Why Inclusive Growth Is Key to Africa’s Rise

africa-sprout

Acha Leke is a director in McKinsey’s Johannesburg office.

Knowledge@Wharton: Tell us about your coming back to Africa after getting your Ph.D. at Stanford, and the work you’ve done in expanding McKinsey across the continent.

Acha Leke: I did my PhD at Stanford and spent my last summer with McKinsey in South Africa. It was the only office we had then. This was in the late 1990s. I had an offer to return to the Johannesburg office, but nobody was going back to the continent then. It was quite a mess. I decided to start in the U.S. I began at the Atlanta office, but always felt this pull to come back to the continent.

Knowledge@Wharton: Where you had grown up?

Leke: I’m from Cameroon. I reflected on the fact that it was very easy for us to stay out and complain about what was going on in the continent. But the question I asked myself all the time was: “Whose responsibility is it to change things?” Those of us who were outside saw that if we didn’t come back to change things, who would? In the early 2000s I decided to transfer to our Johannesburg office for a year; it’s been 15 years.

Knowledge@Wharton: Now McKinsey has many more offices in Africa other than at the Johannesburg?

Leke: Yes. When we started we had 50 consultants who transferred to Johannesburg. Today, we have 350 consultants across seven offices. We’re in Egypt and Morocco and North Africa. We have 70 consultants in Nigeria, another 30 in Kenya. We’re in Ethiopia, we’re in Angola, and our biggest office is in South Africa.

Knowledge@Wharton: What kind of changes have you seen in these 15 plus years?

Leke: The continent has changed dramatically, and for the good. Five years ago, we published a report online which talked about the transformation of the continent on a number of dimensions. In the late 1990s, the continent was basically not growing. Growth was about 2%-3%. Population growth was about 2%-3%. Over the past 15 years, Africa has been the second fastest growing continent. All the sectors are growing, so it’s been a very exciting time to be here. We still have challenges. But it is an amazing, exciting time to be part of this whole Africa-rising story.

Because of the growth that we’ve seen and the global financial crisis, we found that a lot of educated Africans, who would’ve stayed outside, had decided to come back. The first year we set up the Lagos office, we had 1,500 applications — 1,000 applications from people in Nigeria and 500 from people outside Nigeria. They were not just Nigerians. We had Chinese, Belgians, Brazilians apply. Out of the 500, we made 12 offers. Out of the 1,000 applications from Nigeria, none.

Knowledge@Wharton: You made no offers to the Nigerians who applied? That speaks, I presume, of the gaps in the intellectual capital, the education systems in Nigeria and perhaps elsewhere in Africa. Speak to us about those challenges.

“The question I asked myself all the time was: ‘Whose responsibility is it to change things?’ Those of us who were outside saw that if we didn’t come back to change things, who would?”

Leke: We have big issues, especially with education levels on the continent. But it also speaks of gaps at McKinsey, on how we evaluate candidates. These were extremely smart candidates. But we took our typical European, U.S.-centric approach to evaluate them. We’ve seen change there.

Knowledge@Wharton: One senses that all the entrepreneurs we have been meeting are part of this larger story — Lions on the Move [the title of a 2010 McKinsey report on Africa that Leke co-authored]. But I think it would be helpful for you to talk to us about the larger plan. What are the other institutions, the other players beyond talented entrepreneurs, that are needed to continue to propel Africa’s growth and overcome its challenges?

Leke: Well, there are a number. I tend to start with the governments. A lot of the work we do – 67% –is with the public sector across Africa. In the U.S., it’s about 10%-15%. We believe that to have an impact on the continent you have to serve the public sector. We’re very involved with serving governments — at the president level, ministers — helping them make overall strategies or sector strategies. What we’ve seen is a fundamental transformation within governments. First, there is a lot more political stability. Obviously, you have challenges and conflicts here and there. But it’s a lot fewer than 10 years ago. You see more microeconomic stability. Many countries have gone through tax reform. Nigeria raised another $700 million in tax revenues last year on top of the budget.

Governments are going in the right direction. Then you have the emergence of pan-African champions. Companies that started in Nigeria are now present across countries. They’re expanding. You are starting to see some big African multinationals emerge. Entrepreneurship is a big thing. One of the biggest issues we have in the country is jobs. We are not good at jobs. We did a study called Africa at Work, which we published a few years ago, looking at what it would take to accelerate job potential in the continent. The reality is that the private sector on its own would never get us the jobs.

“We still have challenges. But it is an amazing, exciting time to be part of this whole Africa-rising story.”

We want to meet a lot more entrepreneurs, large-scale entrepreneurs. We want people who would bring jobs for 40,000 employees. But I think we don’t have the right environment to help them scale. That’s the big challenge on the entrepreneurship front on the continent. Then you have all the social entrepreneurs who are doing the right things. And you have the multinationals — people from outside — helping us. That’s a big influence.

Knowledge@Wharton: As you look forward, what are the kinds of things that need to happen to continue this growth and to create more jobs?

Leke: The focus is now clearly inclusive growth. The sectors that create growth are different from those that create jobs. I’ll give an example. The resources sector, over the past 15 years, has contributed about a third of Africa’s growth, directly and indirectly. In that period, we have destroyed jobs. We have fewer jobs today than we did 15 years ago.

Knowledge@Wharton: And the key industries in the resources sector are?

Leke: Oil and gas, mining and those kinds of industries. Now, those that create jobs are agriculture, manufacturing, and retail and wholesale trade. That’s where the jobs are going to come from. I think we’re going to get there. We will have the largest workforce in the world by 2030-2035, and we need to make sure that these people are educated, they’re ready for the job market and there are jobs for them. So that’s one.

The second challenge: There are questions now around the global slowdown. What’s happening in China, with its commodity prices. And also in the U.S., as rates go up. What’s going to happen to Africa? Is this Africa-rising story real? How much will Africa continue to rise? We’re in the middle of looking at that. We are publishing the sequel to “Lions on the Move.” We don’t have the answers yet. But it’s very clear that there are risks, especially for the commodity-driven economies. They’re starting to eat away at the fiscal buffers they had.

Knowledge@Wharton: As you think about these challenges and opportunities and how you move to create more inclusive growth in the continent, what are the levers of those changes? Is it the educational system? Is it policy? What should we be thinking about?

Leke: It’s across multiple dimensions. I think it’s definitely the educational system. We need to radically transform the educational system across the board. We need to put in place new policies to ensure the enabling environment. We need much closer collaboration amongst ourselves. Africans are just not connecting with each other.

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