Redefining Business in the New Africa: Shifting Strategies for Success
by Lauri E. Elliott, Hartmut Sieper, Nissi Ekpott
Published by Conceptualee, Inc. at Smashwords
Copyright 2011 Lauri E. Elliott, Hartmut Sieper, Nissi Ekpott
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Table of Contents
The following is a list of the chapters in this book:
Chapter 1: Introduction – The New Africa
Chapter 2: The Future of Africa in 2050
Chapter 3: Africa’s Business and Geopolitical Rise
Chapter 4: Shifting Mindsets and Strategies about Africa
Chapter 7: Information Communication Technologies
Chapter 8: African Consumer Markets – An Emerging “Gold” Mine
Chapter 10: Small-Scale Mining – A Golden Opportunity
Chapter 11: Inclusive Business in Africa
Chapter 12: Discovering Opportunities in African Consumer Markets
Chapter 13: Recognizing and Leveraging New and Alternative Forms of Assets
Chapter 14: Economic and Trade Leverage Points
Chapter 15: Leveraging Trust Networks
Chapter 16: Closing – Challenges and Navigating the Path
Appendix A: African New Economy Workgroup (ANEW)
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Preface
In 2007, I watched Africa Open for Business[1], a BBC award-winning documentary produced by Carol Pineau from Washington, DC. It showed ten African businesses from ten countries, randomly selected, hard at work, and succeeding against many odds. It contradicted most perceptions of Africa. I got a copy and traveled with it to the United States.
I showed it to friends in Iowa. The reactions were intense and varied. The Americans watched with interest and asked many questions. Some of the Africans burst into tears of joy - at last someone was showing Africa in a new light.
Two weeks later, I was traveling from Johannesburg to Cape Town in South Africa. I had been booked to fly economy, but at the boarding gate the airline benevolently upgraded me to business class. I took my seat, tucked myself in, and then turned to say “hi” to the lady beside me. It was Carol Pineau!
I knew that our meeting was no accident. We talked at length about the documentary and reasons behind it. The meeting made an impact on both of us. I got the sense that Carol saw a new future in Africa, and was working intently to show the world this future and also to be a part of it. I left knowing that things God had previously spoken to me about the African continent were unfolding.
Since then, the global focus on Africa has grown significantly. Some believe the Africa Open for Business documentary played a key role, but long before this there were many others who saw a renaissance coming in Africa, including Gunnar Olson, founder of the International Christian Chamber of Commerce and Thabo Mbeki, former president of South Africa.
Carol Pineau's documentary helped me shift from just having an expectation to applying practical, wisdom-filled steps in the area of business, which would allow us to harness these expected changes.
This book is designed to help readers achieve the shift from expectation to practical application. Our desire is to stir up, and see practically involved, people who are already convinced of Africa’s restoration and renewal and its role in the future. For those who've had no inkling about the paradigm shifts on the continent and hear us, we encourage you to go and do your own research.
This book primarily targets business people. But, we believe everyone should read it.
We hope that, as you read through this book, you will share our belief in the continent and take practical steps to partake in the wealth, in all its facets, that this continent holds.
Also, we hope that you will be among those who shift from a focus only on aid to Africa, to a place of investing in viable business ventures, which is the only way to release wealth.
And, we hope that as you invest and contribute to change in Africa, you will find the power to change your lives for the better, sharing in the spiritual, physical, social, cultural, and economic wealth of Africa. Through our collective investment, Africa will be prepared to play its role as a place of refuge, abundant provision, healing, wisdom, and restoration to a dysfunctional, out-of-whack world.
Our sincere thanks to all those whose support has made this book a possibility. We are not able to mention all your names, but as you read this, you'll know who you are because you have invested directly, or indirectly, in the lives of the authors and producers of this book. True success is usually a collective effort. May God water your life abundantly.
Nissi Ekpott
January 11, 2011
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Foreword
by Sipho Mseleku, President of the Pan African Chambers of Commerce and Industry
Redefining Business in the New Africa is one of the few excellently written and well-researched books on exploring business, trade, and investment opportunities on the African continent. It delves deeply into Africa’s present, future, and the “kairos” moment for Africa to take its place as a leading citizen of the world, spiritually, socially, and economically.
As Redefining Business points out, Africa’s vast economic, as well as trade and investment, opportunities remain mostly unexplored. The book also makes us see its pre-eminent place in the future political, as well as socioeconomic, global landscape.
Africa is a large continent, has vast natural, mineral, agricultural, forestry, water, and energy resources, and a growing consumer market. This presents great opportunities for business and economic development, which will result in Africa being able to exert political influence globally.
This book will be a powerful guide for global businesses intending to invest and expand into Africa. The book is also a powerful tool in the hands of African businesses to realize what has been bestowed in Africa and how they can tap into the opportunities presented by Africa for the betterment of all.
We, at the Global Business Roundtable, are privileged to be associated and working with the authors – Lauri, Hartmut, and Nissi.
Sipho Mseleku
President, Global Business Roundtable
President, Pan African Chambers of Commerce and Industry
About the Global Business Roundtable
The Global Business Roundtable is a platform and network for business people from various backgrounds and religions to come together to network and exchange ideas on business, career, and professional development. Its primary focus is on complete development of a person, including business development, skills development, wealth creation, estate planning, networking, mentorship, business and procurement opportunities, as well as spiritual development.
http://theglobalbusinessroundtable.ning.com/
Pan African Chambers of Commerce and Industry
The Pan African Chambers of Commerce and Industry (PACCI) is a continental chamber, representing 53 African countries. It is the single largest business body on the African continent. Its role is summed up in this phrase, “The voice of business in Africa”.
