Zambia’s Copperbelt province is a microcosm of foreign investment on the continent.

Fly into Lusaka and marvel at the capital’s strikingly modern airport. Drive into town along a road as smooth as any American highway. Look left and notice a large white hospital complex. Glance right only a few minutes later to see the city’s impressive conference center with a “Golden Chopsticks” restaurant next door.

The next morning, you fly north to Ndola’s clean, glass-and-steel airport. The two-lane highway to the country’s de facto mining capital, Kitwe, makes for fast driving. On the other side of town, you pass some of the world’s most technologically advanced mines and refineries.

All of this was built by Chinese companies, not American firms. And as Western countries come to appreciate that the clean energy transition will require vast quantities of previously marginal minerals, they have discovered that the Chinese Communist Party (CCP) has spent the past twenty years leveraging central planning and industrial policy to dominate nearly all those minerals’ supply chains. The result has been a financial and political scramble to build alternative supply chains and woo countries away from the CCP’s orbit.

It is not going well – especially in Africa. American companies, investors, lenders, and government officials are largely absent on the continent. Occasional headlines to the contrary are exceptions that prove the rule. On my own recent trip to Zambia, Mozambique, Tanzania, and the Democratic Republic of the Congo (DRC), I sought answers to two vital questions. Why are Americans having such a hard time making strategically significant investments in Africa? What can be done about it?

Where the Rubber Meets the Road

Plenty of ink has been spilled about the CCP’s influence in Africa. Analysts consider trade flows, interest rates, sovereign debt levels, country risk, the advantages and disadvantages of central planning, overall levels of foreign direct investment, and other factors. This high-level analysis is essential because it outlines the contours of a coherent strategy.

Yet these sorts of analyses do not capture how, at a tactical level, Chinese businesspeople are running circles around Americans and Europeans on the continent. One way to frame the question is to see how analogous business success is to conducting an effective military campaign. Both ventures require sound strategy and sound tactics. Strategy sets the broad direction of any competition. Once that roadmap is in place, individual salespeople must close deals. Production lines need to function efficiently. Supply chains need to remain manageable.

One would be hard pressed to say the United States has a coherent strategy for engaging the 46 countries in sub-Saharan Africa at present. But the tactical picture is far more concerning.

There are plenty of reasons that give American investors and lenders pause when they see a project proposal from the region. Sub-Saharan Africa has a reputation for political instability, regulatory uncertainty, currency fluctuations, corruption, and poor infrastructure. Yet compare the situation in Rwanda to Zimbabwe, or weigh Botswana against Mozambique, and it becomes obvious that the entire region cannot be painted with such a broad brush.

The core challenge facing US investors and lenders in the region is that they generally have no idea what they are getting into because they have nobody on the ground. American companies, investors, public lenders, or private lenders rarely understand the merits of a specific project on a tactical level, which is what matters when one weighs it.

Local expertise is essential to identify investment opportunities in a different hemisphere, especially in regions and industries where they are not advertised online. Time on the ground— and not just in the country’s capital—becomes a requirement. What are the options for logistics? How will the rainy season affect the roads? Is there cell reception? What about human capital? Community relations? Can we execute without paying off local officials? What are we missing?

Reckoning With Risks

Without the information that can only be gleaned in country, American financial analysts cannot account for risks. Being unable to do so means they cannot calculate an appropriate discount rate or structure a loan intelligently.

By contrast, Chinese and Indian businesspeople tend to know those answers before an opportunity materializes. They are on the ground and have dozens of contacts to guide their decisions, as well as input from their local diaspora. They can make investment decisions with blinding speed. Deals often close in days, or weeks at most. 

Americans tend to start that process from scratch, if they do so at all. They spend months gathering information—and often request data that does not exist, or is superfluous or culturally insensitive. In many cases, frustrated local counterparts turn the opportunity over to a Chinese or Indian investor who can close the deal quickly. Investors in Africa from Asian markets also move quickly because they usually exhibit higher risk tolerance than Western investors. Their actions are also not constrained by the US Foreign Corrupt Practices Act (FCPA), so they tend to pay people off. These factors are not trivial.

Yet risk management is the best way to increase risk tolerance. Logistical issues become solvable when one knows the roads—and which trucking companies are reliable. Corruption is less of a  concern when one can identify corrupt officials, predict their tactics, and work around them. Loans can be secured and structured with appropriate covenants based on the risks in that jurisdiction. If certain risks cannot be mitigated, investors can make an informed decision to walk away, rather than merely default to “no.”

The Way Forward

This lack of tactical-level information that American investors and companies have in sub-Saharan Africa adds up to a strategic disadvantage vis a vis China. Yet this situation can change. Americans will make riskier investments in this strategic sector once they have the requisite information and contacts that put them on more solid ground.

A first step is to make better use of Americans with requisite skills and experience in the region—especially those who have done business there, as well as former military and intelligence community personnel with years of exposure to local dynamics in developing countries and transferable skills. Investors do not need to fly to northern Mozambique. The local resources necessary to more fully participate in its market are there already.

The US government also can de-risk private investment by underwriting loans when private financial institutions will not. The US International Development Finance Corporation (DFC) has a relatively small balance sheet, but its investments tend to encourage private capital to follow suit. Similarly, the US Export-Import (EXIM) Bank’s China and Transformation Exports Program (CTEP) is designed to help level the playing field for US firms competing against state-backed Chinese companies. Increasing the size and scope of such programs is another step in the right direction.

Greater aggregate presence is also essential. At present, an American mining company in Africa would probably rely on Chinese construction, power, and telecommunications companies. Securing US government backing when the key project “partners” are Chinese state-owned enterprises is difficult, if not impossible. Yet an increased entry of relevant Western or Indian companies into the market would change that dynamic, and create a mutually supporting ecosystem that might encourage new entrants.

Finally, American investors and lenders should back foreign companies that operate in high-risk jurisdictions where our companies cannot go. Indian, Canadian, Australian, Brazilian, and South African companies—among others—are operating successfully throughout sub-Saharan Africa. On-the-ground information and due diligence will still be necessary, but the requisite execution and legal risk will decrease.

Additional engagement and investment in Africa will benefit countries across the continent, as they will finally gain a credible alternative to Chinese investment. There is widespread irritation with Chinese investment tactics and corruption in the region. The continent is in desperate need of infrastructure and honest partners.

Americans have an opportunity to step in, both for Africans and for themselves. However, this will not happen until our companies, investors, and government officials begin to understand tactical-level considerations and can deploy capital in an informed manner.