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July 30, 2007

Pure Business

With the exception of the Paris deep dive on July 10, China has been a curiously silent specter hanging around -- but not necessarily injecting itself into -- our global discussions on Africa’s prospects for economic development.  Frankly, the presence of large groups of Chinese businessmen at our hotels in Nairobi and Dakar has been more telling than some of the discussions to date.  But things clearly changed when we set down in Beijing on July 27 to meet with local business, government and academic leaders.

From the outset, China’s growing presence and influence in Africa has been one of the driving forces behind this GIO focus area.  Over the past five years, trade between China and Africa has quadrupled, and in 2006, it surpassed Great Britain to become Africa’s third largest trading partner, trailing only the United States and France.  More than 800 Chinese companies have established trade with Africa, resulting in more than $6.6 billion U.S. dollars of foreign direct investment (FDI) in the region by the end of 2006 – 14 times greater than at the beginning of the decade.  And building off its diplomatic relations with 48 of the 53 African nations, the Chinese government hosted the Forum on China-Africa Cooperation (F.O.C.A.C.) last November, drawing 1700 participants for what the was billed as “the largest summit China has hosted in modern history.”

Business participants in the Beijing discussions ranged from players long established in Africa, such as the China National Petroleum Corporation, the China Civil Engineering Construction Corporation and the China Development Bank, to newer entrants, such as telecommunications infrastructure giant Huawei Technologies Company and business consultancy The Beijing Axis

Not surprisingly, all shared bullish positions on the prospects for business in Africa, tempered with pragmatic, real-world examples of the challenges faced when entering the market.  One business leader lamented the dearth of established small and medium-sized businesses with which he could partner.  His preference would be to source locally as many jobs and contracts as possible, but few locals possess the core skills needed by his business. 

Others told tales of needing to supply massive amounts of fuel, medical supplies and food to simply establish and maintain base business operations.  Yet others observed how local tribal interests can often supersede “official” government policy, making for a complicated regulatory matrix to navigate.

But most Chinese aren’t daunted by the risks.  They acknowledged – tacitly – that they have a safety net not shared by publicly traded companies – the backing of the Chinese government.  Kobus van der Wath, the South African-born general manager of the Beijing Axis, observed: “The general perception is that when Africa does business with Chinese companies, they’re doing business with Beijing.  When American companies operate there, no one thinks they are doing business with Washington.  That’s a big difference, so it’s no wonder the U.S. and the E.U. are getting jittery.”

Ruth Solitei, the Kenyan ambassador to China, tried to assuage possible concerns from both Chinese and Western businesses: “Investors need to understand the policies we have in place.  Many African countries are members of groups that mitigate the risk and protect the investments outsiders make.”

The growing Sino-African trade relationship is also being fueled by Beijing’s economic policies.  In other words, Chinese investment generally comes with no strings attached, and that approach can prove very effective for opening new markets.  One GIO participant shared a recent conversation with Nigerian business leaders, who confided, “We want to do business with China because we can have an entirely open discussion.” 

While the Chinese express no interest in leveraging their trade position to influence local political issues, some business leaders say they are increasingly investing in corporate social responsibility programs across the continent.  A representative from a petroleum company explained:  “We open schools, bring Chinese medicine and introduce other services that don’t exist.  We invest so local people can manage some of the business.  It helps the local people but we also know it will eventually lower our operating costs (when we can source more work locally).”

Getting a full picture of the rapidly evolving Sino-African trade situation is clearly not possible with a single one-day session.  But impressions can be formed, especially when contrasted with the insights surfaced in other markets around the world.  In Beijing, perhaps more than anywhere else so far, the motives seem pure:  plain and simple, Africa means business to China, and China means business to Africa.

July 30, 2007 in Africa | Permalink | Comments (2) | TrackBack

July 19, 2007

Power of the People

At every deep dive, we ask our participants to list what they think are Africa’s greatest strengths; the things that are unique to Africa that will help propel it into the global economic fray.

