Podcast transcript: Why is Africa more than just a matter of time?

30 min approx | 12 Nov 2019

Yassmin Abdel-Magied

Welcome to The Better Question, the EY podcast series that will answer the questions that will help you lead your business through this transformative age.

What will happen when trends that we already know are underway today , start to transform society?

I am Yassmin Abdel-Magied, engineer by trade and writer by vocation. Over the course of six episodes, we are asking some of the most probing minds around the globe about the world-changing issues that are just over the forecast horizon. And we are asking them, What’s after what’s next?

And I have here with me writer, futurist and the curator of What’s after what’s next?, Chris Meyer.

Chris Meyer

Great to be with you, Yassmin. I am Chris Meyer, and my ongoing work with EYQ, the EY global think tank, is focused on the question, What’s after what’s next?

Abdel-Magied

So, Chris, so good to be here with you. Tell me, what’s going on today?

Meyer

Wakanda!

Abdel-Magied

Wakanda forever.

Meyer

Exactly. Africa’s population is about 900 million, and its GDP is expected to grow 4% to 5% over the next decade, so it’s no wonder companies are looking at Africa as their next growth market. And it has got a big share of the world’s unfarmed arable land, so feeding the world will depend on African agriculture to a great extent. And they are getting more connected. Between 2009 and 2013, 12 undersea fiber optics cables landed in Africa. So, virtually everyone on the continent has access to the internet.

But most people I talk to in business do not think about Africa much. And the misconceptions about it are deep and widespread. So, that is why we decided to devote an episode of What’s after what’s next? to the subject of what to expect from Africa.

Abdel-Magied

This topic is obviously very close to home for me. I was born in Sudan, and although there are themes for me which resonate with the Asia — we did an episode on China and Asia where we were challenging this idea of China and Asia being an idea more than a place with nuance and people. I think that is really relevant to Africa. So, I am really curious to hear what our guests have to say today.
So, how will we be tackling the enormous subject of Africa, a subject that most people say should not even be addressed as a single issue?

Meyer

So, today we will be talking about Africa’s growth, some of its challenges, and some of the myths that are held about it. The better question we will be asking today is: Why is Africa more than just a matter of time? And, as we always do, we will have a chance to pull our reactions together afterward.

Today, our guests actually know each other quite well. They are both calling in from Johannesburg. Ajen Sita is the Chief Executive Officer of EY Africa.

Ajen Sita

Hi. My name is Ajen Sita. I am the Regional Managing Partner for EY across sub-Saharan Africa.

Meyer

And our other guest is Nicola Kleyn. Nicola is an EYQ Global Fellow, and the Dean of the Gordon Institute of Business Science in Johannesburg. Nicola is a member of the EYQ Global Advisory Board, the EYQ Fellows.

Nicola Kleyn

My name is Nicola Kleyn. In addition to being a Global EYQ Fellow, Dean of a business school, that is part of the University of Pretoria, but we are based in Johannesburg, which is the commercial hub of the African continent.

Meyer

All right. I would like to get both of your individual perspectives and then wrap with a lightning round of questions. Ajen, let us start with you. This is an episode about Africa and how corporate leaders should think about it. But when we talk about Africa, it’s important to note, as it is often not nuanced enough, that when we say Africa, we are referring to dozens of independent nations consisting of many languages and cultures. We are talking about 54 countries.

Sita

Well, there is an important nuance there. I would start off by saying it is important to recognize that there are 54 countries. So, these are all sovereign governments and individual countries that we have to understand the dynamics of trade, governance, social dynamics are actually very different in every one of them. However, as a global company wanting to enter these markets, it is smart to think about a cluster of countries in sub-regions. And the typical clusters we talk about in this part of the world would be Southern Africa, East, West, Francophone Africa and North Africa. So, if you think about it just in those five clusters, you start to aggregate a number of economies there. They have better critical mass, reach of consumers, access to financial services, resources, or skills that you might need to run a successful business.

Meyer

And in terms of, as you said, trade, governance, social dynamics, are they similar in those regions? I mean, within the regions, I should say?

Sita

Chris, what is happening is increasingly, governments in those clusters are finding ways to cooperate to create greater sizes of those economies. In many markets, there is already easier movement of goods and services, or free movement of labor. And the design of that is to actually generate larger size economies.

