Africa: The Next Chapter

image Lord Malloch-Brown, Minister for Africa, Asia and the United Nations
Speaks to the Royal African Society, London
17th September, 2007

Thanks to Richard Holme for his warm introduction. I’m delighted to have this opportunity to discuss Africa with you all. I’m a firm believer that government ministers can’t afford to overlook the crucial role which the private sector and civil society play in shaping today’s societies.

Africa presents us with a dilemma. The economy is growing relatively fast, over the past decade, 16 countries have seen rates of over 4% – including 10 with rates over 5%, and 3 with rates over 7%. Net FDI into Sub-Saharan Africa from the rest of the world has more than doubled since 2000. Net portfolio equity flows have increased threefold. Remittances are also an increasing flow-in 2006, $9.3 billion flowed into Sub-Saharan Africa and increase in ODA flows -actual and Gleneagles commitment.

But, as the midterm review of the Millennium development goals shows, this is not doing enough to lift people out of poverty. The percentage of people living on less than US$1 a day has increased in six sub-Saharan African countries since the Millennium Development Goals were adopted(Burundi, Côte d’Ivoire, Madagascar, Niger, and Zimbabwe).

There is a lot of talk about corporate social responsibility particularly when it comes to Africa. And it’s the right time and the right idea but often in using it we gloss over the strategic business imperatives that underlie it and appear to bracket it with public relations.

I believe successful international business in Africa needs an in-built social dimension as a key part of any long-term business strategy. This is about future customers and their purchasing power, but also the wider stakeholders of suppliers, employees and political leaders.

Africa is an unequal continent. Private investment could just drive enclave developments in the oil and resource sectors. But if it did so it would onset opportunities for a broader based market access and consign Africa and ultimately its own investments to political instability and risk. A business strategy for Africa as much an aid, or ODA, strategy needs to be about inclusive growth, reduced inequality and targeted interventions that reach the poor. Why? Because it’s good business as I want to argue today.

Forty years ago, Asia was the poorest continent, twice as poor as Africa is today. Now it has the fastest growing economy and is twice as rich as Africa. And this growth has done more than make the rich richer. China has lifted several hundred million people out of poverty. Domestic Government policies and actions have been critical but at its core the Asian economic miracle is about unleashing private economic forces.

Business needs to take imaginative approaches that support an Asian take -off in Africa. Take the example of how communications have developed. Some analysts, using European business models, thought that GSM technology would be too expensive for Africa. But Africa has skipped a stage of development, fixed landlines, and moved straight to mobile phones – 75 per cent of all telephones in Africa are mobile. And of these 70% are on prepay, rather than 30% contract – almost the opposite of Europe.

This surge in the use of mobile phones has provided strong benefits to African governments – Celtel is the biggest tax payer in the Democratic Republic of Congo. The highly competitive African cell phone industry has created tens of thousands of jobs across Africa.

And mobiles are being used in startling new ways, filling development gaps. Mobile phone credit is becoming a new, cheap way to transfer money and buy goods – revolutionary in a continent where millions of people do not have bank accounts. In Senegal, small farmers are tracking their wandering herds using cell phones and GPS. Small traders can arrange business deals, rather than carting their goods for miles over poor roads, unsure whether they will be bought.

The lack of infrastructure remains a major barrier to the spread of wealth in Africa, the cost of moving a container between Accra and Lagos is three times the cost of moving it to Europe, and, as a whole, transport costs in Africa are twice that of Asia. This problem will only be solved through a combination of efforts from African governments, the international community and private investment. DFID supports several facilities that help governments find private investment for infrastructure. The result of one project in Mozambique was that a Brazilian company agreed to invest $41.2 billion in an enterprise that will create up to 5,000 new jobs and earn the government some $80m a year in royalties and taxes.

The fact that only 25% of sub-Saharan Africans have access to electricity should signal a massive opportunity for energy companies, not just to make profit, but also to help set growth on the low-carbon path that a global response to climate change demands. There is huge gap to be filled by modern, clean technology.

I know that there have been concerns about the role of new investors such as China. But we can also learn from China’s risk taking. Their willingness to take on big infrastructure projects – particularly roads, could unlock business potential in all sorts of fields.

Business can help African governments by doing what it does best, creating jobs, creating wealth, and creating a secure tax base. The UN, the UK, Oxfam or any of your firms here today, can build and kit out a school, but for it to be sustainable, for the kids and grandchildren of today’s class to be enrolled there, we need the local governments to take on this burden. Take Malawi, which has a total government budget of US$ 730 million. Donors provide a further $500 million. This is not sufficient to stop half of Malawi’s children being malnourished or dropping out of school unable to read. Malawi needs economic growth and a wider tax base if it is to lift more of its citizens out of poverty.
Growth alone isn’t enough if it doesn’t introduce the poor to new opportunities in the market place. Inequality lies at the heart of poverty. So there is a wider role to be played by investors in helping to plug Africa’s poor into the world markets.

Huge benefits accrue from introducing small African suppliers to the big global markets by indigenising supply chains. Take the example of SAB Miller who sourced and worked with local farmers in Zambia to develop sorghum crop for their production of Eagle beer. This sort of approach creates local employment, and helps provide a degree of income predictability for farmers working to feed the supply chain.

