking about it, with the press announcement yesterday, with the activity with the leadership of our Chairman here, I think that all these things will converge.
    You are right that these things have been going for a long time. You know, it is like if you give a party, but nobody comes. Perhaps with this attention, somebody will start to go to the places that are ready, have been ready and are willing and able to accept investors.
    Mr. ROYCE. Mr. Steven Chabot of Ohio.
    Mr. CHABOT. I want to first of all thank the Chairman for calling this important hearing.
    Although I did not hear all of the testimony, I also want to thank the witnesses. What I have heard thus far has been very interesting and I think very important not only for Africa, but for our country as well because as we are able to trade back and forth, I think both continents benefit. Both the countries in Africa and our country benefit tremendously.
    The first question I have is capital gains taxes here in the United States are still relatively high, and there is some movement between the President and the Congress to lower them from 28 percent down to 20 percent.
    Traditionally when we have talked about lower capital gains, there has been a lot of rhetoric about tax cuts for the rich, and so it has been difficult for the political parties to get together to resolve that.
    Because of the capital gains taxes being pretty high, a lot of assets are locked up, and a lot of these tend to be the blue chip stocks in the United States where people hold them forever, and the assets are just kind of tied up there.
    My first question is, and I would be happy to hear any of the panelists' thoughts about this, but do you agree that if we are able to unlock those assets by reducing the capital gains rates that some of those investments, not all obviously, but some of those investments may well go into the emerging markets and, therefore, help countries in Africa to improve and to develop where trade goes on, so really we all benefit? I would like to hear any comments you might have about that.
 Page 34       PREV PAGE       TOP OF DOC
    Mr. SAVAGE. Should I take that one?
    Ms. AIDOO. Absolutely. Please.
    Mr. SAVAGE. Without having a comment either way on the capital gains tax and where it stands, I will say this. Both U.S. institutions and individuals are allocating an increasing amount of their investable funds to the international market, and within that a fairly significant portion is going into the emerging markets.
    I think that to the extent that we can create more liquidity among our own citizens and institutions that hopefully part of that would end up in these types of countries if they thought that the investment was prudent, and that they could take the risk. The more that we have available to allocate to international, the better off I think these countries will be.
    Mr. CHABOT. Could I hear your comments? I saw you nodding a lot there.
    Ms. AIDOO. Well, I am all in favor as an investor in the reduction of the capital gains tax, so I think I am biased to some degree on that point.
    I would say this. I think that there certainly is some merit to it. We find in some of these emerging markets, certainly the new ones, they actually literally reduce or in fact waive the capital gains tax just to get people involved in the markets.
    That is certainly a specific tool to help channel monies into these markets, and I certainly think American investors can benefit from a similar kind of reduction regardless of your party affiliation. I think most of us appreciate lower taxes.
    Let me also mention one thing, if I can just sort of piggyback on that question, and that involves the issue of debt reduction, which we have not talked about at all. I know that there are HIPC initiatives in place, but one of the real issues in Africa certainly for these countries to put in these enabling environments is obviously to reduce their level of debt.
    In most of these countries, the big debt that they owe is not the commercial enterprises or the private sector. It is to institutions like the World Bank, the IMF and obviously bilateral debt.
 Page 35       PREV PAGE       TOP OF DOC
    I know that these initiatives are going to be a topic of the G–7 meetings, but I think again if we want to create a particular result then I think we pretty much have to take the steps to ensure that it occurs.
    This issue of debt reduction is, in fact, imperative. Many of these countries will never be able to pay, and there is just no doubt about it. To the extent that they are using a third to 40 or 50 percent of their export earnings to pay debt, they clearly cannot invest in roads or telephones or training for their young population.
    I think that that is another specific thing that can actually be taken forward that I would encourage to the extent that the Congress can back something like that to go beyond the HIPC initiatives because I think they are certainly helpful, but they do not go far enough and certainly not quickly enough to really help these countries get a new lease on life, if I can put it that way.
    Mr. CHABOT. If I could ask you a question quickly because my time is going to be up in a minute? My office just buzzed me too, so I have to run.
    You mentioned that there were about five countries that are doing very well and traditionally are pretty high in the returns. What are the countries?
