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“There are a lot of starving children with flies circling about their heads; robbery is common.”
I am not the only person whose first impressions of Africa were shaped along these lines. These perceptions are reinforced by the media that is quick to cover famines and slow to cover successes. The entertainment sector has built a fortune depicting Africa as a place of happy animals and miserable people. In global entertainment, the only empowered Africans are the Lion King and Idi Amin.
On my first visit to Africa, I realized that the vast majority of business people and policymakers of Asia (excluding China) are either unaware of the change underway in Africa or underestimate the associated opportunities. As against that, Africa’s economies are booming, with several countries growing at around 8 percent per year.
China has known this for some time, and David Shinn, a former US ambassador to Ethiopia and Burkina Faso, says Beijing or Beijing-backed companies have signed 32 bilateral investment agreements, formed trade cooperation zones with six countries and have made foreign direct investments of over US$50 billion.
As a result, China recently surpassed the United States as Africa’s the largest trading partner.
Recently, US Secretary of State Hillary Clinton brought along a hefty delegation of executives from some of America’s leading companies — Boeing, Wal-Mart, FedEx, GE, etc. Earlier this year, Wal-Mart finalized a deal worth more than $2 billion to acquire a 51 percent stake in leading retailer, Massmart. GE has signed a deal with the Nigerian government to work together on infrastructure and power projects. About 600 American companies have invested in South Africa alone.
In fact, the more forward-looking reality is that Africa is a dawning success.
In the decade just past, Africa’s economy grew at 5.7 percent annually. The IMF’s most recent projection is that Africa’s economy will continue to grow this year by 5.4 percent, more than twice the anticipated growth rate of Brazil. For those who wonder if that is growth off a tiny base, it is not. Africa’s formal economy is $1.9 trillion, slightly larger than India’s, and about as big as Russia’s.
According to Nile Capital Management, 10 percent of the world’s oil reserves and 40 percent of the world’s proven gold reserves are in Africa. In addition, Africa contains 90 percent of the world’s platinum reserves, about 80 percent of its cocoa and diamonds, 60 percent of its phosphate, 50 percent of its bauxite and chromium reserves, 20 percent of its titanium, and close to 15 percent of its oil and natural gas. (Source: US Geological Survey, Credit Suisse).
African companies are growing at rapid pace on such strengths, and many of them are listed on the NYSE and London Stock Exchange. Africa’s total stock market capitalization now exceeds $1 trillion.
From 2002 to 2007, African companies were more profitable than their counterparts in Asia — the average annual return on capital of African companies was 65 percent to 70 percent higher than that of comparable companies in China, India, Indonesia and Vietnam, according to economists Paul Collier and Jean-Louis Warnholz in their article “Now’s the Time to Invest in Africa” featured in the Harvard Business Review.
McKinsey Global Institute estimates that Africa has 60 percent of the world’s uncultivated arable land. The continent’s agricultural output could increase from $280 billion — the estimate as of July 2010 — to $500 billion by 2020 and as much as $880 billion by 2030.
Africa’s consumption has grown by $250 billion since 2000, according to the Global Insight United Nations Conference on Trade and Development. Estimates show that 85 million African households earned $5,000 or more in 2008.
The numbers of households with discretionary income is projected to rise by 50 percent over the next 10 years, reaching 128 million. By 2030, the continent’s top cities could have a spending power of $1.3 trillion.
Indonesian companies are also focusing on Africa, such as Golden Ver Oleum, which formed a $1.6 billion partnership with the government of Liberia on a palm oil project. Indorama has entered Nigeria in a big way and is now making a good fortune.
Also, the Bakrie Group has signed a $1 billion investment deal involving mining, oil and rubber sectors in two states of Nigeria. Other companies that have investments in Nigeria are PT Indofood Sukses Makmur, PT Sayap Mas Utama, PT Kalbe Farma, PT Jakarana Tama, Holden International Ltd., PT Eva Mandiri Brothers, De-Mastering Technology Service Ltd., Magnet Integrated and Media Pro & Global Service Ltd.
Still, there are tremendous opportunities for the Indonesian companies in this virgin land, from agro-processing, retail, refining, mining, pharmaceuticals, soaps and detergents, cooking oil, toiletries, biscuits and snacks, confectionary, body care, beverages and apparel to the real estate and infrastructure development sectors.
Since Africa faces talent shortages, infrastructure challenges and country complexity, it isn’t always business concepts from advanced economies that are adapted to Africa.
Most of the successful companies in Africa develop strategies to invest in their own reliable support systems when necessary and to offset the additional expenses.
Also, they develop multitier models to route products to market and reach the largest number of consumers. It is important to invest in developing and retaining local talent, especially mid- and top-level management for long-term growth.
All these things reminded me of the lens through which I sometimes see Africa. Today, Africa is a continent at the dawn of its emergence, similar to Singapore and Malaysia that have similar attributes, and have recorded significant successes in the development of their economies since 1965, when they were at par or even behind Nigeria.
The writer is former managing director of one of the largest conglomerates in Africa that has a turnover over US$ 4 billio