The Africa of the Future: Inclusive and Sustainable Industrial Development

Perhaps the most majestic of all creation on planet earth, are those which scoff at the law of gravity daily in favour of the law of aerodynamics. Birds, scientifically known as Aves, are fascinating creatures which continue to capture the imagination of mankind.

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From the African Jacana, nicknamed the Jesus Bird, because of its apparent ability to walk on water, the buzz of the Hummingbird’s wings, the bright yellow feathers of the Southern Masked Weaver to the African Fish Eagle’s keen vision, 2.4 meter wingspan, balance, precision and power, the qualities of these birds are vast and mesmerising.

The African Fish Eagle, ironically, is the national bird of Namibia, South Sudan and Zimbabwe. One of the most intriguing of bird activities is the nest building process. With natural materials and innate skill and tenacity, durable, aesthetically impressive abodes are constructed over a 2-day to 4 week period. The primary reason for this building project is to provide a safe space for the laying, incubation and taking care of eggs. Ultimately, the entire process takes place out of an obligation to the next generation.

Inspired by the above, the Africa of my dreams comprises of magnanimous systems, institutions and innovation.

One of these is the sovereign wealth fund. Sovereign wealth funds are state owned investment vehicles which invest in various asset classes such as bonds, equities as well as alternative investments such as hedge funds. In 1994, Botswana launched the continent’s first, The Pula Fund, worth approximately $6.9 billion US today, from its diamond revenues. Other such funds include the Nigeria Sovereign Investment Authority, The Heritage Fund in Ghana, the FSDEA in Angola as well as the FRR in Algeria, which is the largest in Africa with $77.2 billion US in assets under management in 2017.  

The modus operandi of the funds differs amongst countries. The Pula Fund, similar to Norway’s sovereign wealth fund, invests in assets globally, only spending returns on their investments. Nigeria’s Sovereign Investment Authority allocates 40% of its fund into a Future Generations Fund, aimed at global assets over a 20 year period. It directs another 40% to domestic projects, with preference given to sectors such as agriculture, energy and highways. The FSDEA, amongst a host of other investments such as hotels and farming, has spearheaded a deep-sea port.

The poignant advantages of sovereign wealth funds mean that they also become strategic assets for nations. Hedging against commodity price fluctuation and shocks, creating jobs nationally, a source of eliminating national debt and funding free education etc. all become a reality. Working in tandem with  various African development institutions using a hybrid model for some nations, a large component of African development could be funded by Africans, executed primarily by African companies and talent. I salivate intellectually at the thought of the realisation of the dream in which all nations on the continent have a sovereign wealth fund, servicing the needs of their people with dignity and honour.

Chief amongst the cornerstones of building a sustainable continent is for each country to have autonomy over its energy mix, given that Africa accounts for less than 4% of all global carbon emissions. Desalination plants from Cape to Cairo should provide high quality water for all. This should also be complimented by masterful engineering such as self-repairing asphalt roads, making potholes history and architecture which is not at variance with Africa’s enviable ecology and scenery, but through design, should accentuate and collaborate with nature to create a beautiful tapestry.

As capital markets are attracted to our shores and Africa’s economies grow, per capita incomes of workers ought to track such a trajectory, at a superior rate to inflation. Furthermore, due to a competitive advantage underpinned by, amongst other things, a large youth dividend, increased aggregate demand for goods and services, an ability to attract and retain human capital and sustained increases in total factor productivity, Africa’s share of global trade should increase to at least 20%.

One of the catalysts for this could be the world’s first continental cryptocurrency, what I simply refer to as Afro, used to purchase everything from a sandwich to LED lights made in Mthatha for use by corporations in Luanda and Lima. In the spirit of true democratisation of financial markets, Afro could be traded on futures exchanges in Johannesburg and Addis Ababa, with futures contracts which can also be traded by the layman. This will ensure that Afro Futures are not only the preserve of large institutional investors, but are also accessible to a vibrant retail market.