    Ms. AIDOO. It varies year to year. Last year Egypt did extremely well. Nigeria did extremely well. In fact, in my testimony I have a specific that can also be looked at. Ghana did not do as well last year. Botswana did well. Kenya did extremely well last year.
    It varies from year to year so I do not want to say look at these countries. In fact, in these markets normally the countries that did very well the previous year, the one year, do not do as well the next year, so I would look at that.
    I think clearly Egypt did well. Nigeria, despite its issues, did very well. Kenya did well again, Uganda and Zimbabwe. Specifically, Zimbabwe did very well last year as well.
 Page 36       PREV PAGE       TOP OF DOC
    Mr. CHABOT. And my final question. How negative of an effect is political instability in one country, let's say Sierra Leone or what we have seen in perhaps Zaire, formerly Zaire and Congo now?
    You mentioned there are 56 countries, but I think investors unfortunately oftentimes think of Africa as one large country. Does that cut off a lot of investment that otherwise would go there, and what, if anything, can be done about that? I would invite any of the panelists.
    Mr. OWINY. I think when you talk about the media, the media definitely has a very strong effect on Africa. You find that those countries that do go through upheavals do affect the way in which Africa is viewed by the investment community.
    I think you have to break the investment community down. There are certain investors that are predisposed to Africa, and usually those would get to know the different countries, the entire continent as split up of different countries rather than just one continent. Something happening in Sierra Leone or Zaire would not affect my outlook on Uganda, for example, even if they are neighboring countries.
    However, I think your question is pertinent when you talk about those new investors who are looking to come into the market for the first time. Their perspective is more of the continent and not the individual countries. Therefore, anything happening in Africa, whether it is at the very northern tip or southern tip, will affect the way they view.
    Mr. CHABOT. Thank you very much. My time has expired.
    Mr. ROYCE. For our second round, I would like to start with Mr. Payne and then go to Mr. Houghton.
    Mr. PAYNE. I have a question regarding some of the barriers between countries in Africa since some of the countries have small populations.
    Have you as people who are working on the ground talked with any of the government leaders there about having more a border-friendly cross-border?
 Page 37       PREV PAGE       TOP OF DOC
    If a person had a product that they are going to try to get all the way over from the United States to Africa, it is counterproductive if you are, say, dealing with a 2,000,000- or 3,000,000-population, but if in the region and countries, for example, in West Africa that are so close together if there were a lack of tariff restrictions and so forth where perhaps the products could be moved around easily from one country to the other, that would probably be beneficial.
    It seems to me that this is a problem, and I wonder if you have any comment on that?
    Ms. AIDOO. Yes. I think the common economic communities is something that obviously we have embraced in the United States with NAFTA. Certainly Europe is in the process of embracing it.
    Africa has been at this for a bit. ECOWAS (Economic Community of West African States) is in place. Theoretically there is a free movement of people and goods through that region. I think in practice sometimes it gets a little bit spotty, but if you ever go to any one of those borders, and I have actually traveled from Nigeria to Ghana by road, the amount of trade that goes on at those borders is extraordinary. I do not think there are any real impediments.
    I think really all these countries now understand. Certainly in West Africa and the larger countries in the entire region understand what the international game is, if I can put it that way. In order to play effectively, they have to play by certain established rules. I do not think anybody is fighting that in any of those major countries, and I mean that sincerely.
    Even the COMESA (the Economic Community for Eastern and Southern Africa) is focused on the same issues, this free movement of goods and services, but I think we should also notice that in Africa there is very little inter-African trade, inter-regional trade. Ghana and Nigeria produce many of the same commodities. There is not going to be a lot of trade there.
 Page 38       PREV PAGE       TOP OF DOC
    With an American exporter trying to use Ghana as a gateway to all of West Africa, I do not think in theory there are impediments. In practice, there may be a few. There are people in place both at the embassies, as well as the Ministry of Trade in many of these countries, that are specifically there to facilitate this. I think it is less of an issue today than it was probably 5 or 10 years ago.
    Mr. SAVAGE. Mr. Payne, I think that you have really touched on a very, very important issue. The fact of the matter is, is that many of these countries are small, so you are lacking critical mass.
    For example, going right to the point about the stock markets, for example, I constantly encourage these nations to try to link the stock markets so that at least you have a larger pool of potential capital, and that makes these markets more attractive.
