The often quoted ‘facts’ around the ‘Africa Rising’ story, such as the continent being home to 7 of the world’s 10 fastest growing economies in the world and a rising middle class with greater political and macro stability, often masks a darker reality.
A reality that casts a shadow over populations still to see the real-life benefits that their countries growth figures would imply. This poses a fundamental challenge as to whether this growth is real and sustainable. One of our objectives at Invest In Africa is to promote Africa as being ‘open for business’, but we also recognise the importance of doing this in a balanced way, with transparency and sustainability being key requirements to successful business.
The challenge of whether Africa’s growth is real and sustainable is typified by countries like Sierra Leone, Ivory Coast and Chad. All three posted growth rates over 9 percent last year but all fall into the bottom 20 countries in the Human Development Index (HDI), as ranked by the UN on education, life expectancy, health, per capita income, inequality and other such factors. So while the statistics might paint a positive picture of life in Africa, the problems that have dogged the continent for decades very much persist. This is why greater transparency on where invested money is going, how it is spent and who it impacts is so important in driving future improvements.
The idea that ‘trickle down’ growth is a necessary byproduct of development is a dangerous and incorrect assumption. India has enjoyed a strong economic performance over the last decade, averaging 7.6 percent growth per year, and yet the country still ranks 136 out of 187 countries in the HDI. But there are cases where more has been achieved. South Korea saw steady economic growth at the end of the 20th Century and managed to use this to drive social development, so that it now sits 12th on the HDI list and acts as a beacon of hope that Africa will strive to emulate in the coming years.
So it is clear that mere growth is not enough. At Invest In Africa we think countries require the active input of 3 key actors: international companies, governments and local businesses. Only with the combined and coordinated actions of these groups can such impressive statistics be translated into tangible improvements for Africa’s citizens. Each of them has their own role to play and their own duties to fulfill, yet none can truly succeed in realising this ambition if they act independently.
Firstly, international companies need to ensure that they take a long-term mindset to all business interactions in Africa. Central to this must be the establishment of local partnerships, which will bring the benefits of international investment to the people of the countries in which they are made through job creation and the transfer of knowledge and skills. Such partnerships are not only beneficial for the local communities, but they also reduce the cost and risk of doing business. For example, sourcing goods and services locally reduces supply chain costs and drives greater efficiency and reliability. Working closely with local businesses and ensuring that the ‘value-add’ takes place in country is fundamental to guaranteeing that the benefits of growth are distributed locally.
But the responsibility is not limited to the investors; governments too must shoulder their share. Official policies must bring together the interests of private investors and the realistic demands of the local work-force to reform the way business is currently done in Africa. This means consultation with the private sector and key trade bodies when deciding on legislation that will have a far reaching impact on investors, such as ‘local content’ reforms and minimum local equity ownership requirements. Rather than shifting all responsibility onto outside investors simply by mandating pre-determined minimum quotas for these important areas, governments must take time to engage in genuine discussions and compromise with these key stakeholders. Public-Private Partnerships of this nature have already started seeing success, such as with Malawi’s cotton farming industry, where crop production increased by 265 percent in 3 years after the two sectors came together in partnership. Similarly, in 2006 just 2 million Kenyans had access to banking services. But after government institutions worked with Vodafone to create M-Pesa, Kenya’s first mobile banking service, the sector has been transformed. As well as creating 7,000 enterprises and 12,000 jobs, M-Pesa is now used by over 17 million Kenyans; around two thirds of the country’s adult population.
Finally, local businesses need to work with both governments and private companies to make their business a credible destination for investment and an integrated part of their country’s business life. Comprehensive as anti-corruption, environmental, and health and safety policies are needed alongside evidence of operational and financial integrity, such as audited accounts and VAT registration details, to make a local company viable for the international market.
Using a more collaborative approach to actively invest in local economies will be crucial to addressing the widespread inequalities that are still so evident and delivering truly sustainable growth across Africa.
By William Pollen
William Pollen is Programme Director at Invest In Africa