[ 2010-07-12 ]

Business is transforming Africa for the better
FOR once an investment fad seems justified: the
21st century is shaping up to be that of the
emerging markets, just as the 20th was America’s
century and the 19th Britain’s. But that leaves
open the question of which countries, exactly,
will emerge. Will Asia and Latin America mark the
limits of the spreading prosperity? Or will the
boom reach the perennial laggard, Africa? Will a
new pride of economic lions take their place
beside the Chinese dragon and the Indian tiger?

Ten years ago The Economist dubbed Africa “the
hopeless continent”. Since then its progress has
been remarkably hopeful. In 2000-08 Africa’s
annual output grew by 4.9% (adjusted for
purchasing-power parity), twice as fast as in the
1980s and 1990s and faster than the global average
of 3.8%. Foreign direct investment increased from
$10 billion to $88 billion—more than India ($42
billion) and, even more remarkably, catching up
with China ($108 billion). The Boston Consulting
Group notes that, since 1998, the revenues of
Africa’s 500 largest companies (excluding banks)
have grown at an average of 8.3% a year.

But is this growth sustainable? Or is the current
fad for Africa just another bubble? The pessimists
have always had three strong arguments. One is
that African politics is dysfunctional. Warring
strongmen can undo the progress of decades in
weeks. A second is that the African economy is
unduly dependent on the resource sector. A third
is that Africa’s growth does too little to benefit
the poor. But over the past decade, all these
objections have weakened.

The numerous examples of government failure can
now be weighed against examples of success. The
continent’s inflation rate has been reduced from
22% in the 1990s to 8% since 2000. The World
Bank’s annual “Doing Business” report ranked
Rwanda as the world’s top reformer this year,
based on the number and impact of steps to promote
entrepreneurship there. Mauritius was ranked 17th
of the 183 economies covered by the report, ahead
of lots of richer places.

It is true that Africa has depended on its
abundant natural resources; and they will be a
growing advantage in years to come. The hectic
pace of growth in the emerging world is not only
pushing up commodity prices but also intensifying
competition for the right to drill the continent’s
oil and mine its minerals. Chinese companies in
particular are wooing African governments with
lavish expenditure on infrastructure.

McKinsey points out that the natural-resource
sector accounts for only about a third of the
continent’s growth. Africa is producing a growing
number of world-class companies outside the
resource industry, from South African giants such
as SABMiller, the world’s second-largest brewer,
and Aspen Pharmacare, the largest
generic-drugmaker in the southern hemisphere, to
niche players such as Tunisia’s Coficab, one of
the world’s most successful suppliers of wiring
for cars.

As to the poor, McKinsey points out that, thanks
to rising living standards, some 200m Africans
will enter the market for consumer goods in the
next five years. The consultancy also notes that
the continent’s working-age population will double
from 500m today to 1.1 billion in 2040.
Consumer-goods companies ranging from Western
giants such as Procter & Gamble to emerging-market
car companies such as China’s Great Wall and
India’s Tata Motors are pouring into Africa.
Foreign firms are likely to start using Africa as
a base for manufacturing as well, as Europe’s
population shrinks and labour costs in India and
China rise.

Africa is also seeing the benefits of “frugal
innovation”—inventions that are designed to serve
the poor. Mobile-phone companies, which have done
more than anybody to improve the lives of poor
Africans, are continuing to innovate. Kenya’s
Safaricom and its rivals are pioneering
money-transfer by mobile phone (see article);
mobile savings and agricultural-insurance schemes
are next. Companies from other emerging markets
are also expanding into Africa. Bharti Airtel,
which completed its $10.7 billion acquisition of
Zain Africa, is a world-leader in improving
services while reducing costs.

Nor is innovation confined to telecoms. Vijay
Mahajan of the McCombs School of Business at the
University of Texas, Austin, produces a long list
of innovators in everything from the design to the
distribution of products. Nakumatt, a Kenyan
retailer, allows people living abroad to buy
vouchers for its stores and then transfer them to
their African friends and relatives, making
remittance payments smoother. Other
bottom-of-the-pyramid innovations include the
Jiko, a portable charcoal stove that can reduce
fuel consumption by 30%; the Q-drum, a
doughnut-shaped plastic container that can be used
to transport water by rolling it along the ground;
the Weza, a foot-powered generator that can be
used to charge cell phones and radios; and a $20
washing machine made from discarded motors and
iron.


Lions and bulls

A decade of growth has also given Africa’s
business people a new élan. Mo Ibrahim, a
mobile-phone pioneer, has established an index to
measure governments’ performance and an annual
prize of $5m, plus $200,000 a year for life, to an
African leader who rules well and then stands
down. He has also founded a venture fund which
plans to invest $200m in Africa this year.

Such successful entrepreneurs can point to
countless examples of how business can improve
people’s lives. In Kenya, where the government has
removed its dead hand from the telecoms market,
mobile phones are ubiquitous; in next-door
Ethiopia, where the government’s grip is as tight
as ever, only 2% of the population has phones. A
few African lions are beginning to take their
place next to the dragons and tigers.

Source - Economist.com/blogs/schumpeter

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