    We talked today about the size of these markets, five being in capitalization. I can tell you that my portfolio managers look at investment opportunities in many African nations and decide not to go in because the markets are so small that they do not think they can ever get out because they do not see enough buyers and sellers, enough transactions.
    I would encourage these nations to try to find a way to link up their stock markets. This is happening now between Jordan, Egypt and the Gulf nations. They are trying to create a larger stock market.
    I must say that I sort of disagree with Judy, in all due respect to her. I think on paper you have ECOWAS and other groups, but in reality the governments have not embraced them aggressively to breathe life into them to make sure that they maximize the potential. That is what they need to do.
    They already have the vehicles in place, but they need to energize them because that way you can build a critical mass, and that is what is lacking, I think, in many of these countries.
 Page 39       PREV PAGE       TOP OF DOC
    Mr. PAYNE. Yes?
    Mr. OWINY. Just to add to what Frank said, I think in terms of the reason why you find that there is a block between trade in these countries, you find that they are too competitive. A lot of them are at the same level.
    As Judith said, if a foreign company comes in, they are more predisposed to accepting those products and services and having them filter to the neighboring countries, but if a Ugandan product goes up against a Kenyan product, Kenya is never going to let the Ugandan product in. There you have a problem.
    Maybe it is channeling industries rather than having each country just go off to the industries that they have a strategic plan in place rather than having the same industry across the border in the small countries with the small markets that Frank talked about.
    Mr. PAYNE. As a matter of fact, it is unfortunate, but during the colonial period there was the East African Community between Uganda, Kenya and Tanzania, and there was a tremendous amount of trade, transportation, telecommunications, air line stops.
    When the Community broke up, you sometimes could not even fly from Kenya to Tanzania without going out to the Seychelles and coming back and things of this nature, the border being closed on the ground. These barriers certainly have to stop.
    Let me just quickly ask this last question and a half. The Europeans, as you know, have been in Africa for a great, long time. I just wonder. What is your opinion of African countries in general?
    Once again, we know there are 56 different ones, but what is the general feeling today about possibly altering some of the old colonial ties and the view of the average African country in doing business with the United States and not necessarily going back to France or to Belgium or to Germany or to Britain?
    Ms. AIDOO. I think it is very positive. If I may just make a note, if you go to a lot of the anglo-phone or former British colonies, you see they are more American in most instances than they are, in fact, British. I see Michael Jordan t-shirts in Kenya where there is no electricity. Coca-Cola is drank everywhere. Literally where there is not running water, there will be Coca-Cola in some places.
 Page 40       PREV PAGE       TOP OF DOC
    I think people really do embrace America. I found out some of the franco-phone countries, and again it depends on the country, but I think most people want to do business with America. I think it is just a question of really knowing people, but I think everybody that I have ever encountered has been predisposed to working with an American business, wants to literally find ways to trade.
    I think it is just literally people really getting to know one another. I think people are predisposed certainly to changing their alliances in this new world order.
    Mr. OWINY. I think you find that there is a recognition that America holds a special place in the world in terms of business, abilities and capabilities, technology. That is the impression, right or wrong, in whatever industry you talk about. You find that a lot of Africans will feel that the American products are superior to anything else.
    You find that the franco-phone countries are tied into France, are tied to Belgium. Therefore, working their way out of that is extremely difficult, but they would like to.
    One prime example is out of the business world when you talk about just individuals, students. The franco-phone countries, they all go to France or used to go to France. Now you find a lot of them in the States. I think there is a warming up, you know, to the United States.
    Mr. SAVAGE. I would want to say I agree 100 percent with what my other panelists have said.
    I would just caption it two ways. First, we do not have any baggage. We were not a colonial power. We were not imperialists there. That is one thing.
    The second thing is our system works. It has been proven to work, and it is opening up a lot of opportunity for other nations around the world. I think these nations see it, and they want to embrace it.
 Page 41       PREV PAGE       TOP OF DOC
    I agree with you. The door is open to us. I mean, I feel that whenever I go to any country, everyone wants to do business with America now. It is a great opportunity for us.
    Mr. PAYNE. You are right about the globalization. I was in northern Cypress, and I asked a little kid on the road do you know who President Clinton was. Who? I said Michael Jordan. Everybody knew who he was.
