A quick count of posts by Trade Invest Africa on its website during March 2012 showed some 150 major opportunities for investment in Africa. The sectors covered included just about every possibility from A to Z – from aquaculture to zinc mining
These 150 posts are just the tip of the iceberg. The African Development Bank has tripled its capital base to $100 billion in anticipation of the $93 billion investment that needs to be ploughed into power plants, railways, ports and roads over the next decade. International management consulting firm McKinsey has estimated that the value of opportunity in Africa in the sectors of consumer goods, agriculture, resources and infrastructure will reach $2.6 trillion by 2020. The number of people now using mobile phones in Africa is greater than the population of the United States. Local business consulting group Ernst & Young predicts that, by 2015, seven of the fastest growing economies in the world will be from Africa. The list of positive projections goes on.
Most interesting is that a considerable number of the opportunities reported by Trade Invest Africa originate from public sector initiatives; at least 13 governments in sub-Saharan Africa were featured as seeking private partners to assist with funding and delivery of infrastructure, expertise and services. This underscores the very real movement towards public-private partnerships that can bring to Africa the kind of development that leaves a legacy of empowerment and sustainable economic growth.
Indeed, Africa presents an almost blank slate for doing it right this time. The continent has survived a long history of exploitation and greed; despots are being toppled, political stability is on the increase and there are ever fewer violent conflicts, there are market friendly economic and trade reforms, and some one-third of Africa’s people are now middle-income earners. Now as the First World looks again to Africa for new investment markets, far-sighted leaders are welcoming global partners who can boost capacity and help bring prosperity to their countries.
Moving SA into Africa
For business in South Africa in particular, we have the opportunity not only to expand our activities across our borders, but also to structure our involvement in such a way that we build, educate and empower as we go.
In their recently published book, Why Nations Fail: The Origins of Power, Prosperity and Poverty, MIT economist Daron Achemoglu and Harvard professor of government James Robinson argue that inclusive institutions – governments that protect individual rights and encourage investment and effort – are the ones that create wealth.
With an inclusive approach, business too has the power to achieve a far-reaching economic outcome. When a commercial project is structured to ensure that local communities also benefit, both in skills transfer and in socio-economic terms, the result can be economic and capacity upliftment which, in turn, stabilises and grows the market.
One example of this inclusive thinking is a well-known South African logistics company that delivers pharmaceuticals across the continent. Lack of infrastructure is its biggest challenge. The company needs regional warehouses, sophisticated IT and communication systems, electricity, safe roads, state-of-the-art security, and so on. Therefore it puts these facilities and services in place itself, using local resources and training local people to run its facilities, thus building skills capacity and boosting economic activity in the regions where it operates. The return on this massive investment comes from how the company is able to open up and access new markets.
It is this kind of engagement with business opportunities in Africa that will build the kind of future we want for our continent. But we need to see a more concerted shift to balancing business sustainability with the imperatives of poverty alleviation and meaningful participation in the economy.
An inclusive business model
We very quickly realised the importance of taking an inclusive and holistic business model approach for development projects into Africa. The Gestalt Group identifies infrastructure and service needs as well as investment opportunities available in targeted communities. We then secure procurement and service agreements with relevant stakeholders (most critically with local governments), raises funding, brings in technical and management expertise, sets up local capacity and establishes community ownership of the facilities. In all the projects that we undertake, we build in local manufacturing or production capacity, community shareholding and ownership.
To name just two examples: our flagship project is a $125 million solar powered electricity plant in Mali which will sell electricity to the Mali government. A Danish technology partner will provide the expertise and skills transfer, and the local community will have a share in the ownership of the facility. In Zimbabwe, Gestalt is rebuilding the country’s moribund and obsolete bus transport system, starting with bringing in an Indian bus assembly company to set up an assembly plant and provide skills transfer. Gestalt has also secured an agreement from the Zimbabwean government to subsidise the cost of ticket prices, ensuring a financially viable business model and affordable transport for commuters.
A portion of the profits must be kept locally and must be distributed in ways that would reduce poverty. It is not only in government’s interest to reduce poverty, the more money that circulates in any economy the more business within that economy will benefit. Our model changes the way money flows in an economy so that the people, businesses and governments benefit.
The potential for building Africa into the economic leader of the 21st Century, from which all stakeholders can benefit, is staggering. But to achieve this we need business collectively to change its mindset and take an inclusive approach. We have another chance – let’s not mess it up this time. Let’s find the right partners, work together, and focus on finding solutions through business.