If I share an example with you, if we go to East Africa, Kenya as a country, for example, has a population of about 70 to 80 million people. But if you cluster all of East Africa, which is Kenya, Uganda, Rwanda, Tanzania, Ethiopia — if you do that together, you are talking of now a clustering of about just short of 200 million people.

Meyer

You were talking about the degree to which they were homogeneous or coordinated with respect to their own governance and trade.

Sita

As governments are starting to cooperate more with each other to build greater size economies, it certainly positions them, you know, more attractively to attract foreign direct investment.

Meyer

Let us stick with East Africa. How much international trade, how much interregional trade, would you say there is?

Sita

So, this is one of the dynamics that is challenging Africa today. In fact, what I would say to you is intra-Africa trade is around 15% of all trade that is done in Africa. So, most of Africa’s trade is actually with its major trading partners in the Northern hemisphere, typically in US, Asia, or North America. And the one thing that Africa still needs to work on is how we start to trade better with each other. It is a huge untapped market of a domestic economy, you might argue, which still needs to be exploited.

Now, if you try and find comparisons — if you look in Europe, as an example, in the European Union, you know, intra-regional trade is more than 50% of the trade. In South America, intra-regional trade is about 35% of what they do. So, Africa is definitely lagging far behind in intra-regional trade.

Meyer

Nicola, as dean of a business school, how does the formation of regional groups in Africa affect what you prepare students for?

Kleyn

Chris, there is a broader picture here. And that is, on this continent, if our students do not understand the political economy, they will fail as business people. So, the level of political engagement, both across regions, but also in domestic economies in the continent, is absolutely critical in terms of various aspects of strategy. But I do not think that this is something that the global north sits on their radar nearly as much.

Sita

I suppose, Nicola, if we think about it other than South Africa, by and large, most of the countries pan-Africa, you would find that government probably makes up more than 50% of the GDP in those economies. So, the role of government in state-owned companies or owning power infrastructure, telecom infrastructure, or other — even transport infrastructure, is the dominant player in the economy.

Kleyn

And one of the ways of thinking about it is if you put on a sort of stakeholder cap, the notion of, well, what is business government engagement? To consolidate that point, government as client, government as partner, government as regulator, government as policy preventer or enabler. And so that is complex. And you are absolutely right — a huge portion of the buying goes through government.

Meyer

Nicola, I think you have said they are our system, and they are up to us to change it, not to wait for somebody else to do so. And from that perspective, what do you think the chance of creating those preconditions to make African regions appealing to foreign investors look like?

Kleyn

That is a great question. So, let me share a couple of perspectives. And I think the first is, where do I come from in terms of the “it is up to Africans to change this?” When we look at the fairly recent history in terms of modern history, the role of colonialism, self-determination for Africans is something that is not just a strategic choice. It is also embedded in their DNA. And it’s very important that there’s a sense of agency and a sense of being able to drive that change. I think the other thing that is important, though, from a business perspective and in driving change, is we need to be careful that we do not just look at this for global players as a source of demand. If we look at the demographic bulge, for me, the always startling statistic, that in 2050, one in two global children is likely to be an African child — that we are going to have, in 2050, certainly the largest workforce in the world.

I think we have got to think beyond markets for our offerings. But we have got to start also thinking about how does local business, local government — and by that, I mean within the continent — forge partnerships, also internationally, to ensure that we address a skills deficit, and that we are in a really good place to ensure that youth across the continent have access to employment, that we are looking for new forms of organizations, that we are looking for organizations with a longer-term view and more patient capital.

Sita

However, that working age population also needs skills. And government on their own are unable to actually, you know, create the right environment, whether it’s the education systems, or tertiary education — it could be technical training colleges and the like — to actually equip folks for the skills of the future. And this is where companies actually need to rethink how they handle their entire supply chains, which is, to come into these markets, you are going to play a social role in investing in the human talent. But that will pay hugely in dividends because you really accrue a strong social license to operate. You will get the support of communities, government, and in — no doubt, there is a stronger success story.