    That last half a question was you said Nigeria had these great returns, but you mentioned that they were kind of not investor-friendly. You know, there seems to be some conflict on how could the investments do so well when they have all these other problems?
    If somebody could just quickly answer? I am just curious, and then I will yield back.
    Mr. SAVAGE. Let me say that Nigeria is a fantastic country. It is a country of tremendous population, tremendous size, the most exciting African businessmen I have met. On all those counts it is great.
    The problem is the government and the fact that the government is not a democratic government and that basically whatever they decide to do, they can do.
    Recently, for example, in the oil industry, the most profitable industry, a government minister just totally disbanded a management board, just totally disbanded it without any concern for the interests of those.
    I am certainly not here to lobby for any industry, but the fact of the matter is the fact that they could do that is a concern to me if I make an investment in that country and all of a sudden the government can just do whatever they want.
    I think that Nigeria is a country with tremendous potential. It is a country also that is key to the economic condition of all of West Africa because all of the West African neighboring countries around it depend upon Nigeria for jobs, for exports, for so many different things. Judy can speak to that much more authoritatively than I can.
 Page 42       PREV PAGE       TOP OF DOC
    Again, I just speak with regret that they have not been able to move toward a type of system that would facilitate foreign investment not just in the extraction industry of oil and gas, but in the other industries because they have tremendous agriculture, a tremendous consumer market, one of the biggest consumer markets in Africa.
    It is an attractive country, but I think that the business people there are very discouraged because they are not able to get the resources that they need to really take advantage of their business opportunities.
    Mr. PAYNE. I could not agree with you more. It is a shame, and I really will yield back at this time, but it is a shame that a population of 100,000,000 with tremendous wealth, natural gas, oil, gold, so many products, and when you ride through Lagos it just does not add up.
    With the government not enforcing laws like 419, which is just laughed at, with so much corruption and scams going around the world, it is just a shame that these illegal governments are preventing probably one of the greatest nations in the world education-wise, business-wise, savvy-wise, energy-wise, creativeness. That is for sure. As a matter of fact, that is one of the problems in some of the instances.
    If the government allows things to go wrong or abolish boards or imprison people who they feel are starting to speak up for the rights of the people, it is just a serious problem that I personally see and the overwhelming majority of the Members of the Congressional Black Caucus.
    Mr. ROYCE. Thank you.
    Mr. Houghton.
    Mr. HOUGHTON. Yes. I would just like to ask one question, Mr. Chairman. Thanks very much.
    You do not have to answer it. If you do want to answer it, do it in your own way.
 Page 43       PREV PAGE       TOP OF DOC
    I am going to suggest that maybe concentrating on 56 countries is too much and that from a very cold, cruel standpoint, meaning money, investor money, that you do not go to the weakest. You go to the strongest.
    If you take out Morocco, Tunisia and Egypt and also South Africa which dominates everything, then you have a few countries and their stock exchanges. You have Ghana. You have Nigeria. You have Kenya. You have Zimbabwe, and maybe you have Botswana because it is growing so fast, a 7-percent GP increase per year, tremendous assets, great government, very little corruptions and things like that.
    Where was the debt? Is the debt in those countries? In other words, you have $340,000,000,000 worth of debt. It is a tough thing, but forgive the debt in those countries and concentrate on growing those countries.
    This is not a particularly democratic thing to suggest, but in terms of a practical way of how do you get your arms around it so that we can look at different places in the African continent and say it works. That has succeeded. They have done a good job.
    Maybe it is through creating these little oases of success that maybe you really help the continent rather than spreading everything out in terms of the public infrastructure or encouragement of private investment over the whole continent.
    Ms. AIDOO. I think it is actually an intriguing point. I would say that the countries, the Ghanas, Ugandas, Kenyas, Zimbabwes, which are already doing very, very well, most of those countries do not have extraordinary amounts of debt. Ghana just recently started borrowing a fair amount. Cote d'Ivoire has a lot of debt, primarily commercial, most of it already restructured.
    It is a country like Mozambique, which we actually looked at restructuring their debt. It is probably one of the most indebted nations in the world. Now, they have not really gotten their economy up and running dramatically yet, but they have taken extraordinary strides. It is a country rich with natural resources and certainly that has paid a price for war, an extreme price for war.
