Global Innovation Outlook

Action Oriented

As we prepare the results from the Security and Society focus area, and gear up for the Water and Oceans focus area in September, it’s a good time to catch up on some news from GIOs past.

We have some exciting news to share with the GIO community coming out of Africa: IBM opened an African Innovation Centre in Johannesburg, South Africa. The project is a direct result of the Global Innovation Outlook sessions on economic enablement in Africa, held in 2007. It’s an advanced computing facility that will nurture IT skills and help encourage entrepreneurialism in the area. And it’s the first of its kind anywhere in Africa.

Here’s what Mrs. Phumzile Mlambo-Ngcuka, the Deputy President of the Republic of South Africa, had to say about the new center: “We are highly energized by IBM’s investment because it directly responds to our call for increased private sector investment into sustainable initiatives that advance priority technical skills.”

This is a message that the GIO heard loud and clear, from the moment we set foot in Nairobi, until the day we left Cape Town months later. Everywhere we went, students and adults alike were calling for more private sector engagement in education and skills development. Here is a link to the first blog we wrote about this need back in June of 2007. I can’t help but think that the simple plea of young Athman Fadhili, then an MBA student at the University of Nairobi, for the private sector to collaborate with African universities, led to this innovation center.

That’s not all it led to. Makocha Minds, the mentoring program that was literally started up days after the GIO met with students in Nairobi, has now reached critical mass. It has more than 250 mentors working with students from 24 different African universities. The mentors come from IBM, Coca-Cola, Cisco, FedEx and Symantec.

Sometimes the notion of collaborative innovation for the benefit of society can be met with withering cynicism. And sometimes it feels like the GIO is fighting an uphill battle. But sometimes we get to see positive change happen right before our eyes. This is a perfect example of that, and more than enough fuel to feed the innovative fire.

Africa: A New Beginning

On Tuesday, the Global Innovation Outlook held an event in New York called Africa: Open for Business. The all-day affair was meant to present the findings from the GIO deep dive sessions on Africa. We invited many of our GIO friends from Africa and around the world. We brought together hundreds of IBM clients and ecosystem partners. And many of IBM’s highest ranking executives were there to both participate and observe the proceedings.

In some ways, it was the culmination of more than a year’s worth of work. There were talks on what the GIO had learned about the economic future of Africa. There were panels on the development of skills in Africa, and the new reality of this great continent. There were presentations by some truly inspiring “local heros.” And there were many teary goodbyes to our friends from overseas. To some of us, it felt like an ending.

But in other ways, it was merely the beginning of what is sure to be a most intriguing new chapter in Africa’s history. At the event, IBM announced a series of commitments to Africa, including $120 million over the next 18 months. It announced partnerships with businesses (Cisco, FedEx, Siemens), NGOs (CARE International) and governments (to be determined.) And there was an unmistakable sense that the momentum that has been generated inside of IBM would spread rapidly to other international businesses. See the list of initiatives that IBM is embarking upon below.

To that end, the GIO has developed a kind of blueprint for innovation and economic progress in Africa. The report is called, simply, Africa: A Global Innovation Outlook Report. Inside it, you will find specific examples and suggestions as to how any business, be it African, American, or Asian, can compete in the global economy by doing business in Africa. It is available in PDF or hard copy here. And best of all, it’s free. I highly recommend you read it.

I’m also including some links to videos that we produced from the Africa: Open for Business event. This will give you an opportunity to meet some of the GIO participants, and hear their thoughts on different subjects concerning economic development in Africa. As you watch them, think about what you as an individual, or your organization, could or should be doing to enable and profit from the economic growth in Africa. And don’t hesitate to contact the GIO team to explore opportunities to work with IBM in that regard.

