By Tony O. Elumelu, C.O.N
Africa is not a single country but a continent, one that is a place of real business opportunity that the world should be alive to. I know, having built businesses that now operate in 20 African countries and through creating a programme over 10 years that is funding and mentoring 10,000 African entrepreneurs.
I have witnessed first hand the infectious enthusiasm of African entrepreneurs, and my businesses demonstrate the potential of Africa if you invest for the long term and act strategically. In 1997, I had a vision of democratising African banking, seeing financial services not only as a vehicle for financial inclusion, but as a critical enabler of cross-border trade and value creation on the African continent.
Since the end of the commodity supercycle, growth paths in Africa have diverged. Oil-exporting countries, such as Algeria and Angola, and non-energy mineral exporters, including Botswana and Zambia, have experienced substantially weakened growth. Economic giants Nigeria and South Africa have entered recession. However, economies not based on commodities have continued to demonstrate robust expansion. Côte d’Ivoire, Ethiopia, Rwanda and Tanzania enjoy gross domestic product (GDP) growth rates of 6% and above.
This diversity teaches us the important lesson that Africa should not be treated as a single economic unit and also shows how governments must create the enabling environment that will allow the private sector to act as the engine of economic and social growth.
The economic progress of the latter countries is unsurprising. Their growth is a result of patient investment in infrastructure to grow the real sector of the economy, and a sustained focus on institutionalising that enabling environment – with business incentives, transparency, safety and policy stability – to allow the private sector to flourish. These factors foster the growth of local value creation, which resolves Africa’s historical over-reliance on raw material and commodity exports that leave their economies susceptible to cyclical boom and bust.
In 2015, Ethiopia launched a light rail project in Addis Ababa, the first metro service in sub-Saharan Africa. As it is now building a $5bn Grand Renaissance dam with a generation capacity of 6000 megawatts and a projected $1bn in revenues from electricity sales, the World Bank recently named it as the world’s fastest growing country. Ethiopia’s big investments in infrastructure have resulted in pay-offs, including double-digit economic growth (averaging 10.8% since 2005).
Tanzania has also made significant investments in infrastructure – particularly in power – strengthening its manufacturing and construction sectors. Construction alone accounted for 13.6% of GDP in 2015, further fuelled by investments in transport and port developments.
The diversity of economic outcomes on the continent illustrates my belief that three interdependent ‘pillars’ for economic and job growth are required: policy reform and a commitment to the rule of law; investment in infrastructure; and a commitment to developing Africa’s manufacturing and processing industries. All three pillars reinforce each other, help to unleash the African private sector and increase both foreign and local investment.
Private sector importance
I firmly believe that only a developed and well-capacitated private sector can unlock economic prosperity and widespread opportunity in Africa. To advance bottom-up economic development, and create jobs and employment for Africa’s exploding population, the private sector must flourish, with a focus on supporting entrepreneurs and small and medium-sized enterprises (SMEs). After all, governments and corporates alone cannot create the millions of jobs that the continent desperately needs; only small businesses can.
The best-performing countries on the continent are those that have keenly supported entrepreneurship and enhanced the business climate. The Rwanda Development Board, created to boost entrepreneurship and grow the private sector, has been effective in increasing investor interest in the country. The World Bank’s Ease of Doing Business Report now ranks Rwanda second in Africa, as a result of its reforms that have reduced administrative and operating costs for all businesses via streamlined licensing and permitting processes; reduced tariffs; and ease in registering a new business, accessing credit and paying taxes.
In Côte d’Ivoire, improvements to the business environment continue to attract investment. For example, a reduction in government bureaucracy now allows new businesses to be registered within 24 hours. Tax waivers, exemptions and a 40% cut in custom duties have spurred new investments. The Mauritian government has launched an ambitious SME scheme backed by a bank focused on SMEs with a capitalisation of Rs10bn ($751.6m) over the next five years. The goal is to become a “nation of entrepreneurs”.
