Category Archives: Development

3 Things I Learned Today in Ghana

1. It’s great to have friends in country

Not only fornthe hospitality, or the insights and view from inside, the ability to trust people to do what they say they’ll do is invaluable.

2. Projects are not always what they seem to be

A simple capital raise can reveal a need for a variety of consulting services

3. There’s nothing like on the ground presence.

I spent most of today with the management team of a Nigerian construction firm setting up in Ghana. Today they were looking for office space. Tomorrow they meet key decision makers whose influence can determine who wins contracts. American companies need to show this level of commitment or else be beaten to the punch by bold competitors from Africa, Asia, and Europe.

I was also reminded why I made this trip. I’m grateful for the opportunity to see first hand the changes that say much than the macroeconomic statistics. Now I’m  better prepared to explain this exciting and growing market.

 

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Ghana Today–a Story of Growth and Struggle

I arrived in Accra yesterday morning for my first visit in several years. While I’m here to meet with partners, colleagues,  and prospective clients, I’m also anxious to see see up closely of the changes I’ve been reading about.

A different Accra greeted me immediately. The airport arrival area was cleaner and much more orderly than before. On the way to my hotel I saw several new office buildings including the brand new Octagon. There’s also the fabulous new Movenpick. This enormous building is clearly designed for big event and caters to an international clientele.I’m  right around the corner at the Accra City Hotel, which has replaced the old Novotel on Barnes Rd. The arrived of these new premium properties are recognition of Accra as one of the premier meetings destinations in West Africa.

Later that day, during my ritual stroll around the neighborhood, I could see that much of the old Ghana remains. There’s the chaotic bustle of Makola market. The tro-tros still offer dirt cheap transportation along with new City buses tant world ont besoin ont of place in DC or Mexico City.

During the next two I will explore the current state of Ghana’s development,  focusing on energy, infrastructure, and the country’s efforts to lessen its dependence on raw commodities and become a more industrialized, higher value economy. Along the way I will highlight potential investment opportunities and suggest ways Ghana’s companies and governments can become more investor friendly. Stay tuned!

AccraCityHotel

Movenpick

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Raising Productivity& Prosperity in Six African Economies

There is a set of African countries whose economies have grown faster than the rest of the continent in recent years and show potential for above average growth into the future. Six of these countries have been dubbed African Lions by Haroon Bhorat and Finn Tarp in there recent book “Africa’s Lions: Growth Traps and Opportunities for Six African Economies.” The book was the subject of a panel discussion held recently at the Brookings Institution.

WHO ARE THE AFRICAN LIONS AND WHY?

The six African Lion economies are Ethiopia, Ghana, Kenya, Mozambique, Nigeria, and South Africa. The list includes Africa’s two largest economies—Nigeria and South Africa. These two along with Kenya and Ghana are also four of the five KINGS countries, so named by Ghanaian tech entrepreneur Eric Osiakwan for their leadership in Africa’s technology sector. Ethiopia, Africa’s second most populous nation has dipped a toe into light manufacturing. Mozambique is a potential agricultural powerhouse.

WHY HAVE THE LIONS NOT PERFORMED BETTER?

Poverty is down but not enough and poverty reduction has been uneven across the continent. Much of the poverty reduction has been due to strong commodity prices and natural resource imports by China. This type of economic growth does not reduce poverty by as much as in other emerging economies where more of the growth is driven by industrial activity and higher value exports.

In other words, as we all know African economies, including the African Lions suffer from excessive dependence on natural resources. They have been slow to industrialize, and slow to move up the value chain into higher productivity sectors which create more and higher paying jobs. While there may be inequities in the global trading system that work against them, the biggest obstacles blocking African productivity are more internal than external—they include business governance, quality of institutions, and strength of human capital.

HOW WILL THE LIONS TAKE AFRICA TO THE NEXT LEVEL ECONOMICALLY?

The issues of productivity and natural resource dependence are well known and have been hanging out there for decades. It was evident by the mood in the audience at Brookings that Africans are increasingly dissatisfied and are looking for new solutions!

Today’s challenges cry out for innovative new approaches and Africans must lead the way. The West—and the East can help. The challenge is big enough that the combined efforts of business, non-profits & foundations, academia & think tanks are needed. The West, and for the US in particular should beef up their efforts in 3 ways:

1. Engagement

American industry and American goods and services are generally well liked in Africa. But American business has been very much on the sidelines of African growth and development. Americans need to be present on the ground, even when there is not a deal immediately on the table. There have been a few good examples:

  • Mark Zuckerberg’s recent visit to Nigeria and Kenya. There to explore the technology and innovation sector in Africa, he wound up investing in a Nigerian software developer.
  • General Electric is making significant investments in the power sector in several countries, making use of the US government’s Power Africa initiative.
  • The Case Foundation, lead by Steve and Jean Case was a major supporter of this year’s Global Entrepreneurship Summit in Nairobi

There are resources that can help such as Corporate Council on Africa , certain accounting, legal and consulting firms, and a cadre of US trained professionals with deep experience and relationships in African business. Time to put them to work!

2. Training & Capacity Building

  • Management Training. In addition to making traditional business education available to more students, business and academia should make available advanced disciplines such as project management, quality management, and supply chain logistics as applied in an African context.
  • Innovation. Many western companies are using training programs that instill a culture of innovation. African business can use similar training to build on recent successes like M-Pesa and gain a competitive edge in the global marketplace.
  • Compliance. In order to become a productive member in a global supply chain, African companies like others around the world must be compliant with global standards designed to prevent corruption, maintain labor and environmental standards, and regulations specific to certain industries like financial services.