Video Links to GIO Forum: Africa: Open for Business

Nick Donofrio's opening remarks
Ginni Rommetty's presentation of GIO findings
Panel on Africa's New Reality
Panel on Skills in Africa
Local Hero: Gbenga Odujinrin, CEO, Telnet
Local Hero: Priscilla Motlhako, CEO, Africa Khusini Capital
Local Hero: Jessica Jackley Flannery, Co-founder, Kiva.org

GIO Africa Initiatives:

Makocha Minds – A mentoring program for African students in need of help honing their skills in IT-related fields. Makocha, which means “teacher” in Swahili, will put 250 IBM Fellows and Distinguished Engineers to work counseling African students from 18 different universities. There are already 100 pairings in place, interactions are in progress, and several mentors are taking personal trips over the holidays to meet with their students face-to-face.  Inspired by the commitment made by our technical leaders, other companies, including Cisco, Federal Express, Coca-Cola and Siemens, have signed on as partners and will also provide mentors. 

Africa Financial Grid – Microfinancing is extremely expensive to administer, and those costs are passed on to borrowers in the form of high interest rates. In an effort to reduce those costs and improve access to finance in Africa, IBM is partnering with CARE International to provide a full end-to-end transaction processing infrastructure that will significantly reduce the cost of providing microfinance to small and medium businesses and individual entrepreneurs throughout the continent.

Blue Gene – To infuse some much-needed computing power into Africa, IBM is donating a $1.5 million Blue Gene/P supercomputing system to the Meraka Institute’s CHPC facility in South Africa, for installation early next year. The system will be the most powerful computer on the continent, and open to use by any African research institution that has a qualifying computational challenge that helps the socio-economic growth of the region.

African innovation policy program – Similar to earlier efforts in Vietnam, India, and the U.S., IBM will work with a select number of governments and private organizations in Africa to establish more effective innovation development programs.  The first three countries will be announced early next year. 

Part of what the GIO does is energize IBM about a specific market or opportunity the company may not have been paying enough attention to. But no topic has ever had as profound an effect on this 370,000 employee company as Africa. The enthusiasm has spread like wildfire throughout the company. And when a company that’s this large, and has this many ecosystem partners, gets excited about something, it can make a big difference. A global difference. 

The Infrastructure Opportunity

When it comes to propelling Africa into a more prominent role in the global economy, few things are more important than its ability to use the latest communications and networking technologies to reduce the costs of transacting with the rest of the world. Perhaps that’s why whenever the economic development of Africa is being discussed, the conversation invariably turns to infrastructure.

The Economist has done a nice job of statistically summarizing the current Internet infrastructure challenges (or opportunity, depending on your perspective) in Africa.

The Digital Gap
Oct 18th 2007 | NAIROBI
From The Economist print edition
More than a click to put Africa online
When it comes to computing power, the gap between Africa and the broadband world is still a Grand Canyon. Only 4% of Africans have access to the internet. They pay the most in the world, around $250-300 a month, for the slowest connection speeds. E-commerce barely exists. Nigeria's 140m-odd people have but a few hundred decently trafficked websites in their domain. Blogging is a vibrant but peripheral activity.

If sub-Saharan Africa were scaled according to its available internet connectivity, it would be about the size of Ireland. Of its 48 countries, the 28 in central and eastern Africa are connected to the web by only the flimsiest of satellite technology. Apart from the occasional internet hook-up at a diamond mine or UN camp, whole regions of Congo and Sudan, sub-Saharan Africa's two largest countries, have no connection at all. Even countries like Uganda, which are go-ahead about the internet, start from a very low base. Research by Microsoft found only one in 200 Ugandans regularly uses e-mail.

The number is higher in west Africa, where the more robust SAT-3 undersea cable provides for higher speeds and lower costs. The Eastern Africa Submarine Cable System, better known as EASSY, which runs 9,900km (6,152 miles) along the Indian Ocean floor from South Africa to Sudan, is meant to speed up connections in east and central Africa in the next few years but is not yet operating.

African users must also cope with obsolete systems, irregular electricity and a stultifying lack of local content. Interfaces are being written in a number of African languages, but even the clearest instructions in Wolof or Yoruba as to how to use Windows presume a fair degree of literacy. Then there is the high graphical content of the rich world's web: videos and social networking are unworkable in the snail-slow dial-up offered in most African internet cafés.

For more on this, click here.

It may seem a hopeless situation, but it is far from it. Those with knowledge of Africa’s burgeoning wireless industry know the magnitude of opportunity this represents. And when these infrastructure challenges are met, look out. When Africa’s creativity and entrepreneurial talents are unleashed on the wider world, the economic change could be seismic.