In 1992, world-renowned psychologist Professor Mihaly Czikszentmihalyi published his now universally celebrated book, Flow: the psychology of happiness. In his offering, he extrapolates on the state of flow, a state of being derived from partaking in activities or events which result in a heightened consciousness, what some elite athletes, as highlighted by Ilona Boniwell, refer to as being ‘in the zone’. One is so blissfully unaware of both the world and self that time seems to move at the speed of light, or has the perception of slowing down to a snail pace. Furthermore, flow is also reached when one’s skill-level and challenge faced are both high: one’s mind or body are voluntarily stretched in a worthwhile endeavour. Reciprocally, a high skill level and a low challenge level invariably result in boredom.

In the book, Professor Czikszentmihalyi interviews thousands of people from vast walks of life: surgeons, chess players, dancers etc. He concludes that these people share certain characteristics, amongst others, in their chosen field: a sense of control over what one is doing, actions and awareness are merged, transformation of time as alluded to above and most notably, the activities are intrinsically rewarding.

Another psychologist, Dr Abraham Maslow, who pioneered Maslow’s hierarchy of needs in 1965, championed the term ‘peak experiences’, which describes moments of abundant joy. Maslow inferred that peak experiences are within grasp of every human being, but people who had self-actualised were more likely to attain them.

It is my dream that institutions, organisations and systems in Africa foster the self-actualisation of every human being. With students baptised in a pedagogy of exploration and a workforce which possesses infinite enthusiasm; are enabled to follow their intellectual curiosity and passion, innovation and excellence are a certainty.

Harnessing the African Story

The African economic story is a tune we keep hearing via a wide spectrum of media and at different forums across the globe. I suppose the questions that linger in the minds of many Africans and other interested parties are “Is it true that Africa, really, is the next frontier?” and “If, yes. How can I be a part of the so-called African Renaissance?” Sceptics have shot down Agenda 2063 set by the African Union and have reduced it to nothing short of a pipe dream. They mostly argue that it does not go deep enough into the nitty-gritty of how exactly the implementation will be carried out. My question then is as follows: Isn’t that, precisely, where we ought to start? The Agenda sets out a plan and vision of how the new Africa ought to look like, and that is the first place to start.

To answer the questions on the minds of many Africans, an associate of mine gave two analogies using nature and how its forces behave. He firstly argues that “nature abhors a vacuum”, that is, all the wealth in developed nations seeking good returns will find its way into economies that promise healthy returns; assuming policies permit. As far as returns go, some African countries are growing at above average returns; and have started to attract the attention of the global investment community.

Moreover, my associate goes a step further in attempting to answer the question pertaining to how one would then position themselves to be at the epicentre of the African Renaissance. While it is true that a rising tide lifts all ships, being at the heart of it all is a completely different animal; you will need a stronger force than that. A tornado will lift whatever lies in its path. That being said, the virtue of being an African or simply doing business in Africa will not suffice. In order to be lifted high within the tornado, you have to put yourself in its path.



Restoration Hardware

Our Population

Africa boasts the youngest population in the world. According to the World Bank, close to 50% of the African population estimated at 1.2 billion is under the age of 20 compared to the developed world where the figure is around 20%. That in itself is a huge opportunity, meaning we have a healthy population pyramid compared to some developed parts of the world where the population pyramids are inverted and top-heavy; thus putting enormous pressure on those economies. Countries such as Japan and parts of Scandinavia are synonymous with top-heavy and inverted population pyramids. We, on the other hand, are fertile with a future labour force like no other. If the laws of economics are anything to go by; technology, capital and labour are the key determinants of long-term economic growth. The first two factors are relatively fluid. That is, in the longer-term, technology and capital will flow into economies with more labour. We saw this in the rise of China, India and the US in its heyday. Of course this is a very simplistic view as other factors such politics and policies come into play. The understanding is that policies and politics are self-correcting in the long-term.

Our Economy

It is estimated that the Gross Domestic Product (GDP) of Africa stands at 2.2 trillion USD. This is very low compared to other continents such Asia, North America, Europe and South America at 28 trillion, 22 trillion, 20 trillion and 4 trillion USD; respectively. Bringing it down to per capita figures, Africa still ranks last compared to other continents. It is further estimated that African intra-exports stand at around 18% of total exports, compared to intra-Europe, intra-North America and intra-East Asia at 56%, 48% and 29%, respectively. However, it is worth noting that intra-regional trade has been on the decline across the board due to globalisation.

