Transformational Capitalism

from Africa Good News..

July 5, 2013

By Yosef Kebede

What is going on in East Africa is truly worth a look.  In Tanzania, where I have made frequent business trips over the past year, the change is remarkable.  New structures seem to spring up throughout the commercial capital, Dar es Salaam, every month.  Pockets of affluence can be found everywhere throughout the city.   As more and more of these “pockets” emerge, eventually, they will connect and make Dar into a full-on modern metropolitan city.  At least that is what some believe could happen in the next 10-20 years.  I say, solve the maddening traffic gridlock, and you’re halfway there.

Let’s think about these changes from a business perspective.  Capitalism is alive and well in Tanzania; activated by the liberalizing of economies and stabilizing of the political environment.  But what we see in terms of the growth of business and improvements in infrastructure have an interesting backdrop of contrasts.

And, no, this isn’t about the growing gap between the haves and the have-not’s (though it is there); nor is it about the Chinese versus Western/American-influenced presence (clearly visible).  What I’m talking about are the two strains of capitalism that drive Tanzania’s economic makeover – reactive andtransformational.

In reactive capitalism, companies monitor conditions in a country to identify the opportune time for market entry.  For instance, a burgeoning middle class implies a whole new consumer base that did not exist previously.  Reactive capitalists identify the market conditions, conduct market segmentation exercises, employ the appropriate type and level of marketing strategy, partner with local distributors…then, go to market.  This is the case whether the reactive capitalist is selling toothpaste or tires; automobiles or air conditioners; banking services or phones.

Admittedly, this is a simplification of a process that typically takes months, if not years, of due diligence; back and forth negotiations; drafts and revisions of financial analyses; and tens of thousands of man hours to arrive at the conclusion that market entry is warranted.  And then…there is the implementation, which itself can be wrought with pitfalls and multiple starts and stops.

But, at the end of the day, the entire process defines a mode of capitalism that is purely reactive. Tanzania is home to a great number of reactive capitalist enterprises.  Banks, telecommunication companies, white goods (home appliance) manufacturers, luxury goods, and retail chain restaurants.  Most share common features of brand recognition and international reach.  Samsung heavily markets and sells refrigerators and other home appliances designed for the Tanzanian consumer who has to contend with power outages.  Walmart has entered Nigeria through an acquisition. Proctor & Gamble has a new manufacturing hub in South Africa to serve the east and southern African market.  These companies are growing their portfolios and market share adequately and satisfying shareholders back home.

In comparison to the reactive capitalists, transformational capitalist enterprises tend to be home-grown and quite often are the very agents that create the conducive environments sought by reactive capitalists.  Being indigenous to the African context, transformational capitalists look at wealth generation not just through the lens of consumer base expansion but also through the lens of empowerment and economic progress. Transformational capitalism is multi-layered and complex in implementation.  How does a transformational capitalist benefit his/her surroundings without turning into an altruistic venture?  Of course, we live in the era of social entrepreneurship and triple bottom line businesses, so there exists a partial answer to this question (see NOTE 2 below).

Both reactive and transformational capitalists are essential for Tanzania’s continued growth and both serve a valuable purpose.  The transformational capitalist helps to usher in reactive capitalism and all the quality-of-life attributes it represents.  On the other hand, the reactive capitalists represent an effective check against potential monopolies of home-grown transformational capitalists.

What differentiates the transformational capitalist from the reactive capitalist is timing; the former is at the leading edge of transformation while the latter reacts to it.  For that very reason, we should look at transformational capitalism as the real engine of true change on the continent, as opposed to the common belief that FDI is the Holy Grail to Africa’s economic renaissance.   Without the transformational business models of Africa’s business leaders, such as Tony Elumelu (Nigeria), Aliko Dangote (Nigeria), Reginald Mengi (Tanzania), Mohamed Ibrahim (Sudan), there would be no FDI to speak of.

Transformational capitalism has paved the way for much of the growth witnessed in countries like Tanzania.  Instead of only focusing on foreign dollars from foreign firms, Africans should champion home-grown capitalists as the true agents of change on the continent.  Today, there is an emphasis on local entrepreneurship and self-sufficiency as a tool for poverty alleviation.  That is good.  Let us continue to encourage that and saturate African economies with bright minds and innovative ideas that eventually become large-scale transformational capitalists.  FDI will always be a part of a globalized economy.  But the more transformational Africa’s brand of capitalism becomes, the more leverage countries can have.  Soon, governments and the citizens they represent can afford to be more selective regarding FDI – ensuring that the best value is extracted.

NOTE 1: A third category called extractive capitalism can also be included in the discussion.  This includes primarily companies in the mining, natural resource, and land-grab industries.  Their model is purely opportunistic and typically excludes engagement with the local consumer base.

NOTE 2: Transformational capitalism is not just another fancy term for social enterprise.  Social entrepreneurship has its origins in the West and emphasizes social impact while transformational capitalism represents an imaginative application of business acumen to generate wealth (think “Afrocapitalism” as coined by Tony Elumelu).  Above all, it is a source of inspiration for the African entrepreneur to believe he/she can prosper and grow independently on his/her own terms.


Yosef Kebede is Managing Director for BTG Group LTD, a consulting company based in the US, but operationally focused in Tanzania.



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