And foreign investment can empower local suppliers allow Africans to and retain more of the value chain. The Kuapa Kokoo cooperative cocoa growers in Ghana own a stake in the company that produces Divine chocolate, another DFID beneficiary. These farmers help make decisions about how Divine is produced and sold and, as shareholders, they receive a share of the profits. As the research of CK Prahalad on the bottom of the Pyramid indicates affordability is best addressed by a business model that uses African labour to make goods and services for African consumers.

Multinational investments can also spread important skills, speeding up the creation of middle classes. Most investments need a broad base of skilled workers. Bricklayers to build new production plants, IT engineers, lawyers to negotiate contracts. By helping to create these new employment opportunities, investment can help staunch the brain drain out of Africa. 70,000 skilled personnel a year move to developed countries; Zambia lost all but 400 of its 1,600 doctors.

Another kind of corporate responsibility is to recognise the impact of an investment, so Coca Cola are using rainwater harvesting and more efficient technologies to maximise their impact on local water availability.

It’s important not to underestimate the value of corporate philanthropy – growing ever more ambitious in scope. The work of the Gates and Rockefeller foundations now allied with my old chief Kofi Annan on strengthening seed strains and agricultural production shows a keen understanding of how improvements in agriculture can multiply across the economy.

In Zambia, every dollar of additional farm income creates a further $1.50 of income outside agriculture. Every 1% increase in agricultural yields reduces the number of people living on less than a dollar a day by 0.8%. Because of this, the UK has led the development of a multi-donor African Enterprise Challenge Fund to encourage businesses to find new business models in the agricultural and financial sectors.

Businesses, like local NGOs have the big advantage of being on the ground. They see communities in action. And in many cases they have reacted more speedily and innovatively than official donors who often have constraints which prevent them taking on high risk-high win projects. For businesses, their experience should be a key part of market research for the products and services which will have real utility, price, liveability, practical value are going to be key for a long time. No over-engineered gizmos where the cell phone has already defeated the PC as the IT device of choice.

But we can’t simply sit back and expect an enlightened and philanthropic free market to solve all of Africa’s problems.

Business can create opportunities, but it can’t remove all of the barriers that stop people accessing the opportunities they have so long been denied. This remains the responsibility of the African governments themselves. We are trying to help countries address the costs of reform, and build capacity, committing to provide £100 million per year in aid for trade by 2010.

Trade and investment policies need to be carefully managed to ensure that they benefit all members of society and lead to a reduction in poverty. Growth in Uganda between 1992 and 2003 was over 3% per person per year. But over the same period, inequality rose. Had inequality remained unchanged, an extra 2 million Ugandans would have been lifted out of poverty.

Lately, we have seen real progress amongst poor countries in improving their economic management of the economy – in addition to improving growth rates that I mentioned at the start, between the mid-80s and mid-90s inflation was on average 50% – this year it is estimated to be less than 7%.

Making growth more equitable is more than a simple economic adjustment. It is dependent on wider democratic and social reforms. Amartya Sen has commented on how no famine or major economic collapse has ever happened in a genuinely representative state blessed with a free press. Famine is not an act of God, it’s a sign of a negligent government. If people have a genuine ability to lobby, influence and be heard, governments take action.

UK policy on development is an example of this. Both sides of the political spectrum have shown a genuine commitment to Africa because this policy is backed up by a strong public demand for action.

There are signs that Africa is serious about addressing poor governance. The number of African countries that held multiparty elections has increased from three in 1973 to 40 in 2005. Many countries in Africa -like Botswana, Ghana, Kenya, Rwanda and South Africa have shown a real commitment to better governance. The African Peer Review Mechanism (APRM) is oft quoted but has yet to show it can really bite in addressing governance problems. But it’s still a remarkable statement of intent for African governments to put themselves under this sort of scrutiny. We need to continue to support the initiative as it rolls out to other countries, and most importantly as those countries that have been through the review implement the recommendations.

Looking at poverty through the lens of good governance demolishes another myth. That the hungry, dispossessed man only wants bread. That’s nonsense. He wants a job and he wants healthcare and his kids to go to school and perhaps do a little better than him. In other words, he wants a government that delivers opportunity.

Individual rights will only strengthen the environment in which business can thrive. The rule of law will benefit equally the political dissident and the frustrated foreign investor. More than ever, security and prosperity can be achieved through similar routes. Just laws, strong standards of governance, impartial and incorruptible civil servants, accountability and best practise are the milestones along the way.

Africa will attract investment at an ever increasing pace. But it’s also the poorest, more undeveloped continent on the globe. The trick we need to pull off, for Africa’s next chapter, is to marry up these two facts. Ensure that investment contributes to development, that a belief in democracy, in human rights and human dignity means that profits work their way back into the whole of society.

This is why the Prime Minister has called for an emergency MDG review, why, as Gordon Brown has said we need to turn our commitments into immediate action. It’s a vision of a one speed Africa, delivering benefit and opportunity for all.