3. Financial Investment

With significant engagement and capacity building, comfort levels rise on all sides and perceptions of risk can change. Investments specifically linked to these efforts become attractive to private capital.

Deals designed to benefit from growth in consumption and from inclusion in global supply chains will provide significant, reliable returns to investors. So far there has been a lot of interest and a lot of dancing around. It’s time to pull the trigger!

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EMERGING MARKET SUPPLY CHAINS–LESSONS FOR INVESTORS

In my last post I gave an overview of the issues raised at a conference on supply chain risks and opportunities. Let’s now drill down a bit to consider how US and other western companies should address these issues as they being emerging and frontier market firms into their supply chains.

DUE DILIGENCE

Prior to any investment or contracting arrangement, companies will conduct the usual financial & operational due diligence to get an understanding of the nature of their investment. In doing so they should be mindful of several concerns:

  • Have suppliers and other 3rd parties had online compliance training?
  • Banks must comply with US financial regulations and so do their suppliers. Banks and other US companies must prepare suppliers to be audited by US bank examiners.
  • US & Western companies must maintain their “social license” to operate. This requires a deliberate demonstration of corporate social responsibility and should do all they can to purge human trafficking, child labor and other human rights issues from the supply chain.

SUPPLY CHAIN RISK

  • The current approach of international insurers to risk management is to understand the interconnectivity of risk. Experts recommend managing risks holistically rather than in silos. This holistic approach recognizes how operational risks impact legal risks and financial risks.

CORRUPTION

Western executives often complain of corruption and having to pay bribes in order to do business in emerging markets. (Of course for many westerners the answers is to pay bribes—it takes two to tango!) For US companies the Foreign Corrupt Practices Act means a jail sentence if caught making inappropriate payments. Cultivate long term relationship The strategies recommended by the experts at the EFMA conference and elsewhere boil down to the following:

  • Cultivate a long term relationship with suppliers to form a basis for trust. Building trust requires playing the long game so companies should budget for the time and resources required to form a long term relationship with suppliers and other stakeholders. It takes spending time in country. The desired outcome is a local partner for the long haul.
  • Get the incentives right. This includes not only sharing financial benefits, but also providing knowledge transfer via training and collaboration.

SUPPLY CHAIN DISPUTES

  • Implement controls that encourage performance and foster a long term relationship with suppliers.
  • Choose the right jurisdiction in which to set up the business entity and to contest disputes.
  • If necessary, seek advice on how to exit a market while retaining as much value as possible, and minimizing the loss of goodwill.

INTERNATIONAL TAX PLANNING

  • The natural and quite understandable inclination of most multinationals large and small is to locate profit centers in low tax jurisdictions. Some of these low tax states are disparagingly labeled tax havens. It is also not surprising that governments around the world have pushed back against the practice now known as “Base Erosion and Profit Shifting” or BEPS. The Organization for Economic Cooperation and Development has been a leader in understanding the use of tax havens. Companies would be advised to consult the OECD’s guidelines on BEPS and transfer pricing and to heed the advice of tax consultants and attorneys when setting up supply chain relationships in emerging economies.
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Making Supply Chains Work in Emerging Markets

I recently attended the Emerging and Frontier Markets Association’s conference on Supply Chain Risks and Rewards in Emerging Markets. I have long stressed the need for developing countries to move away from the model of natural resource dependence and reorient their economies toward value added industry and join the global supply chains that are the backbone of many key industries. This was the right forum at the right time.

The stage was set with a discussion of key risk areas companies face when emerging market companies become part of their supply chain. They are:

  1. Various forms of corruption—particularly the risk of violation of the Foreign Corrupt Practices Act and
  2. Working with companies that may be involved in human trafficking and other human rights violations.

Other important topics included due diligence, taxes and cyber security. These topics and others will help us understand what companies and governments in emerging markets can do to attract investment capital and join a global supply chain. The discussions also gave us some ideas on how Western companies can succeed in these markets where the opportunities are tantalizing and the risks are readily apparent. I’m looking forward to exploring the path to supply chain readiness in the blogosphere and in the real world marketplace.

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Africa’s Global Competitiveness–4 Themes to Consider

1. Is the commodity supercycle turning back upward?

  • Oil seems to have bottomed. After falling to the high 20s West Texas oil is close to $50 a barrel. Latest forecasts expect a plateau around $60
  • Metals are soft but not falling fast with gold just under $1300/ounce and copper about $2.17/pound.
  • Coffee rising—ICO composite index up 15% this year
  • Cocoa down 13% this year though up 20% over the last 4 years

2. Global growth forecast is a lackluster 3.1%-Africa slows to 1.6%

  • Has Africa hit bottom at 1.6% growth? Slowdown due largely to slowdown in commodities and reduced imports by China. With oil and other commodities recovering African economies should return to above average growth.

3. Are African leaders prepared to take the policy steps necessary to liberate their economies from commodity dependence?

  • UNIDO’s 2016 Industrial Development Report report discusses the nature of African industrialization and why it has not progressed further. African industrial activities ends to be resource based and has a low and decreasing percentage of global manufacturing value added.
  • The Brookings Institution’s Learning to Compete project notes the virtuous circle in which productivity enables exports and exports raise productivity.
  • The clear implication is that governments must implement policies that increase productivity, promote exports, and reduce dependence on natural resources.

4. The dialogue has started—time for public and private sector action!

  • Africa’s role in global value chains was discussed at this year’s IMF meetings.
  • EFMA Oct 13 conference on Supply Chain Risks in Emerging Markets will address challenges developing countries face in joining global supply chains.
  • We need policies that support sustainable growth and private sector investments that support these policies and offer favorable risk adjusted returns.
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