In other news, the GIO team is in the process of compiling the many insights from the deep dives held in Nairobi, Dakar, Cape Town, Paris, Lisbon, Atlanta and Beijing. The Africa report will be made available at the GIO web site in early December.

Wireless World

In reading the excellent piece on mobility in Africa in this week’s Business Week, you can’t help but get the feeling that the mobile platform is the economic spark the continent has long awaited.

We saw this first hand throughout our deep dives in Africa, and wrote about some of the fascinating mobile applications back in June. For the first time in a long time (ever?), Africans are not only rapidly adopting a so-called “first world” technology, but they are developing it, improving on it, and capitalizing on it. We have heard dozens of stories of local merchants and rural farmers using mobile phones to simply connect with buyers and sellers, improving market efficiencies and fattening bottom lines. For more on this, go to www.ibm.com, click on the Africa story, and select “The Mobile Imperative.”

But the impact of mobile phones has other, broader and more far-reaching positive effects as well. As the story in Business Week points out, Africa’s basic infrastructure is so lacking in some places, it can grind the wheels of commerce to a halt. Roads that are frequently impassable; huge swaths of land that are without electricity; painfully slow internet service. The growth of the mobile phone business, however, is starting to address some of these problems.

Now that wireless providers have learned that the rural poor is a market worth courting (there are more than 100 million mobile phone subscribers throughout Africa), there is reason to begin investing in infrastructure. To do mobile communications, you need fiber, electricity, and roads. Industry is taking the first steps towards addressing these needs.

In addition, communication, in any form, spurs commerce. Without it, you cannot have efficient markets. Now, for the first time, Africans are rapidly sharing information (sometimes in its simplest forms) and conducting business in a more sophisticated way. The result is higher margins for businesses, and better prices for consumers. It’s hard to see a loser in any of it.

Columbia University professor says plainly that mobile phones are the most important technology when it comes to transforming developing nations. Not $100 laptops. Not refurbished PCs that would take years to master. Mobile phones. Simple, affordable, easy-to-use mobile phones.

Just Doing It

Nobody likes meetings. And certainly the group that the Global Innovation Outlook assembled in Cape Town for our final deep dive on the economic enablement of Africa recognized this fact. They knew that these deep dive meetings will be successful only if they serve as a means to an end, only if there is a consequence, an action. These were not people who enjoyed sitting in a room, pondering the issues. They wanted to get things done.

“I don’t think the world needs another think tank,” said Amanda West, vice president of global innovation at Reuters. “What we need to be is a do tank.”

This sentiment resonated around the room immediately. The group included representatives from South African energy giants PetroSA and ESKOM, microfinance and private equity enablers Kiva.org and AfriCap, two groups designed to foster and support women-owned businesses, logistics and shipping company Safmarine, three of the finest universities in the world (Makerere, Instituto de Empresa, and the Royal Academy of Engineering), Siemens South Africa, Reuters, and the U.S. Embassy here in South Africa. We also welcomed a young entrepreneur from the Maasai tribe in Kenya, who runs a safari business in the Maasai Mara game reserve.

Some of them were new to the process. Others had been with us in previous deep dives. But they were all there because they share a simple belief that Africa has the potential to develop and grow in a way that is positive for both the continent itself, and the rest of the world.

It was clear from the outset that change was the mandate for this meeting. One diver said “I don’t think we should embark on this thing unless our intention is to seriously disrupt.” Another said, “I’m a strong believer in taking the first steps.” And Nick Donofrio, the executive vice president of innovation at IBM, reminded the group that “if nothing changes, nothing changes.” Finally, one dive implored us to be like Nike, and “just do it.”

And then we did.

We spent the entire afternoon in breakout groups with specific assignments. The tasks were difficult and daunting. The process was frustrating and uncomfortable. And the time was too short. But few could argue with the results. Here is a quick look at the three projects the GIO crafted during this workshop and will be working on in the coming months:

Skills Audit – Africa has more than 900 million people, but there are massive shortages of skilled labor. More importantly, if Africa is to emerge as a leader in the global economy, it will need to do more than just fill the skills gaps that exist, but also begin planning for future demand. One group proposed a comprehensive “Skills Diagnostics” exercise that would provide a template for how to bring together the private sector, government, academia and the NGO community to conduct regional studies that gauge the demand for different skills. That information could then be shared throughout Africa, creating a detailed skills map. The information would be hugely valuable, and could be used by governments to forecast future skills needs, and develop economic strategies accordingly.

