Jonathan Berman on Africa As “Frontier Market”
Jonathan Berman is a senior fellow at Columbia University’s Vale Center and a senior adviser to Dahlberg, a strategic advisory firm. FedEx Access connected with Berman to discuss his latest book, Success in Africa: CEO Insights from a Continent on the Rise.
ACCESS: When businesspeople read your book’s title, Success in Africa, they might assume you’re describing the global economy’s next major low-wage manufacturing region. Or one of the world’s great natural resource repositories. What’s missing from those assumptions?
JONATHAN BERMAN: Let’s start with the recognition that many people fail to grasp Africa in a business context at all. For many it’s perceived as a place of happy animals and miserable people, and that’s about it. Even executives leading international businesses move more slowly into Africa because of risks that are real, but vastly overestimated. Africa today is the fastest-growing continent on earth, with two-thirds of its countries expected to grow at more than 6 percent per annum.
Is some of that growth in natural resources? Yes, about 24 percent. But the remainder will be in sectors that include infrastructure, agribusiness, health, education, construction, retail and real estate. Much of that growth is happening in countries with little or no natural resources production, such as Kenya and Ethiopia. These are countries benefiting from improved governance, education and communication. Each is seeing today the fruits of one or two generations of improved government since liberation, the transformation of the economy due to the mobile phone and the rise to adulthood of a sophisticated commercial class. There’s much left to be done, of course, but those are the real drivers of growth across the continent.
ACCESS: In your book readers will discover a range of statistics — many of them quite mind-opening — that point to Africa’s progress and potential. You’re an experienced observer of “frontier markets.” Were there aspects of Africa’s economic emergence that surprised even you?
BERMAN: The statistics are out there, and have been for a decade or more. But they only go so far in providing insight. The real insight comes from what businessmen and women who’ve succeeded in Africa have to say; the stories and insights successful CEOs shared with me. As former U.S. Treasury secretary Robert Rubin mentions in his foreword to my book, it’s difficult to get those sorts of insights any other way.
Take James Mwangi, the CEO of Kenya’s Equity Bank and Forbes’ African Businessman of the Year. He describes how his modern bank meets Africa’s traditional rural customer, and makes world-beating profits serving that customer. “She has money,” James said, “but because her life is unplanned, she needs it nearby.” He goes on to describe the innovative strategy Equity Bank is using to meet that need.
Looking from outside Africa inward, what also surprised me is the focus world-leading CEOs are bringing to Africa. GE’s Jeff Immelt had been in frontier markets all over the world, repeatedly posted to places where he had to explain what GE was. In his view, nothing could be better for a company. And today Africa is usefully compelling GE to reintroduce — and, to some extent, reinvent — itself. Jeff’s familiarity with and focus on Africa might surprise a lot of people. That’s part of why he made Africa the focus of his letter to shareholders this year.
ACCESS: When corporate and government leaders look toward Africa for opportunities, should they think of it as a single continental marketplace, or as 54 individual nations and economies?
BERMAN: If you look at Africa as one place, you’ve made a mistake. It’s a huge continent, diverse in almost every way. But if you look at it only as national markets, you’ll miss the real opportunity as well. Successful companies in Africa, from Maersk to Miller Brewing, understand that the continent also works as a whole, if a diversified whole. By the way, that includes North Africa, which nearly every international organization treats as divorced from the rest of Africa. Wrong. Just ask the top North African CEOs who are growing southward.
ACCESS: Do today’s business executives recognize that not only can they export products and extract resources from Africa, they can actually sell to Africans?
BERMAN: Certainly the business executives cited in Success in Africa recognize it. Tim Solso at Fortune 500 engine producer Cummins, Inc., put it pretty well. Once you see the opportunity, he said, you no longer think about why you can’t go. You think about how you will go.
Segmenting the audience a bit, I think consumer brands are coming to recognize that there’s growth opportunity in Africa that they don’t see anywhere else. You can’t read the annual reports of Coke, Nestle, Diageo or SAB Miller and conclude otherwise. But I think the less obvious, and much more powerful, insight is in seeing the opportunities for productivity-enhancing goods and services, from infrastructure to professional services to personal electronics. Developing those goods and services for the vastly underserved and growing African workforce will dwarf everything else.
ACCESS: Recent headlines have brought us political tumult, civil unrest, even civil war in Africa. What would you say to skeptics who’ve convinced themselves this is a continent incapable of real, prolonged economic and social stability?
BERMAN: I’d say their view sounds familiar. Read the Economist magazine cover story of May 2000, declaring Africa “The Hopeless Continent.” More than a decade ago, that magazine’s editors had a detailed political and anthropological theory of Africa’s doomed future. I spoke recently with John Micklethwait, the magazine’s current editor in chief. More than one friend had pointed out to him that investing in a basket of African stocks the day his magazine declared the continent hopeless would have yielded an embarrassingly high return a decade later. To his great credit, John has led the magazine in revising its 2000 prediction, with a December 2011 cover article called “Africa Rising,” plus several detailed multi-country reports since.
Looking ahead, the ills you describe are certain to recur (one reason a multi-country strategy makes sense in Africa). Some of these events will disrupt the trend in some of the countries, but mostly in the short term. I would advise a company that’s serious about growth in Africa to look more at megatrends — such as the shifts in energy resources, demographics and access to information — as drivers of where, when and in what to invest. Only forces at that scale are really going to change what’s happening in Africa today.