Written by Tony Elumelu and Jonathan Oppenheimer
Intra-Africa Trade, Investment Key to Continent’s Development
A new generation of African entrepreneurs and businesses is emerging.
They are challenging traditional incumbents and introducing new business models and strategies that are driving domestic and cross-border growth within Africa. Kenya’s ICT companies are investing in Rwanda and are now looking to enter Nigeria, while United Bank for Africa and other Nigerian banks are rapidly expanding into other African countries. In 2009 alone, South Africa invested $1.6 billion (FDI outflows) into other African countries. In telecoms, MTN, a South African company, now operates in 21 countries across Africa, and Glo, a Nigerian mobile operator, is operating in the Republic of Benin, Ghana and Côte d’Ivoire.
To better understand the profound changes underway in Africa’s business environment and how governments and entrepreneurs can open the way for more trade and investment by Africans into Africa, the Lagos-based Tony Elumelu Foundation and the Johannesburg-based Brenthurst Foundation are commissioning a series of in-depth case studies across a number of key sectors. They will highlight how intra-African commerce could propel the continent to greater economic prosperity.
Africa’s statistics speak of tremendous potential: the continent is the size of China, Mexico, Europe, India, the United States and Japan combined. The population will soon surpass China’s, with a middle class as big as India’s. Africa has enjoyed more than a decade of sustained GDP growth, which has often outstripped many other parts of the world.
There is frustration, however, that Africans are not reaping the rewards of the current global investor confidence as much as they should. The mass export of commodities to the East and the West doesn’t effectively facilitate the ‘trickle-down’ effect of wealth.
Home-grown investments, focused on value-adding industries, are a major key to changing this dynamic.
Africans still seem to choose products and investments from outside the continent. They prefer to export outside Africa rather than to trade, manufacture and add value within. Many African countries continue to trade raw materials but they don’t have the capability to refine or process, so they end up importing the finished products from outside of Africa.
We need to understand what is preventing Africa from being home to value-adding and value-creating businesses. Why, for example, is Africa’s agricultural richness not generating an integrated growing and processing industry as it has done in Brazil?
Africa requires an environment that facilitates investment and greater market integration. The current weaknesses – corruption, high start-up costs, poor infrastructure, and so on – are well known. But our study will also shed light on the legal, social and cultural differences within Africa that restrict cross-border investments.
There needs to be integrated regional production chains within Africa where Africa’s raw materials are processed into finished goods that are traded locally and regionally. Regional trading blocs, including the Tripartite Free Trade Area, which encompasses the East African Community, the Common Market for Eastern and Southern Africa and the Southern African Development Community would thus thrive, paving the way for a Continental Free Trade Area that would produce and trade high value-added goods internally.
Greater market integration in Africa will lead to a significant reduction in the cost of doing business and alleviate some of the problems associated with securing work permits and labour mobility.
Over the long-term, Africa’s competiveness will hinge to a great degree on how well we educate our young people. Traditionally, the most talented Africans have sought educational advancement and careers overseas, but a combination of transformational educational technology, growing opportunities at home and the poor global economic climate could see this brain drain becoming a brain gain. Retaining talent, home grown or otherwise, is critical. Policy that enables skilled Africans to work across our borders more easily will help achieve this goal.
Both the Tony Elumelu Foundation and the Brenthurst Foundation believe that Africa’s ability to engage in intra-African business will be one of the key determinants of its future social and economic development.
Never have circumstances been more propitious for African business. A rise in disposable incomes, high rates of urbanisation and a fast-growing working-age population speak of an emerging class of purchasers of consumer goods, financial services and infrastructure as well as a potential source of manpower for industrialisation and agricultural development.
Africans must explore ways to move beyond regional differences and competition to build Africa together from within, so that Africans at all levels become the primary beneficiaries of the continent’s growth