Africa Grid – Microfinance has been a Godsend for thousands of individuals and small business owners throughout Africa. But it is expensive and inefficient. Loan officers on motorbikes need to travel for days to collect loans. And the interest rates are still too high. So one breakout group proposed an in-market initiative (for profit) that would act as an electronic broker of these microfinance transactions. The microfinance institutions could use the service to find potential customers, and vice versa. Along the way, data could be collected and aggregated on various borrowers, creating much-needed risk histories, which would then act as a new form of collateral for increasing loan amounts. 

The Legal Informal Economy – Early on in our Africa deep dive session in Kenya, we began discussing the role of the informal economies of Africa. These off-the-books businesses are pervasive, sometimes employing more than half the population in some nations. But there is a need to legitimize these businesses, both for the tax revenue they would provide, and the benefits citizens obtain through registering themselves as such. This group decided that the barriers for most informal businesses to enter the formal economy are too high: taxes can sometimes be as high as 45 percent. So they proposed a new level of legitimacy: the registered, but untaxed business. They called it the “Legal Informal” economy. There would be incentives for these businesses to register, including small business assistance, access to new forms of capital for growth, technology infrastructure, and business training. After a time, they might grow to a level where they could then become formal businesses, employing more people, and paying taxes.

These issues are all incredibly complex, so please forgive the lack of details in these proposals. But these ideas represent real action towards change. People volunteered their organizations for participatory roles. Companies made commitments. Names were named. And in the end, momentum won out over inertia.

Africa, Gender, and Equity

Our next guest blogger is Joanne Thomas Yaccato, the founder and president of the Toronto-based Thomas Yaccato Group, a consultancy that specializes in helping companies create authentic products, services and business strategies that attract the attention and loyalty of women consumers. She attended our Atlanta deep dive, and has some strong thoughts on the topic of women in Africa, and the way the media portrays them. Feel free to comment and get some conversation going on this important topic.

I was recently interviewed for a Canadian newspaper about my work helping companies create an internal, wide-angle gender lens so they can better reach and keep women as customers. The specific focus of this piece was my latest endeavor with banks in Africa who are now waking up to the enormous economic influence of women. When the article came out I sat in my kitchen, jaw dropped, stunned to read yet another media account that missed the mark.

Believe me; I was painstaking in my care to describe the work. The International Finance Corporation (IFC), the private sector arm of the World Bank Group, created the Gender Entrepreneurship Markets initiative in December 2004. The goal was to address economic inefficiencies and social inequities that happen when aspiring businesswomen aren’t able to realize their full potential because of gender barriers. I explained to the reporter that African women enthusiastically participate in entrepreneurship. In Nigeria alone, women comprise an estimated 50 percent of the economically active population. Yet they remain seriously under represented in the formal banking system. One of the first banks to join the GEM program was one of Nigeria’s largest, Access Bank Plc. Of Access Bank’s entire small and medium enterprise portfolio, only 5 percent of lending went to women-owned businesses. However the default rate in the women’s section of their portfolio is 0 percent, compared to 8.3 percent for their loan portfolio as a whole. This is a pretty typical global scenario.

The reporter was particularly fascinated to learn that even though African women are a powerful economic engine, the vast majority believe that companies do not treat them with respect. The Nigerian focus groups we conducted revealed that banks, some of the biggest offenders, demonstrate an over-reliance on husbands to validate women’s businesses. The women shared that there is dishonesty as it relates to the chances of loans and what it takes to get one. Opaque processes such as refusing to explain products, policies and procedures create an even stronger sense of their powerlessness.

The central point of my lengthy discussion with the reporter was that if a bank (or any company, for that matter), was to successfully reach women, they would need to be convinced that the company was serious. I cited IFC’s program of policy reform, investment, and advisory services that addressed this by providing pioneering local financial institutions with $40 million in financing and hands-on support from global industry leaders in the area of gender and business. My company was chosen to create the internal cultural shift necessary within banks to make this program successful.