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Chapter 1: Introduction - The New Africa
While private wealth in developed nations struggles to recover from the economic crisis, the situation in Africa is remarkably bright. Africa, the colorful continent that consists of 53 nations (soon to be 54 nations with the secession of Southern Sudan from Northern Sudan) has prepared the stage for abundant wealth creation in this decade and beyond.
Major paradigm shifts can be observed in the world that will dramatically change current patterns and shape new global economic situations. First, Europe and the United States are experiencing great economic uncertainty, having started with financial uncertainty, now moving to economic problems, and later even to political insecurity and social unrest if not contained. Africa, on the other hand, will become more stable and will be considered less risky in the future. The view of Africa compared to the rest of the world will balance out.
Second, while media still lags behind in sharing positive headlines about Africa, there is a shift to more holistic reporting. The more success stories that are told about Africa, the more potential investors will pay attention to Africa as an investment destination that is worth considering.
Third, more African political and economic leaders are promoting foreign direct investments instead of development aid. They want to attract serious businesses and sincere investors to their countries. Companies and entrepreneurs are offered many investment incentives.
The classic concept of helping poor African nations by granting credit and donating goods and money is not the Africa of today. For example, Nigerian President Goodluck Jonathan stated, at the G8 African Leaders Outreach at the G8/G20 Toronto Summit in June 2010, that his country would prefer removal of trade barriers over aid.
Development aid will successively be replaced by investments. In fact, the process is well underway. Foreign direct investment (FDI) to the continent reached $88 billion in 2008, according to the annual African Economic Outlook[2]. This was double the figure, provided by the Organization for Economic Co-operation and Development (OECD)[3], of $44 billion for net official development assistance (ODA) in 2008.
Fourth, today’s Africa speaks for itself as a compelling investment case in six areas – macroeconomic stability and economic reform; low inclusion in world financial systems; fewer conflicts; abundant resources; a large, growing, under tapped consumer market; and a growing number of emerging versus developing economies.
Macroeconomic Stability and Economic Reform
The macroeconomic situation is favorable. Short-, medium-, and long-term growth can be expected for most countries. Growth in Sub-Saharan Africa in 2010 is estimated at 5%, according to the International Monetary Fund (IMF).[4] In 2011, growth is forecast to reach 5.5%. Compare this to a growth forecast under 3% in Western economies, according to the Global Economic Prospects 2011[5] by the World Bank. In fact, expectations for Sub-Saharan Africa’s growth exceed those for global growth (3.3%) overall.
Also, governments have demonstrated strong commitment to economic reforms, which has resulted in improved legal frameworks for investors and companies. A good example is the introduction of one-stop shops that allow foreign investors to found companies in a few days, compared with the norm of several weeks or even months. In Rwanda, you only need three days to launch a company. To found a company in Botswana from Europe, one can do all the paperwork at the London office of the Botswana Export Development and Investment Agency (BEDIA).
Low Inclusion in the World’s Financial Systems
Africa’s low inclusion into the world’s financial systems, which was considered negative in the past, is now revealed to be a blessing. Toxic assets have not found their way into balance sheets of most African banks. Asset price bubbles, fired by credit inflation, could not develop because of limited availability of loans and high interest rates. There is no excess liquidity in Africa that could have led to artificially high prices. Where asset prices are high, the main reason is a combination of elevated demand and lack of supply. Africa has shown an impressive robustness against the world financial and economic crisis.
Note: Africa did experience varying levels of disruption in trade and investment due to the global economic crisis. However, these areas are on the rebound. As mentioned before, Sub-Saharan Africa is expected to experience broad-based growth in 2011 at about 5.5%.
Fewer Conflicts
The decline in political conflicts and wars makes Africa less risky. While the news still often reports of the eastern Democratic Republic of Congo (DRC), Somalia, and Sudan, as well as recent upheavals in Cote d’Ivoire, Tunisia, Egypt, Algeria, and Libya, investors should remember that these are a few out of 53 countries.
There is a strong trend towards democratic or open forms of government. Also, stronger institutions are on the rise.
Natural Resources
Africa’s natural resources are not only abundant but diverse. A number of countries have many natural resources. For example, the DRC has abundant water, arable land, and dozens of different mineral resources, including gold, copper, uranium, diamonds, and coltan.
Many regions are severely under explored. Increased exploration activities may lead to positive surprises and unexpected results like the offshore oil fields in Ghana, as well as newly discovered coal deposits in Mozambique and diamond fields in Zimbabwe.
Large Consumer Markets
The African population grew to 1 billion in 2010 and will reach over 2 billion in 2050 while Western populations will shrink. The five largest countries in 2010 by population were Nigeria (152 million), Ethiopia (88 million), Egypt (80 million), DRC (71 million), and South Africa (49 million), according to The World Factbook.
Vijay Mahajan, author of Africa Rising: How 900 Million African Consumers Offer More Than You Think[6], says there is a large middle class with unmet needs in Africa. This middle class needs basic services like housing, energy, education, health, food, and transport. They have money to pay for it. They are unlike their Western counterparts who carry too much debt.
However, the African middle class, like other middle classes in developing countries, does not have average annual incomes upward of $30,000 like the Western middle class. On the other hand, the large, potential market can offset this for businesses and investors.
These consumer markets are also fragmented. Many countries have fewer than 5 million people. This is one reason why African countries are driving regional integration to enlarge the consumer markets. In fact, the East Africa Community (EAC) formed a common market in 2010 with a population of over 130 million. This makes it and its member countries – Rwanda, Burundi, Kenya, Uganda, and Tanzania - a market size on par with Nigeria.
Many Emerging Economies
The 70s, 80s, and early 90s signaled a decline in African economies with many becoming virtually bankrupt and indebted to foreign countries and international organizations like the IMF. Now, most of these countries have low debt and are growing well.