Many people single out the continent’s great store of natural resources. Some call out its rapidly developing prowess in the mobile and wireless space. But often we will hear from participants that Africa’s people, all 900 million of them, are the source of its power, and the key to its future.

This may sound like soft science at first blush. But in the Atlanta deep dive on the Africa focus area, it seemed that every subject we addressed, no matter how grounded in bottom-line business, circled back in some way to understanding who Africans are, what they want, and what they need. And that, sadly, is not something all businesses, both inside and outside Africa, fully comprehend.

“Africa has often been given what other people think Africa needs,” said His Royal Majesty King Adamtey I, the Suapolor, or traditional ruler, of the Se (Shai) state in Ghana. “But we are a continent, and every country is different.”

It is a theme that came up last week in Lisbon as well. There is a tendency in the Western world to treat Africa as one big market. Worse, there is the inclination to impose Western value systems on Africa through aid or business that has strings attached. The presumption is that Africa wants to be like the West, which is sometimes, but not always, true.

“It’s all about tapping into what’s inside these people,” said Joey Reiman, CEO of BrightHouse, an ideation company based in Atlanta, and author of the book Business at the Speed of Molasses. “Whatever we do about enabling Africa, we need to look at what the ethos is, the core sentiment of a country, organization, or region, and understanding the culture.”

Indeed this two-session deep dive went along way towards achieving that understanding. The meetings featured a fascinating mix of participants, including students from universities in Kenya and South Africa, executives of major multinationals like Anheuser-Busch, Motorola, Coca-Cola, Visa International, and Cisco, professors from Harvard, Wharton, Stanford, Princeton, and Cornell, and a host of microfinance institutions, independent think tanks, entrepreneurs, and non-governmental organizations.

And the issue of people came up again and again. When we talked about assessing risk and extending credit, a topic we touched on last week in Lisbon, the importance of having more than just empirical data on borrowers or business partners became paramount. Linda Hill, a professor at the Harvard Business School, put it best:

Another aspect of the importance of Africa’s people is in the diaspora, or the countless Africans that have left the continent to live and work abroad. Many of the diaspora have skills and capital that are badly needed in their home countries. But there is very little known about them once they leave. And it is even more difficult to convince them to come back, invest that capital, and transfer those skills.

There are some early efforts in that regard. The African Union has launched something called the 6th Region Diaspora Initiative designed to identify, educate, and network the diaspora in the Western Hemisphere, the so-called “6th region” of the AU. Africa Recruit has a more business-oriented focus, looking to connect Africans living outside of the continent with those living inside, in an effort to transfer skills and, potentially, investment.

Social networks like these can have a great impact inside the continent. But the overall theme of the day was that if business is going to get done in Africa, it is going to get done on Africa’s terms. And to do that, you have to know the people you’re dealing with. You have to work with them face to face. Because, as Nick Donofrio, executive vice president of innovation and technology at IBM, said in his closing remarks, “In the end, it’s all about people.”

July 19, 2007 in Africa | Permalink | Comments (1) | TrackBack

July 13, 2007

Know Thy Customer

We were about half way through a truly scintillating discussion on Africa at the Lisbon deep dive, vigorously debating the pros and cons of microfinance, when Bill Carney, a serial entrepreneur and professor at the Instituto de Empresa in Madrid, abruptly changed the course of the conversation.

Lisbon_deep_dive_001_4 “Everyone seems to think microfinance is a good idea,” said Carney, shown here. “But nobody seems to know the customer very well. There is an ignorance of the customer base in Africa. We’re just not doing our marketing homework. We’ve got MBAs and PhDs studying this stuff and all they can do is throw money over the wall.  Where’s the market segmentation? Where is the customer benefit and value proposition that we would be talking about in any other market?”

