Fea­ture

One of the most crit­i­cal hin­drances that African en­ter­prises face when ex­pand­ing within the con­ti­nent may be the un­will­ing­ness to change long-stand­ing busi­ness prac­tices.

Financial Nigeria Magazine - - Contents - Mar­cus Gon­calves, Ph.D. is an In­ter­na­tional Man­age­ment Con­sul­tant, As­so­ciate Pro­fes­sor of In­ter­na­tional Busi­ness and Man­age­ment, and Chair of the In­ter­na­tional Busi­ness Pro­gram, Ni­chols Col­lege, Dud­ley, MA. USA. Email: mar­[email protected]­gusa.com.

Fos­ter­ing an open econ­omy in Africa

The fu­ture of Africa's de­vel­op­ment lies in the hands of small and medium-sized en­ter­prises (SMEs) and their abil­ity to ex­pand across the con­ti­nent. These are the en­ter­prises that will cre­ate most of the pri­vate sec­tor jobs for a rapidly-grow­ing labour force. In an open econ­omy, these SMEs can in­ter­na­tion­al­ize and meet surg­ing de­mand for prod­ucts and ser­vices in Africa and be­yond.

Busi­ness in­ter­na­tion­al­iza­tion in Africa, how­ever, comes with its own sets of chal­lenges. There are gen­er­ally weak le­gal and pol­icy frame­works re­gard­ing trade poli­cies. The poor state of in­stra­truc­ture makes it very dif­fi­cult for move­ment of peo­ple and goods, both within and be­tween coun­tries, lead­ing to high cost of do­ing busi­ness. Poor hu­man cap­i­tal de­vel­op­ment on the con­ti­nent leads to short­age of skills and makes the labour force un­com­pet­i­tive. Of­ten­times, there are also ten­den­cies for po­lit­i­cal pa­ter­nal­ism, or bla­tant in­ter­fer­ence, which I was able to ob­serve dur­ing re­lated re­search I con­ducted for al­most two months in An­gola and Mozam­bique in 2016.

Com­pare the above sce­nario with ad­vanced economies, es­pe­cially those in the Euro­pean Union (EU) where labour mo­bil­ity among mem­ber-coun­tries is al­lowed, along with free move­ment of goods. There is also the fact that the labour force in var­i­ous EU coun­tries are highly ed­u­cated.

The most sig­nif­i­cant op­por­tu­nity for pro­mot­ing the growth of Africa's SMEs is the po­ten­tial for cross-bor­der trade. But for that to hap­pen, there needs to be a set of in­ward and out­ward strate­gies to help strengthen the con­ti­nent's trad­ing net­works.

Fur­ther­more, in­com­pat­i­ble poli­cies in Africa, such as pro­tec­tion­ism, have to end. Sev­eral African economies are known for their pro­tec­tion­ist pol­icy stances. It is part of what makes Sierra Leone and Zim­babwe rank among the least com­pet­i­tive busi­ness en­vi­ron­ments in the world. Pro­tec­tion­ist trade poli­cies shackle African economies and limit the abil­ity of en­ter­prises to in­ter­na­tion­al­ize.

The pro­posed Tri­par­tite Free Trade Area (TFTA), link­ing three of the con­ti­nent's re­gional trad­ing al­liances, the Com­mon Mar­ket for Eastern and South­ern Africa (COMESA), the South­ern African De­vel­op­ment Com­mu­nity (SADC), and East African Com­mu­nity (EAC) is seen by many as a sig­nif­i­cant step in the right di­rec­tion. Launched in June 2015, 22 of the 27 mem­ber-states signed the agree­ment as at June 2018. The TFTA is ex­pected to en­ter into force once it has been rat­i­fied by 14 mem­ber-states. Only Egypt and Uganda had rat­i­fied the agree­ment as at June.

The TFTA was seen as pre­cur­sor to the African Con­ti­nen­tal Free Trade Area (AfCFTA), which was signed last March by 44 coun­tries. But two of the con­ti­nent's largest economies, Nige­ria and South Africa, along with eight oth­ers, de­cided not to sign it. With­out these im­por­tant economies be­ing part of the trade bloc, re­gional in­te­gra­tion and trade lib­er­al­iza­tion, which are cru­cial for Africa's de­vel­op­ment and ex­pan­sion of SMEs across bor­ders will be se­verely ham­pered. As of 2016, in­tra-Africa ex­ports made up 18 per­cent of to­tal global ex­ports, com­pared to 59 and 69 per­cent for in­tra-Asia and in­traEurope ex­ports, re­spec­tively, ac­cord­ing to the Brook­ings In­sti­tu­tion.