For about 15 years (prior to the economic crisis), 17 of the 53 African economies have maintained economic growth at more than 5% per year on average, according to Steve Radelet, author of Emerging Africa: How 17 African Countries are Leading the Way.[7] They have also added 3.2% GDP per capita per year. Some of these countries are Kenya, Mozambique, Tanzania, Uganda, and Ghana.
Ghana is an excellent example of the progress. It became a middle-income country in 2010. Also, it is on target to halve its poverty level by the end of 2015 in line with its Millennium Development Goals (MDGs).
Radelet notes that another six economies, such as Liberia and Sierra Leone, are headed to emerging economy status.
Conclusion
The opening of the 21st century has proved to be a period of shifting paradigms for Africa. It is hard for people to imagine, even with this data, that Africa is any different than what is negatively portrayed in the media.
But the good news is as we speak to people one by one, sharing the new reality, we see the amazement and mental calculations going on their heads. We know this will lead, in many cases, to altering perceptions of the continent.
While there is progress in the battle on many fronts, we still have very steep hills to climb not only as evangelists for Africa but in architects and implementers, making sure that the vision we speak of for the continent comes to fruition fully. This is not a task for a few, but for all of us.
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Chapter 2: The Future of Africa in 2050
People may acknowledge that Africa has certainly made great strides in its most recent history. However, the bigger question is whether these changes will continue. This chapter looks at likely scenarios for Africa into the future based on existing and emerging patterns.
Africa Futures 2050
Thank goodness as I was getting ready to co-write this book, I ran across a monograph being done by the Institute for Security Studies[8] in South Africa called African Futures 2050.
I had the distinct pleasure of interviewing Dr. Barry Hughes, Director of the Pardee Center of International Futures at the University of Denver in the United States and a partner on the ISS project. This sub-section reflects our discussion.[9]
Population Boom
It has already been established that Africa has the fastest growing population. This boom will cause Africa to surpass both China’s and India’s population in 2025, less than 15 years away. The combined populations of Asia, including China and India, will still exceed Africa’s, however.
If we look out to the year 2100, one in three people will be of African descent globally, even with the likelihood that fertility rates will continue to decrease. Lower rates of mortality and increasing life span also contribute to the growing population on the continent.
Within the continent, the populations of East, West, and Central Africa will grow much faster than North and Southern Africa. In 2050, the populations of East and West Africa are expected to exceed 650 million each.
Large population booms have both advantages and disadvantages, as noted by Dr. Hughes. However, from the business perspective, we should see the opportunity in large, growing consumer markets. Unfortunately, the dialogue on population in Africa still remains on the negatives of poverty and disease instead of innovative solutions that will solve these problems, uplifting people and creating strong local economies as discussed in the article, The Business Proposition of Africa’s Population Boom: Problem or Potential?[10]
In fact, Dr. Hughes notes that the “demographic dividend” is starting to pay off for Africa. The demographic dividend is the portion of people in the labor force of a country. Historically, Africa has been disadvantaged because most of its people were under the age of 15 years. For example, the number of people in the workforce in Africa currently is around 55% compared to about 70% in China, creating a drag on countries.
This is changing as these young populations are maturing. By the middle of the century, 62%-65% of Africa’s population will be in the workforce while the percentage of China’s population in the workforce will fall well below that as its population ages, according to Dr. Hughes.
This potential workforce will give Africa a distinct advantage globally, but also requires governments and private sector to proactively address the need for jobs sufficiently to provide sustainable livelihoods. Like many countries globally, this issue is already being felt by African nations requiring new innovative solutions to this growing need.
These demographic dynamics also help us to understand other trends for Africa.
Urbanization
As Africa’s population grows, it will also have an impact on cities. Currently, only about 40% of Africa’s population resides in urban centers compared to Western regions where the percentages go above 60%. However, the urbanization growth rate in Africa will grow rapidly. This will be a key dynamic to Africa’s economic transformation, according to Dr. Hughes. It is also one trend which we consider to be major and to which we dedicate a chapter (Chapter 5: Urban Centers) in this book.
As the populations in urban centers grow, more densely populated consumer markets appear, driving more business to the cities and increasing economic activity. These urban agglomerations tend to drive more economic growth than rural areas within nations.
Literacy and Health
Africa will likely not reach its primary education goals by 2015 as outlined in the Millennium Development Goals (MDGs). However, the MDGs have created an impetus for governments to focus attention on this area so that while the literacy rate for the entire continent is somewhere around 68% this should rise to over 90% by 2050.
It’s interesting to note that Africa’s current literacy rate is comparable to India’s, which is considered one of the BRIC emerging markets. So, while literacy is important to a well-trained workforce, participation in the information age, and long-term economic growth, in the immediate future the lack of literacy does not necessarily eliminate economic growth. As Dr. Hughes suggested, people do not necessarily need to be literate to purchase.
On the health front, the key issues are HIV/AIDs and communicable diseases like malaria at this point. It looks like there has been a positive turning point with the number of people dying from or contracting the HIV/AIDs virus going down. However, there is still a lot of uncertainty in this area.
With communicable diseases, there also seems to be progress in terms of the rate in cases of communicable disease, although when looking at just the actual number of cases of communicable disease this may not be reflected. It appears that communicable diseases are rising because of the rapid rise in population.
However, when dividing the number of cases against the larger populations, the rate of new cases of communicable diseases has slowed. Improvements in water and sanitation, as well as malaria nets and other solutions, seem to be producing results.
As these issues become contained, there will be a shift to, or rise in, chronic diseases like diabetes, heart, and cancer. By 2025, the number of deaths from chronic diseases should exceed that of communicable diseases, particularly as the population ages. This will be a dramatic shift in the health care market in Africa. This trend is seen even in South Africa now, for example, with the rise in the rate of obesity and diabetes as the people move up the socioeconomic scale.