And with that simple, hitherto unexplored sentiment, the conversation swung around and marched down a new, more productive path. This was an incredibly dynamic group, even by GIO standards, rife with intellectual firepower, and eager to turn words into actions. Among the group were representatives from Attijariwafa Bank in Morocco, NEPAD, The James Martin 21st Century School, Computer Frontiers Inc., The Royal Academy of Engineering, and the Ugandan parliament. There must have been some real chemistry in the room, because before our eyes, during breaks, during lunch, collaborative projects were being hatched.

But the dearth of market research was perhaps the most revelatory discussion topic of the day. Africans often caution the rest of the world not to think of “Africa” as one big market of more than 900 million people. Instead, they say, Africa is a complex place with 53 distinct countries and countless different markets. And yet when it comes to microfinance, Africans are commonly lumped together in enormous market segment, like the 300 million that live on less than $1 a day. There is virtually no understanding of what a borrower’s needs are, how much of a credit risk they might be, or how successful they have been after they are given a loan. And that’s no way to do business.

Lisbon_deep_dive_003 “You have to have an intimate understanding of the customer so that you can serve them better,” said Patrick Muthui, the CEO of Virtual Services at RMB Private Bank in South Africa, shown here. “And in order to understand and segment your customers you have to collect information on them. You have to know what their behavior is.”

On this point, there was no dispute. But how to obtain that information? Many Africans live completely off the grid, with no land ownership, credit, or even a single utility bill to their name. And it’s not just those living within the borders of African nations that go unbanked and unidentified. The diaspora, or those Africans that leave the continent to work and live abroad, and who often send money back home, are completely untracked, despite their obvious importance to the local economies.

The dilemma begs the question of whether national I.D. systems will be a necessary precursor to Africa’s economic emergence. Some lenders do require that borrower’s sign up for identity cards, using photo I.D.s and fingerprint recognition. And retail stores will often allow customers to pre-pay for a time, until their credit risk is better understood, and then will offer credit. All of which is helpful for those individual businesses. But these examples are such small pieces of a massive puzzle.

There are a few sources of good and growing information on African markets. Money transfer services like Western Union, wireless carriers, and a handful of retailers are beginning to store data. Now the information needs to be married, analyzed, and acted upon. Just another layer in the complex and confounding effort to bring Africa into the global economic mainstream. But this problem seems to be imminently solvable. And judging from the eagerness of the Lisbon deep dive’s participants just may get done.

July 13, 2007 in Africa | Permalink | Comments (5) | TrackBack

July 11, 2007

Enter China

For a full month now, since the first deep dives in Africa back in early June, the GIO team has been scratching its collective head, wondering why we hadn’t yet discussed the role of China in Africa’s current economic revival. We allow our deep dive participants considerable latitude in setting the agenda for each day’s discussion. But our assumption was that China, and its $55 billion of annual trade with Africa, would be a topic with legs, coming up early and often.

But it is instructive that it wasn’t until our Paris dive, a meeting specifically designed to get the European perspective on Africa, that the topic of China was first broached. And it was clear in the first five minutes of the meeting that China was top of mind for the Europeans, a disruptive, catalyzing global economic force that had the former colonial powers sitting up straight.

Once again the GIO brought together a powerful group of thinkers, including representatives from the World Economic Forum, the London School of Economics, the United Nations Industrial Development Organization, the New Partnership for Africa’s Development, oil and gas giant Shell, Reuters, the Global Women’s Inventor and Innovators Network, and a handful of current and former European government officials. And though the group came from varied educational and professional backgrounds, they shared a common interest in the continued economic development of Africa, and, more specifically, the effect of China’s increasingly cozy relationship with many African nations.

“Europe is getting a wakeup call from China,” said Jean Pierre Lehmann, a professor of international political economics at IMD, the global business school located in Lausanne, Switzerland. “China is the new kid on the African block, and it is forcing Europeans to reflect on changing strategies.”

“China is the fear factor,” said Hubert Danso, vice chairman of the African Investment Advisory Group at NEPAD.