It is encouraging to see Africa’s public sector recognise that Africa’s future will be determined not simply by economic growth, but by how successful we are in creating accessible pathways to economic prosperity for all Africans everywhere. It is in those communities where opportunities are the most scarce that social issues are most prevalent. Given the recent commodity crash and subsequent shortfalls in government budgets across the continent, these massive investments in infrastructure and structures to support entrepreneurs may be unfeasible. This calls for a new approach to development assistance.
Partners for the long term
Development partners must be willing to: work side by side with African countries to invest for the long term in critical sectors of the economy such as manufacturing and processing; lend technical support in policy conceptualisation; and finance infrastructure projects such as ports and roads – efforts that will create broad-based prosperity. Assistance in this manner will radically transform the economy and launch it on the path of sustainable development.
In mid-June, German chancellor Angela Merkel met African leaders ahead of the July G20 summit to discuss the ‘Compact with Africa’, an initiative to boost private investment in Africa, improve infrastructure and tackle unemployment. Emphasising the importance of this different style of partnership, Ms Merkel said: “Positive development in the world will not work unless all continents participate. We need an initiative that does not talk about Africa, but with Africa.” This has been backed up by €300m agreement with Tunisia, Côte d’Ivoire and Ghana as part of the recently announced Marshall plan.
Germany’s Marshall plan for Africa seeks to support the continent in areas of economic activity, trade and development; peace and security; and democracy, the rule of law and human rights. It is hoped that the plan will accelerate the growth of the African private sector – including entrepreneurs – to make companies more competitive, and to enhance their ability to scale and create formal wage-earning jobs. It also strives to bridge Africa’s $93bn-a-year infrastructure deficit, the major roadblock in its path to prosperity.
I support this reimagined and innovative approach to development. I applaud the well-meaning plans to forge stronger trading ties and cross-border commercial relationships, to support African entrepreneurs, to commit to more technical and knowledge support programmes. Above all, I commend this recognition – though belated – of Africans as befitting partners, capable of working alongside Western governments and corporates to generate new wealth opportunities on the continent.
For me, this goes beyond mere talk. The Tony Elumelu Foundation has committed $100m to support African entrepreneurs, based on our belief in their potential and capacity to develop homegrown solutions to solve the continent’s seemingly intractable economic problems.
My passion for entrepreneurship is rooted in the economic philosophy of ‘Africapitalism’, a term that I coined to emphasise the role Africa’s private sector must play in the socioeconomic transformation of our continent. Africapitalism calls on the private sector – including African entrepreneurs – to make long-term investments in strategic sectors to create both economic profit and social prosperity.
To empower African entrepreneurs to take on this responsibility to transform Africa, the Tony Elumelu Foundation has committed $100m over the next 10 years to funding, mentoring and training 10,000 entrepreneurs whose businesses will create 1 million jobs and generate $10bn dollars in revenue.
An alternative capitalism
At the heart of Africapitalism is the recognition that the private sector is the main driver of growth in any economy. This confers on businesses a critical responsibility and a commitment to prioritise not economic profits alone but social wealth and broad-based prosperity. Africapitalism advocates the need to enable the private sector to take on a more active role in addressing economic imbalances in society. It improves upon the traditional model of capitalism that centres on extractive short-term gains and instead promotes a refined approach that invests for the long term in strategic sectors for both economic and social wealth.
Africapitalism puts people first and identifies entrepreneurship as the solution to Africa’s biggest threats: unemployment and lack of economic hope. Africapitalism advocates for the empowerment of entrepreneurs to enhance job creation. Only small businesses – not governments, not corporates – can create the millions of jobs needed to leverage our youth demographic dividend to guarantee an economic transformation.
The significant political and economic changes today – the backlash against globalisation, anxiety over lost jobs, political upheavals, deepening inequality – reinforce the urgency around rethinking capitalism as historically practised. Africapitalism offers a compelling alternative to modern-day capitalism, and when embraced will douse societal tensions, create new social wealth, inspire renewed public confidence in business, and make our world much fairer. Businesses will be the better for it as bottom lines benefit when there is peace, stability and prosperity.
It is true that Africa needs partners, but more critically, we need Africapitalist partners.
This article was originally published on The Banker