Into Africa

January 01, 2006

Africa inspires strong and often stark images. Most Western minds spring to either apocalyptic scenes – the Heart Of Darkness scenario – or they may conjure up glorious savannahs illuminated under majestic skies – the Out Of Africa scenario. Somewhere between is the newer Constant Gardener scenario. None accurately reflects the complexity or reality of the continent. All ignore the fact that many corporations work well and responsibly in Africa but that Africa needs more business to work better.

This point is particularly apt given the recent World Trade Organisation (WTO) meeting in Hong Kong. Admittedly, negotiations were more successful than those in Cancun that inspired an African-led walk out. Some small steps have been taken, including the EU’s agreement to end all farm export subsidies by 2013, and minimal concessions were made by the US regarding subsidies to its cotton producers. What happens at such negotiations is of course significant for the welfare of people in Africa and around the world. But it is important to focus on the existing business climate in Africa and highlight positive outcomes that can benefit both businesses and African societies, regardless of the fallout from Hong Kong.

Setting the scene

African economic growth was 4.6% in 2004, thanks to better macro-economic management, more stable political situations and debt cancellation. This provides ample opportunities for corporations, but they need to understand the situations of different African countries and to seize the opportunities that different markets offer.

For example, Botswana has an A+ credit rating from both Standard & Poor’s and Moody’s, while Ghana has the fastest growing stock exchange in the world, providing a return to investors of 144% in 2004. In keeping with this, the US Overseas Private Investment Corp reports that Africa is the region that offers the highest return on foreign direct investment, although it attracts the least.

This is not to deny the challenges of operating on the Continent: the International Finance Corporation showed that the greatest barriers to business activity are in Africa. In contrast, Rwanda and Egypt were among the top dozen pro-business reforming states in the world in 2004-2005, along with Germany, the Netherlands and Vietnam. However, the IFC reports that across the region, for every three countries that improved regulation, one made it more burdensome. In the course of their own jobs CR managers might well argue that a ratio of three steps forward to one step back is pretty good progress.

Multi-sector initiatives

Earlier this month, Anglo American, Shell and the UK government announced the creation of the NEPAD Investment Climate Facility, a private sector-led, public-private partnership designed to enhance Africa’s ability to achieve the 7% annual economic growth that is required to meet the Millennium Development Goals. Tony Trahar, Anglo American’s CEO stated that: “As a major investor in Africa we know that it can be an excellent place to do business, but in too many places enterprise is stifled by bureaucracy and inefficient regulation”.

One of the challenges of burdensome bureaucracy is that it can encourage corruption, one of the risk factors that many corporations worry about when considering investing in Africa. The problems of corruption are undeniable. An African Union report of 2002 estimated that corruption costs the African continent $148bn per year, accounts of a loss of 25% of GDP and increases the costs of goods by as much as 20%.

People have looked at countries like Sierra Leone, Nigeria and Angola, where the sale of oil and gas reserves has not led to reduced levels of poverty or improved standards of living and have referred to the “resource curse”, a phenomenon in which the rich natural resources of such countries are seen to fuel corruption, violence and poverty.

Mindful of this, industry-supported initiatives such as the Kimberly Agreement and the Extractive Industries Transparency Initiative (EITI) have been developed. The former promotes diamonds that are certified as coming from non-conflict zones and the latter encourages governments of oil and gas producing countries to declare publicly all the revenues they receive from the sale of the resources.

Building capacity

One of the greatest impacts that businesses have in Africa is through employing people and developing their skills. As much as 95% of ExxonMobil and 90% of Chevron’s staff in Nigeria are nationals as are 75% of managers. Both companies expect to see this trend continuing and in years to come there will be little need for significant expatriate involvement.

One of the companies most experienced in developing and supporting local capacity is Anglo American. In addition to supporting staff development internally it operates an independent investment company, Zimele, which originally began as Anglo American/De Beers’ Small Business Initiative (SBI) in 1989. It was designed to support black run businesses in South Africa at a time when it was extremely difficult for black South Africans to get funding for SME development. Although the circumstances of South Africa at that time were specific, a lack of access to credit or capital remains an often-insurmountable obstacle for many potential entrepreneurs across Africa. Elsewhere, Oracle is working with African universities to spot talented graduates to whom it provides training and job opportunities. However, the training is not for potential employees alone. Oracle sees advantage in graduates across the continent being well schooled in its technologies. Training will create job opportunities as well as supporting Oracle’s own interests across the continent. For similar reasons, this December, Microsoft signed a partnership agreement with Angola’s National Commission for Information Technologies and the National Reserve Bank to train 40 IT teachers to enhance computing skills in the country.

Local markets

CK Prahalad’s book The Fortune at the Bottom of the Pyramid has received many plaudits for highlighting the opportunities that exist for companies that look to meet the needs of poor consumers. There will always be markets for cheap, necessary or desirable products. In keeping with this understanding, both SAB Miller and Diageo have recently launched beers made from locally grown sorghum. Grain is locally produced, supporting local agriculture, as well as lowering the costs of production. This means beer can be sold more cheaply, making beer of reasonable and consistent quality available to consumers who otherwise drink illegally produced alcohol of unpredictable and frequently dangerous quality. In turn, this provides much-needed revenue to governments, both as sales and as corporation tax.

This is not to suggest that companies have to sell products for poor groups alone. An African middle class is emerging, able and wanting to buy higher end products. Frequently these people are employees of multinational corporations, or run local businesses that supply to them. If the experience of developed economies such as France and the UK are anything to go by, the emergence of this middle class will be fundamental to economic development and to the embedding of democracy.

Neil Duffin, ExxonMobil’s Vice President for Africa said at a recent conference: “The ultimate success of the oil and gas sector in Africa will be judged by the development of other sectors”. This is true of all business sectors and corporations that understand this and market their goods and services in Africa stand to benefit their shareholders as well as Africa’s citizens.

For corporations that see beyond the simplicity of the Out Of Africa scenario and the hellishness of the Heart Of Darkness one there are genuine opportunities in Africa. Actually, there are opportunities in both scenarios – Heineken kept its Rwandan brewery functioning throughout the genocide and receipts from tourism in 2003 were recorded at $18.6bn (the latest year for which data are available), an increase of 19.2% over 2002.

Many corporations are working well in Africa, delivering benefits to employees and wider society – the Constant Gardener model, minus the intrigue or violence. Sticking with the gardening metaphor, Africa’s business environment is rich and fertile. Companies that fully appreciate this and demonstrate it through their investments and activities on the ground stand to reap ample rewards.

Corporate Citizenship Briefing, issue no: 85 – January, 2006

Toby Kent is a consultant and client services manager for The Corporate Citizenship Company.

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