Economic Transformation
It’s important to look at the diversity of economies when forecasting economic growth. Historically, and even currently, most African economies are reliant upon primary sectors involving commodities, e.g., agriculture, oil.
The Lions on the Move: The Progress and Potential of African Economies[11] report, by the McKinsey Global Institute, notes the dynamics of African countries where they have been able to diversify into manufacturing and services and where these sectors exceed 60% of GDP. South Africa and Mauritius are among these countries. Dr. Hughes says that this has allowed countries to enhance exports, but notes that oil exporter countries, e.g., Nigeria, Angola, will likely find this transformation difficult.
Diversification is also important in the creation of jobs, particularly for oil exporting countries, as the oil industry does not necessarily create broad opportunities for new jobs itself. Ghana, a new oil producer, is fortunate that its economy is already relatively diversified.
According to Dr. Hughes by 2050, more countries, e.g., Kenya, Nigeria, and Ethiopia, are expected to diversify in excess of 60%. While the process for diversification will have irregular patterns across the continent, it is something that countries will have to reach. So, this is a key economic trend to watch.
Another trend is that economic growth has accelerated across Africa in the last decade with growth rates between 5%-5.5%, exceeding population rates. If Africa keeps this pace, per capita income will increase moving forward.
Regionally, North and Southern Africa’s GDP will remain significantly higher than East, West, and Central Africa into 2050. This also is the case for diversification.
Agriculture and Infrastructure
Africa’s productivity in agriculture has not made much progress in the last few decades. Production has risen but as a result of more land being used for cultivation rather than higher yields. This is in sharp contrast to developed and developing regions like South America and Asia. So, there is still a big question mark as to what will happen with agriculture.
Dr. Hughes mentioned that there will, however in all likelihood, be an impetus to reverse this trend. We can see evidence of this in the commitment of African countries in the African Union to set aside 10% of their budgets for agriculture, as well as successful agricultural programs in Malawi and Zambia.
Also, Africa is getting assistance from countries, which have been successful in this arena, like Brazil. A report[12] in The Economist documents the success of agricultural programs in Brazil over the last few decades in a region with land characteristics similar to Africa. This success is being passed along through programs like the Africa-Brazil Agriculture Innovation Marketplace.[13]
On the infrastructure side, this has been lacking and has hindered growth with the exception of Information Communication Technologies (ICT). Dr. Hughes indicated that the energy capacity in Africa is well below that seen in other developing regions, but we can anticipate a strong push to resolve.
Governance and Conflicts
There has been an increase on the emphasis on elections with more free and fair elections and peaceful transitions in Africa. This excludes the recent examples of Cote d’Ivoire (Ivory Coast) and Libya.
Interestingly enough, Dr. Hughes noted that the exception to the transition to more democratic governments was the North Africa region. He anticipated that as leaders in the region got older and people moved up the socioeconomic scale that there would be a greater push, hopefully peaceful, for reform.
And finally, there are fewer conflicts which will facilitate both improvement in governance and economic growth. In fact, all three feed each other. Because of improvements in all dimensions, there is a virtuous cycle which will propel the continent forward.
Networked World, New Generation, and Complexity
One area of research and specialization for me is looking at how complex systems, networks, and people work. The importance of this arena is becoming more apparent as our world is visibly becoming more complex and chaotic.
When most people hear “networked” world, they think of the Internet and the online environment. This is one aspect. Technology has certainly opened the doors for a broader number of people to be involved in society. Its availability and continuing lower costs have helped to push transformation in society. A recent example in Africa is the possible impact of Wikileaks documents in the tipping point for Tunisian and Egyptian government transformation.
However, the technology we speak of is an enabler, which accelerates tipping points. The technology is not the source of the change, but existing and emerging patterns are.
When we speak of emerging patterns[14], we are speaking of patterns that are coming forth in a system although they may not be evident to the majority. Concerning the Egyptian uprising, there were several reports questioning whether U.S. Intelligence had any idea that such an event would occur, catching the U.S. government by surprise.[15] I actually find that amazing when all the signs, or signals, were there. In reality, they probably already knew the likelihood of such events, but not precisely when or where they would occur.
So, what are the emerging patterns surrounding this North Africa transformation? And, what do they have to do with understanding the dynamics of the future of Africa?
First, we are seeing a new generation arise that was not directly touched by the events of the 1950s, 60s, and 70s globally. They have a different outlook on life and different expectations, although fundamentally they want the same things as most people – opportunities, economic prosperity, well-being, etc. They tend to not like the confines of strong control and hierarchical systems whether political, social, or economic.
Second, people of this generation are increasingly comfortable with technology and participating online. They are experiencing the opportunity to be their unique selves, at least online, while also experiencing the power of being one voice being connected with many voices.
Third, like the 1960s generation that revolted against the formal institutions of their parents’ generation, this generation is doing the same and will continue to do so. This is a natural pattern in human society. Don’t get alarmed by the word “revolt”. Here it simply means that they are going to force change.
Fourth, this generation is gaining more social, political, and economic power as the young people become the workforce of today and tomorrow. The majority of this generation will be found in developing regions like Asia, Africa, and South America.
Fifth, this generation will be quite adept at handling fluid versus formal organizational structures, which will help them adapt to the complexity inherent in our world. In general, this is not a skill our older generations possess and why many of today’s institutions feel overwhelmed by what is happening globally.
The context for much of this generation, which is predominately in developing countries, is high unemployment, disenfranchisement, poverty, and varying degrees of repression, if not oppression. But many of our youth experience some of these issues in almost any country.
