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Business Management

Africa, compared to other emerging markets

Africa is Open for Business is a collection of 50 essays by Victor Kgomoeswana published by Pan Macmillan South Africa in Spring 2014. These address the continent’s business readiness and we’ve included an extract below.

Everybody with a sense of matters economic agrees that Africa is the future. Any company that dreams of sustainable growth and return on investment knows that the greater risk is not being in Africa, but not being in Africa. Respected opinion-makers – McKinsey, Boston Consulting Group, EY, The Economist, the World Bank and many others – have made a case for Africa. Foreign direct investment inflows have risen consistently for longer than a decade, sealing the argument about whether or not the continent is the place to do business.

Even with political hiccups in certain countries – for example, South Sudan or those affected by the Arab Spring in North Africa – political stability and governance are improving across the continent. The billion Africans are still only 15% of the world population (United Nations’ projection for 2050 being 2.4 billion) on a continent whose land mass accounts for 20% of the total earth surface. Our minerals and resources can outlast those on any other continent.

I believe in Africa more than many – but I have one gripe. This Africa phenomenon, as I just represented it, still means very little when compared to other emerging markets, specifically China, India, Russia and Brazil.

Too many pieces to the African puzzle

The World Bank Ease of Doing Business 2014 report puts South Africa at 41, while the four other members of the BRICS did not score as well: Brazil (116), Russia (92), India (134) and China (96). Eight African countries, including South Africa, are ranked ahead of Russia and China; nine ahead of Brazil and fifteen ahead of India!

Isn’t it reasonable then to expect that these countries will attract foreign direct investment more than their emerging market counterparts? It isn’t. Not even South Africa can hope to achieve that feat. Why?

Africa is far too emulsified to matter. Fifty-four states with their bureaucratic idiosyncrasies, compared to one China or India, each with more than a billion people, can never hope to mount a respectable challenge. When a multinational investor negotiates a business licence in China or India, they are making a play for a billion customers. Compare that to less than a million in Swaziland (ranked 123) or Cape Verde (121), or Namibia (98) and Botswana (56), both with about 2 million people each. Even if you were to get licences to operate in all the countries ranked ahead of China, your market would still not be equivalent to one major city in China!

Investors do not follow rankings blindly. They consider everything relevant in conducting their due diligence, but with one thing in mind: the risk-reward ratio.

This means an investor is likely to put up with the difficulty of setting up shop in India (with its business registration climate ranked at 134), because they know that the sheer size of the market will more than make up for the time and cost of setup.

Guilt by association

When Angola hosted the African Cup of Nations in 2010, there was a shooting in Cabinda that killed some of the Togolese national team crew members. On the same day, questions were asked about the safety of soccer fans who would be travelling to South Africa, thousands of kilometres away, in June of the same year for the FIFA World Cup.

Similarly, Somali pirates have managed to taint the entire east coast of Africa, not just the Horn of Africa, with their activities off the Somali coast. One incident in one city in one African country can have negative ripple effects stretching over an unjustifiable radius. I happened to be in Kinshasa, Democratic Republic of Congo, in June 2012, when there was fighting about 3,000 kilometres in Goma, in the eastern part of the country. Everyone I spoke to asked me how I was coping with the shooting. I subsequently convinced everyone that I had a death wish when I travelled to Rwanda on holiday while the fighting was going on.

Fear is born out of ignorance. Africa is still not well understood abroad and ignorant investors make calls on the basis of one incident in one part of one city in any of the 54 African countries that negatively affects the entire continent. The problem in addressing such a misconception is that all the African states will have to make a statement disputing these assumptions, which takes a long time, and makes the situation more desperate the harder everyone tries.

On the other hand, China can deal with any incident in any of its cities using the same face because there is only one country involved. Brand China or Brand India as a result become more recognisable and respected. For poor Africa, one rogue president or minister can taint the continent with an irresponsible statement.

Entrepreneurs are the same everywhere

Travelling helps one appreciate the similarities between entrepreneurs all over the world. I meet the same type of entrepreneurial youngsters in Soweto, South Africa, as those I encounter in Kampala, Uganda, or Douala, Cameroon. They are looking for the same thing: opportunity. The difference between them and those without entrepreneurial flair is that they are persistently willing to make a way where there is none.

Indian entrepreneurs or their Chinese counterparts benefit from trade missions or those endless meetings of heads of states at BRICS or other emerging markets congregations. When the premier of China or president of India attends these summits or trade missions, they represent millions of entrepreneurs back home. How many do the presidents of South Africa, Equatorial Guinea, Lesotho or Sierra Leone represent? The return on time and resources invested in such economic diplomacy is exponentially higher for larger emerging market economies than for small African countries. The only way for Africans to benefit equitably is for Africa to speak with one voice.

That au will of the wisp!

Africa – as a unit – does not exist politically, economically or socially.

When faced with a political crisis, as we saw in Côte d’Ivoire, Niger, Libya or any other African country, the African Union (AU) more often complains later about how the United Nations, US, or France ran roughshod over the interests of the country affected, in total disregard of the AU position. Well, if that AU position had been stated loud and clear, with actions and resources to back it, nobody would have been able to ignore it. African institutions have a long way to go before they are solid and effective.

Economically, China, India, Turkey, the US and the European Union are some of the entities negotiating divisive economic partnership agreements with individual African states to protect – not African – but their own interest. Even when the BRICS Summit came to Durban, South Africa, in late 2012, I sensed that South Africa as the only African member of the bloc did not have a deliberate action plan to make sure that its voice was legitimately that of the rest of the continent. It should not shock us that there is such a parti-coloured investment and economic climate across the continent.

Socially, Africans are not consistently united across the continent. Xenophobic attacks in countries that are better off and attractive to economic refugees from elsewhere confirm that there is no such thing as African solidarity, or at least not when Africans need each other most. In comparing itself to the other emerging markets, Africa would do well to heed the call of Kwame Nkrumah at the independence of his own country, Ghana, in his independence speech: ‘Our independence is meaningless unless it is linked up with the total liberation of Africa.’

Until we translate this thinking to action, our assertion that Africa is open for business might as well be equated to ‘Africa is open to exploitation’!

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