I also spoke about GEM’s mandate to try and create a more stable middle class by targeting women professionals and business owners, people like Muni Shonibare. Shonibare owns a successful 150 employee furniture company in Nigeria with considerable growth potential. Her clients include Shell, Texaco, the Abuja Hilton, and others. With demand for her products high, she has considerable potential to increase earnings and create more jobs in the local economy. But something has always blocked her way. Male bankers in Lagos simply did not want to finance a woman-owned business with ambitious expansion plans. She could not speak the language of finance well enough to convince them. But with support from GEM, Access Bank gave Muni an $800,000 five-year loan (not exactly chump change) for her long-term capital expansion plans.

This was a good news story in every sense. But even though I stressed there were an enormous number of Muni Shonibares all over Africa, the journalist fell into the trap of the classic North American stereotype of  “African woman”. The photo that accompanied the piece was the cliched colourfully-clad market women showing their wares. This incongruence confused me considering the story was about women professionals – lawyers, doctors and dentists - and business owners. There was “victim” all over the story. Half the piece was dedicated to “women’s life and death struggle with poverty”, “ramshackled villages”, and “buses with no doors.” My goal in this interview was to attempt to break down that tired belief that all African women live this appalling reality. But the journalistic lure of the conventional African drama was too great. The integrity of the article was damaged beyond repair.   

For companies to put women at the center of its business they need to change the very lens or filter they use to see the world. This is where that wide angle gender lens comes in. The Royal Bank Financial Group got this in spades. Having recognized the economic potential of women, they came to us to create a plan. We conducted market research so they knew what women’s consumer and entrepreneurial issues were. All of their internal and external communications were audited through a gender lens. We undertook a 5-year training program to change the internal culture and educate the front line. One year into this, the bank witnessed a 10-point jump in marketshare (and this in an industry that dukes it out over a one or two point increase) and a staggering 29 percent increase in customer satisfaction levels of women with their account managers, the largest one year increase in bank history. But the unexpected benefit to the bank was this – focusing on what women want in a consumer relationship raises the bar for everybody. If you make something “women-friendly, you make it every-body-friendly”.

My advice to any company going into Africa is to heed the story of Royal Bank. Like Access Bank is currently finding out, women will come and more importantly stay as customers and tell all of their friends.

Is Microfinance a Bad Thing?

It’s time for some guest blogging, and our first participant is Elmira Bayrasli, the Director of Corporate Partnerships & Outreach at Endeavor, a New York-based non-profit supporting high-impact entrepreneurship in emerging markets. Before joining Endeavor, Elmira was the Chief Spokesperson at the OSCE Mission to Bosnia and Herzegovina.  From 1997-2000 she was a Presidential Appointee in Secretary of State Madeleine Albright’s office.

Elmira was a participant in our Atlanta deep dive last month, and in it she engaged in a stunning discussion about the negative effects of microfinance. Here are her thoughts on that discussion.

Bono was booed recently at a conference on Africa, says Nicholas Kristof in a recent column in The New York Times.  “Several Africans scolded him for demanding more foreign aid, saying that’s not what Africa needs,” he writes. 
 
Exactly.  Africa has tremendously talented minds. What the continent doesn’t have is fair access to opportunity, which prevents those minds from innovating and improving their quality of life.  Aid has been a necessary measure in Africa.  But as disease, famine and war become more widespread throughout the continent, it can not continue to be Africa’s only option. 

At last month’s GIO deep dive in Atlanta, I was certainly energized by the many voices who spoke about the need for Africans to get away from aid dependence by supporting entrepreneurship.  But I was blown away by the chorus who demanded that it was imperative for Africans to get beyond microcredit and microfinance. 

Microfinance has enabled families throughout Africa, and beyond, to gain control of their own income.  But these small loans haven’t “made poverty a museum piece,” as the Nobel Laureate Muhammad Yunus envisioned.  These small enterprises yield 3-4 jobs at the most, and are rarely sustainable.  Developing economies need to create sustainable businesses that will expand jobs and inject wealth into the community. 

