We Need African Solutions to African Challenges

Editor’s Note: Ngozi Okonjo-Iweala was appointed in July 2011 as Minister of Finance for the Federal Republic of Nigeria.

By Skoll World Forum

Corruption, high start-up costs, poor infrastructure, incoherent regulation and weak governance – these are the oft-cited barriers to foreign investment and regional integration in Africa.  But this storyline is rapidly changing.

With recent increases in the disposable income of the citizenry, demographic trends favouring new entrants to the workforce, urbanisation – and with that, the diversification of incomes outside of traditional, rural sectors – Africans are turning inward, investing at home and setting the trend for how future business will and should be conducted on the continent. Sustainable business solutions are helping to underpin this encouraging trend.

No one wants to do business in an unpredictable environment and African investors are just as discerning and cautious as their international counterparts. But with a closer vantage point, perhaps we see the opportunities more clearly.

Togo-based Ecobank Group, supported initially by the Ecowas fund, was one of the first to focus on cross-border expansion to “Middle Africa,” then dominated by foreign and state-owned banks. The company now provides financial services in 33 African countries with assets valued at $19bn. Others like United Bank of Africa are following suit. According to Ernst & Young’s Africa Attractiveness Survey, Nigerian and South African FDI flows to other African countries are over $1bn each, and growing. Over the last decade, Kenya Commercial Bank (KCB) Group investments were higher than multinationals such as Coca Cola, Total, French cement conglomerate Lafarge and beer maker SABMiller among others, ranking it among the top five investors on the continent.

This burgeoning phenomenon runs contrary to our historical trade patterns, which have tended strongly toward the export of raw materials both to the West and to the East. Despite sustained GDP growth over the past decade, the vast majority of the population does not experience any ‘trickle-down’ benefits. The frustration is growing; Africans are creating their own solutions. The focus on value-added processing before domestic or international sale; service-oriented businesses for the growing consumer class; and expansion into neighbouring countries with similar legal or socio-cultural practices to achieve economies of scale are all clear indications of movement towards more sustainable growth.  And, when companies engage in sustainable business practices, this also helps support intra-African trade, enabling companies to build scale quickly by tapping international capital and expanding regionally and outside of Africa.

We’re also being creative about addressing market failures and taking the initiative to better place our development partners’ monies in order to catalyse sustainable new opportunities for the private sector. For example, African agriculture – a sector attracting both domestic and international investors – is particularly exposed to the vagaries of the weather. Every time we have a severe drought or flood, lives are lost, assets are depleted, and development gains suffer major setbacks – forcing more people into chronic destitution and food insecurity in the world’s least developed countries.

We rely on cost-ineffective ad hoc charity for each disaster, while developed countries use insurance-like risk management systems. So why don’t we?

African Union member states have bonded together to create the African Risk Capacity (Arc), a ground-breaking extreme weather insurance scheme designed to model and price Africa’s weather risk – where the private sector failed to invest.

The Arc is a disruptive innovation, which aims to create a new market and value network not only for the global (re)insurance industry, but also for capital contributors interested in protecting investments in the continent’s agricultural sector. By utilising modern risk management techniques to protect investments and accumulated assets, Arc aims to contribute toward building resilience among vulnerable populations, promoting fiscal stability by preventing budget dislocation, and increasing productivity and economic diversification in some of the world’s fastest growing economies.

It is sustainable business ventures like the Arc and others that pave the way to an improved investment environment on the continent. And shortly, we expect that this trend will crowd in other investors, both continental and international, at an accelerated pace. As we cease to rely exclusively on extractive industries, we can focus rather on the rising and powerful consumer class to fuel the continent’s more sustainable growth.

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