African Champions by Francis Wood
It lives long in the memory: preparing to buy my first stereo system was a labour of love. Focused on amplifiers, I learned eventually about the importance of speakers. Other components matter, but “gettin’ down” depends on the distribution of sound. So too in business: poor distribution results in a poor bottom line, which helps to explain the dearth of African business champions.
Of Africa’s fifty-four States, forty-five of them have populations below fifty million. African businesses of recognizable scale – airlines, telecom, and banking – are only found in some of the most populous countries. That scale affords them the capacity to support employment and other objectives for positive socio-economic impact. However, there remain high market-entry barriers both on the continent and beyond for African-led businesses to scale up and out.
A potential solution? The African Continental Free Trade Area agreement (AfCFTA) which aims to unify Africa’s 1.4 billion people and create a single market for goods, services and people. If we consider both the North America Free Trade Agreement comprising of three countries and the stillborn Trans-Pacific Partnership embracing twelve countries, two things jump out. Firstly, it helps when the member economies are populous or emerging. Secondly, success depends on having a manageable number. In this sense, a successful AfCFTA will be breaking new ground.
In this piece, I will touch on four cost drivers related to distribution that constrain African businesses in their efforts to scale up and out. The costs are related to funding, language, workforce and “copying”. These costs need to be converted into opportunities to enable the emergence of African business champions.
The internet, as a channel for marketing and distribution, is a ‘democratizing’ phenomenon which African businesses must exploit. Across the world businesses are bursting onto markets, and so too are they from Africa. However, not enough of these businesses are owned by Africans which cuts against the grain of that democracy. One explanation for this is the price of funding. Compared with their European competitors who have access to affordable credit or EU subsidy, Africans are limited to borrowing at a premium in a range of 5-10% – eroding profitability and reinvestment opportunities. Positively, financial inclusion is becoming core to the strategies of central and private banks. The expansion of credit and liquidity correlates with activity by which African businesses will benefit.
Africa’s landscape of disparate languages is rarely considered in growth planning. In the EU, items of clothing or appliances are sold with instruction tabs and operation manuals in numerous languages to accommodate the twenty-seven member States. Catering to the needs of consumers across the EU comes at a business and industry expense (e.g. producing instruction manuals and the waste generated when buyers dispense with all but what they can read). Costs like these cannot be avoided if trade is to flourish. However, given levels of per-capita productivity and limited purchasing power, the AfCFTA will need to be ‘box clever’ in its approach to regulation.
For African companies to move up the value chain, they will need a highly skilled and engaged workforce. Unfortunately, African firms tend not to invest in skills and staff development programmes. After an all-day session investing in training a group of fifty inexperienced inductees for a new business – where I discovered that the word ‘product’ has no local translation! – their enthusiastic feedback was based on being included in a novel way of exploring ideas. The result is a level of ethics and commitment to our business that none of us partners could have foreseen.
Finally, “copying” may be the most dangerous issue. There is a tendency for African businesses to import “ideas” from overseas to meet demand from an expanding middle class. Launched with fanfare, the corpses of businesses that failed to grasp local value drivers litter the corporate graveyards.
It is essential that Africans be found at the helm of businesses of meaningful scale or scope. For reasons including legacy, demographics, and a host of competitive disadvantages, African businesses have not occupied commanding heights of commerce. This needs to change for businesses and their owners to be positioned to make positive impacts. Due to their identity and connection with the land, they are more likely than not to garner support at local and community levels. In leading by example, they will orient other businesses to follow. Otherwise, supporting and reinvesting locally, especially in villages and rural districts, is left to indifferent corporate social responsibility activities.
A key competitive advantage for African-owned businesses is our superior understanding of the local context and knowledge of what works or could be made to work. There is simply no excuse for not systematically researching our own markets or building on local innovations. Today, perhaps more than ever, intellectual perspective is important for the scaling of African enterprises into a new class of champions within a successful pan-African trading system.
About the author: Francis Esem Wood is Director of Kulana Ltd. and Chairman of Bayport (Ghana); and seeks to build on the investments he has made in Africa.
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