The Atlanta Deep Dive posed the question: “Why does innovation matter?”  Innovation generates ideas, which creates new businesses, which leads to jobs.  The real question should be, “How do we let innovation flourish?  How do we allow bright minds to create new ideas and solutions that will address the issues of poverty, conflict and inequality?” 

Innovation really matters because it leads to transformation.  And this is what Africans need – individuals who will think big and put ideas into action that will lead to change. 

Today, Africans are running businesses that produce world-class coffee and handicrafts and offer globally-competitive services.  They’re using both traditional and technical means to make it happen, and have the potential to scale their endeavors.  The obstacles they face, however, are enormous.  Rather than aid, these entrepreneurs need mentors, access to networks and role models to get them to the next level. 

There is no lack of entrepreneurial role models in the United States.  From Steve Jobs to Bill Gates, young people throughout America find inspiration from their example.  Young people throughout the world should “dream of being inventors,” as Thomas Friedman points out.  It is vital that whether in Africa or Alabama, children grow up in a society which empowers and enables them to think big and believe in themselves. 

That’s why innovation matters. 

Shooting the Messenger

When it comes to Africa, the media, as always, is a convenient scapegoat.

It’s awfully easy to blame Africa’s struggle to attract foreign investment on the steady stream of bad news coming out of the African continent. Undeniably, Western opinion of Africa as a risky place to do business is powerfully shaped by magazine images of flies on faces, newspaper stories about 4,000 percent inflation, and Hollywood films about Africa’s darkest times (Last King of Scotland, Hotel Rwanda, Blood Diamond, etc.) But the issue is more complicated than that. 

Everyone knows these stories do the continent a grave disservice. And many of our deep dive participants have lamented this so-called “CNN Effect,” or the image problem that 24-hour news channels create for Africa. “The brand of Africa is not a good brand,” said Patrick Muthui, the CEO of Virtual Services at RMB Private Bank in South Africa, at our Lisbon deep dive. “But in it are great stories of success.”

Mr. Muthui’s point is valid. There are many success stories coming out of Africa today, some of which we have experienced first hand throughout the GIO process. But the majority of the world cannot go to Africa to see these successes for themselves. And so they get their information from the media, which, despite all the talk of its demise, remains a powerfully influential force.

Combating the CNN effect is not easy. The stories they report on are real. And they are worthy of reporting. Corruption, genocide, and economic strife are stories of both human interest and global economic consequence. To not report on them would be considered morally irresponsible journalism.

The trick is how you can begin to inject some of the more positive stories into the tightly-packed 24-hour news cycle, or squeeze a few business success stories onto the prized real estate of the Wall Street Journal.

Hubert Danso, vice chairman of the African Investment Advisory Group at NEPAD, spent years shopping positive business stories around to the international media types. He got nothing but lip service. So he finally decided that if he wanted the stories of Africa’s burgeoning economic prowess and entrepreneurial spirit to reach the world, he was going to have to tell those stories himself. Danso is now the managing editor of Africa Investor magazine. It’s as slick as anything you’d pick up on a New York newsstand, has top-notch research, and relentlessly covers business issues in and around the continent. If you want to get the other side of the business climate story in Africa, it’s a must-read.

Other deep dive participants have broached the idea of a news portal that focuses exclusively on positive stories coming out of Africa. While the journalist in me bristles at the notion of such an explicitly agenda-driven news outlet, a closer look at the reasoning behind such a portal allays my concerns.

When you look at why international media focus on the disaster and disarray in Africa, it comes down to a few things. One, it is sensational stuff, no question. But also, it’s readily available. There are mouthpieces that are willing to offer up headline-grabbing quotes. Non-governmental organizations, by their very nature, need to sell the media stories of doom-and-gloom, as part of their fund-raising efforts and justification for their very existence. So the lazy journalist will follow this path of least resistance and tell the stories of starvation and civil strife.

But if there were an easy place to find compelling stories of business success, personal triumph, and economic progress, wouldn’t that also make for interesting journalism? So we’re talking about a media center, staffed with communications professionals, relentlessly scouring the continent for human interest stories, case studies, and trend stories that could be packaged up with quotable experts and fed to international news outlets at a moment’s notice. It’s called public relations, and it works for major corporations. So why not Africa?

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.

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.”