part V

Doing business in Africa 3.0 New entrepreneurship in Africa

Contents Introduction

209

From trade to inclusive business

211

The Dutch approach

225



Introduction It is 2017. After hanging up the phone, Ms van der Zande, ambassador of the Royal Netherlands Embassy in Lusaka, is elated. She has just been informed by the chair of the tender board of the Zambian water management authority that the bid has been selected. The largest and most comprehensive water management project ever to be commissioned in Africa is to be implemented by a Dutch consortium. There could be no better proof that the decision to reopen the embassy in Zambia was the right one. The winning bid is the result of intense collaboration between eight companies, five NGOs, two banks, the Netherlands government and several other partners who have been building their partnership for more than two years. The tender board was impressed by the combined expertise of the consortium and its approach. The proposal included high-tech waterworks, comprehensive institutional reforms and a programme to develop the entrepreneurial skills of Zambian youth in such smart way, together with innovative financing packages, that the competition was left well behind.

This concluding part brings together the vision elaborated throughout this book and summarizes the challenges ahead for Dutch and other foreign firms and organizations in sub-Saharan Africa.

Introduction | 209

Doing business in Africa 3.0 involves: • • • • •

Moving from trade to inclusive business Dealing with relative and competitive distance Being proactive, strategic and glocal Partnering with governments and non-governmental organizations Coordinating three types of portfolio: countries, partnerships and issues

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From trade to inclusive business Dutch companies have been involved in Africa for centuries. Business relationships have been shaped by trade, particularly imports of African commodities and raw materials. Until recently, the continent was plagued by problems unlike anywhere else in the world, and foreign companies had little interest in becoming involved. The risks of doing business in Africa used to be so high that net assessments of opportunities against challenges were negative for all but a few courageous firms. As a result, the gradual improvements in the political and economic climate in many African countries since the 1990s have been viewed with substantial scepticism. Decades of misery-laden stories in the media have left their mark on the perceptions of Dutch entrepreneurs about Africa. The numerous positive developments that are now taking place in many parts of Africa warrant a shift in those perceptions. A number of international studies and articles by leading consultants such as McKinsey and Ernst & Young, opinion leaders such as The Economist and international organizations like the World Bank and the International Monetary Fund have offered a new view of Africa. They have also inspired a new set of beliefs that are better attuned to present-day African realities, paving the way for cautious optimism. High and sustained economic growth rates in combination with structural economic and political improvements have started to change the lives of many Africans, lifting millions out of direct poverty and creating a middle class concentrated in urban areas. Of course, numerous challenges remain, such as the poor quality of growth, the limited local value creation, weakly developed domestic markets, low levels of education, and many others. All in all, however, the outlook for a substantial part of Africa is positive. From a continent dominated by the vested interests of the colonial powers (Africa 1.0) and decades of conflict and poverty following independence (Africa 2.0), another vision is shaping up: that of Africa as an emerging continent (Africa 3.0, see figure 1).

From trade to inclusive business | 211

Figure 1. The new dynamics of Africa. Africa 1.0

Colonial legacy

Africa 2.0

Hopeless continent

Africa 3.0

Emerging continent

From BRIC to NEKST?

N i g e r i a e

t h i o p i a

k e n y a s o u t h

a f r i c a

t a n z a n i a In terms of the volume and quality of growth, most African markets cannot yet be compared to the BRICs. However, it is certainly relevant to consider various countries in sub-Saharan Africa as the next emerging markets. Nigeria, Ethiopia, Kenya, South Africa and Tanzania, among others, are economies to watch.

Gaps to be bridged The emerging Africa should provide a positive impetus for Dutch firms, particularly those that already have some experience there. Compared with other European countries, Dutch firms are performing well in terms of trade and investments. Over the last decade, the volumes of Dutch imports from and exports to sub-Saharan Africa have tripled and have grown relative to those of other regions. Dutch investments are now targeting specific sectors, most notably oil and gas, especially in South Africa and Nigeria.

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On a global scale the Dutch position in Africa is less rosy. Since 1990, Europe’s share in global trade with Africa has dropped from over 50% to below 25%. Competitors from emerging economies, in particular China, but also India, Brazil, Malaysia and South Korea have been able to gain a firm foothold throughout Africa. China’s share in total foreign direct investment (FDI) flows in Africa increased from 0.5% in 2000 to 15% in 2012. Trade among developing countries is now growing three times faster than between Africa and the developed countries. The figures leave no room for doubt. Although their shares in total trade and FDI may still be modest, the new foreign powers in Africa, particularly the BRIC countries, are to be taken seriously. They have entered the continent with explicit agendas, an abundance of resources and are determined to stay. An adequate response from Western firms is needed. Yet Dutch firms that do wish to do business in Africa are confronted with a number of challenges, including significant diplomatic and financial gaps. The Netherlands government has bilateral trade and taxation agreements with the governments of less than 50% of African countries, as a result of which firms face considerable political risks in at least 20 African nations. The Dutch financial sector is not particularly keen to invest in the continent. Except for a few cases, such as the Rabobank’s minority shares in several local banks, and development-related financial packages offered by the Netherlands Development Bank (FMO) and ING Bank, few Dutch banks are present in sub-Saharan Africa. The risk-aversion of Western banks, reinforced by the global financial crisis and gaps in the set of public financial instruments, limits firms’ ability to grasp opportunities as and when they arise. This affects mostly small companies, for whom finance and export credit insurance for risky countries are particularly important but difficult to obtain.

Dealing with distance Achieving a long-term competitive advantage in Africa requires companies to balance the opportunities and risks. Various dimensions of ‘distance’ can be used to assess and approach managerial challenges.

Relative distance The distance between the Netherlands and sub-Saharan Africa is, in terms of almost all relevant distance variables, considerable. In terms of geographic distance, cultural, administrative/governance and economic distance, African countries are considerably farther away than those in Europe where most Dutch firms are active. The larger the

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