Emerging Markets Business Summer 2016 | Page 64

OUT OF AFRICA? The Expert Take ELSIE S. KANZA, HEAD OF AFRICA AND MEMBER OF THE EXECUTIVE COMMITTEE AT THE WORLD ECONOMIC FORUM When I joined the World Economic Forum in 2011, there was great excitement and anticipation that Africa would begin attracting the levels of foreign direct investment that characterized India’s economic growth in the decade before. Fast forward to 2016 and there is a sense of trepidation and misgiving among some international businesses, with a number re-calibrating the scale of their investments and a few scaling back altogether. In my opinion this pessimism is wrong: I believe that Africa’s fundamentals remain as solid today as they did five years ago. After all, this is a continent made up of 54 countries that is set to be home to 40 percent of the world’s population at the end of this century, and that has been growing above the global growth rate for some years. But if this is the case, why hasn’t the company in question been succeeding? One, the basis for determining the size of the investment opportunity may possibly have been flawed. It is fiendishly difficult to determine the purchasing power of the average African consumer when nine out of 10 are in the informal sector. The informal sector is characterized by multiple sources of income that vary in amounts on a daily basis, along with varying outflows for goods and services, and the tradition of supporting dependents in extended families. Ironically, this is a structure not dissimilar to the ‘gig economy’ that is beginning to characterize large swathes of the labor market in advanced economies. Two, multinational corporations (MNCs) tend to impose global mindsets on local conditions with pressures to meet short term financial projections, irrespective of the local customer needs and the operational environment required for long-term success. Local competitors thrive by ensuring relevant products, affordability and cost efficiency. In contrast, I am often shocked by the assumption amongst MNCs that emerging consumers could afford to buy basic packaged food and beverag e products from the mall. Moreover, the majority of Africans that I know prefer natural products that they can buy in small units at the local market. Three, most Africans live in rural areas and this calls for innovative business models and distribution networks. Many forget that Africa is geographically large enough to include—  amongst others geographies—North America, Western Europe, India, China, and Japan. So, what should the company do to turn things around? In a nutshell, it needs to get to know the countries and, increasingly, the cities it plans to reach. It should then develop a strategy to fit the local consumer-facing trends. Commodityrich countries, predominantly in west and southern Africa, 62  Emerging Markets Business  Summer 2016 • Issue No. 1 are suffering like their global counterparts, while some non-commodity rich countries in eastern Africa are thriving with growth rates above six percent. Long-term strategic investments and in-depth understanding of Africa’s varying contexts, are most likely to pay off. The company must remind itself that the business case for investing in Africa has not changed. Despite bumps in the road, in the long term these wrinkles will be inconsequential. Consumerism is rising steadily and will continue to do so as Africa’s youthful population gets older. Meanwhile, macroeconomic and political reforms continue, spurred by the urgent need to create jobs for Africa’s youth in order to maintain peace and stability. In addition, governments are increasingly embracing collaborative partnerships with the business community in order to fill the financing gaps arising from ambitious development plans and waning aid. Furthermore, with depreciated currencies, assets are cheaper and new opportunities, including the use of foreign exchange as guarantees to back local borrowing, are increasing. Market data is improving too; though its reliability remains a challenge, technology is rapidly closing this gap. Last but not least, if this European multinational and other MNCs like it want to succeed in Africa, they need to be in the continent and growing faster than the rest: growth in sub-Saharan Africa has been almost 50 percent over the past decade compared to 23% for the rest of the world. It is a challenge, but an exciting one. “Watch out for outsiders misinterpreting Africa” – Dr. Donald Kaberuka, former President, African Development Bank