 Page 44       PREV PAGE       TOP OF DOC
    I would say in the instance where you have bilateral, multi-lateral debt for countries that are literally coming out of a war-torn situation, I do not know how they can ever hope to get out of that hold—we have orphans in the streets of Maputu—without some forgiveness. Not some forgiveness, but forgiveness of that debt.
    There almost needs to be a reality check as we do in the business world. Citibank routinely, as it did in the 1980's with Latin America, writes off its loans. It recognizes that it is not going to get paid, writes them down and then sells them.
    I would say maybe there should be some sort of way of writing down these loans, bilateral or multi-lateral loans, and do it in a phased way. Do it such that you trigger the writing down of those loans with specific concrete steps that the government takes in restructuring its economy.
    Mr. HOUGHTON. In every country?
    Ms. AIDOO. In those countries. I think the countries that both have literally created peace—that is a big one—and that are really suffering because I think——
    Mr. HOUGHTON. How about the ones who want to create peace and are suffering and have a big debt?
    Ms. AIDOO. Actually, literally there is triage that must apply, I think, in all these instances. I think Mozambique is a notable example. Tanzania is a notable example.
    Cote d'Ivoire itself is already very rich as a nation. It is highly indebted, but people lend to Cote d'Ivoire. People set up more businesses in Cote d'Ivoire than probably any other country in West Africa. I am not sure that if you had a limited pool of capital for debt reduction, particularly bilateral and multi-lateral debt, that I would target it to a Cote d'Ivoire. I am not sure of that.
 Page 45       PREV PAGE       TOP OF DOC
    I think there are a lot of countries that if they do not solve this debt issue and start training people, start investing in agriculture that can in fact employ people and feed folk, they are going to be in trouble. There will be chronic instability in these regions.
    Somebody mentioned the issue of the role of political stability. You cannot build a country if every 2 years you have a coup de tat. It is impossible. I think something has to be done on that score, and I think debt reduction where it is needed most really must occur certainly on the multi-lateral and the bilateral level.
    Thank you.
    Mr. SAVAGE. Mr. Houghton, I would say that I think you raise a very good point.
    Quite frankly, in the private market that type of decision and logic will apply because there is no way that you can deal with 56 countries.
    Some of the countries are so small that they are not economically viable so that there are core countries in Africa. There are core countries in North Africa, East Africa, Southern Africa and in West Africa not only where you need to support these countries because of the population and what they can do economically, but also the ripple effect, the multiplier effect of these nations to the surrounding nations.
    Around them you can build viable economic entities without giving up the political sovereignty, but you can build up viable economic entities. In that way, perhaps you can actually incorporate those other countries that could not even stand on their own.
    The fact of the matter is that the private sector will make those kinds of choices. We have to. I think that it is appropriate for the government to think in those terms, too. This is a tough political issue for us to make those kinds of choices, but the fact of the matter is that we will make them, and I think that you raise an excellent point.
    Mr. HOUGHTON. Thank you very much.
 Page 46       PREV PAGE       TOP OF DOC
    Mr. ROYCE. I have two quick questions, but before I ask them I just want to thank these witnesses who came all the way from New York, Philadelphia and North Carolina to be with us today. You have done a fabulous job in terms of educating this Committee.
    I have two final questions to ask Mr. Owiny. In the African privatization process, is a private placement more easily and effectively accomplished than public privatization on a stock market?
    Mr. OWINY. I think that that is an interesting question because you will find that situations do differ from country to country, from institution to institution, corporation to corporation.
    I think in marketing a privatization on a private placement basis, we tend to feel it is a bit easier than going out and actually having a public flotation, because it really depends on the stage of development of the stock market.
    You find that in a place like Uganda where it is just starting, the public education that needs to go on to be able to make that successful is pretty high, but you find that because of what is happening across the border on the continent, the awareness of stock exchanges. The people are beginning to know what stock exchanges are. They know that it is a source of money. Even if they do not understand it, they will go ahead and participate in any issue that comes along.
    Zimbabwe is a perfect example. Some people are not that well educated about stock exchanges and their workings, but they understand it means money. It means investment. It means returns. Therefore, you know, in terms of convincing them to go along it is easier.
    When you talk about a private placement, here you are dealing with corporations, strategic partners, that are able to think on the same level as you are in terms of convincing them, in terms of stating a case, making a case, marketing it to them. You are dealing with people apart.
