As US President Barack Obama tours east Africa, with hopes high for an accompanying increase in investment in the region’s fast-growing economies, some foreign companies are meanwhile concluding the continent’s middle-class is not the big, dynamic market they had hoped. Swiss food manufacturer Nestlé, for example, is closing offices and cutting jobs.
But the idea that the continent’s improving economies would prove a paradise for consumer goods salesmen was always a fantasy. When poor regions take off, they create opportunities for production long before they become significant markets for consumption.
So wider opportunities for global business should not be written off. The problem is not that Africa has a missing class of people but rather a missing class of organisation. The founts of productivity are organisations, such as businesses, that make ordinary people productive by harnessing the potential of scale and specialisation while preserving worker motivation. Africa is short of such organisations: its private sector lacks scale while its public sector lacks motivation. Global businesses, by contrast, perform the alchemy of combining these factors every day. They will be needed in the coming decades for three specific transformations, visible in Nigeria and Ethiopia.
First, Africa needs functioning infrastructure. The model of aid-financed public sector construction and operation has failed. The future is for aid to be used to leverage private investment, rather than substitute for its absence. Appropriately, Britain is now increasing by £735m its funding for CDC, its vehicle to support private investment in Africa.
African leaders see this too. They know they will need global construction companies to build the power stations, grids, railways and ports vital to growth; global utility companies to operate them to international standards; and global private finance to pay for it all.
This is starting to happen: there has been a plethora of private infrastructure deals in the past three years. The sector where this will make the most immediate difference is electricity. Nigeria has put in place all the legislation needed for private-sector participation: President Muhammadu Buhari will do the deals. Even the government of Ethiopia, long a bastion of statist development, is now seeking private-sector involvement.
Second, infrastructural development will be focused on cities. Between now and 2050 Africa’s urban population will triple. The efficient city is the crucible of growth: it provides connectivity; it enables exporters to cluster, securing the benefits of scale, and proximity to ports or airports for access to markets. It enables workers to live near jobs. It provides a population dense enough to allow local services such as bakeries with markets sufficiently large to support scale and competition.
But Africa’s urban infrastructure has been neglected, meaning traffic jams frustrate connections between businesses and customers. Single-storey slums offer neither liveability nor density. This is changing. In Lagos, Nigeria’s most populous city, commuting infrastructure is vastly improved. Under Mr Buhari, the city could become the de facto economic capital of west Africa. The Ethiopian government is creating liveable density, using the private sector to build five-storey apartment blocks costing only $10,000 per unit.
Third, efficient cities will enable Africa to break into the market for manufacturing as China vacates. The most important skill in export manufacturing is not the ability to run a factory but to insert it into global supply chains. So Africa will need to attract foreign companies rather than rely on local ones. This is happening in Addis Ababa, Ethiopia’s capital. The investment authority has been reorganised to address the needs of global companies, and a manufacturing cluster is growing around the airport, attracting Chinese businesses.
It will be a while before Africa is a big market for Swiss chocolate. But the aircraft seats lately taken by executives selling foreign consumer goods will soon be occupied by others harnessing different, more valuable opportunities.
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