If the ‘Rising Africa’ hype has you
eyeing investments in Africa, read this first
It's
not all just "rising Africa."(Reuters/Jonathan Ernst)
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3 hours agoQuartz Africa
In June, global food giant Nestle was forced to downsize its
operations in Africa, after having gone too big too fast because its managers
had cast Africa as “the next Asia.” Belatedly, those same managers eventually
realized that the two continents are, well, continents apart, and that Africa
could not sustain the same growth they had seen elsewhere.
It’s an important lesson—for investors, for intellectuals, and
even for politicians.
For generations, the story of Africa has been one of despair,
famously headlined as the “Hopeless Continent” by The Economist only 15 years ago. Now,
the newer story about Africa is that of “rising Africa,” which US
president Obama frequently referenced on his historic tour to Kenya and
Ethiopia. Certainly, the first visit of a sitting US president to Kenya has
helped to put all of Africa back on world newspapers’ front pages—and on the
business pages, too. But this “rising Africa” narrative is still vulnerable to
what the Nigerian author Chimamanda Adichie once described as “the single story.”
By replacing multilayered reality, Adichie argued, any “single
story” about any foreign country or nation can lead to costly mistakes.
Business leaders would be wise to take heed. If we look closely for all the
complexities in market opportunities on the African continent, there are three
ways in which the stories we tell might multiply:
People: There is no single Africa
Obviously, Africans are far from being a single people. While
technically comprising 54 countries (or 55 if one also counts the disputed
Western Sahara), the continent’s political boundaries are a relatively recent
colonial legacy; there are potentially even more nations within Africa.
Across the official countries, there is economic unevenness,
diversity and contradiction. Between Nigeria and South Africa (the continent’s
two biggest countries, accounting together for 63% of Sub-Saharan Africa’s
total GDP), future prospects vary considerably. According to the IMF, Nigeria is expected to
grow over 5% this year, while South African bank Nedbank predicts
that South Africa’s economy will grow at a much lower 1.6%. Ghana and Zambia,
on the other hand, have suffered from large macroeconomic imbalances and
resulting inflationary pressures, while Rwanda and Botswana—often held up as
economic models for nearby countries—represent only about 14 million people in
a continent of over a billion.
At the same time, the effects of shared histories often engender
a kinship that cuts across the continent. So while there are vast differences
from country to country, even a story about Africa as a collection of totally
disparate peoples or nations risks missing the point.
Market: There is no single measure of Africa
as a market
Much of the enthusiasm about business in Africa has been based
on estimates of a growing middle class. Media reports and company presentations
have repeated statistics that paint an upbeat picture, such as consulting firm
McKinsey’s oft-cited 2010 report “Lions on the Move,” which estimated African consumer spending
would grow from $860 billion in 2008 to $1.4 trillion in 2020.
In 2011, the African Development Bank sized up of the African
middle class at 330 million people in 2011, and predicted it would grow to 500 million by 2030.
But a very different picture emerged from a 2014 analysis by Standard Bank,
which estimated that the middle class across 11 sub-Saharan countries
(representing half of the region’s total GDP) would reach only 22 million people by 2030.
Whether optimistic or sobering, statistics alone are hard to
trust. According to the 2014 Africa Survey by Good Governance Africa,
17 African countries have not conducted a census in the past decade and five
have not conducted a census in over 20 years.
In 2012, Nigeria’s GDP was estimated at $268.7 billion. In 2013, it nearly doubled when
the government “rebased” its estimates after a lapse of 24 years. According
to Morten Jerven, author of Poor Numbers, the
statistical capacities of sub-Saharan African economies have fallen into
disarray and simply cannot be trusted.
Far from a single story, it is unlikely that we can even know how many stories
there really are on sizing-up the true African market opportunity.
Strategy: There is no single playbook for
Africa
For businesses, this has several implications for evaluating
opportunities on the continent and how to approach the market.
First and foremost, it is key to get comfortable with multiple
stories and prepare to process them simultaneously.
Second, it is essential to invest in parts of the market value
chain that may be far from a company’s zone of competence, no matter what the
true size of the opportunity turns out to be. Just as multinationals Coca Cola, Diageo and SABMiller invest in
African smallholder fruit and barley farmers to make local supply chains more
reliable, brands like Yum!’s KFC franchise must make investments in scaling-up
(in this case, in scaling up local poultry farming so that there is a reliable
supply of chickens on the continent.)
Third, no single player can take on the many—known and
unknown—gaps in the wider business context on their own. Developing the
context, growing the market and growing with it will require a multiplicity of
partnerships, with home-grown companies, smaller ventures, NGOs and even
governments.
Singapore-based agri-business company Olam, for example, has a broad portfolio of collaborations in Africa with
companies, with NGOs with specific technical capabilities, with agricultural
associations and governments. This creates a mechanism of risk-sharing, but it
also creates leverage and allows managers to better evaluate the gaps in supply
chains, distribution and local institutions that need to be closed, as well as
the on-the-ground specialized capabilities that can help close them.
There is no winning formula
The truth is that there is no single winning formula for the
African market. A company like Nestle, which has done many of the right things
by investing in “best practice” sustainable and inclusive business
models elsewhere could be recommended for nascent markets in
Africa. But even as Nestle has struggled to find the sweet spot among African
consumers, other home-grown companies have done better on a more local level
and at a smaller scale.
The true untapped potential of Africa may be its youth; more
than half of all Africans are now younger than 25. With few opportunities in
the formal sector and no safety net, many young people work in the informal
sector or in small family businesses, and the ubiquity of mobile phones is creating
clusters of digitally enabled entrepreneurship in some regions, particularly in
Kenya. Combined with increasing urbanization, this could be the makings of an
African entrepreneurship boom, and the entrepreneurial ecosystem could evolve
as a powerful partner—as supplier or customer—to foreign investors.
But for
now, it is troubling to read about Africa in overly simple terms that veer from
the irrationally exuberant to politically correct to post-colonial patronizing.
Despite his well-warranted optimism, president Obama eventually did acknowledge
Africa’s many stories, ending his tour by calling out some of the region’s
less-flattering nuances—from the evils of tyranny based on gender or sexual
orientation to the corrosive effects of “presidents for life.” Obama showed
courage and wisdom in tackle these many stories and uncomfortable truths, even
as he celebrated Africa’s potential. It would be smart for business leaders who
have Africa on their radar to do the same.
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