from the Harvard Business Review’s Blog Network..
June 24, 2013
by Jonathan Berman
At the end of this month, President Obama will begin his trip to Africa, visiting South Africa, Senegal (in West Africa) and Tanzania (in East Africa). The trip will be expensive, and The Washington Post has highlighted the large cost at a time of budget tightening. However, even the myopia of the US budget process cannot obscure reality in this case—this is money well spent.
Putting aside security, global health, and other national issues, US commercial interests alone make Africa an important destination for our President. There is a lot at stake.
Africa ranks second—behind emerging Asia—as the fastest growing region of the world. The IMF forecasts that Sub-Saharan Africa will grow at a rate of 5.4% this year, about 50% faster than Latin America, and infinitely more than Europe, which is currently expected to grow not at all or even contract. Also, Africa’s growth is not from a small base. Africa today is a $2 trillion economy, roughly the same as Brazil or India (where few would say a presidential visit is wasted). Of course, Africa is not one country—its many individual nations mean the growth, risks and opportunities vary widely. However, few would deny that West Africa, East Africa and South Africa each hold significant growth opportunities for US companies. It’s wise of the White House to have the President visit all three, drawing guests from the whole region and not just the host countries.
The following are snapshots of what’s happening in these regions as the President prepares to travel:
- In West Africa, the regional dairy and frozen food manufacturer Fan Milk was just acquired (by Dubai-based Abraaj capital) for over $300 million. Abraaj knows Africa well, as few others do, and is betting that even that level of capital investment in one company will yield the 2-3X return on investment private equity it must generate to attract investors to frontier markets like Africa.
- In East Africa, Tanzania (where the President is stopping) and Mozambique (which is next door) have just had the most important natural gas finds of the new century. About $30 billion will be spent developing those gas fields and building associated facilities. Natural resources are not the whole story of Africa’s growth — they account for about a quarter — but they drive many opportunities that US firms should be capturing..
- In South Africa, the opportunity is longer term. It has long been the darling of investment on the continent and, since the 1994 election of Nelson Mandela, an inspiration to many. Today, South Africa is facing its most wrenching social and political challenges since the end of Apartheid, including slowed growth and social unrest. With the shortcomings of its post-liberation structure visible, South African businesses, government, and labor are forging a new social compact. The US did the same about 12 years after our own independence, not without pain, and again repeatedly thereafter. It is a wise investment for our president to show solidarity during this time and make clear that he and US businesses see a bright future ahead in South Africa.
So what does Africa mean to the US, specifically to US companies?
Growth. General Electric’s CEO Jeff Immelt reports that he may sell more gas turbines in Africa than in the US over the next three years. Eric Schmidt’s Google reports more click-throughs in Africa than in Western Europe. Not surprisingly, both men have traveled to Africa this year.
Innovation. Intel Capital is the global investment arm of the Santa Clara-based Intel. They scour the globe for technologies they can invest in and bring into the Intel fold. In the next six months, Intel aims at reaching over 400 African developers and creating 100 new applications locally that will offer users different experiences across mobile phones and tablets running on Intel architecture. Africa is largely mobile-native environment, and multiple US technology companies are now discovering and developing technologies there to bring home and across the world.
Jobs. Africa is growing, needs more of everything, and has the means to pay. In 2011, US exports to Africa were $21.1 billion, up 23% in just one year and up 350% since 2000. According to the US Trade Representative’s office, the top export categories were machinery ($4.0 billion, up 15% over the prior year), vehicles and parts ($3.5 billion, up 42%), non-crude oil ($1.8 billion, up 30%); cereals ($1.7 billion, up 31%); and aircraft and parts ($1.5 billion, up 32%). Do you know someone working in one of those sectors? Are they finding growth like that elsewhere in the world?
Critics of the $60-100 million estimated price tag of the trip might have a commercial case if Africa only served as a place to spend US aid money. Instead, the Africa of today is one where US companies can find growth, innovation, and job opportunities for those at home. To the extent the President’s visit advances those goals by even a fraction, the commercial benefits alone well outweigh the cost.
Link to the article: http://blogs.hbr.org/cs/2013/06/obama_in_africa_worth_every_pe.html