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Africa beyond the numbers: getting down to business

Recently Ernst & Young (E&Y) launched its third annual ‘Africa Attractiveness Survey 2013’ which I co-authored. I’m often asked for deeper analysis and to present the main findings. Recently at a meeting of risk professionals, I moved beyond the numbers and tried to emphasise the issues around Africa’s persistent perception gap. I started by telling a quick true story.

Aliko Dangote

Nigerian cement tycoon Aliko Dangote is one of the richest people in Africa. According to the author there are now over 120,000 US dollar millionaires on the continent.

It goes like this: Not too long ago there was a very rich country, an economically and industrial advanced economy. This rich country gave a US$10 billion concessional infrastructure-for-oil loan to a poor resource rich and underdeveloped country. The negotiation of this type of loan took place at the bilateral state level, and the terms were such that the poor country would mortgage its resource (oil in this instance), while the rich country would come and build infrastructure in exchange for a specified off-take volume of the resource. In the process of rolling out the infrastructure (from logistics to social), the rich country utilised its own contractors to do the build, brought in its own equipment as well as importing the final processed input goods.

I then asked the audience to guess which countries I’m talking about. Who is the rich country, and who is the poor country?

To no surprise of course the rich country was deemed to be China, and the poor country without fail was thought to be one of the oil rich African countries (Angola, Sudan).

In fact, the guesses were all wrong. This story took place in the early 1960s, and the rich country was Japan, while the poor country was China!

The point of this is that perceptions and risk can be seen as one and the same – it depends on your point of reference.

Today the above story is of course true of China and Africa, but three decades ago, China was viewed no different as Africa today: on the brink of economic lift-off.

The risks to doing business in Africa are no more daunting than those faced in parts of Asia, Latin America or in Russia. And while Africa has 54 sovereign states, each with its own individual challenges, rules and regulations, barriers to entry, and also impressive opportunities, the risk to doing business in Africa is a ‘perceived’ risk.

If judged by the levels of diversified greenfield investments, number of active logistics and infrastructure projects, and the wide clustering of big pan-African and multinational companies’ footprint in a grouping of Africa’s key markets, then we can positively say that the risks are not only manageable, but the growth story is real, and the returns on offer are among the highest anywhere in the world.

The results of the ‘Africa Attractiveness Survey’ again reaffirmed what we saw previously. The survey sampled 501 senior c-suite executives in 38 countries – with about two-thirds surveyed representing businesses active in Africa currently, and the other one-third not active in Africa.

The key takeaways are:

Of the businesses active in Africa, almost 90% were extremely confident about the continent’s prospects and attractiveness to establish or develop activities, both now, and over the next three years; while at a stark contrast, those not active in Africa where overwhelmingly negative.

As a region for doing business and capturing growth and opportunity, Africa is on par with Asia as the most attractive in the world. But this is from the viewpoint of those enterprises actively doing business on the continent. Yet from the reference point of those without any active footprint in Africa, the continent is hands down perceived as the worst region in the world for doing business.

Indeed a dramatic contrast, and one borne out of old stigmas that persist – a “Hopeless Continent” rife with corruption and bribery, dictators, war, bad debts and lack of prosperity.

Naturally we cannot deny that within the 54 African sovereign states, many need serious attention to tackling the barriers for doing business – among the most prevalent are by far logistics and the dearth of viable power and infrastructure, as well as the severe cost imposed from those unregulated not-tariff-barriers.

Instead, if we would focus on those 11 African countries that have grown their economies at a sustainable and rapid 7%+ average GDP rate over the past decade, or the 11 African countries that will be among the world’s fastest twenty growing economies over the next five years, or the key African countries where multinationals and pan-Africa corporate’s are day-by-day seeking to established a footprint to deliver their product or services and vie for market share… then the big picture and point of reference is dramatically different.

  • The study notes a large gap in mineral-rich countries between incomes and broader gauges of living standards like the UN’s human-development index. Twenty countries in sub-Saharan Africa are classified as “resource-rich” by the IMF. Of these 14 are placed higher in the world rankings based on GDP per person than they are by their score on the UN index. Angola, for instance, is the 110th richest country measured by GDP per person but is ranked 148th on the development scale.

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