The Conundrum

How then, do African entrepreneurs or business people such as I navigate the maze and ultimately put themselves in the path of this highly anticipated tornado, that is, the African Renaissance? Doing business in Africa brings with it a dichotomy that some business communities on other continents are faced with to a lesser extent. We have economies that exhibit promising prospects as far the head count and domestic economic size go and the-not-so-endowed economies. Take Nigeria and Lesotho for instance; both countries are African but the other is bigger in terms of population and GDP. Does that then render an entrepreneur in Lesotho doomed because of a meagre population of 2 million and GDP of 2 billion USD?

The Game Plan

Let us start with an entrepreneur based in Nigeria. This is an easier field to comprehend because the number of people and the size of the economy mean that one can scale and grow faster without having to look outside their borders. That is to say that one would have to focus on breadth rather than depth. The advantage here is you would be pushing for volumes and economies of scale; you trade margins for volumes. That on its own tilts the product offering towards more of commoditised goods and services. Mr Dangote comes to mind. His company trades in commoditised products such as cement, sugar, salt, flour, steel etc. The obvious step that follows is to then expand to neighbouring countries to leverage off your existing internal infrastructure such as distribution.

Now we turn our attention to the entrepreneur in Lesotho. This scenario would be challenging if you were to implement the strategy outlined above; that is, you would not get to hit the same revenues as the guy in Nigeria for obvious reasons. If you were to focus on the domestic market you would be capped to a 2 billion USD versus a 400 billion USD economy. The end game here would be to trade volumes for margins. You would need to focus more on niche products and services that could be sold at premium prices. An example that comes to mind is Switzerland. The country is known for the high value goods and services it exports to the rest of the world. Chocolate, premium coffee and luxury high end time pieces first come to mind when one thinks of Switzerland. An example of a product that we hope to see being viewed by the rest of the world as a premium product is Linford Vodka, which is produced by one of our portfolio companies at Grand Duke Investments (Grand Duke). Lesotho is known for its water and Linford Vodka is a beneficiation play on Lesotho water. However, the product would then need to be marketed to the rest of the world, mainly the developed world as a niche product. We have to look beyond the borders of Lesotho for a stable market. Another example is the Lesotho Trout that is exported to Japan and South Africa by a local fishery as a premium product.

Our analysis here does not preclude technology as a viable avenue for entrepreneurs. The beauty about technology is its borderless nature.
 Another portfolio company at Grand Duke is IFOUNDiT, which offers BrandbookTM :a loyalty smart device application that is neither store nor country-specific. The play here is to have a scalable technological solution for businesses and brands that would want to understand African purchasing habits at a deeper level. The application now operates seamlessly in South Africa and Lesotho, with plans to expand to other African countries.

The opportunities for doing business in Africa are plenty and success would depend purely on positioning. Dealing in commoditised products requires huge volumes for lower margins, while dealing in niche products requires fewer volumes for high margins. Smaller economy entrepreneurs will almost invariably have to look outside their borders while bigger economy entrepreneurs will be looking within their borders. Commoditised products are best monetised when meeting local demand and not having to compete with other more efficient global players. Technology always has a way of turning the business rules of engagement upside down. Borderless business models in technology may not depend on domestic GDP and population metrics as scalability can be achieved in a short space of time with minimal resources. Niche products are usually linked to depth and understanding of what makes the product premium and factors such as geographical location, climate and labour specialisation in high value products can render the name of a country a trademark in itself if the strategy is executed well.

Young African entrepreneurs are gleaming with hope and our outlook on the future is not unfounded. The African Renaissance is well within our reach and like debris that will be lifted high up in the eye of a tornado; we work endlessly to position ourselves in its path.

Mohau is a Managing Director at Grand Duke Investments Ltd. Grand Duke Investments Ltd is a specialised finance firm that deals with project financing and deal structuring with a strong focus on Venture Capital and Transaction Advisory. Before founding Grand Duke Investments he worked as a Proprietary Trader for a US-Based trading firm where he traded shares on the NYSE, NASDAQ and other exchanges. He holds a BComm Honours degree in Investment Management from the University of Pretoria. He has passed Level 2 of the Chartered Financial Analyst programme. 

