Can U.S. companies 'get' Africa?
The countries we most obsess about from the emerging world -- the so-called BRICS -- met recently in Africa. Many see this as more evidence of an international scramble for the world's greatest growth opportunity. But here in the United States, you would hardly know it. Instead, when the continent does come up in conversation, it is often in the context of "help," conflict, misused development aid and woeful political leadership.
But we are at a turning point. The old story of Africa as the final frontier is being replaced by a new narrative: one of economic growth and opportunity. Business, policy and civil society leaders who spoke at our "Africa's Turn?" conference last October expressed enthusiasm and cautious optimism for its future.
The U.S. perspective of needing to "help" Africa may start to look very dated as the continent experiences self-propelled growth and development led by a growing urban consumer class, enabling technologies such as wireless communications, and an emerging entrepreneurial sector.
The Nigerian finance minister, Ngozi Okonjo-Iweala, offers a simple piece of advice: to help Africa, do business there. It is time to take such advice to heart.
The U.S. business community ought to have a strong interest in doubling down on Africa. American businesses urgently need growth and a critical route to this is to penetrate the world's fastest-growing markets. As it is, the U.S. is severely under-represented in such markets. According to a 2010 study by HSBC, only seven percent of the revenues of U.S. multinationals were generated in emerging markets. Africa's contributions to this figure are significantly lower, even while it has been declared to be the world's fastest-growing continent.
Measured in terms of trade, less than three percent of U.S. global trade volume is with Africa, and the trends have been downward since a peak in 2008. As a point of reference, consider that China-Africa trade was $127 billion last year, while U.S.-Africa trade was only $94 billion.
But we shouldn't assume that it will be easy for U.S. firms to close the deal in Africa. One of the problems for American businesses leaders is that because of the absence of past relationships they have relatively little understanding of the markets, the consumers and the broader context of Africa. Many would be surprised to know that there are so many distinct markets and peoples across this vast continent. The generic business perspective of Africa is based on experience in a few "front door" countries, such as South Africa, Nigeria and to a lesser extent Kenya and Ghana.
Complicating U.S. efforts still further is the fact that it does not have the same ties dating back to colonial times like European countries; it can miss out on existing political, cultural and linguistic connections.
The continent appears even more forbidding because of the persistent reminders of worst-case scenarios from countries like Congo. Millions have died or are being displaced there. While businesses crave access to the country's abundant natural resources, the U.S. has little background on the socio-political context or even complicated geography of Congo -- and our laws, rightly, prevent businesses from operating there. Without an understanding of the regional context, we cannot engage politically or commercially. For many executives, Congo is the predominant reminder of Africa's inherent riskiness.
Some U.S. firms, though, have seen the potential and are making their move, but they have to learn to adapt to the African context and innovate. Take Yum! Brands and its hopes for a flourishing African KFC franchise. What the company reportedly didn't plan for was that there was a lack of reliable supply of chickens in the first place! KFC cannot grow by following the traditional management mantra of focusing on core competencies; it has to figure out how to invest in filling the gaps and developing upstream institutions.
However, all is not lost -- a small minority of American companies have been on the continent long enough to have developed sufficient "contextual intelligence" to innovate and show the way to others. Coca Cola, for example, has been in Africa since 1929 and has a footprint across the continent. In addition to adapting distribution techniques developed in other emerging markets, Coca Cola has actively invested in closing some of Africa's many institutional gaps. For example: in collaboration with TechnoServe and the Gates Foundation, it supported Kenya and Uganda farmers in improving their cultivation practices for fruits used in the company's fruit juices business.
Still, given the political uncertainties and the many institutional voids across the continent, American business will need guidance and leadership not just from successful enterprises, but also from Washington. Yet, with the exception of the White House's new "strategy" toward Sub-Saharan Africa announced last June, the Obama administration has engaged in little systematic outreach toward Africa. The follow-up "Doing Business in Africa" program will help identify trade and commercial opportunities in Africa and facilitate trade promotion and financing through OPIC, the Ex-Im Bank and USTA. This is all well and good, but it is a modest start and we have plenty of catching-up to do.
Yet, despite all the challenges, U.S. firms' democratic roots may give them a competitive edge relative to early-mover competitors from nations like China. The U.S. can work to ensure that Africa's fast growth also results in a real middle-class that flourishes in economies that are diversified beyond purely extractive industries. But this requires a coordinated strategy connecting American business and geopolitical interests that works together to close the many institutional gaps. Given the socio-political nature of these gaps, businesses cannot accomplish this alone.
Sure, we can help Africa by doing business there. But as things stand now, American businesses may be in need of some help themselves.
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