We have all seen the signs of progress…a population of 1 billion — 350 million of which are in the middle class — and a continued increase in foreign direct investment, the last frontier for significant economic growth. These are all true — Africa is very much on the rise. Sub-Saharan Africa is home to six of 10 fastest growing economies in the world, and there is enormous potential for development to accelerate rapidly.
The question is: Does the speed of progress we see match the rosy projections? As African countries actualize their potential, certain issues have started emerging that we would need to address to see real economic development.
Everyone knows that doing business in Africa isn’t easy, but that is also true for many places around the world. The same challenges are constantly highlighted…corruption, lack of transparency, bureaucracy (in some cases they go hand in hand), lack of infrastructure — power, roads, rail, Internet, etc. These are the challenges that most people are aware of. But I tend to characterize them from a different perspective.
I see three main issues. First is the relatively low level of investor confidence and trust, which impacts how investors view risk and increases the price of projects. The level of private equity penetration is one indicator. In 2013, private equity investment represented only 0.1 percent of gross domestic product in Sub-Saharan Africa, according to the African Development Bank, as compared to 0.4 percent in India and 0.2 percent in China and Brazil.
The second is bureaucracy, both in governments and businesses with weak institutional memory and operating processes.
The third is a shortage of technical skills in the workforce. According to Makhtar Diop, the World Bank’s vice president for Africa, only 11 percent of African university students are studying subjects with potentially high employability, while 70 percent are enrolled in areas that have huge cohorts of unemployed graduates.
Overcoming these issues will drive continued growth of confidence with investors, which in turn will help resolve infrastructure issues. Africa needs vibrant economies that can continue to finance their infrastructure needs — power, aviation, healthcare and transportation — which will enable further economic growth. Multinational companies can play a significant role in Africa’s sustainable development.
At GE, one thing we have learned over the last few years doing business in Africa is that size can be an advantage as well as a disadvantage. So we try to use our global strength in product development, financial reach and capability — as well as our global leadership talent — to our advantage, while also counteracting the bureaucracy that size can bring by being local. This is an absolute imperative for any multinational in any market.
Over the past few years, localization has increasingly been mandated through prescriptive measures, employment mandates and partnership/JV requirements across Africa. These have been instituted because governments need to respond to the demands of a growing youth population seeking productive and fulfilling lives. Not coincidentally, most of these requirements have been put in place in resource-rich countries after many years of seeing raw material exports with minimal impact on economic growth in country. Companies tend to abide by these rules where they are in place, but we also have to take a more holistic approach. Restrictive policies may have a short-term impact, but in the longer term, open economies grow faster and are more dynamic in an increasingly global environment.
But there is a lot that companies can do that is consistent with efficiency and long-term success. Being local takes many shapes. Having a company’s leader and leadership team in the region is critical for credibility. You must have a significant number of local employees, especially at the leadership level. This ensures an appropriate understanding of the landscape and cultural issues. It is extremely difficult to do business in Africa today without understanding not only current events, but also the history of political, tribal and business affairs in each of the 54 unique African countries. You need to know where the decisions get made, as well as who or what can support or derail your business.
Developing local partners is important. Local companies can bring distribution, financing, technology, access and many other benefits. Having a local supporter can be very helpful in negotiating the landscape, and it also shows that the company will be there for the long term.
The private sector has to be part of the solution for Africa’s development, as well. Companies can use their corporate social responsibility resources in sustainable projects that are visible and contributing to growth. African entrepreneurs are setting a good example. In Nigeria, the Tony Elumelu Foundation aims to develop the next generation of business leaders for Africa and enhance African economies. In South Africa, the Motsepe Foundation focuses on economic empowerment, education and leadership. These projects all work to build the next generation in Africa. GE Africa’s corporate social responsibility platform, GE Kujenga, is empowering people by building valuable skills, equipping communities with new tools and technology and elevating innovative ideas that are solving Africa’s challenges. This program has touched more than 10 million people through several GE and GE Foundation programs.
Investing in the Next Generation
In addition to being local, there a few other things I would recommend for multinational companies.
It is important to have patience with the process. Too often, orders slip for a variety of reasons, which no doubt frustrates many companies’ headquarters. But you have to honor the process, and anytime a company tries otherwise, it opens up itself to potential corruption.
Multinational companies need to help build confidence in business. In too many places, business people or businesses are viewed with skepticism for historical reasons. It is important to work with governments to make sure they understand what the company brings to the table and — more importantly — improve the say/do ratio. Too often, governments have been misled with unfulfilled promises. Businesses need to make sure accountability is built in to their teams to finish projects in a timely manner and have adequate staff locally that can provide good service to customers.
Lastly, multinational companies need to help increase the quantity and quality of the local skills base. It is critical that we invest in the next generation — the theme of the U.S.-Africa Business Summit. We can all contribute to this, and there are many ways to make it happen. Businesses can work with local universities to help establish their curriculum, hire students for internships so they can see what working in a business is like, support young leadership initiatives and help build out educational infrastructure. The most critical shortage in Africa is finding enough trained people to support economic growth. With an increasing premium on speed and adaptability, it is critical that companies commit to develop local workforces that can handle increasing complexity.
So multinational companies need to be local, establish partnerships, have patience with the process, improve the say/do ratio and increase the local skills base. By doing some of these well, we can all contribute to the sustainable development of Africa and see this great continent’s potential become a reality.
Jay Ireland is President and CEO of GE Africa.