This context and the changing aspirations of the new generation[16] are definite signals that suggest problems for existing, formal structures that do not adapt to the new reality. In fact, the U.S. and other countries are aware of the problem and have been for a while. That’s why recently, at the World Economic Forum, global business leaders called for inclusive growth.
We can see how the elements of the networked world, complexity, and the new generation converge in the story of Wael Ghonim, who is an Egyptian, a Google executive in the Middle East, and young. He was credited with helping to catalyze the Egyptian protests through Facebook.
Ghonim is obviously well educated and traveled. He has maintained that the protests were not political mechanizations from foreign powers, but born out of the heart of the Egyptian people - a people who constitute the second largest population in Africa and is young.
So, as the networked world continues, the new generation rises, and complexity abounds, what does that mean for Africa’s future? It will definitely be a different, but positive experience if we can grasp the patterns and ride the waves.
In the African Futures 2050 monograph, it describes this environment very well – dispersed global power and greater independence. First, dispersed global power means that there will be power distributed more broadly across the globe. From a national perspective, we see that already happening with the rise of China and India. However, these power regimes will not just be dispersed differently among national governments, but also with informal and fluid networks.
Second, the interdependence will come through areas like trade and economic growth, energy, and climate change. Over the last several years, I have spent time looking at emerging patterns in which our world systems would begin to reflect more of our natural, complex systems. This means they would transform from domination or control structures to interdependence systems, which require new ways of organizing, working, and communicating.
The impact of these two environmental trends and Africa’s position in this context are discussed in more detail in Chapter 3: Africa’s Business and Geopolitical Rise. The crux for business is to learn new ways of shaping strategy and operations to be successful in this new context, particularly in Africa.
Conclusion
Not only has Africa demonstrated positive progress in the past few decades on many fronts, the current patterns suggest that this progress will continue into 2050. An understanding of these patterns help businesses understand the context in which they will operate, including opportunities and challenges.
These patterns also suggest that how business is conducted in Africa needs to change. The potential of Africa is not only in its natural resources, but also in its growing population, among other things. If businesses plan to tap these opportunities, they will need to re-think and adapt for these patterns, and others, going forward.
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Chapter 3: Africa’s Business and Geopolitical Rise
By Lauri Elliott
While the global economic crisis was by no means easy on Africa, it did allow the veil over Africa to be drawn away to show what has been waiting to be discovered on the continent. While the world sat in darkness, Africa became a great light. As the world seeks more and more new markets, rich with both natural resources and large, growing consumer markets, Africa’s star will rise.
Africa as an Epicenter of Global Trade
After the G20 meetings in Toronto in June 2010, it was very clear nations see a new era of a multi-polar world. Fareed Zakaria, host of CNN’s GPS and author of The Post-American World[17] applied the concept of a multi-polar world to politics, or nation states. In essence, the world agenda will no longer be dominated by one or a few nations. Political power will be dispersed more broadly.
In a report by Accenture called The Rise of the Multi-Polar World[18], it says that global economic power will no longer reside with the United States, Europe, and Japan. It will disperse as “developing economies contribute an ever-increasing share of the world’s output, trade and investment.” In fact, developing countries are expected to account for two-thirds of global trade in 2050, according to The World Order in 2050[19] policy outlook by Uri Dadush and Bennett Stancil.
In the backdrop of these dynamics, seemingly, is Africa. With little representation in the G20, reduced votes in the International Monetary Fund, and perhaps not enough impact in other international organizations like the United Nations and World Health Organization, it would seem Africa is a loser in this new era.
But political and economic dynamics are not the only things changing. Forms of influence and power are also changing. Power is also dispersing among spheres of society, who are interconnected. The most common spheres are business, social, and government. However, today these spheres are overlaid with transnational networks, global policy networks, advocacy networks, value networks, social networks gone viral, etc. This will result in influence and power emerging in new and different forms, allowing more diverse and unique ways of articulating and acting upon influence and power.
While Africa may seem to be losing ground in some formal arenas, it may have gained ground where it matters – economics. And because new and different forms of influence and power are emerging, Africa will be able to find ways to leverage its growing economic influence.
The shape of Africa’s growing economic influence is centered on two areas – being a pole of growth and an epicenter of trade. With solid economic performance, abundant natural resources, and a large consumer market, Africa is on a path to be one of the poles, or regions, of growth in spite of Sub-Saharan Africa having the predominate number of Least Developed Countries (LDCs).
The other area in Africa’s growing economic influence has not been clearly articulated or stressed. Africa is positioned as an epicenter and gateway for global business and trade. This has quietly snuck up on the world while the world was focused on the economic crisis.
If you look at the number of trade agreements being introduced between Africa and the rest of the world at this time (e.g., between the United States and Angola, between China and many African states, between India, Brazil, and South Africa), you will see that they are increasing and expanding. In the last few years, heads of states from around the world, e.g., Iran, Russia, Brazil, United States, France, have visited Africa to improve diplomatic and economic ties.
These activities do not occur unless there are significant benefits sought by these nations. It’s obvious that Africa has something the world wants. During the Cold War era, Africa served as a geopolitical map of opposing political ideologies between the U.S. and Soviet Union. But now, the primary focus is economic because strong economies bolster governments, those in office, communities, and citizens. This is not to ignore other benefits that countries might seek, like cultural exchange, from ties with African nations.
Also, there is increased south south and developing country cooperation, which means trade and business flows are moving in new directions. The developing economies that will lead global trade in 2050 are increasingly trading among themselves, but not to the exclusion of developed countries. In this, Africa is increasingly part of the engagement. Look at the India, Brazil, South Africa (IBSA) Forum activities, the China-Africa Forum activities, and the Southern African Customs Union’s (SACU) preferential trade agreement with the Southern Common Market (MERCOSUR) as examples.
