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Africa is the Land of Opportunity for Productive Investments

Why isn't your business there?

· Africa

Going international is generally considered a measure of a company’s success. It’s also considered almost exclusive to big business. What a mistake!

The best and most viable way to leverage the full power of private sector investment in Africa is by refocusing the practice of “give and take” toward value creation that is profitable and at the same time contributes to driving sustainable, inclusive and equitable development and growth. This is what micro and very small businesses are about!

Big U.S. companies not only tend to overestimate the risks of doing business in the region. They also continue basing their strategic decisions primarily on traditional “rational” attractiveness, which translates into rather “irrational” strategies, because it leads them to ignore the need to factor in flexibility, resilience, leverage, inclusivity, and coopetition.

Micro enterprises and very small (25-50 employees) U.S. businesses can provide a different model, one that generates economic energy through a collaborative approach rather than through incentivized patronage. Not only do micro and very small businesses thrive on stepping beyond the usual compartmentalized asset-seeking, market-seeking or efficiency-seeking thinking. They also focus on identifying new market gateways and on capturing differential “value domains”, through context-specific and culturally-appropriate catalytic business development opportunities and investments.

All business, big and small, is concerned with how to invest time, resources and money profitably with minimized risk. The critical difference between big and micro is how they each harness market potential. Big business involves huge transactions and doing big things. And, sure, it’s very relevant to business development and investment in extractive sectors, like oil, gas and mining or, increasingly, in the hospitality and transportation industries. The latter, if you look closely at how investments are defined and done, can be equally extractive. The thing is, governments in Africa are increasingly concerned with how to attract productive investment into their countries.

Productive investments are those that focus on the acquisition, renovation and improvement of existing resources and assets to make new goods and services that will benefit society, will satisfy market needs, and will also bring personal growth and welfare to their countries.

Extractive investments remove metals, minerals or natural resources for sale or trade with little or no processing. They deplete resources and downgrade or reduce host country capital assets, including human and social capital, and take profits from a captive resource. They often give rise to human rights problems along the entire value chain, and their business practices ultimately undermine the livelihoods of impacted communities. An extractive model for investment exacerbates the negative effects of climate change, such as desertification, soil nutrient depletion and poorer water quality. It also externalizes many of its costs, such as injured or disabled workers; changes in infrastructure to meet the needs of the extractive industry in detriment of the needs of the populations impacted; increases prices of food, water, fiber, and fuel; and it introduces new variables related to gender inequality and class and ethnic divisions.

In contrast, productive investments are based on a generative mindset that seeks to create wealth by making new added value things happen. They contribute capital, knowledge and technology in a way that expands the capacity of the host economy. They drive inclusive economic growth, by building, implementing and honoring successful partnerships between trade and investment, while avoiding a race to the bottom. In Africa, this necessarily means building partnerships with the local businesses that drive inclusive and shared economic growth and wealth creation. And the majority of local businesses in Africa are micro and small, by American standards.

It is foolish to believe that multinationals can and will work with micro and small African businesses. They may tout their contributions to sustainable economic growth and poverty reduction by selectively including local businesses in their supply chain. But the fact of the matter is that extractive industries, by their very nature and structure, create foreign dominated enclaves that provide limited direct employment, local capacity building and enterprise development.

This is not to say that extractive industries can’t be more inclusive and have a more constructive impact.They can. Extractive industries hold tremendous promise as a major stakeholder that can play a strong development role and generate societal benefits. However, their leadership must be willing to change their business practices so that investments are more inclusive and ensure broad-based development that maximizes economic and social contributions. And we all know that change is often perceived as a threat by those in the driver’s seat. Change can mean losing sunk costs and involves altering your course. It’s easier to ignore long-term negative consequences and focus on the short-term, immediate benefits of being “big”.

Seeing beyond “business as usual” takes effort and dedication on the part of the big players who “own” it. Structural inertia is hard to break. Stability is rewarded, and operational efficiency traditionally means doing things as cheaply and efficiently as possible today in order to meet yearly financial responsibility to shareholders (versus the other stakeholders, all those people and organizations with an interest or concern with a business and its activities). Delivering to shareholders (i.e. the owners of the business) is the top priority, even if it means short shrifting other stakeholders. As a result, the social value big business procures is small and mostly an afterthought to delivering on shareholder interests. Although there are myriad occasions in which it is financially sensible for a company to do socially positive things, a big company will not automatically play socially constructive roles, nor will they use their enhanced influence for society’s wider interest.

Whatever socially constructive value big business can garner through selective employment creation, local sourcing of some factors of production or corporate social responsibility, showcase initiatives will always be limited by pursuit of maximized shareholder value. This is not to say that the social value that big business can contribute should be dismissed. Not at all. A social and environmental conscience is always welcome. The problem is that the very nature of big and/or multinational business, particularly in extractive industries, makes delivery of shareholder value the King of the Mountain of wealth creation, generation and sharing, regardless of the usually negative productive impact of how that wealth was generated.

In contrast, micro and very small businesses, by their very nature, pursue profit by seeking to balance it with purpose. They seek to leverage the power of small to make productive investments that have a collective impact, because their worth increases as the fortune of their markets increase. This means that they must find ways to align value and innovation and help all stakeholders realize their full potential for wealth creation. This is especially relevant to realizing effective and efficient investments with minimized risk in sub-Saharan Africa.

Micro and small businesses “own” tomorrow’s investment opportunities in Africa, because they are the ones who

  • can provide “out-of-the-box” solutions that go beyond the usual asset-seeking thinking.
  • develop strategies that can take advantage of and build on existing infrastructure, resource and human capital gaps to ply their capital, innovation and expertise.
  • develop productivity-enhancing technologies that respond to local needs.
  • commit to and actually follow through on delivering shared value through collaborative partnerships that promote local content and enterprise development.
  • create economic ecosystems and inclusive market gateways through catalytic investments that better and more fully apprehend Africa’s market and competitive realities.
  • are favorably viewed by Africans.

Doing good business well in Africa is about collaborative approaches to business development. It’s about empowering smallholders, women, and youth. It’s about following a “lean” model for both operations and finance that is more efficient, contextually appropriate, respects local social norms, and takes a collaborative approach that includes all stakeholders. And it is micro and small U.S. businesses, not big multinationals, who can provide a collaborative, context-specific, “lean” approach to investing productively in Africa. That’s why Upboost provides specific support to micro and very small U.S businesses interested in taking their projects and technologies to sub-Saharan Africa.

Astrid Ruiz Thierry, Principal, Upboost LLC

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