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