We Need African Solutions To African Challenges
Corruption, high start-up costs, poor infrastructure, incoherent
regulation and weak governance – these are the oft-cited barriers to
foreign investment and regional integration in Africa. But this
storyline is rapidly changing.
With recent increases in the
disposable income of the citizenry, demographic trends favouring new
entrants to the workforce, urbanisation – and with that, the
diversification of incomes outside of traditional, rural sectors –
Africans are turning inward, investing at home and setting the trend for
how future business will and should be conducted on the continent.
Sustainable business solutions are helping to underpin this encouraging
trend.
No one wants to do business in an unpredictable
environment and African investors are just as discerning and cautious as
their international counterparts. But with a closer vantage point,
perhaps we see the opportunities more clearly.
Togo-based
Ecobank Group, supported initially by the Ecowas fund, was one of the
first to focus on cross-border expansion to “Middle Africa,” then
dominated by foreign and state-owned banks. The company now provides
financial services in 33 African countries with assets valued at $19bn.
Others like United Bank of Africa are following suit. According to Ernst
& Young’s Africa Attractiveness Survey, Nigerian and South African
FDI flows to other African countries are over $1bn each, and growing.
Over the last decade, Kenya Commercial Bank (KCB) Group investments were
higher than multinationals such as Coca Cola, Total, French cement
conglomerate Lafarge and beer maker SABMiller among others, ranking it
among the top five investors on the continent.
This burgeoning
phenomenon runs contrary to our historical trade patterns, which have
tended strongly toward the export of raw materials both to the West and
to the East. Despite sustained GDP growth over the past decade, the vast
majority of the population does not experience any ‘trickle-down’
benefits. The frustration is growing; Africans are creating their own
solutions. The focus on value-added processing before domestic or
international sale; service-oriented businesses for the growing consumer
class; and expansion into neighbouring countries with similar legal or
socio-cultural practices to achieve economies of scale are all clear
indications of movement towards more sustainable growth. And, when
companies engage in sustainable business practices, this also helps
support intra-African trade, enabling companies to build scale quickly
by tapping international capital and expanding regionally and outside of
Africa.
We’re also being creative about addressing market
failures and taking the initiative to better place our development
partners’ monies in order to catalyse sustainable new opportunities for
the private sector. For example, African agriculture – a sector
attracting both domestic and international investors – is particularly
exposed to the vagaries of the weather. Every time we have a severe
drought or flood, lives are lost, assets are depleted, and development
gains suffer major setbacks – forcing more people into chronic
destitution and food insecurity in the world’s least developed
countries.
We rely on cost-ineffective ad hoc charity for each
disaster, while developed countries use insurance-like risk management
systems. So why don’t we?
African Union member states have
bonded together to create the African Risk Capacity (Arc), a
ground-breaking extreme weather insurance scheme designed to model and
price Africa’s weather risk – where the private sector failed to invest.
The Arc is a disruptive innovation, which aims to create a new market
and value network not only for the global (re)insurance industry, but
also for capital contributors interested in protecting investments in
the continent’s agricultural sector. By utilising modern risk management
techniques to protect investments and accumulated assets, Arc aims to
contribute toward building resilience among vulnerable populations,
promoting fiscal stability by preventing budget dislocation, and
increasing productivity and economic diversification in some of the
world’s fastest growing economies.
It is sustainable business
ventures like the Arc and others that pave the way to an improved
investment environment on the continent. And shortly, we expect that
this trend will crowd in other investors, both continental and
international, at an accelerated pace. As we cease to rely exclusively
on extractive industries, we can focus rather on the rising and powerful
consumer class to fuel the continent’s more sustainable growth.
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