In this context, Africa’s rising economic influence will translate to more political influence, which may be “soft” more than formal in the short-to-medium term. For example, Nicolas Sarkozy, President of France, held the 25th annual Africa-France Summit in 2010, which focused not on politics but on business. At the summit, Sarkozy said he would call for an expanded role of African nations in the United Nations when he heads the G20 this year. And also, Canadian Prime Minister Stephen Harper personally invited additional African leaders like President Goodluck Jonathan of Nigeria and African Union Chairperson Bingu wa Mutharika to attend the G20 Toronto Summit in 2010 in recognition of the need to include the region.
But another primary benefit of these political and economic processes is that Africa will serve as a global trade epicenter and gateway into other emerging markets, and even into developed nations. Africa has the ability to be a bridge to enter into other markets, as well as a key location for global value chains.
U.S. Honeywell has taken its Chinese connections to enter the Sub-Saharan African market, so why couldn’t firms use Africa to enter other regions because of Africa’s increasingly favorable ties? In another instance, Chinese firms are partnering with African governments to establish economic zones and manufacturing capacity in Africa based on the experience of economic zones in China. This will create capacity for these firms to serve China’s domestic market and the African consumer markets in the future.
And finally, a question that comes to mind is “How well is Africa positioned to be an epicenter and gateway of global trade?” Africa still faces many hard realities like poverty, lack of infrastructure, unemployment, and instability in some countries, but other developing nations also face the same or similar issues. And, for the most part, African countries have proven to be economically and politically resistant to instability in the last decade. Governance and the business climate have also improved while conflicts have reduced dramatically.
But in truth, Africa does not need everything in place, but it does need enough significant leverage points to take advantage of this position and use them to create a tipping point to solidly establish and maintain this position. As indicated before, the increasing diplomatic and economic ties between Africa and the rest of the world, its natural resources, and large, growing consumer markets are key leverage points.
Another leverage point is the image of Africa, which is changing. The successful conclusion of the FIFA World Cup in South Africa perhaps helped to produce a tipping point.
And one leverage point not used enough is that there are pockets in Africa, South Africa and Mauritius for example, where business is run on par, in many facets, with the world. In fact, there are many more places where this is the case because of economic zones. An economic zone, such as a free trade zone or export–processing zone, generally has a good climate, procedures, infrastructure, business support, laws, and incentives conducive for business, even when the country in which it is located does not. And if you dig a little deeper, you will find more significant leverage points.
A Look at South Africa’s Recent Strategic Moves
2010 was a major year
for South Africa with the successful FIFA World Cup. However
significant the event, it pales in comparison to the global political
positioning South Africa has worked for itself in the past year. It
is obvious the government continues to learn more about how to use
the country’s strategic, not just natural, assets to secure its
position globally. Hopefully, this will help South Africa
economically in the future.
In 2010, President Zuma visited each of the BRIC (Brazil, Russia, India, and China) countries to cement and increase both political and economic ties. The recent result is South Africa being approved as a member by BRIC member nations, so effectively BRIC becomes BRICS.
It’s also important to remember what BRIC actually represents. In The World Needs Better Economic BRICs[20], Jim O’Neill of Goldman Sachs coined the phrase, BRIC, referring to the countries in terms of their advancing stage of economic development as emerging economies. Goldman Sachs projects they may economically overtake the richest nations by 2050. China has already headed down this path by overtaking Japan and Germany in the last year to rank as the world’s 2nd largest economy.
Goldman Sachs has more recently presented a second series of nations it believes will arise called N11, including Egypt, Nigeria, and Vietnam. South Africa does not appear on either of Goldman Sachs’ lists.
South Africa does appear on two other emerging economies lists – CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Africa) and MAVINS (Mexico, Australia, Vietnam, Indonesia, Nigeria, and South Africa). So, there is recognition of potential but what remains at issue is how will South Africa continue to progress for the long term when its medium-term economic prospects are sluggish?
Even though O’Neill says that South Africa is not the best choice for the next BRIC because of the size of its consumer market and struggling economy, it was chosen anyway by the current BRIC. How is that? South Africa has become better at leveraging its assets strategically and being a BRIC is no longer just about economics but also geopolitics.
While these designations - BRIC, N11, CIVETS, and MAVIN - are only descriptors and do not represent any formal economic bloc, the BRIC nations have formed an alliance to increase their geopolitical influence seeing as they already represent more than half the world’s global growth. Accepting South Africa as a BRIC, demonstrates the importance the BRICs place on Africa going into the future and possibly South Africa’s ability to help further ties with the rest of the continent. So, South Africa has been accepted geopolitically, but not necessarily economically, as a BRIC. This occurrence aligns with the insights shared previously about Africa’s new position as a global business, trade, and investment hub.
South Africa is also a member of the G20 nations, which are supposed to work together to coordinate policies that impact global economics. In 2011, South Africa will take a two-year, non-permanent member rotation on the UN Security Council, effectively replacing Uganda which has held a position for the last two years. And it is likely that South Africa will gain more votes in the International Monetary Fund within the next two years as the IMF shifts 6% more voting power to emerging markets.
Along with still being the largest economy in Africa, these dynamics will no doubt give South Africa the ability to yield more of what U.S. Secretary of State Clinton calls “smart power”. But what South Africa needs out of this more than anything else is the economic benefit.
South Africa’s trade with the United States and European Union combined still exceeds over 30%, although China as a country is now the largest trade partner with South Africa. Economic recovery in the U.S. and Europe is expected to slow in 2011, and South Africa’s economic recovery is expected to slow as well. In essence, South Africa does not expect to experience broad-based growth, which the IMF projects for Sub-Saharan Africa in 2011.
