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Refocus U.S. Business Engagement in Africa

Make Prosper Africa a Tool for Creating Economic Energy

· Africa

The recently published CSIS paper, entitled “U.S. Economic Engagement in Africa. Making Prosper Africa a Reality”, provides recommendations that in practice will limit the scope and reach of the American economic footprint on the continent. If Prosper Africa is to become a “renewed avenue for U.S. economic engagement with Africa”, it must revamp the same ‘ol same ‘ol in-the-box vision proposed by CSIS.

As part of the New Africa Strategy, Prosper Africa seeks to open markets for American businesses and enable the U.S. to regain a competitive foothold in Africa. To prosper, Prosper Africa must provide clear and dedicated support to U.S. micro and small business solutions adapted to African needs and demands.

Don't bet to lose

Betting big on infrastructure and telecommunications investments in Africa is betting to lose. American companies would be naive to think that they can just parachute into a market they have little or no knowledge of or experience in. Their best bet is to focus on the differential competitive advantage they can bring to Africa.

In terms of mobile devices, U.S. companies would engage to lose a commercial battle with the Chinese. Just because the region’s mobile subscriber base is poised to increase at more than double the global growth rate through 2022 does not mean the U.S. can compete to win. Africans are buying top-flight, 2-3 sim card touch screen smartphones for $80! How can a U.S. company beat that? And in the area of mobile services, Africa is way ahead of the U.S. in high-utility apps for low-budget phones, including mobile cash and financial services, mobile commerce, mobile healthcare, mobile education, mobile social networking, you name it, Africa’s got it... but the U.S. doesn’t.

In the telecoms sector, Africa has clear potential as an immense and fertile market despite its low per capita incomes. But to get a piece of an increasingly crowded pie built on the race to the bottom, American businesses will need to refocus from the traditional connectivity and subscription-based business model to new operating models and digital value pools that can enable sustainable cost efficiency.

In its 2016 report on the telecommunications industry in Africa, McKinsey identified three types of operating models that can help to realize cost savings of 25 to 35 percent: the value-focused local model, the cross-border scale model, and the partnership web mode. Given that the U.S. has remained largely disengaged in the region as other countries have ramped up their economic engagement and as African countries have proactively expanded their technology map, American companies are in for a rude shock.

According to the trade body GSMA, smartphone adoption in Africa is the fastest growing in the world and is projected to reach 525 million online in Africa by 2020. This is driving strong growth across the region and is contributing to economic growth. It is expected to generate more than $150 billion (or 7.9% of GDP) of economic value added as countries increase take-up of mobile internet and continue to generate improvements in productivity and efficiency.

However, American-made telecom solutions are not, by African market-standards, advanced enough in terms of what Dayo Olopade, in her book The Bright Continent, calls the “imagination differential”. After all, the U.S. has the worst of the public and private worlds when it comes to internet access and mobile telephony.

In an article in Wired, Susan Crawford makes a very valid point about the failing performance of the American telecommunications sector as a whole: when public assets are privatized and auctioned off to the highest bidder, everyone loses. Following an astounding wave of consolidation and deregulation, the U.S. federal government has not set high enough standards for the quality and price of the services the public subsidizes, nor has it been good at fostering competition. “It’ll take anything that seems to fill the gaps left by the private market and even throw poorer and rural people under the bus, relegating them to subpar services”. The sector is dominated by “mostly unregulated private monopolists, selling expensive, mostly second-class data services to the rich and looking to the state to pay them to provide internet access services to everyone else”.

The theme in the American telecoms sector seems to be: “treat giant companies well with big subsidies, and hope that they'll do Americans a favor by selling them some form of service”. This belies our national policy. Enshrined in the statute codifying the FCC's powers, it states that its mission is to "make available, so far as possible, to all the people of the United States" a nationwide communications service "with adequate facilities at reasonable charges." "But the industrial policy about communications infrastructure practiced in the United States seems more determined to invest in dominant carriers’ bottom lines, at great long-term costs to users, rather than in investing in every child's opportunity to live a decent, globally competitive life.”