Fostering Entrepreneurship in Africa Through Legislation: The Importance of a Regulatory Framework

While entrepreneurship in developed economies has long been understood to play a major role in a country’s wealth creation and ultimately, economic growth, it is only recently that Sub Saharan African countries have started catching the trend. From tax incentives, legislative measures, state support to corporate-led initiatives, there has been a growing interest in entrepreneurship and the role it can play in boosting African economies, especially in the context of their strong informal sectors. What remains to be seen however, is how this interest can be transformed in concrete measures. Below, we look at a few avenues to explore in that regard.

 

 

Ghana Business Journal

Rules and Regulations: Theory…

With the usual slow pace that characterises the policy-making process in Africa as far as business is concerned, there is little hope to see countries on the continent achieve such proclaimed goals as attracting investment, diversifying their economies and reducing unemployment in the short-term without first removing some simple and yet rarely thought of bottlenecks. Indeed, a country can only attract legitimate investment if it is able to provide at first an attractive business environment to potential investors both local and foreign. Such an environment, in turn, can only be ensured by a regulatory framework set up through clear and sensible legislation and working institutions. To put it simply then, a regulatory framework provides a country with a formal, stable and well-regulated environment, which in turn is conducive to business, essential guarantees for attracting investment in a country.

Achieving this objective starts with acknowledging the importance and benefits of a formal business environment, i.e. an environment that is subject to rules and regulations (hence the term regulatory framework) and in which, all stakeholders operate according to said rules and regulations. The benefits of a regulatory framework are immense:

• Firstly, it forces all stakeholders (i.e. individuals, businesses, financial institutions) wishing to participate in the economy to abide by the same set of rules or risk being sanctioned by the authorities,
• Secondly, it reduces the risk for foreign business entities to commit illegal acts without fear of penalty;
• Thirdly, rules and regulations allow for an increase in the tax base and easier taxation. With an increase in the tax base comes more revenue for the state; such revenues would then be re-injected into the economy for the well-being of the population.

Acknowledging the importance of a regulatory framework is however, only the beginning; defining the rules governing such a framework is essential to making the latter work. According to Tebogo Skwambane, Managing Partner at the Monitor Group Johannesburg, speaking at Omidyar Network’s Entrepreneurship in Africa Summit in Accra, Ghana, in  2010, “To maximise the contribution that entrepreneurs can make to the continent, it is critical that policymakers craft policies that are suitable for their national or regional context. This requires not only better understanding the strengths and weaknesses of the entrepreneurial environment...but also requires more focused, tailored and locally meaningful strategy formulation by policymakers”. This, in other words, means that, boosting the impact of entrepreneurship in African countries requires the adoption of appropriate (read: entrepreneur-friendly) policies and regulations based on clearly defined needs.

Practice

The issue of entrepreneurship-friendly business legislation is of paramount importance in a region where the informal sector represents 55% of Sub Saharan Africa’s GDP and employs 80% of the labour force. With informal employment representing 66% of the total non-agricultural employment in SSA in the period 2004-2010, legislation that specifically aims at formalising business activities for increased efficiency is therefore highly in need.

Business legislation can be broadly seen as the range of laws enacted by a state to regulate (and ultimately simplify) the conduct of business within its borders. All such laws affect the business environment one way or another and only flexible and comprehensible laws can foster entrepreneurship in a country.

While this may seem obvious, it is a pity to note that few political leaders in African countries share this sentiment. Only when all options have been exhausted while looking for the much-needed “investment” does business-friendly legislation become an important item on the agenda.

It is true that some of the most common concerns that can explain the time it takes to enact legislation include, amongst others:

• the lack of integration between regions/economic communities, best expressed in the diversity of laws and systems amongst countries, and
• the fear that tax legislation might be exploited and lead to tax avoidance and evasion (especially in light of the recent Panama papers dossier).

While such concerns may be legitimate, it is worth considering the impact the lack of innovative legislation can have on economies that purport to be “open to business”. Indeed, while economic liberalism is the option chosen by many countries after the decades of failed imported economic systems, liberalism is characterised by a high degree of flexibility and openness at various levels, particularly legislative. This openness and flexibility, in turn, is what fosters entrepreneurship. Ensuring this openness thus ensures that entrepreneurship grows within countries and in turn contributes to the growth of economies. Which innovative solutions can then be proposed to achieve that goal?