While there are many reasons South Africa would seek strong ties with the existing BRICs, the fact that at least India and China are expected to have strong growth rates over the next few years presents an opportunity for stimulating South Africa’s economy through trade with the existing BRICs. In the long run, the BRIC consumer markets present increased opportunities just on sheer size. South Africa has the smallest consumer market of the soon-to-be BRICS alliance with approximately 50 million people. This compares to approximately 139 million people in Russia, 200 million people in Brazil, 1.1 billion people in India, and 1.3 billion in China.[21]
Even with economic struggles, South Africa is still an emerging economy and the BRICS designation will help the country continue to transform its brand image positively. South Africa will also find preferential trade status within BRICS, which was already well underway and opens more doors for South African businesses and investors.
And finally, South Africa represents the strongest formal flows of information, resources, investment, trade, and business on the continent. If you operate or have strong partnerships in South Africa, it opens doors to south south trade flows not just north south trade flows. And it’s the south south and African regional trade flows that will become increasingly important over the next few decades.
Conclusion
As we have seen the rise of China in both the economic and political spheres, particularly in the last decade, Africa will also rise. However, the forms of Africa’s power and influence over the next decades still remain to be seen.
It’s important for everyone involved with Africa to realign their mindsets with Africa’s new position. Otherwise, Africa can be destined to a repeat of history.
Remember, Africa has its own inherent assets, power, and influence with over 50 sovereign states and over 1 billion people. It and its people are endowed with natural resources – oil, minerals, land, water, etc. – that the world demands. There also is a rich tapestry of culture, innovation, knowledge, wisdom, and talent coming from its people on the continent and in the diaspora.
As an African American, I can say that more and more African people, nations, and advocates need to speak, operate, and negotiate out of Africa’s position, potential, and strengths. We can only expect others to see Africa as an asset if we do.
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Chapter 4: Shifting Mindsets and Strategies about Africa
by Lauri Elliott, Nissi Ekpott
In the last few years, we have seen attitudes towards Africa change more positively, but there is still a lot of work to be done. It is not sufficient until there is a critical mass of people and organizations, both inside and outside of the continent, which shift their mindsets and strategies regarding Africa.
This chapter pulls together thoughts and directions Nissi and I have synthesized over the past few years. These are points we often raise in public forums, hoping that the fire that shines so brightly in Africa will catch on. And we know that we are not alone in some of these views.
What We Can Learn from Obama’s Ghana Speech
Obama spoke at the Ghanaian Parliament during his first trip to Sub-Saharan Africa as President in July 2009. He used this forum to imprint his administration’s perspectives and priorities for U.S.-Africa relations. While some people may argue about motives behind the words and the accuracy of statements, the speech does reveal a needed paradigm shift with how the world does business with Africa.
First, interact with Africa with purpose. In choosing Ghana, Obama highlighted an African nation striving for values complementary to the United States, and one which his administration would support through its foreign assistance framework. Having purpose provides focus, allowing the placement of assets and resources where they will provide strategic benefit.
Second, be a partner to Africa instead of a patron. Much of the world still patronizes Africa. Yet, there are over 50 sovereign states in which business is conducted every day. As partners with Africans, we recognize that Africans drive and are responsible for their own destiny. Such partnerships would, as Obama said, “…be grounded in mutual responsibility and mutual respect.”
Third, recognize Africa as a serious player in the global economy instead of as a bystander. Obama put it this way:
“This is the simple truth of a time when the boundaries between people are overwhelmed by our connections. Your prosperity can expand America’s prosperity. Your health and security can contribute to the world’s health and security. And the strength of your democracy can help advance human rights for people everywhere.”
In a nutshell, what happens in Africa affects the world. What happens across the globe affects Africa.
Fourth, see the prosperity that exists in Africa. As noted in both Time and the Harvard Business Review, doing business and investing in Africa are among the best ideas for 2009. In fact, Africa has provided better returns on investment than other global regions in the last several years.
Obama also sees this prosperity extending to the broader African society – a key to eliminating poverty. He said:
“With better governance, I have no doubt that Africa holds the promise of a broader base of prosperity. Witness the extraordinary success of Africans in my country, America. They’re doing very well. So they’ve got the talent, they’ve got the entrepreneurial spirit. The question is, how do we make sure that they’re succeeding here in their home countries? The continent is rich in natural resources. And from cell phone entrepreneurs to small farmers, Africans have shown the capacity and commitment to create their own opportunities.”
In essence, Africa is a place of prosperity instead of poverty with the right frameworks in place.
Fifth, strive for trade and investment over aid. Obama indicates an understanding that more trade will benefit both Africa and America:
“Now, America can also do more to promote trade and investment. Wealthy nations must open our doors to goods and services from Africa in a meaningful way. That will be a commitment of my administration. And where there is good governance, we can broaden prosperity through public-private partnerships that invest in better roads and electricity; capacity-building that trains people to grow a business; financial services that reach not just the cities but also the poor and rural areas. This is also in our own interests — for if people are lifted out of poverty and wealth is created in Africa, guess what? New markets will open up for our own goods. So it’s good for both.”
There is only so much that the old cycle of aid can do. Trade opens the door for growth.
Sixth, adapt process and protocol to the African context. Obama is known for his use of social media to connect with U.S. citizens. However, the landscape for media in Africa is different. Recognizing this, the Obama team incorporated a radio broadcast, simulcast the speech to U.S. embassies across the African continent, delivered highlights of his speech via SMS, and used the popular African social media platform, MXIT, to interact with Africans.
And finally, all parties need to learn from the past but not live in the past. While Africa has experienced trouble in the last century, Kofi Annan said at the 2009 World Economic Forum on Africa that “Africa has transformed in my lifetime and the progress reached so far is proof that concrete achievements are possible amidst adversity.”