The focus on the Big (the big five: AT&T, Verizon, CenturyLink, Comcast, and Spectrum) just won’t cut it in Africa. Africans need and deserve persistent, inexpensive, world-class data services in order to thrive. American companies in the telecommunications sector consider costly infrastructure investment irrational because it drives up the companies' debt levels. How can they possibly deliver the innovative solutions that Africans need without imposing undue costs and burdens on recipients if they are neither familiarized with the African market nor practice the inclusivity that African markets demand?

What’s more, American businesses will certainly miss the telecom business train in Africa if they focus predominantly on urban and conurban areas, as suggested in the CSIS report. In those areas, mobile operators are already edging towards full coverage. According to GSMA, mobile broadband connections in sub-Saharan Africa, the fastest growing region in Africa, are projected to be 87% of total connections by 2025. But future growth opportunities will increasingly be concentrated in rural and low-ARPU markets.

Africa’s telecoms are no poor U.S. relative in need of big U.S. business elephants. A cursory glance at sub-Saharan Africa’s accelerating transition to mobile broadband-capable connections makes evident how the region has progressed dynamically through leapfrogging and reveals a telecommunications capacity that has become much more ubiquitous and transformative than in the U.S. GSMA Intelligence forecasts indicate the first commercial 5G services will be launched in the region by 2021, with the number of 5G connections set to grow from 400,000 at the end of 2021 to almost 12 million by 2025 (2.6% of the total connection base).

Olopade rightly argues, “African technology is proving to be among the most exciting growth industries in the world”. But that’s because it is African-grown players, like MTN, Tigo, Expresso, Glo and Vodacom, among others, who provide the best and most innovative services for African needs. In fact, they can provide U.S. companies open to learning with important lessons on how to use the “imagination differential” to address some of the pain points experienced by telecoms and mobile technology providers in the U.S !

African technological innovation is appropriately supercharging development for African needs. Africa’s telecoms have seeded exciting, unbiased telecommunications models and mobile application alternatives that U.S. telecoms would do well to learn from. Why prioritize engagement in a sector where U.S. companies do not have a clear advantage?

In the hard infrastructure sector (roads, bridges, railways, ports), U.S. companies have a steep hill to climb to catch up to China’s leap ahead in Africa and Europe’s historical advantages. Although the U.S. business model of including local content is welcomed across the continent, as the 2018 research report carried out by Mercer Investment Consulting LLC rightly states, “Developing a robust private African infrastructure portfolio that is focused on greenfield opportunities and pays distributions regularly can take many years, requiring both significant patience and conviction in the strategy”.

The basic problem is that many large U.S. asset owners with infrastructure allocations have limited bandwidth because they have small internal teams attempting to deploy large amounts of capital. This not only limits their ability to perform due diligence but more importantly, because they lack the necessary local expertise and contacts, the already existing gap between risk perception and reality widens.

This is not to say that the U.S. private sector should not explore or vie for opportunities in the infrastructure sector in Africa. But given that the Millenium Challenge Corporation (MCC) specializes in big infrastructure projects, from roads, to energy, to ports, to irrigation, shouldn’t those opportunities be accessed through a more U.S. business responsive MCC?

MCC was created in 2002 to address the inefficacy of a large part of American aid. It was entrusted to help create more stable, secure countries with new business opportunities for American, global and local companies. Although the approach has not proven to be as promising as its stated principles, it certainly would make more sense to ensure that it does, rather than to duplicate resources.

A misguided commitment to beneficiary country ownership has effectively limited the participation of U.S. businesses in the market and business development opportunities opened up by Compact-related RFPs. Country ownership implies that there is sufficient political support within a country to implement the projects, programs and policies for which MCC provides assistance. It also requires that the beneficiary government achieve sufficient support from stakeholders within and outside the government. But it does not mean that the beneficiary country must control the application of the funds mobilized by MCC. Not does it mean that those funds are available for “elite market capture” or, even worse, proxy use by Chinese or European or other foreign companies.

The use of Millenium Challenge Accounts (country-managed MCC offices) should not be biased in benefit of specific groups in power or with ties to established non-U.S. foreign investors and companies. This goes in detriment of its raison d’être and against Prosper Africa. When designing its programs, MCC needs to ensure U.S. micro and small businesses are fully taken into account and informed of the RFPs. At least 50% of MCA awarded contracts in any MCC Compact should be set aside for U.S. micro and small businesses. U.S. companies should have preferential access to MCA contracts. Because most have no track record in Africa, they should be required to partner with local companies and hire indigenous local and/or regional expertise.