Taxation Regimes Conducive to Entrepreneurship

With corporate income taxes as high as 35% in some countries (e.g. Chad, Congo, Equatorial Guinea and many others), it is no wonder African tax regimes give the impression to be designed to prevent business initiatives from succeeding. Despite this, it is still possible to spur entrepreneurship with a workaround: a system in which the taxation of companies is no longer based on a one-size-fits-all approach but rather on specific criteria. The rationale is to avoid taxing all companies regardless of their type or stage of evolution, thereby avoiding penalising the most vulnerable amongst them (especially SMEs). A suggestion for an entrepreneurship-friendly tax regime would be one in which the liability for Corporate Income Tax would depend on the annual profit rather than the annual turnover. Furthermore, the liability for VAT could be scaled depending on the annual turnover instead of being applicable to all corporate entities regardless of size, age, turnover, etc. South Africa provides a good example: only companies with an annual turnover of more than 1 million Rands are obliged to collect and pay VAT (and accordingly claim tax deductions); companies with an annual turnover of less than 1 million Rands (about 82 000 USD) are exempt from, but can register for VAT voluntarily.

The Regulation of Labour: Inclusiveness and Structure

Labour laws have a direct impact on the human resources of a country. The amendment of labour laws, irrespective of governments’ intention, usually generates a lot of attention from all stakeholders involved in a country’s economy. As a result, such laws should be amended following broad-based consultation with all essential parties involved in the national economy: businesses, trade unions, professional associations, the government, etc. One of the additional goals of amending laws for the purposes of creating wealth with the help of business would be for example the creation of structures tasked with defending the interests of both workers and employers, attracting a foreign skilled labour force, resolving disputes related to competition/intellectual property, etc. Such structures could include for example consumer tribunals, competition tribunals, business unions, etc.

Building Forward-looking Economies with Access to Credit and Mobile-based Financial Transactions

It is a well-known fact that most financial transactions in the informal sector on the continent are done in cash. This leaves a great amount of money out of the financial system, an amount which could play a significant role in the formal economy. The popularity of services such as M-Pesa in East Africa (and to a smaller extent, MTN Mobile Money in West Africa) is a testimony of the number of people out of the formal banking system. Encouraging financial institutions, especially banks, to replicate such services in the business world and offering them to SMEs would not only enable the latter to trade seamlessly, with greater flexibility and with more transparency, but it could also enable informal businesses (and their owners) to have access to previously inaccessible potential or existing international clients. This would result in more growth for a business and indirectly for the economy. Access to credit on the other hand, can spur business creation as cash-strapped entrepreneurs would have the opportunity to access much-needed capital to start their ventures but also, since dealing with a financial institution, entrepreneurs would be more careful and serious with the loans awarded to them. As an example, the Micro-credit to the most disadvantaged people programme instituted in Benin in 2007 has enabled to date over a million women and youth to obtain micro-loans (to the value of about 100 USD repayable at an interest rate of between 5 and 8%) and start their businesses.

Institutional Support

Legislative initiatives to spur entrepreneurship should ideally focus on three main pillars: business creation, business growth, and business sustainability. Indeed, seeing the light of day, growing and ensuring their own sustainability is one of the goals of many SMEs and many initiatives can be taken in that regard, particularly with regards to institutional support. The institutional support required to provide such assistance to businesses simply requires the creation of a number of organs with specific responsibilities. Ideally, such institutions should include, among others:

• a companies tribunal which would be responsible for resolving disputes involving businesses,
• a body responsible for business registration, deregistration, conversion, etc.,
• a body responsible for intellectual property (IP) rights, the promotion of education and awareness of corporate and IP law, etc.

In addition, business development and support services should be provided by non-governmental entities such as incubators, accelerators, crowdfunding platforms, and business networks. As primary actors in the business sector, such entities are much more aware of the needs of entrepreneurs and their newly-formed ventures and therefore better equipped to assist the latter on their path to growth and success.

 

 

Born in Benin, Armand E.G. Goutondji is a personal development coach and the founder of the #WinningStateOfMind personal development courses. As a speaker, he draws from his various experiences visiting, living and working in many countries around the globe to inspire people through his articles, seminars and courses on entrepreneurship, financial empowerment, communication and talent growth. Armand E.G. Goutondji is also a professional translator and a SATI (South African Translators’ Institute)-accredited conference interpreter and he currently manages his own translation firm. For more information about Armand, visit www.armandgoutondji.com.