In Africa, Opportunity Takes Many Shapes, from Diamonds to IT to Political Reform

The chairman of the largest software house in Ghana spoke approvingly of the “Wild West” aspects of doing business there. One of that country’s cabinet ministers saw signs that “constitutional democracies are gaining roots” on the African continent. A prominent Nigerian lawyer spoke of profit margins all but impossible in the United States or Europe.

These three panelists appeared recently at the 2005 Wharton Global Business Forum Africa Conference, entitled “Unveiling the Value; Demystifying the Risk.” Speakers described the continent as bursting with opportunities, challenges and pitfalls for local and foreign companies, but the emphasis was decidedly on the word “opportunity.”

For example, the Nigerian lawyer, Gbenga Oyebode, described a power system so erratic that it could not form the backbone of a functioning cellphone network. Consequently, telecommunications companies there have provided small generators for each of 2,000 transmission sites. Herman Chiney-Hesse, sometimes called “The Bill Gates of Ghana,” described starting the country’s largest software house from his bedroom. When the brain drain deprived him of many of the country’s top software writers, he developed programs that could be used by less skilled employees.

In his luncheon keynote address, Paa Kwesi Nduom, minister for public sector reform in Ghana, noted that his country had reduced inflation from as high as 45% in recent years to a current level of under 15%. “You are operating in an environment where there is a shortage of everything,” said Oyebode, speaking for Africa as a whole. But for companies that succeed, he stated, return on equity can approach 50%.

Diamonds and Independence

Some of the most intriguing stories told by conference participants came from Botswana, believed to have achieved the fastest growth in per capita income in the world, averaging 9% annually from independence in 1966 until 1999. A panel on Botswana described an intriguing mix of good fortune and shrewd decision-making that went into what has sometimes been termed “The African Miracle.”

According to Scott Beaulier, an economics professor at Mercer University in Macon, Ga., who is an expert on the country, the luckiest break was the fact that the country’s wealth in diamonds was not discovered until a year after it had been granted independence from Britain. The country’s leaders “thought they would have to make wealth out of sand,” said Beaulier. John Moreti, deputy chief of mission at the Botswanan embassy in Washington, agreed. Before the discovery of diamonds, “no one was interested in us.”

The landlocked, Texas-sized country is still heavily dependent on subsistence farming, noted Moreti, pointing out that its cattle population of two million remains higher than its census figure of 1.8 million. But he said it is also among the most progressive of African countries, aided by a history of peaceful relations among its component tribes. “Like the Greek city-states, they found a need to deal with each other.” He and Beaulier also cited a tolerance and openness toward foreigners — a policy Moreti described as “Let’s keep the experts around” — and a relative lack of corruption as positive economic forces.

Both men also emphasized, however, that the country faces serious hurdles in continuing its rapid growth. “We don’t have an entrepreneurial culture,” said Moreti. He cited, in particular, the failure to invest in agriculture as an export crop, comparing the country unfavorably with Israel, which also has a hot climate and sparse rainfall. In addition, the country has been less successful developing its copper and coal reserves than it has diamonds. And although per capita income has risen from $80 at independence to some $2,600 now, Moreti said, the poverty rate is about 40% and unemployment almost 21%.

Mountains to Scale, and For Sale

The panel on which Hesse and Oyebode appeared, entitled “Entrepreneurship and Leadership,” also discussed the multiple facets of business life on the continent. Moderator Robert J. Chalfin, a Wharton lecturer who heads a New Jersey-based planning and consulting firm, expressed concern about areas subject to rapid currency fluctuations. Yet in Nigeria, according to Oyebode, problems have actually become less severe with a less heavily regulated economy. “We bill in dollars, not in local currency,” added Hesse, noting that he also invests heavily in land: “I bought two mountains. Problems look like opportunities to me.”

Hesse’s story about developing a software program that could be used by less skilled — and lower paid workers — reflected the varying effects of the “brain drain.” Referring to Africans who have left for other areas, he provoked laughter from the audience by saying, “You wouldn’t believe the opportunities you have created.” As Oyebode put it, “It may be better to be one of 30,000 lawyers (in Nigeria) than to be one of several million in the U.S.” Those who have remained or who never left, Hesse said, can enjoy a lifestyle that is more upscale than the lifestyles of executives holding similar positions in the developed world. He and other panelists predicted that the brain drain would reverse as more firms begin outsourcing to Africa.

As for addressing the pervasive problem of poverty in Africa, Nduom said that the government in Ghana had based its strategy for reducing poverty on five “pillars”:

·         Development of infrastructure, including roads, water, electricity and communication technology

·         Modernization of agriculture

·         Enhanced health and education

·         Good governance

·         Private sector development

The country has, in recent years, introduced a fully flexible exchange rate, lowered tariffs, fully or partially privatized some 225 state-owned enterprises and introduced a value added tax, he noted. Private banks have been authorized to operate since 1988, and deregulation of the petroleum sector of the economy began in 2004.   

Behind Closed Doors

One theme that ran through the conference was the idea that economic growth in Africa would tend to occur more rapidly in an atmosphere of reduced government regulation and greater political reform. Oyebode, for example, predicted that there would be greater opportunities for business in Liberia following recently held elections to replace the authoritarian government of former president Charles Taylor.  

The changing political climate was a major topic of Nduom’s keynote address. “When Africa’s heads of state get together these days,” he said, “the agenda includes … adhering to provisions of constitutions, the rule of law and fiscal responsibility. It is true that not every African head of state or country believes and practices all of this. But what is happening is a good beginning.

“Peace-making is in, military coup-making is out; lifetime presidencies are out, term limits for heads of state are in. We should encourage our leaders to broaden these [efforts]. That is the best way to guarantee the prosperity of the African people. That is the exciting challenge on the continent of Africa.”

Nduom conceded that there have been clear exceptions. He criticized Uganda’s refusal to allow independent political parties and described as “unfortunate” the authoritarian rule of President Robert Mugabe in Zimbabwe. He said that one solution in these and similar cases was for heads of more democratic states to make their case privately, rather than in international forums. “It may be better done behind closed doors,” he said, adding that leaders in these states are becoming more willing to do this.

“Some countries are ready for change and are indeed implementing reform. Others need to be encouraged,” he noted. “We have a small group of countries that need to be dragged along. And that must happen. We have come to understand that we cannot achieve accelerated national development, create wealth and eradicate poverty without reforming the public sector.” In his own country, a new constitution was introduced in 1992 followed shortly by the country’s first multi-party elections. Elections for local assemblies were held in 2002. “Our leaders have understood that it is only through good governance and the rule of law” that conditions for reducing poverty will occur.

The move toward more open societies has also been spurred by the growth of information technology. In Ghana, Nduom said, “The influence of the media, particularly the private radio stations” and increased accessibility of cell phones “cannot be overemphasized. The combination of radio and mobile phones has given Ghanians tremendous voice and space [in] matters of political, economic and social interest. The role of radio stations in enhancing debates during election campaigns has helped promote lively and constructive political competition, and enhanced transparency during vote counting and declaration of results. Society is a lot more informed.”

On a personal note, Nduom said it was this commitment to political reform that led him to return to Africa and, once there, to leave the private sector for government. He came to the United States in 1970 as an exchange student, completing high school in a small town in Minnesota, then returned in 1973 to get his bachelor’s, master’s and doctoral degrees from the University of Wisconsin in Milwaukee. He joined Touche Ross in 1981 and became a partner in 1985, one of five blacks out of some 1,000 partners. He later returned to the continent with the firm, which had become Deloitte and Touche, and started a new management consulting practice for them.