Why business should consider Africa

From the Wharton School of business (Univ PA)

Odembo visited the University of Pennsylvania recently for meetings arranged by the U.S.A.-Kenya Chamber of Commerce and spoke with Knowledge@Wharton about the potential rewards and risks of investing in Africa, including Vision 2030, Kenya's plan to become a middle income nation in the next 20 years. ...

If you look at what has happened in the last few years in terms of improved governance, many countries are becoming more democratic. They're having elections more regularly. The typical tensions that would result in risk have been minimized to a great extent -- wars around the time of elections, civil wars between different communities, fighting between one community and another over natural resources -- we've overcome those challenges to a great extent. The continent is looking ahead to being a place where there's a certain amount of predictability. In the past, unpredictability was another risk.

Africa now has all the ingredients to minimize the risks that people feared before. One way to establish that is for a prospective investor to talk to companies already doing business on the continent. They would be able to tell you about changes that have taken place over the last five or 10 years, and how much we, as countries and as regions, have managed to minimize risks to investors. We appreciate now that we've been left behind and we must do what is necessary to create an enabling environment for private-sector business and investment, both local and foreign direct investment.

Knowledge@Wharton: How do you view China's investment strategy in Africa? What does it mean for investors from other parts of the world?

Odembo: I don't know if I can talk about the Chinese investment strategy because I'm not privy to [it], but I can discuss what I have observed. When the Chinese first appeared as investors on the continent about 10 years ago, a lot of African countries were very uneasy about the manner in which they were setting up businesses and the types of investments they were making. The Chinese have become much more sophisticated in the last 10 years. They now have a strategy. It appears to revolve around what they have studied extremely well on the continent. They know the demographics: There is a rising middle class on the continent; there's a very dynamic, young population; and the continent is becoming increasingly urbanized. Therefore, there is a market and purchasing power on the continent. One part of the Chinese strategy is based on the fact that they are reading Africa very well in terms of where we are now and where we are likely to go to in the next few years.

The Chinese also appreciate the riches that the continent has. Most other countries have known the riches that exist here. Some northern countries from North America and Europe have already extracted the valuable minerals and metals that they needed to develop their industries. The Chinese have figured out that over the next 10 years or so, some of the most valuable commodities that the global economy requires are on this continent.

The Chinese are positioning themselves to do business with African countries, and have figured out that in another 10 years, the continent will have a population of one billion people. That's a very sizable market for selling your products, not to mention the human resource capabilities for producing goods that you might want to export to your own country. Again, I'm not sure what the strategy is, but I can imagine that they're seeing it putting them in a very good position in terms of who will benefit the most.

Knowledge@Wharton: What implications will this have for investors from other parts of the world?

Odembo: It's a challenge. Investors will have to compete with somebody who already has a foot in the door, investing heavily in developing infrastructure, which is where African governments will tell you is where the greatest need has been -- infrastructure, infrastructure, infrastructure. In the next 10 years or so, if this infrastructure has been developed, Africa is going to be able to trade within itself quite significantly. We've learned this during the global recession, when our commodities didn't have a ready market because our traditional markets were experiencing the crisis. We turned inward and started trading with each other.

Because of the potential for trading within the continent with a developed infrastructure, people investing in infrastructure will stand to benefit very significantly because they will know the infrastructure very well. Part of being a good business person and investor is knowing how the infrastructure is set up and how things move from point A to point B. ...

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