 Page 47       PREV PAGE       TOP OF DOC
    Therefore, the test in that case is, is the environment conducive? Is the corporation conducive to them? Does it fit their investment guidelines? Does it fit their return guidelines? In that case, I would actually tend to go to the private placement.
    Just to add one thing, you find that in that case then the activity that you want to generate on the exchange suffers, but that is when you go to the stage of development of the stock exchange building it to the point where you can go the flotation route.
    Ms. AIDOO. If I may, Mr. Chairman, I have actually dealt with this in a number of instances, and it is wrenching.
    I think when you have large strategic companies like an Ashanti Goldfields or Kenya Airways, you probably need to try to do both because I think if people in the country, particularly when they are not familiar with capital markets and this privatization process, see some deal being cut somewhere off to the side, that is a very big problem. Then you are selling the country's jewels to three or four corporate players.
    Mr. ROYCE. Right.
    Ms. AIDOO. I do not think that is sustainable. People in the country say we are poor. We do not have the money. I know nothing about a stock exchange. If I do not get a chance to play, that means I have nothing.
    We still have an instance in Russia and some Eastern European countries. The governments, through the World Bank, financed the distribution of privatized shares directly to the people. In other words, for every adult over the age of 21, you got ten shares of X company.
    Mr. ROYCE. Everyone got a share.
    Ms. AIDOO. I think it is imperative in Africa that we do not sort of say it is one or the other. Private placements could be used to anchor an investment and over time release more shares to the people.
 Page 48       PREV PAGE       TOP OF DOC
    People in that country, if they are to be encouraged to save and to use these stock exchanges in the first place, have to actually have some product. They need to be given the best, as well as the less attractive shares from which to buy.
    I think it is very important, though, that we not deliver the crown jewels, if you will, to foreign investors alone.
    Mr. ROYCE. I was going to ask you one last question, Judith. In your statement, you had said that there was a reluctance on the part of some entrepreneurs, African entrepreneurs, to go into the market. Why is that so?
    Ms. AIDOO. I think most people like to have their own business, even in America to some degree. It is only when you have increased capital requirements and you cannot get it from a bank that you start to look around you.
    Most people who are entrepreneurs do not want to answer to the regulations of a stock exchange or the scrutiny of investors, so I think that is an issue.
    There is a cultural dynamic at work obviously in some of these countries as well. I think part of it is familiarization with these markets, but that is, in fact, changing. As Andrew referred to, we are seeing a lot of young Africans coming to America and also even in their own countries taking business.
    When I grew up as a child in Ghana, nobody had an MBA. You were an economist or an accountant. Now there are bona fide managers, and I think this is very, very important. People understand that in order to play globally, you need to have money. You cannot just get that from a bank. You are going to have to sell parts of your company.
    Mr. ROYCE. You are going to have to go public with it.
    Ms. AIDOO. Absolutely. You are seeing that slowly. It is an education process, both cultural, as well as, if you will, reality.
    I think as capital requirements increase, there is no other option, frankly, particularly in countries where you have very high local interest rates.
 Page 49       PREV PAGE       TOP OF DOC
    Mr. PAYNE. Mr. Chairman.
    Mr. ROYCE. Mr. Payne.
    Mr. PAYNE. I just wonder if you would make a request to the Administration to see if we could get some numbers on what kind of debt forgiveness, generally speaking, I guess bilaterally and—I do not know—multi-laterally.
    It is very difficult when you talk about debt and to get a real handle on it. You have individual countries doing debt relief, but just as best as can be ascertained what sort of debt relief has been occurring say in the last decade and, of course, where the debt today stands I guess bilaterally, but also I guess with the multi-lateral World Banks and so forth.
    Mr. ROYCE. We will do that, Mr. Payne.
    Mr. Davis.
    Mr. DAVIS. Mr. Chairman, I know enough not to open my mouth too long here. I obviously had a conflict, and I appreciate your indulgence in that regard.
    I have had a chance to read some of the materials and appreciate you conducting this hearing today and hope we will have some future hearings on this subject.
    Thank you.
    Mr. ROYCE. Again, I want to thank the witnesses for your excellent testimony and for making the trip here today. Thank you.
    [Whereupon, at 3:35 p.m., the Subcommittee was adjourned.]