Africa Is Open for Business

Angola is offering financial aid to debt-ridden Portugal. The Economist recently declared Africa a "hopeful continent" after years of writing it off as "hopeless." More than a million Chinese are in Africa exploring opportunities in villages and cities. The continent is attracting top global brands and has a growing middle class. There's a sense of upbeat optimism with possibilities that seem endless. As the lions roar from Kenya to Ghana, and cheetahs from South Africa to Mali, young Africans are unleashing their entrepreneurial energy and most governments are offering stronger leadership, a more business-friendly economy, and less corruption.

But, Africa is not an isolated island in the world, and ongoing uncertainty with some of its trading partners could imperil any sustainable progress. A trade shock is just around the corner, as the continent remains reliant on a mineral-based economy. And new, rosy economic statistics have not managed to stop strikes, riots, and other protests, which are the result of the continued reality of economic inequality. What's more, Africa is complex, fragmented and multicultural. What works in Nigeria is not guaranteed to work in Kenya.

But, none of this should keep businesses from expanding into African markets. The international community should not ignore a growing market of roughly a billion people. Africa needs about $50 billion to meet its development goals over the next few years, and it needs the help of the international community to tackle the vicious cycle of poverty, disease and hunger in Africa today.

African economies are growing, and millions have moved into the middle class category within the last decade. And Africans are buying things, from iPads to Porsches. Africans are also becoming global players, with some of their banks — such as United Bank for Africa and Guaranty Trust Bank — opening offices in the U.S., France and the U.K. Investments in the continent will grow, and the following areas remain the most promising:

·         Energy: Despite the abundance of resources like solar, oil, water and gas, most Africans still have no reliable energy supply. The challenge has been the cost-intensive, long-term reward nature of these projects in unpredictable political systems. It's simply too risky for businesses to invest in this sector.

·         Minerals: As the world economy recovers, African minerals such as crude oil and gold will remain important to the global economy, as demand increases. Investing in extracting and processing these minerals will remain a lucrative venture.

·         Agriculture: Africa is unfed in a continent with good, arable land. Africa imports its food, despite the fact that it produces enough to feed its citizens. The problem is that harvests are poorly managed due to a lack of preservation techniques, which means that much of the food goes to waste and Africa goes hungry even after bumper harvests. Food production, processing, and preservation will remain a profitable growth area.

·         Technology: Africa has not attracted capacity-building investments, such as R&D centers and hi-tech manufacturing. In the coming years, as global buyers become more sophisticated, companies that differentiate their products within local markets will have a strong competitive advantage. Africa is no exception. For example, telecoms can be profitable in Africa not for selling airtime, but for powering value-added services such as mobile banking and mobile business, among others, that address the needs of this unique population.

Four things will drive the African economy in this decade:

·         African diasporas: The diasporas who have acquired world-class skills with international networks will drive sustainable African development. As the global economy recovers from recession, their impact will continue to expand.

·         Education: Education is a weak link in the development of the continent. Major foreign investment has not come to the sector owing to low return, but some African governments are working hard to change that. For instance, Rwanda and Carnegie Mellon University have teamed up to offer a graduate-level program in East Africa. The new campus will train talent for companies who want to make products closer to Africans. Better education will also serve to advance the entrepreneurial ecosystem on the continent.

·         Intra-trade: The trade route to colonial links will become weaker as these nations become richer and make choices purely based on market factors. For instance, Cameroon could choose South Africa, rather than France, to process some of its food.

·         Infrastructure: Though the regional economic communities (RECs) have not lead to monetary unions, Africa is poised to benefit from the integration of its various economies, and can learn from the euro zone crisis when strategizing about its own single currency program (PDF). The RECs will form free trade areas, which will help modernize infrastructure, among other things.

Africa's biggest risk is its political system. New governments have cancelled mine contracts and leases executed by predecessors. The continent faces challenges if it cannot prepare for its post-mineral era. As I drive by dead mines that generated billions of dollars of wealth around the world, but left no sustainable community development behind, I have to wonder: What will the domino effect be if the continent cannot transmute effectively into a post-mineral era? Africa needs a redesign of its economy towards a knowledge-driven one. New industries remain underfunded and quality startups are scarce.

Africa is open for business, and tomorrow's global leaders should understand both the risks and the opportunities that are available here. There is the potential for corporations to make billions of dollars in profits in Africa. But, much more importantly, contributing to a strong and sustainable Africa could just be the next generation of global leaders' greatest legacy.

SOURCE: Harvard Business Review