As a final note on U.S. infrastructure investments in Africa, our present government’s focus is “America first”. This begs the following question: shouldn’t American companies bet big first in America to address major shortfalls in U.S. transportation, water, and other infrastructure systems that weaken American competitiveness abroad (including Africa) before investing in African infrastructure? Focusing on investing on infrastructure in Africa first inevitably means that foreign companies will take an even bigger slice of the pie in the U.S.. As pointed out by Joe Quinan, head of market and thematic strategy at Merrill Lynch and U.S. Trust, "It's going to be hard to build out U.S. infrastructure without foreign capital ... or even foreign expertise.”

To prosper in Africa, U.S. economic engagement must be driven by micro and small U.S. companies

CSIS may be beholden to big private donors, as are many other U.S. think tanks that recommend policy to the U.S. government. But to do business with Africa – not just in Africa – requires going beyond just paying lip service to entrepreneurship and U.S. business lumped together.

Prosper Africa should support those in the U.S. private sector that actually need it. It needs to dedicate specific support to micro and small U.S. businesses. They not only need the support much more than the big players do. They are the ones that have the greatest impact on the U.S. economy. They also have technologies and processes most relevant to African development needs and demands.

Micro and small U.S. businesses are the prime energizers for rebuilding America’s ladder of opportunity in Africa. As I wrote in a previous article, 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.

Micro and small U.S. businesses are the natural leaders for a new U.S. narrative in Africa. That’s why Prosper Africa has to translate policy into actions that are good for the majority of U.S. businesses. Excessive focus on big business and big projects just won’t cut it. Neither will the measurement of small business success by how quickly it can scale to bigger.

It’s time for American policy makers and policy advisors to take their blinders off. It’s time for them to see the clear competitive advantages that micro and small businesses have: flexibility, agility and vigor.

How Prosper Africa can effectively and efficiently tap economic opportunities in Africa

My overarching recommendation is that Prosper Africa provide micro and small U.S. businesses with more dedicated funding and support so they can play a greater role in the New Africa Strategy. This translates into three specific recommendations.

1.- Counter Chinese economic influence by attracting and supporting a more diversified portfolio of U.S. business investments in Africa

Prosper Africa’s communication strategy should target both the U.S. business community and the African business community. The goal is to harness the incredible energy and synergies of both U.S. and African microenterprises to provide profitable impactful solutions to African market needs and demands.

In the U.S. it should expand the focus of existing international trade support organizations from their restricted view of exporting, i.e. products and services to which tariffs and varied import fees are applied, to building partnerships with local African businesses. In Africa, it needs to reach out to investment promotion agencies and work with them to define and implement Prosper Africa.

The CSIS proposed U.S. foreign-service cadre dedicated to serving as an effective and functional link to African markets is a good idea. But it needs to prioritize context-specific market access, support and linkages for micro and small U.S. enterprises. The service’s mission should be to provide market intelligence and identify opportunities that can functionally enable synergetic partnerships between, on one hand, collaborative groups of micro and small U.S. businesses linked by commonalities and complementarities and, on the other hand, local African partners that can add competitive value in the supply and value chain links.

To promote economic energy, Prosper Africa can create a new narrative that 1) shows why Africa matters to the U.S. and 2) explains how U.S. businesses – micro, small, medium and big - can invest profitably to make a differential and lasting impact. This new narrative can be promoted through a series of workshops focused on 1) the specific non-oil and non-mineral sectors that are key to execution of the New Africa Strategy and 2) strategies that businesses can use to convert dusty plains and unlevel playing fields into planting fields for advances in trade, technology and knowledge that work for all and benefit those who need them the most.

Prosper Africa should support micro and small U.S. businesses by increasing contractual and financial set-asides for micro and small businesses. The objective is to ensure a positive and measurable impact that offsets the social costs of Chinese investments. Reductions in budgets for foreign aid, defense and humanitarian assistance should be leveraged through appropriate, context-specific, greenfield and brownfield investments. At the same time, the recently created U.S. International Development Finance Corporation should be required to set aside at least 50% of its total funds to support U.S. micro and small business investments.