But what that also means for business is that you have to take a long-term view. And I think too much of what we have seen over the last decade has been this idea of a sort of gold rush mentality. Because of the opening up of the African economy, because of some of the demographic shifts, we have seen companies come in with short-term objectives, short-term return goals. And those guys have not succeeded, in fact.

Meyer

That is a lot. Let us talk about that. So, the human capital deficit on the one hand and the demographic dividend on the other sounds like a recipe for recolonialization by foreign companies who will want to come in and offer the skills and displace or employ a lot of non-Africans or fight for a small number of qualified Africans. And how do you fill that human capital gap?

Sita

You are absolutely right. This demographic shift is either a dividend or a disaster. If we cannot equip young people with the skills they actually require to succeed, to find meaningful employment, or start businesses, or become part of supply chains of large companies, you will have the disaster.

So, this concern you raise of is there a potential for recolonization? I would say to you, we probably saw some of that over the last 15 years when we saw a significant influx of multinational companies who came to take advantage of the growing consumer class across the continent, because the last 10 or 15 years, Africa has had strong GDP growth. You know, economies have lifted. More people have come out of poverty. There has been more disposable income. We have seen consumer growth exponentially over the last 10 or 15 years.

Kleyn

So, I think there are two aspects here. The one important aspect around skills is, at a country level, the formation of national policy that drives this. But I think this is where there are phenomenal opportunities to take the best that we can out of using technology. As we see the continent increasingly embracing bandwidth, as we start seeing more and more consumers having access to the internet, there is an opportunity here to work with skills development and come up with very different kinds of business models. But it cannot just be done with organizations coming into these markets on their own.

Sita

If we take a sector like the automotive sector, it is quite an interesting example of what we have been talking about now. Today, Africa does not have any vehicle brand of its own that is sold either locally or globally. Yet some of the best high-end German luxury vehicles that are sold in North America or Europe are actually manufactured or assembled right here in Africa. Now, those companies have come into those local markets. They have set up manufacturing plants.

They have had to train local people in the assembly of these sophisticated machines, high tech that is going into a lot of these cars nowadays. And these companies have been able to, over decades now, run incredibly competitive, incredibly successful businesses.

And it shows that if you think about how you structure and empower local communities, you actually can have a globally competitive business based in Africa selling into the mature market. And people and organizations that think about their business in that light, I think, will be successful.

Meyer

Hm.

Kleyn

They are a great example, Chris. I am of the view that manufacturing is incredibly important in the African context. And we have had conversations before about can you leapfrog from a pre-industrial economy straight into a post-industrial economy? And I have to be honest, I am not seeing an entirely frog maneuver. So, I think manufacturing is essential.

Meyer

Let me make sure I understand you. This license to operate perspective and interaction with policy aligns with what Ajen has been saying about taking a longer-term view and taking some responsibility for the development of the regional economy that you are operating in. Have I got that right?

Kleyn

You have absolutely got it right. And one of the difficulties is when the mindset of business is contrary to the mindset of their country of origin from a policy perspective. So, for example, if we start looking at US-based companies wanting to come in and form productive long-run relationships with African companies — but at the same time, if US foreign policy is not in alignment with that, it impedes their investments. When we start looking at other countries where there’s a strong alignment between foreign policy of that country and business of origin in that country, they are going to do better in this continent.

And I speak very mindful of being a South African. And there is some resentment towards South Africans on the continent. If you as a leader do not operate with that kind of cultural agility, I think you are doomed, no matter how strong your physical presence is.

Meyer

You made the comment that you do not see leapfrogging in terms of industrialization being skipped. And we look, say, at East Africa, where mobile phones are used in all kinds of innovative ways, including, of course, banking. Where might the African economy and society innovate in ways that are more effective for the citizens of the different countries in Africa than what they might import if multinationals were kind of left to their own devices?

Kleyn

There are two things that I think any solution has to take into account. The one is that we have to leverage the best in technology. You mentioned this example of Kenya, and of course, of a continent that by and large has actually skipped out the prolific use of landlines and headed straight towards a mobile solution.

Meyer

Sure.