Al­though many African na­tions have tran­si­tioned from au­to­cratic rule to democ­ra­cies, a lot of African coun­tries prac­tice the free-mar­ket sys­tem only in name. For in­stance, South Africa is of­ten cited as one of the most pro­tec­tion­ist coun­tries in the world, when it comes to poul­try, and other meat prod­ucts. The coun­try has been adept with us­ing an­tidump­ing laws as a strat­egy for keep­ing out for­eign prod­ucts from its mar­ket.

In 2016, South Africa got into a trade dis­pute with the United States for plac­ing re­stric­tions on U.S. poul­try im­ports for 15 years, beef im­ports for 12 years and pork for the pre­vi­ous three years. At the height of the dis­pute, the Obama ad­min­is­tra­tion sus­pended South Africa from trade ben­e­fits un­der the African Growth and Op­por­tu­ni­ties Act (AGOA) – the United States leg­is­la­tion that pro­vides duty-free en­try into the U.S. for cer­tain goods from el­i­gi­ble sub-Sa­ha­ran African coun­tries.

African gov­ern­ments must work to­gether to­wards a re­gional im­per­a­tive if Africa's economies are to be trans­formed in ways that would drive sus­tain­able and in­clu­sive growth for the con­ti­nent as a whole. While progress on the TFTA is com­mend­able, re­gional in­ter­na­tional trad­ing cor­ri­dors such as the COMESA-EACSADC Tri­par­tite Free Trade Area must be scal­able to im­prove the open­ness of African economies, es­pe­cially with re­gard to how they trade among them­selves and en­able busi­ness growth.

Africa has a young, ris­ing pop­u­la­tion and the fastest ur­ban­iza­tion rate in the world. Hence, as a tar­get mar­ket, the African con­ti­nent presents ex­cel­lent op­por­tu­ni­ties for pan-African in­ter­na­tion­al­iza­tion of its en­ter­prises, whose prod­ucts and ser­vices will have a ready mar­ket given the grow­ing mid­dle class. Ac­cord­ing to a 2016 re­port by McKin­sey Global In­sti­tute, Africa could nearly dou­ble its man­u­fac­tur­ing out­put from $500 bil­lion to $930 bil­lion by 2025, as

Nige­rian MNEs such as Dan­gote and United Bank for Africa are also ex­pand­ing their foot­prints across the con­ti­nent.

long as coun­tries take de­ci­sive ac­tions to cre­ate im­proved en­vi­ron­ments for the man­u­fac­tur­ing in­dus­try.

In an­other re­port, McKin­sey said Egypt, Morocco, South Africa, and Tu­nisia – Africa's four most ad­vanced economies – are broadly di­ver­si­fied. These economies can also ex­pand man­u­fac­tur­ing and be able to cater for lo­cal and re­gional mar­kets.

The in­ter­na­tion­al­iza­tion trend of African en­ter­prises in the last decade or so has been very pos­i­tive. South African multi­na­tional en­ter­prises (MNEs) such as Di­men­sions Data, Mass­mart, MTN, Nam­pak, SABMiller, Shoprite, Stan­dard Bank, and Telkom, each has a pres­ence in at least a dozen coun­tries on the con­ti­nent. Nige­rian MNEs such as Dan­gote and United Bank for Africa are also ex­pand­ing their foot­prints across the con­ti­nent.

These MNEs are cre­at­ing jobs, help­ing to im­prove in­come lev­els and mod­ern­ize in­fra­struc­ture. For in­stance, Mozal, an alu­minium smelter in Mozam­bique, of­ten spon­sors train­ing pro­grammes for work­ers, thereby build­ing the skills of the lo­cal work­force. SEACOM, a pri­vate­ly­owned cable com­pany with head­quar­ters in Mau­ri­tius, has pres­ence in Kenya, South Africa, Mozam­bique, and Tan­za­nia. The com­pany has in­stalled thou­sands of miles of un­der­sea fiber op­tic cable across Africa, in­creas­ing broad­band ca­pac­ity, and help­ing to im­prove in­ter­net con­nec­tiv­ity.

