Africa's Competitive Advantage

For all the research on the state entrepreneurship in Africa, and there have been many high quality studies like the collaborative project between Omidyar Network and Monitor Group, there is a common narrative that risk-culture is alive and well.
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Part 2 of 3 articles focused on entrepreneurship in Africa.

For all the research on the state entrepreneurship in Africa, and there have been many high quality studies like the collaborative project between Omidyar Network and Monitor Group, there is a common narrative that risk-culture is alive and well. Despite the confounding reality of a very real and persistent tragedy of the commons grinding most African economies to an average GDP growth of 5% (enviable by advanced economy standards), there is an unstoppable optimism seen at every corner of GES2015. So while the lights may go out and there are fewer paved roads across Sub Saharan Africa than in the UK, countries can buy or barter their way out of an infrastructure deficit, but they cannot put a price on entrepreneurial culture. Harnessing this competitive advantage will take courage and leaping over a few creaking institutions that have dogged Africa's progress.

The strategic imperative for Africa's continued development is for policies, funding and networks to catch up with the African entrepreneur's limited fear of failure. The Omidyar study finds that Africa's budding entrepreneurs increasingly favor this road less traveled compared to traditional career options, however limited. Of course so much African output is in the informal economy, where micro-entrepreneurs control their own fate through hawking goods and services. Armed with the ubiquitous mobile phone, these micro-entrepreneurs no longer suffer from the information asymmetry that spoiled crops or the daily catch in the pre-information era. Now an entire eco-system and supply chain has cropped up to support all facets of the communication value chain. From airtime recharging cards sold by human "stations," to airtime ATMs, where minutes are exchanged for cash, Africa's mobile boom is occluding green shoots in other sectors.

One obvious place to start is for more Africans to move up the value chain across the continent's wide spectrum of natural resources. For a country like Nigeria, with one of the world's largest oil reserves to import energy speaks to the scope of this opportunity. Bringing more local refinement capacity and with it jobs is a key pathway to stabilizing restive regions of the country and improving income distribution. Adding value in agricultural products is also a massive untapped opportunity. As the Ghanaian-American entrepreneur Rahama Wright has shown with Shea Yeleen, a cooperative shea butter firm cherished by Oprah, the savvy entrepreneur is as much as supply chain master as an intercultural communicator.

Importing finished chocolate to West African nations, the world's largest producers of cocoa, is the equivalent of importing olive oil to Italy. While the higher value-added production facilities are largely absent in West African countries, the time to revisit the Neoclassical concept economic comparative advantage is upon us. Hinging an economy on commodities alone without moving up the value chain subjects countries to a wild roller coaster ride that exacerbates income inequality and leaves them at the mercy of global markets far from their control. In the case of cocoa the worldwide revenues in the market for finished chocolate exceeded $117 billion in 2014 according to KPMG, while a mere $9 billion was captured by West African originators, whose output was severely affected by the recent Ebola crisis. Global firms like Mars are constantly reminded to protect their supply chains. Coaxing them 'onshore' through shared models, special economic-zones for cocoa production and refinement can be a win-win and an important pathway for skills transfer. The key however is to move demonstrably up the value chain.

Money is the bloodline for every economy and entrepreneur. With nearly half a trillion dollars of interest-free aid poured into Africa over the last 50 years, many of the continent's financial institutions are only now beginning to grapple with a massive gap in financial inclusion. This gap is partly driven by Africa's expansiveness, as much as by its rural-urban divide. What capital is available through traditional banks and investors often demands exorbitantly high rates of return and forms of security available to the narrowest segment of the population. Some estimates show that a mere 10% of African land is privately held. This negates traditional forms of collateral and drives capital up market to established firms that can more readily check all the underwriting boxes. While the need for broad based financial reform is dire, here too lies an opportunity for many African countries to leapfrog traditional financial models. Applications of peer-to-peer approaches are encouraging where 'social collateral' helps securitize investments. The business case for this model of security has clearly worked in micro-finance. Perhaps it is time to mutualize these approaches among entrepreneurial clusters with risk capital in exchange for equity pools.

Education and ideas do not get stuck in customs. As President Obama remarked in Ghana in 2009 during his first visit to Africa as President, Africa doesn't need strongmen, it needs strong institutions. Reinforcing the continent's educational institutions and connecting to the highly educated diaspora can unleash one of Africa's untapped advantages, namely its entrepreneurial spirit.

(First published in LinkedIn Pulse on 7/24/2015).

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