Kleyn

We need to use technology. But to do that, we have to make sure that the enabling factors are in place. If our citizens — and I am not even going to say consumers here, or potential employees or workers — if our citizens do not have access to bandwidth; if government has not adequately negotiated spectrum; if we do not have the right to preexisting conditions, at the same time as in many countries, we are fighting battles associated with the first and second industrial revolution, this cannot work. That is not just in Africa’s interest. That is in the world’s interest.

Sita

Yes. Maybe if I add to that, if we think about the historic construct of most economies across Africa has really been about extracting natural resources from below ground, whether it was coal, gold, diamonds, platinum, a range of other minerals, taking it in its raw form into overseas markets, where the actual processing and value add took place and products produced. We might go from where we have come straight into the fourth industrial revolution, and then the question we have got to ask is, will we actually build an inclusive society if we go straight there?

But at the same time, there are a large number of people that do need to get into, I would say, entry-level jobs. And from a simple business perspective, if you want to find the business case for this, I said earlier that intra-Africa trade is only 15% of all trade. So, to me, with a billion people population, we are the youngest population in the world in 10 years’ time. There is a massive opportunity for Africa to move that 15% closer to 30%, 35% or 40%, which is consistent with what you see in major economic hubs elsewhere in the world.

To do that, to trade with each other, we need to produce something. And that is where I think the strong business case for manufacturing sits. If we can start to produce goods, we can start to trade with each other, rather than the export into Europe and its reimport back into the continent. Now this, in my view, will coexist with investments in new technologies. We are seeing significant innovation across the continent. I know we have been talking a lot about East Africa, nowadays known as the Silicon Savannah. There is certainly this coexistence of fourth industrial revolution with manufacturing creation that is actually required.

Kleyn

Chris, I think one other driver that we really need to bear in mind that should make life easier in terms of accelerating prosperity is the significant trend towards urbanization. So, I think if we are not aware of projected growth increases in major hubs, rapid growth that we are going to see in places like Dar es Salaam, Nairobi, Kinshasa, Rwanda, that makes policy a little easier, because you do not have as much of a dispersed population.

Meyer

I have found it interesting in our conversation that Nicola has spoken quite a bit about policy. And Ajen, you have spoken more about private companies setting up the infrastructure. How do you two integrate those into one view?

Sita

Well, I would be in agreement with Nicola. So, let me say a few things. One is, in every one of these countries in sub-Saharan Africa right now, if we look at the government balance sheets, they have major balance sheet deficits and currency weaknesses, which means if they are going to compete and make the investments that are required to grow, they actually need to make sure that these markets are attractive for foreign investment. What we need to see is major reforms, and reforms in the form of policy certainty, policy clarity, whether it comes to domestic issues in some parts of the continent around land, around movement of goods, labor, around taxes, around repatriation of cash — international investors need certainty on that. So, that is the reform bit.

What follows reform is resolve. So, what many of our governments I think have been really good at is formulating great policies but have been really poor at executing those policies. I would say this hand-in-hand of reform and resolve is actually what’s required. Nicola maybe has been talking of the reforms, and I am talking about the resolve from a business perspective. But they actually go well together.

Meyer

Nicola?

Kleyn

They are two sides of the same coin. And if governments in our local environments are not aware of, as Ajen has said, the critical importance of business sentiment and the need for stable policy — but if business does not realize that it can both shape policy and then work with government, as we have said, as customer as well, we miss out this critical interdependency. You cannot have one without the other.

Meyer

So, the true leapfrog could be a different social contract among business, government, and society, collaborating in a way that the West currently finds very difficult to do.

Sita

I think it’s clear to everybody, that is the only success formula going forward. And, we are starting to see some examples of those kinds of public/private partnerships emerge in various parts of the continent. Whether that is in infrastructure projects, you know, building of power infrastructure, or dams, or road infrastructure, governments are realizing, if you want to serve local communities, you need access to skills, you need access to capital. This is something that the private sector has. The private sector’s saying, government, if you provide us the policy clarity, you provide us the certainty over an extended period of time, we will bring that risk capital into this market.

Kleyn

And Chris, I think there is also some countercyclical trends that are playing out across the region. Ajen has spoken about regional integration. And it’s fascinating for me that on one hand, as we watch the deepening of trade wars, the rise of nationalism across much of the world, we sit here with enormous, I think, opportunity around things like the African continental free trade agreement, where, you know, we have got 52 out of the 55 members states on board.