But even with this progress, many know that Africa still has not fulfilled its promise. Obama re-ignites the hope held in this promise when he said:
“So I believe that this moment is just as promising for Ghana and for Africa as the moment when my father came of age and new nations were being born. This is a new moment of great promise. Only this time, we’ve learned that it will not be giants like Nkrumah and Kenyatta who will determine Africa’s future. Instead, it will be you – the men and women in Ghana’s parliament (and) the people you represent. It will be the young people brimming with talent and energy and hope who can claim the future that so many in previous generations never realized.”
This crucial time in global history provides an opportunity for the world to re-adjust its dealings with Africa. Doing so will allow us to get down to business in order to do business – business that will promote both national and global stability and prosperity.
Transforming Our Minds about Doing Business in Africa
Perception has emerged as a powerful influence in today’s economic world. Economic activities are highly influenced by perceived risk in a geographic area. It is widely acknowledged that Africa suffers a negative perception of itself and from the view point of foreign investors. Many people have been typically sold a picture of a totally dysfunctional Africa.
Amidst its complexities, Africa offers valid opportunity for investments, vibrant communities, citizens eager for change, a growing market, fast changing laws, a transforming society, etc. It is the next frontier for growth and development. This includes business.
Business is highly influenced by perception also, and hence it is fundamental that the perception towards Africa is addressed as a first step towards doing business on the continent. There are certain long standing paradigms that have dogged the continent. Following is a new frame full of new mindsets.
Help the Poor by Helping the Rich
The current paradigm says that all Africans are poor and desperately need help. Mahajan, author of Africa Rising, provides estimates that say there are about 450 million people living below the poverty level. However, Africa has about a billion people. This means there’s another 450 to 500 million who can afford goods and services.
Additional estimates shared by Mahajan place the African middle class at about 150 million people, who are able to purchase goods at par with the rest of the world. This is equivalent to India’s middle class. Focus needs to be placed on growing the wealthier 450 million as a strategy towards lifting the poorer 450 million out of poverty.
This new shift will create a virtuous cycle, i.e., invest in businesses that provide goods and services for the wealthier 450 million, thus creating jobs for the lower 450 million. These 450 million people will eventually move up the economic scale, demanding and able to afford more goods and services.
This model is similar to what has happened in China over the past twenty to thirty years, creating the world’s biggest economic upliftment. This moved hundreds of millions of people from poverty.
Reduce Poverty through Small Business
The current paradigm says that creating enterprise is not as important as aid. Fortunately, we are on the nexus of this paradigm shift.
African poverty can be greatly reduced through micro, small, and medium enterprises (SMMEs). These are the engines of economic growth for countries globally. Small businesses create more jobs than any other entity. Because of the African communal lifestyle, every single job created through small businesses affects at least four lives. In some African contexts, the ratio is greater.
A Transformed Purpose for Aid
Aid, on its own, cannot eradicate poverty. Aid should be an emergency measure targeted especially at severe, distressed sectors. It should also focus on sectors which do not easily and immediately attract investors. However, it should not become a permanent feature.
Also, donor agencies, aid agencies, and mission organizations need to actively re-tool their model towards Africa. They should channel at least 25% of their funding into sustainable business investments. They can still be focused on the communities in which they serve.
Transfer Responsibility
The current paradigm is that Africa cannot solve its problems, and is perpetually dependent on foreign solutions. In actuality, Africa can solve most of its problems internally. Where foreign aid organizations bring help, it should be complementary.
Such bodies and agencies should target turning their current recipients into donors within a ten-year period. Repeating this process will subsequently reduce poverty and transfer the responsibility of wealth creation squarely into the hands of Africans themselves.
Africans Themselves Want Change
The current paradigm is that Africans are passive and beggarly. However, there is an increasing demand by Africans for trade rather than aid.
This desire is reflected both in the government and private sector. Presidents, like Yoweri Museveni of Uganda, are quoted as requesting more trade, not aid. Paul Kagame, President of Rwanda, has launched a national program to shift the mindset of his nation away from aid. This mindset is increasingly spreading across the continent.
Increased Investment in the Private Sector Improves Governance
The current paradigm is Africa is all about bad governance, and that only a change in governance can change things. This means the focus is on politics and governance.
There is a saying that he who pays the piper dictates the tune. When businesses are empowered, they are able to affect governance in the long run. They become stronger, growing into tax payers and hence influencers. They have a voice and sooner or later government listens to them. For example, the Nigerian government some time ago set up a committee of over 300 of its leading business people to craft business laws aimed at propelling its economy in the next ten years.
On the other hand, when a government’s chief source of income is foreign aid, it dances to the tune of foreign donors, which at times is at the expense of its local private sector. It is not motivated to listen to its people.
Business is Already Doing a Lot
The current paradigm is businesses in Africa are only greedy and exploitative. In truth, many successful African businesses have already taken up significant levels of social responsibility, including projects like fighting disease, sponsoring education, and developing community projects.
Through these companies, many have received aid from local sources. In a Lesotho clothing factory, staff has its maternity and other hospital needs covered by clinics sponsored by the company. In South Africa, staff is allowed to recommend social projects into which businesses invest. In some parts of the continent, companies send out staff to help in community projects like building houses. These examples help prove that businesses play a huge role in solving problems.
Africa Offers Unlimited Business Opportunities
The current paradigm is there are few profitable opportunities in Africa. Actually, almost every type of business operating in Africa shows profitability. Because most African countries have low development thresholds, there is huge demand in almost every sector. This is unlike many Western markets, which have become saturated.
There is Money to be Made
The current paradigm is there is no money to be made. People are poor and cannot afford goods and services.