September 26, 2013

Four Things You Thought You Knew About Africa

You may think you know the world’s largest continent as a place of spotty governance and unreliable infrastructure. But there are pockets of progress that represent real opportunity for forward-thinking investors.

Sharon Kahn

Jonathan Berman knows a fast-growth economy when he sees it. He has worked in China and, he says, “when I walked through the streets of Nairobi or Lagos, I felt the same hum — the same dynamic, explosive atmosphere.”

But few people in the world’s business centers knew the story of what was going on in Africa, he says. That ignorance wasn’t due to a dearth of statistics that readily demonstrate the heightened pace of African growth. “What was lacking was a narrative to overcome the image of Africa that had come before,” says Berman, who hopes to help shatter the image with his new book, “Success in Africa: CEO Insights from a Continent on the Rise” (2013, Bibliomotion).

In a recent panel discussion cosponsored by the Chazen Institute, Berman, now a senior fellow at The Columbia Vale Center on Sustainable International Investment, joined Paul Tierney, Jr., adjunct professor at Columbia Business School, and Antonio Pedro, director of UNESCA’s Sub-regional Office for Eastern Africa. The lively discussion reflected the complexity of doing business on the continent and the misconceptions that still plague it.

1. Africa is a place of happy animals and miserable people.

This, said Berman, is one of the prevalent perceptions of Africa, but it’s one that’s being outmoded. Starvation-level poverty is gradually being replaced by a middle class with money to spend on consumer goods, education, and much-needed infrastructure. Noting that six of the ten fastest-growing economies in the world are in Africa, Pedro added, “600 million people will enter Africa’s middle class in the next few years.” Further, “the democratic process is replacing what was a succession of coups. The risk profile of operating in Africa is falling fast.”

2. African markets are too small to support business opportunities.

It’s true that most of the 54 individual nations in Africa do not attract significant interest from many multinationals or even local start-ups with growth aspirations. But, as a continent, Africa’s billion people make it the second most populous market in the world (behind Asia), a number that will likely double by 2030.

The panelists insisted pan-African companies are the future. Trade blocs formed in the past few years make doing business easier, at least on a regional basis. For example, the East Africa Community, whose members include Kenya and Uganda, represents a market of 140 million people — with the populace expected to grow to 250 million by 2050. Similar trade blocs operate in west, central, and southern Africa.

A caveat: the panelists emphasized that one size hardly fits all in Africa, as too many multinationals have learned when trying to market across the continent. Different cultures, languages, and consumer preferences require targeted solutions and marketing messages.

3. You can’t do business in Africa without paying bribes.

Panel members agreed that corruption remains a concern (although Tierney put it more diplomatically, saying African CEOs have to be “more politically savvy” than executives operating in most developed countries). “At best, corruption brings uncertainty,” noted Berman. “At worst it’s a tax.”

A study by the African Development Bank and Global Financial Integrity estimates that Africa's “illicit outflows” fell to $74.2 billion in 2009 (the latest data available) from a high of $103.7 billion in 2007. Although the decline may have reflected the global financial crisis, the panelists saw corruption as fading thanks to the passage of laws, increase in transparency, and simple refusal to play the game. “Once in Africa, American companies say they are not at a disadvantage” because they refuse to pay bribes, said Berman.

4. Africa is too backwards for modern business.

No one denies that much of Africa suffers from infrastructure constraints. But as countries are starting to build roads and power plants and deliver safe food and water, entrepreneurs and seasoned business people alike find ways around the roadblocks.

One example is significant vertical supply-chain integration — for example a packaging plant might also raise the animals and farm the fields needed to feed them. “US entrepreneurs don’t worry about a million things like roads and clean water,” said Berman. “Africans have to be knowledgeable about many subjects.” He pointed to an investor interviewed for his book: “When he looks to invest, he doesn’t want a strategic CEO, but someone who functions like a COO. Life is so challenging in fast-growth countries, you have to be good at practical stuff.”

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