Meyer

That leads brilliantly to the last thing we want to do, which is a kind of ping pong match between you about what people believe about Africa this is simply not correct. What are the myths of Africa that you would like to rid the world of?

Sita

The one thing that I find in my conversations is the sense that Africa is a country. So, they are often referred to as a country. So, you know, the advice I give to international companies is, you cannot look at Africa from afar. Get on the ground. Meet the people. In the markets is where you will understand the true Africa.

Meyer

Nicola?

Kleyn

The myth would be, despite the skills shortage that we have spoken about, is that the managerial class that comes out of Africa is somewhat lacking in skills. In fact, we find it is the reverse. If you are going to succeed in this environment, the kinds of skills that African managers have built and succeeded take them anywhere in the world and enable them to do brilliantly.

Sita

Maybe if I had another one, I would say when people look at the continent, they think its natural resources — gold, coal, diamonds, mining industry — actually makes up the dominant part of the GDP. When you look at the makeup of GDP of Africa as a whole, what you will find, is that it in fact is the consumer-facing industries — financial services, real estate, housing, construction, retail actually is the dominant industry across Africa, not natural resources.

Meyer

Nicola, you have a second?

Kleyn

The assumption that policy exists independently of business. The assumption that at many major global universities, you would go and study in a school of public policy totally separate to a business school is fallacious in this environment. They are totally intertwined.

Meyer

You guys have been spectacular. This has been fascinating, so thank you both.

Yassmin, you were born on the African continent in Sudan. What did you make of the recolonialization discussion?

Abdel-Magied

Oh, it hits home, you know? I think it is always quite interesting when people who come to benefit from the continent talk about the concept of colonization and so on as if they are something that they are separate from. And one could argue that they are still going through a process of decolonization. The conversation then about, well, okay, we need to avoid this and so on, it is not a couple of policies here and there. It is about a complete rethinking of the way that you do business — a complete rethinking of how you provide value, and not seeing it as value extraction, but a value exchange. And also, understanding that working on the continent comes with a lot of responsibility. In my view, ethical responsibility.

Meyer

Yes. And I think we heard that from Ajen in particular. If we think about what a former colony has to do in order to become truly self-sufficient and innovative and grow, they are to build they are own infrastructure and institutions.

Abdel-Magied

So, what were your big takeaways, Chris?

Meyer

Well, loud and clear, number one, multinational companies looking for a short-term opportunity will be disappointed. But equally, the long-term opportunity to serve a billion people on the continent is unmatched in the world. And it is not going to happen by global companies just sourcing things in Africa and shipping them then back to African consumers.

Abdel-Magied

And those consumers are younger than anywhere else — half the world’s babies in 2050, and the biggest working age labor force! I mean, that is incredible. The tradition is deeply communal. And this is something I resonate with really strongly. Many Africa will develop the world’s first of technologically enabled self-organizing learning communities and export it. I think that is something that is really exciting.

Meyer

It seems to me that the issue is so pivotal, dividend or disaster, that African entrepreneurs in the Silicon Savannah could take a run at this. Let us leave it there, with a couple of questions for our C-suite listeners:

First, has your leadership team invested appropriate attention to understand how the economies in Africa are growing and changing?

Second, have you considered Africa as a growing source of talent?

Finally, if you are participating in Africa’s growth, do you have a presence on the ground, and is your strategy patient enough to make investments in Africa’s capabilities?

That leaves us with the better question: Why is Africa more than just a matter of time?

In What’s after what’s next, we have talked about China, and we have talked about Africa, and the way the models of governance in the global economy may be shifting. This has big implications for senior executives looking to be global companies. Tune in next time, when we will be talking about the social contract with MIT’s Ethan Zuckerman and Kees Kruythoff from Unilever.

Abdel-Magied

Thanks, Chris, and thanks to Nicola and Ajen.

Abdel-Magied

And that concludes today’s episode of The Better Question. For more on this subject, visit ey.com.

If you would like to share your better question with us, leave a review. I am Yassmin Abdel-Magied. The better the question, the better the answer, the better the world works. Until next time.

Disclaimer: The views of third parties set out in this publication are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made.