To transform Africa’s economies, African companies matter too

PUBLISHED: Thu, 27 Apr 2017 08:07:27 GMT
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A consistent feature of global analyses of Africa’s economic prospects is their fickleness. In the years since the global financial crisis in 2008, forecasts about Africa have swerved from deep pessimism to heady optimism, and back to a bearish outlook of slow growth and fragility.

The vacillation in perceptions of African economies closely mirrors both the boom and bust cycle of global commodity prices, and the sentiments of Western and Chinese investors. But as global attention shifts yet again to the urgency of diversifying Africa’s economies from unprocessed commodities, the role of the domestic African private sector remains poorly understood by outsiders, especially academics.

The media has fared slightly better in spotlighting the exploits of tycoons such as Sudanese telecoms giant Mo Ibrahim, Nigerian cement magnate Aliko Dangote, Zimbabwean telecoms entrepreneur Strive Masiyiwa and others. But although African business owners have been powerful forces in African economies since the colonial period, they are often ignored in research and analysis.

A consistent feature of global analyses of Africa’s economic prospects is their fickleness. In the years since the global financial crisis in 2008, forecasts about Africa have swerved from deep pessimism to heady optimism, and back to a bearish outlook of slow growth and fragility.

The vacillation in perceptions of African economies closely mirrors both the boom and bust cycle of global commodity prices, and the sentiments of Western and Chinese investors. But as global attention shifts yet again to the urgency of diversifying Africa’s economies from unprocessed commodities, the role of the domestic African private sector remains poorly understood by outsiders, especially academics.

The media has fared slightly better in spotlighting the exploits of tycoons such as Sudanese telecoms giant Mo Ibrahim, Nigerian cement magnate Aliko Dangote, Zimbabwean telecoms entrepreneur Strive Masiyiwa and others. But although African business owners have been powerful forces in African economies since the colonial period, they are often ignored in research and analysis.

For example, DSTV, MTN and Shoprite are now South African multinationals ubiquitous across Africa – unleashed by the end of apartheid rule. In financial services, some successful African firms cut their teeth through decades of trial and error, bankruptcies and mergers, and are now competing with foreign firms. UBA, Access Bank and other Nigerian banks used the springboard of reforms in the mid-2000s to recapitalise and expand across the continent alongside Ecobank and other big pan-African banks.

The entrepreneurs running these firms tend to have a longer planning horizon necessary for kick-starting industries that are not reliant on extractives. This is pivotal to economic diversification in Africa. Because they are often indigenous and so physically and psychologically invested in their operating environments, they have risk mitigation strategies which often elude their foreign counterparts.

Of course, indigenous companies can often descend into cronyism, rent-seeking and abuse of proximity to political power. The 1980s and 1990s in Africa were a wasteland of collapsing firms kept on life support with costly subsidies by cash-strapped governments. And Nigeria’s banks suffered their own major crisis in 2009.

Certain entrepreneurs have leveraged their proximity to power to lobby for favourable policies, tax breaks and gain dominant market share, but also to expand across industries and countries. With 95% market share, Safaricom, the force behind Kenya and East Africa’s mobile banking revolution is accused of monopolising the mobile money market. So has Dangote, whose companies are often accused of undercutting local and foreign competitors in cement production.

Small firms, big weight

Development agencies from UN agencies to the African Development Bank have focused on improving the productivity of micro and small enterprises, which provide more than 45% of employment in sub-Saharan Africa. And Africa’s “tech start-ups” are never far from the headlines.

Yet, recognising the relationship between influential African conglomerates and the ubiquitous small companies in trade, cottage-industry manufacturing and agriculture is vital to understanding Africa’s ongoing economic transformation. For example, tax breaks and other business incentives in Export Processing Zones that are popping up across the continent are more beneficial to large-scale firms than smaller ones, according to a World Bank study. At the same time, they also provide an opening for understanding how linkages with powerful big businesses could enable smaller businesses to break into national and global markets.

The agenda to diversify Africa’s economies from dependence on resources and an informal sector is accelerating. But poverty reduction and economic diversification cannot be achieved unless more research and investigations are made to develop a deeper understanding of the dynamic landscape of African enterprise, including both big and small businesses.

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