2.- Channel savings from foreign aid to support productive U.S. investments in Africa

Governments in Africa are concerned with how to attract productive investment into their countries. The U.S. private sector is concerned with how to invest profitably with minimized risk. Both want to harness market potentials through successful partnerships between trade and investment, while avoiding a race to the bottom. Prosper Africa should channel savings from foreign aid budgets to provide strong alternatives to external state-directed initiatives, by focusing on productive non-extractive sectors in which the U.S. private sector has clear competitive advantages.

Sub-Saharan Africa provides the biggest opportunities in non-extractive sectors: agriculture and agribusiness, soft infrastructure (transport and market infrastructure), logistics and distribution, construction, telecommunications value-added areas, renewable energy, health/wellness and beauty, education and training, and consumer goods. All of these sectors provide micro and small U.S. businesses with opportunities to invest in projects with high returns on investment (ROI) and that can deliver big differential value through positive impacts on Africa’s development.

Prosper Africa can and should actively foster investment projects that support a policy context where resources, including foreign aid, can be used productively through a collaborative approach. Savings from direct country aid should be channeled to support U.S. private sector productive investments. This is the best way to ensure that those concerned with how to invest in Africa do so profitably and impactfully and in a way that harnesses market potentials through partnerships with local businesses while avoiding a race to the bottom. Productive investments through a collective impact model is the most effective and efficient way to drive inclusive economic growth in a way that enhances strategic U.S. economic ties, supports national security goals and improves aid ROI.

3.- Partner with the private sector for preventive security

Prosper Africa is part of the New Africa Strategy. This Strategy aims to develop and strengthen U.S. economic ties, protect the independence of African countries and foster African self-reliance. At the same time, it wants to empower African countries to take ownership of their peace and do more of their own security in coordination with one another, rather than through the deployment of American forces.

U.S. businesses, large and small, have understandable security concerns. Successfully powering Prosper Africa requires addressing business concerns in relation to an unfamiliar and changing environment marked by diminishing U.S. military operational readiness, budget disparities, resource shortfalls and under-resourced theatres. Prosper Africa needs to clearly define how it will help the private sector meet core operational challenges. At the same time, it needs to make clear how the private sector can play a role in preventive security and contribute to mitigating or reducing security challenges to American interests.

Terrorism is, of course, not a given to sub Saharan Africa. But the disconnect between the National Security Strategy (NSS) and the National Defense Strategy (NDS) makes it immensely more difficult for U.S. firms to invest in African countries. Belief in judicious application of military science will not inoculate U.S military missions from failure, such as the one in Niger Republic. Nor is defeating terrorist organizations on the continent a question of throwing in more money, arms, and warrior talent. What is required is an effectively robust inter-agency process to ensure integrated systemic planning of resources combined with contextualized resource deployment that addresses the pull-and-push factors of terrorism.

Terrorism is a war of perceptions and is powered by the ability to capitalize on human relations and use religion to gain combined enforcement and agitational power. The real battle is not kinetic; it is a battle for audiences. You just can’t fight bad ideas with guns. So missions, whether military, diplomatic, foreign aid or private investment, must be grounded in appropriate local knowledge and traditions and gender and generational sensitive solutions that can foster the growth of endogenous security behaviors.

Public diplomacy is essential to raise awareness, inform and open pathways to partnerships. Military prowess is necessary to counter the cross-border nature of terrorism and irregular warfare. Foreign aid is necessary to build local capacity and response-ready competence. But measurable and positively impactful and sustainable success will result from culturally-sensitive and context-specific private investments that provide preventive security solutions with local buy-in.

Conclusion

To prosper, Prosper Africa needs to define specific and direct ways in which it will support micro and small businesses. They represent 92% of businesses in the U.S. and can best help America step up its game in U.S.-sub Saharan Africa trade and investment in ways that support the U.S. economy. To spur economic opportunity for both Americans and Africans, investment should prioritize initiatives that can refocus the practice of “give and take” toward value creation that is profitable for U.S. business and at the same time advances African self-reliance.

It is the symbiotic relationship between micro and small U.S. and African businesses that can provide the most competitive solutions to African needs. Investment projects do not necessarily need to be big in size or investment. They need to be big in value added and in impact. This means going beyond fostering entrepreneurship to fostering economic energy.

Astrid Ruiz Thierry, Principal, Upboost LLC

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