Business must take African stand

Thursday, January 19, 2006

One of the UK’s leading businessmen says companies have a responsibility to actively support fresh efforts to improve the investment climate across the continent.

However, Reuters chairman Niall FitzGerald said there was also a need to tackle the “stigma” of profiteering accusations which many successful companies in Africa now seemed to face.

Mr FitzGerald, the former Unilever chairman, told a business audience in London that the case for business growth as the main engine of sustainable development must be made more often and more forcefully.

Long-term commitment

Giving the CBI’s annual lecture, Mr FitzGerald – who sat on Tony Blair’s Commission for Africa – said there were huge opportunities for firms prepared to commit long-term to Africa and which were willing to be innovative.

It was also important, he urged, to ignore false assumptions about African markets.

“Being successful in Africa requires an entrepreneurial attitude and a willingness to help create the market and infrastructure around it, not just enter it,” he said.

Bottling line at a beer factory owned by South African Breweries
Firms such as brewing giant SABMiller make significant profits

“An understanding that operating in Africa may entail investment in the wider environment, such as in the supply chain, distribution channels and the workforce.”

Mr FitzGerald, who has been doing business in Africa for 30 years, said there was a thread linking companies which had succeeded in Africa.

They had shown an understanding of varying consumer needs, an ability to shape products to local culture and a willingness to play a wider role in community development.

Profit stigma

Despite recent huge investment by companies such as Barclays and Vodafone, private sector investment in Africa as a share of total investment in developing markets remains worryingly low.

One of the reasons for this, Mr FitzGerald argued, was the criticism that businesses encountered for seeking a return on their investment.

“One of the things that gets in the way is this sort of insidious sense that if you make money in Africa, you can only be doing it through exploiting people.

“There are quite a lot of people who quite consciously take the view that ’I am going to keep my head down’, or ’I don’t want to be the target of people saying how can you possibly be making a 15% return on African consumers’.”

Sir Digby Jones, CBI director-general
We are never going to win the argument unless we put our head over the parapet
Sir Digby Jones, CBI director-general

Businesses needed to face down their critics, he urged, by emphasising the broad economic benefits of business investment such as substantial indirect job creation, enhanced training and skills development.

The CBI has also voiced concern about criticism that some businesses have faced from NGOs and other groups for “unreasonable” profits made in Africa.

Sir Digby Jones, the CBI’s director-general, said firms needed to be more resolute in defence of their activities and the role they played in providing jobs and raising living standards across the continent.

“We are never going to win the argument unless we put our head over the parapet,” he said.

Tackling barriers

For many firms, the barriers to doing business in Africa – ranging from high transaction costs, excessive bureaucracy and an uncertain legal framework in many countries – still appear insurmountable.

While this is unlikely to change in the short term, Mr FitzGerald said firms no longer had an excuse to sit on the sidelines.

Renewed efforts to improve the investment climate across Africa, centred on the launch of the Investment Climate Facility (ICF) this year, needed strong business support.

A woman using a phone in a kiosk in Tanzania
Firms must be innovative in how they offer services

The ICF – a $550m joint African and international initiative – will seek to create more business-friendly policies and tougher regulations in areas such as property rights, licensing, taxation, financial markets and corruption.

The success of the initiative, designed to improve dialogue between governments and businesses, is seen as important to helping medium-sized business make progress in Africa.

“Life is more difficult for smaller companies,” Mr FitzGerald said.

“If you have to go through a 267-day procedure to get customs clearance, some people just give up because they don’t have the resources to do it.

“Big companies can bang the table harder and sometimes get what they need – but small companies cannot.”

US interest

Mr FitzGerald is generally optimistic about the trend for investment in Africa although he advises caution about China’s growing appetite for African assets, which has seen it invest heavily in energy resources.

Africa is becoming much more important to the US in oil terms
Niall FitzGerald, Reuters chairman

In particular, he sees a growing engagement by US companies in Africa.

“Africa has always been much lower down the radar screen for historical reasons, but I think you will find a significant increase in interest.

“Africa is becoming much more important to the US in oil terms. My guess is that within the next decade, Africa will be providing anywhere between 10% and 20% of US oil needs.

“That focuses the mind.”

Sir Bob Geldof, the Africa campaigner behind the Make Poverty History movement, said businesses had to consider many factors in African countries which they did not come across in other “emerging markets”.

African countries had largely rural economies and simple business decisions had a huge impact on the economic fabric of family life.

“It is a wholly different ball game, say, than going along to the new Eastern European economies and opening up a new market,” he said.

Source: BBC Online (link opens in a new window)