Tweet

5.1 Investment is vital for an economy to diversify: Economic Report on Africa 2007

Guest post by: United Nations Economic Commission for Africa

Article Overview: The inverse relationship between investment and the diversification index shown in table A5.1 indicates that as the level of investments increases, there is a tendency for economies to become more diversified. The smaller the diversification index gets, the more diversified an economy becomes, and vice-versa for specialization. Unless a country commits a sufficient portion of its national income to building capital stock, it is unlikely to be able to diversify. Investment as measured by gross fixed capital formation turns out to be a key determinant to Africa’s diversification results.

5.1 Investment is vital for an economy to diversify: Economic Report on Africa 2007

The inverse relationship between investment and the diversification index shown in
table A5.1 indicates that as the level of investments increases, there is a tendency for
economies to become more diversified. The smaller the diversification index gets, the
more diversified an economy becomes, and vice-versa for specialization. Unless a
country commits a sufficient portion of its national income to building capital stock,
it is unlikely to be able to diversify. Investment as measured by gross fixed capital
formation turns out to be a key determinant to Africa’s diversification results.

In other words, the totality of public and private investments in accumulating capital
stock is vital to the process of diversification. Although total investment has a positive
impact on diversification, this is only possible if public investment crowds in
rather than crowds out private investment. It is important to emphasize this caveat
because it may not be the case at the country level that public investment crowds
in private investment. Where fiscal policy rather than monetary policy is the major
driver of the mix between public and private investment, the expected outcome of
investment leading to deepening diversification may not always be guaranteed if
public investment is not supportive of the productive sectors.

Related Articles
  4.0 Diversification trends in Africa: Economic Report on Africa 2007
  V. D. The Future of China-Africa Economic Relations: FACTORS INFLUENCING THE GROWING TIES
  Overview VIII: Economic Report on Africa 2007
  1.8 References: Economic Report on Africa 2007
  CONCLUSION: What Drives China’s Growing Role in Africa?

Article Tags: africa, capital stock, caveat, crowds, determinant, diversification, economy, fiscal policy, gross fixed capital, gross fixed capital formation, inverse relationship, monetary policy, private investment, private investments, productive sectors, public investment, specialization, table a5, tendency, totality



Related Forum Posts
Re: Invest in Real Estate or Stocks? - You can consider investing in Real Estate Investment Trusts (REITs). Buy and sell shares like stocks so they are easy to buy and sell, diversify and management is included.
Re: Invest in Real Estate or Stocks? - [quote="Commercial Realtor":1be3urw5]You can consider investing in Real Estate Investment Trusts (REITs). Buy and sell shares like stocks so they are easy to buy and sell, diversify and management is included.[/quote:1be3urw5] That sounds good, but I think that whatever one invests in today, you need to do your due diligence beforehand and keep on top of what is happening with your investment at all times. MichelleJ
Re: need advice - Africa is a pretty big place I think it is a question of where in Africa you would like to open a call centre. South Africa for example actually has plenty of call centres already operating, so it would very much depend on what part of Africa you are considering. MichelleJ
Investment Advisors vs Faciltators - Investment advisors provide advise to investors on public companies or investments. Leadsco is a telemarketing company for advisors - providing leads. Investment advisors will not put you in touch with investors. Violates compliance regulations. Facilitators are the best way to help you with strategy and offering for private investors or venture capital.
How to valuate a business - Hi Garth - here is how we did it at Northern Crown Capital when I was helping them raise venture capital for Toronto-based entrepreneurs. Assume the start date is 2003 so 2008 projections are 5 years out: How Northern Crown Capital Valuates a Business 2008 Financial Projections Earnings Before Tax $5,865,000 Tax Rate 42% Taxes $2,463,300 Net Earnings $3,401,700 Amount Seeking to Raise Today $3,500,000 Discounted Value of Future Opportunity, 5 Years Out 2008 P/E Ratio 15 Value of Company in 2008 $51,025,500 Discount Rate Applied 30% Year 2008 $51,025,500 Year 2007 $35,717,850 Year 2006 $25,002,495 Year 2005 $17,501,747 Year 2004 $12,251,223 Value of Company at Investment in 2003 $12,251,223 Less: Investment Amount $3,500,000 Present Value $8,751,223 Discount for Risk & Private Company 40% Less: Discount for Risk & Private Company $3,500,489 Private Company Value $5,250,734 Present Value (What the Owner Keeps) $5,250,734 60.00% Financing (What the Investor Gets) $3,500,000 40.00% Total $8,750,734 100.00% I hope this helps!


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Are You Remarkable Enough?

Four Secrets to Earning Income as an Author

Selling What Sizzles vs. Delivering Real Value

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.