CHANGE is in the air. Africa is finally attracting attention as a viable investment and business destination, rather than merely a repository for good intentions and international aid.
Yet most discussions on African development end up focusing on government policy prescriptions rather than the decisions of the private sector, which is, surely, the engine of wealth creation the continent needs.
If African economies, especially the frontier markets (Botswana, Ghana, Kenya, Mozambique, Nigeria, Tanzania, Uganda and Zambia) are to translate private-sector investment into long-term economic gains, the quality of both government and private decision-making is crucial. Enough has been said about public policy. Corporate strategy towards African markets, especially markets outside SA, appears neglected both as a subject of debate and a key aspect of managerial competence.
The current enthusiasm about an emergent Africa is still very much about possibilities. It might also end up being an all too familiar tale of exuberant investors and misunderstood frontiers. When most analysts talk about business in sub-Saharan Africa, the image one gets is of a place with just enough reforms and safeguards to ensure that a bit of business can take place on the sidelines without the locals spoiling the party. The real opportunities in Africa, which stem from solving the constraints to development and meeting needs that have gone unfulfilled, require business to immerse itself in the realities of the continent. Yet, amid all this “rediscovery” of Africa, the place of the ordinary African as an economic agent, central to sustainable economic development, is barely considered.
We find ourselves engaged in excited discussions about Africa’s frontier markets, but with no productive Africans in the picture. For example, there is still very little said about creating vehicles to invest in locally created, medium-sized companies, in spite of a general acknowledgement that there is a “missing middle” in the African business landscape. Africa needs entrepreneurs who are rooted in the local markets and who strive towards global competitiveness. These entrepreneurs will be the ones who generate future economic activity and demand that is independent of commodity prices.
In many African countries, the financial services industry, in spite of the portfolio inflows it enjoys, remains disconnected from the rest of the economy. Funding high-potential start-ups and innovation is unheard of, even in African economies where the institutional environment is largely supportive. This function is strangely left to nonprofit organisations.
The African consumer is also largely seen in very simplistic terms. Apart from the success of the mobile telecommunications industry, which is seen more as a miracle to be explained in countless studies rather than as a signal for opportunity, African buying power is yet to be reckoned with. Between 2000 and 2006, 12 of the top 20 economies on the continent recorded average growth in household consumption expenditure of more than 5% a year. These are consumers who still live with massive deficits in healthcare, financial services, education and many basic goods and services. Many of these markets are ready for private-sector solutions to these deficits.
Partly this is because most assessments of African markets don’t go beyond publicly available figures of consumer expenditure. Statistics that declare large parts of the market survive on less than a dollar a day are not capturing the real economic potential. As MTN discovered in Nigeria, there are significant cash resources in the economy that are not captured in official statistics. Really understanding an African market requires going beyond the traditional tools of national accounting.
Is all this potential going to be unlocked or are sub-Saharan countries going to become the casualties of a fleeting global fascination with frontier (or pre-emerging) markets? A lot depends on how governments perform on key measures of governance and institutional development. A lot also depends on the quality of business decision-making or, more simply put, the extent to which African markets are taken seriously as sites of genuine value creation.
This means that investors and business executives need to venture beyond the natural resource and financial services sectors that are already showing signs of saturation. Only so many private equity firms can invest in a single bank. This also calls for executives to expand their product development horizons and to take inspiration from local markets, rather than simply transferring products developed for markets elsewhere. This also calls for taking the idea of embedding the business in local value chains seriously by giving local procurement a try. Taking Africa seriously means understanding its economies and finding ways to develop models that work with and support their evolution, rather than merely grabbing short-term opportunities.
The attainment of emerging market status by some African economies will result from the combination of committed, competent governments and creative, strategically astute business decision-makers. This is not to suggest that the challenges are trivial. Rather, it will be those companies that are willing to take smarter positions that go beyond generic political risk assessments and simple macroeconomic bets; those companies that are willing to creatively engage with the unique business proposition that subSaharan Africa offers that will build businesses that live beyond this commodity cycle.
The questions that need to be answered by investors and business leaders are complex and many. What is the best way to deal with the supply-side and demand-side effects of the continent’s disease burden? How do stakeholder relations in a remote, underdeveloped host community affect productivity? How to deal with fragmented distribution networks? How to invest in microenterprises without financial records? How to assess consumer spending power in cash economies? Sustainable value on the continent is achievable for those who have invested in the strategic competencies to grapple with questions such as these and who are able to build the appropriate business models.
Africa is on the verge of a fundamental economic transformation. But this depends, among many other prerequisites, on the extent to which the continent’s own productive and entrepreneurial capacity can be unleashed, as well as a vision for respectfully and profitably serving the needs of its growing consumer base.
Trudi Makhaya is director of consulting at Intellidex.info, an African research and consulting firm.
