Africapitalism reduces business risks in Africa

The Economist, a UK based global newspaper, has become a unique and leading voice in shaping contemporaryeconomic discourses of Africa. In 2000,the newspaper described Africa as “the Hopeless Continent”. In 2011, it had “Africa Rising” as its cover theme. And on April 16th 2016 it published a special edition on “Business in Africa – Making Africa work”.

The periodic and progressive attention given to the economic performance of Africa by the newspaper is a sharp departure from the usual negative and patronising representation of the Continent in the global media – i.e. an Africa riddled by wars, famines, diseases, and the burdens of poor infrastructure and reckless governments. While many think that the description of Africa as a hopeless continent was harsh, the Africa rising narrative was considered rather hyped.

Obviously, Africa is not hopeless, but it is not yet Uhuru! The balance between the two extreme representations by The Economistseems to have been struck in the latest “making Africa work” discourse. This is a very positive stance and a welcome development.

Despite the many good points raised in this latest publication by The Economist, I found it slightly puzzling that the newspaper chose to position some of the efforts of African governments to curtail the excesses of big firms in the Continent as a risk. I also found no mention of sustainable and responsible business practices as a lost opportunity to challenge some of the nefarious activities of some businesses in Africa.

The telecom giant MTN Nigeria, for example, was not long ago fined a record $5.2bn (£3.4bn) by Nigeria’s Communications Commission (NCC) for non-compliance with a deadline set by the NCC to disconnect all non-registered SIM cards. This fine, which negatively impacted on the share price of MTN, led to the resignation of Sifiso Dabengwa, as the Chief Executive Officer of the MTN Group.

In November 2015 too, the National Agency for Food and Drug Administration and Control (NAFDAC) Nigeria fined Guinness $5mln over expired raw materials.

These fines have one thing in common – i.e. the failure to comply with regulation, and the seeming lackadaisical attitude to regulation and regulators by some businesses.

It is often argued that some firms are attracted to Africa because of the opportunities presented by her weak capitalist institutions – i.e. inefficient governments and weak civil society. In other words, bad government is good for business. In such an environment, it may be easy to exploit the weaknesses of poor regulation, cheap labour, raw materials and tax loopholes.

This is the classic case of strategic arbitrage where firms take advantage of price differentials of factor markets in different countries such as labour, capital and raw materials to enhance shareholder value. This strategy has been effectively used by many MNCs in their quest for global dominance. In such situations, responsible business practices become a luxury and an unaffordable burden. The Niger-Delta region of Nigeria, with its oil deposits, is a victim of this exploitation.

However, business in Africa can also provide an opportunity to challenge this exploitative undertone, which has continued to trail contemporary capitalism and undermine the continent. In other words, responsible business practices are possible in Africa, despite the inherent challenges of weak institutions.

This view is central to the tenets of Africapitalism—a new economic philosophy for Africa championed by Nigerian banker and entrepreneur Tony Elumelu, which has also been covered by The Economist in November 2014. According to Elumelu, Africapitalism “describes the process of transforming private investment into social wealth.”

Africa is rising. And as it rises, its business environment will become more sophisticated. The recent corporate fines in the Nigerian market, if sustained, are rather symbolic. As the biggest economy in Africa, it signals to the world that Africa is ready and open for responsible business. The era of anything goes may be fast coming to an end.

Businesses in Africa will need to rethink their ways and grow with Africa. One possible way to successfully ride on this wave of Africa’s economic renaissance is to imbibe the principles of Africapitalism, as a new economic philosophy for Africa. And this applies to both local and international businesses interested in Africa.

Kenneth Amaeshi

Kenneth Amaeshi (@kenamaeshi) is the director of the Sustainable Business Initiative, and an associate professor in strategy and international business at the University of Edinburgh, United Kingdom. He is a visiting fellow at Cranfield School of Management and Lagos Business School