From there the conversation built very quickly. There was a feeling that in the past 40 years or so of post-colonial Africa, Europe has done little for the nations it once governed. While most of the successful businesses in Africa are owned by Western companies -- Unilever, Shell, Diageo -- there has been no African middle class built around these financial engines. And there is still precious little indigenous African business. “In some ways, China has done more for Africa in two years than Europe has done in the last 25 years,” said one participant. “China has put Africa on the map, and challenged the notion that Africa is the playground of Europe. You could argue that the relationship is exploitative, and that is somewhat demeaning for us Africans, but China has come in with a very straightforward agenda.”

This sentiment, the idea that China comes to the table without the colonial legacy and associated baggage, seems to be a critical factor fueling the global embrace between the African nations and China. But there are very real concerns that China’s aggressive investment in the African continent, it’s dire need for the resources therein, and the reaction this will produce from Europe, the United States, and other regions in need of resources, could set the stage for another round of economic imperialism if African nations do not manage the relationships effectively. One participant pointed out that Africa’s relationship with China is undermining the industrialization of Africa, as manufacturing jobs are lost to the efficiency and low-cost labor of China. But if African nations can reinvest the income received from the extraction of its raw materials and create new economies, then the relationship can result in positive change throughout the continent. This, of course, is the proverbial big if.

July 11, 2007 in Africa | Permalink | Comments (0) | TrackBack

July 03, 2007

Africa's Mixed Messages

Thumbing through the latest issue of Vanity Fair, the so-called “Africa” issue, you get a pretty good sense of the mixed messages coming out of Africa these days. The magazine awkwardly combines the global glamour and celebrity typical of Vanity Fair, with the more pedestrian stories of a continent struggling to right itself and play a meaningful role in the world economy. It is a picture of contrasts, and it is, however unintended, emblematic of Africa’s current dichotomy.

There was Brad Pitt interviewing South Africa’s Archbishop Desmond Tutu. Bono putting questions to the presidential hopefuls. And Annie Leibovitz capturing dozens of celebs (mostly American) with her knowing lens. But it was the story by Kenyan journalist Binyavanga Wainaina that was the most paradoxical.

The wide-ranging piece hits many of the themes the GIO has grappled with so far in its Africa focus area: the role of the informal economy, Africa’s burgeoning wireless markets, and the political stability that is setting the tone for economic growth. But the main thrust of the piece is a complaint: American news media focuses too heavily on the disease, poverty, and corruption in Africa, and not enough on the positive stories.

This was something we also heard in our Nairobi deep dives. A few people suggested that in order for more investment to be made in Africa, the world needs to hear the truly hopeful stories of Africa. Stories like Safaricom’s ground-breaking mobile banking system M-Pesa. Or the stories of the many young students we met with, with bright minds and big dreams. One deep diver suggested a web site that is dedicated solely to telling stories of hope and achievement coming out of Africa.

But flip a few pages forward in Vanity Fair’s Africa issue, and you read this: “next year, 10 million children’s lives will be lost unnecessarily to extreme poverty,” or “H.I.V./AIDS is killing teachers faster than you can train them.” These words come from Bono, whose public efforts to cancel debt and raise awareness for African nations are tireless. A few pages more and you read a typical story on how the oil boom in Africa is fueling a vicious cycle of guns, conflict, and oppression.

So what is the message we are to believe? Is the real story of Africa one of entrepreneurial growth and political stability? Or is it the images we get from CNN, of poverty, disease, and hopelessness?

It is, of course, both. At the same time that Africa desperately needs charity to prevent the needless deaths of countless children, it also needs bootstrap businesses that borrow money, grow rapidly, and employ dozens, hundreds, or thousands of other Africans. And both stories need to be told, for different reasons, but to achieve the same end. If you read Mr. Wainaina’s story carefully, you see that not long ago, Africa had only one story to tell the world. Today, it has two competing stories. And that is the sign of a continent in transition.

July 3, 2007 in Africa | Permalink | Comments (1) | TrackBack