If the ‘Rising Africa’ hype has you eyeing investments in Africa, read this first

by Bhaskar Chakravorti
Senior Associate Dean, Tufts University
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 im
plications 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.

You can find Bhaskar Chakravorti on Twitter at @IBGC_Fletcher.

Posted by on Aug 14 2015. Filed under African News. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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