But de­spite the vast op­por­tu­ni­ties for African en­ter­prises to scale up, there is a wide range of fac­tors con­tribut­ing to the lack of in­ter­na­tion­al­iza­tion of many en­ter­prises – quite apart from the macroe­co­nomic fac­tors. These non­macroe­co­nomic fac­tors can be di­vided into ex­ter­nal and in­ter­nal fac­tors with the ma­jor­ity be­ing re­lated to strategic and lead­er­ship is­sues. Of­ten­times, man­age­ment fails to con­sider in­ter­na­tional mar­kets as an in­te­gral part of growth strat­egy. Top busi­ness en­trepreneurs I have ad­vised in An­gola and Mozam­bique had pre­vi­ously failed to com­mit enough re­sources to get their busi­nesses es­tab­lished abroad.

A num­ber of African MNEs, es­pe­cially smaller ones, also tend to set un­re­al­is­tic tar­gets and fail to rec­og­nize that en­ter­ing in­ter­na­tional mar­kets at an early stage is fun­da­men­tal in es­tab­lish­ing net­works and de­vel­op­ing brands. Some also fail to rec­og­nize that pan-African mar­kets are more price-sen­si­tive, of­ten com­mit­ting the mis­take of stick­ing to their pric­ing struc­tures in­stead of adapt­ing to lo­cal pe­cu­liar­i­ties and re­al­i­ties.

One of the most crit­i­cal hin­drances that African en­ter­prises face when ex­pand­ing within the con­ti­nent may be the un­will­ing­ness to change long-stand­ing busi­ness prac­tices. The busi­nesses that tend to fo­cus too much on the larger African economies such as Nige­ria, Egypt, South Africa, Al­ge­ria, and An­gola, ne­glect smaller but thriv­ing mar­kets such as Morocco, Libya, Su­dan, Kenya, Ethiopia, Rwanda, and Ghana. They end up miss­ing po­ten­tially bet­ter-suited op­por­tu­ni­ties in the smaller mar­kets.

These fail­ure fac­tors are all a re­sult of a lack of ad­e­quate mar­ket en­try prepa­ra­tion by African en­ter­prises. De­vel­op­ment of an in­ter­na­tion­al­iza­tion strat­egy re­quires them to not only con­tin­u­ously re­search the ex­ter­nal mar­ket but also the so­cio-po­lit­i­cal en­vi­ron­ment. They also need to know how to use in­ter­nal re­sources to take ad­van­tage of op­por­tu­ni­ties. By con­duct­ing pre­lim­i­nary due dili­gence, man­agers must de­velop busi­ness pro­pos­als de­pict­ing what to do, how to do it, by when, and re­sources re­quired.

To fos­ter an open econ­omy in Africa, the con­ti­nent needs to de­velop a cul­ture of in­ter­na­tion­al­iza­tion. This re­quires African gov­ern­ments and pub­lic in­sti­tu­tions to play key roles in pro­mot­ing pos­i­tive at­ti­tudes to­wards in­ter­na­tional mar­kets. An open econ­omy nec­es­sar­ily re­quires pro­vid­ing more in­for­ma­tion and in­cen­tives. By de­vel­op­ing spe­cial­ized agen­cies, pub­licpri­vate part­ner­ships, and other sup­port­ing strate­gies, they can cre­ate an en­abling en­vi­ron­ment, which can pos­i­tively con­trib­ute to build­ing and sus­tain­ing busi­nesses.

En­cour­ag­ing African busi­ness lead­ers to in­vest in de­vel­op­ing lan­guage skills is also ad­vis­able. The abil­ity to in­ter­act with the lo­cal mar­kets re­quires hav­ing prac­ti­cal knowl­edge of lo­cal cul­tures. This can some­times mean know­ing how to speak the lo­cal lan­guages, thereby hav­ing the added ad­van­tage to do busi­ness across bor­ders.

As of 2016, in­traAfrica ex­ports made up 18 per­cent of to­tal global ex­ports, com­pared to 59 and 69 per­cent for in­traAsia and in­tra-Europe ex­ports, re­spec­tively.

Africa’s rich­est busi­ness­man, Aliko Dan­gote

UBA House, Ma­rina, La­gos

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