Andrew Mitchell’s speech to the London School of Business looks at why trade, investment and business is on the up in Africa, 11 July 2011
Thank you very much for your kind invitation, to all of you for coming and to Sir Andrew for his kind introductory comments.
For those of you who are maybe wondering what the Secretary of State for International Development is doing giving a speech to the London Business School - if you are wondering that, it’s because clearly, you’ve not followed closely the changes that this Coalition Government has made to the way that DFID works.
By the time I sit down, I hope I’ll have remedied that.
I cannot think of a better place to deliver my message than here, at one of the world’s best business schools.
This evening, I’m going to challenge some of the myths and assumptions about Africa.
I do so, of course, at a time when sadly, once again, parts of the Horn of Africa face their worst drought in 60 years. Britain is playing its part in tackling this effectively and directly.
But I want to argue that despite its undoubted poverty and hardship, Africa is also a continent of innovation, enterprise and opportunity.
A continent where there are inspiring individuals who want to change things and where those who want to improve the lives of the poorest in the world, as well as making money, should be clamouring for opportunities to invest.
I’m going tonight to lay before you three specific propositions.
First, that a new chapter in Africa’s history is opening up.
Secondly, that this is a moment of opportunity for Africa and of choice for those who invest there.
And thirdly, that this Coalition Government is determined to help businesses - both international and local - play a leading part in Africa’s success.
Let me start with some context.
First of all, let no one accuse me of being naive. It is too real a truth that Africa faces great challenges.
There’s the drought in the Horn where the rains have failed for the second year running, a crisis in Zimbabwe, a new state to be built in South Sudan, piracy off the coast of Somalia, and International Criminal Court investigations in Kenya.
Growth - where it has occurred - has at times ingrained inequalities - particularly for girls and women. Extractive resource industries have often fuelled conflict.
And the statistics on deep and unremitting poverty speak for themselves:
- 250,000 women dying from causes relating to pregnancy each year
- 330 million people without access to safe water
- more than 565 million people without access even to a basic pit latrine
These very real challenges illustrate just why this Government has a substantial development programme in Africa.
British aid and debt forgiveness have, over the years, helped many African economies to stabilise and grow. Now, the Coalition Government is refocusing its aid programme to fuel the engine of development - the private sector - to help provide Africa’s poorest people with the means to create their own wealth.
We’re doing this because Africa’s long-term prosperity - and the achievement of the Millennium Development Goals - depend not only on aid or charity but also on sustained, economic growth.
To quote Kofi Annan:
“It is the absence of broad-based business activity, not its presence, that condemns much of humanity to suffering”
So, now, let’s consider some more context.
Just a decade ago Africa was a continent of low - or no - growth.
- It has six of the ten fastest growing economies in the world
- It is growing faster than the OECD, Latin America, Eastern Europe and the Middle East
- By 2020, five of its cities will each have household spending to rival Mumbai - one of the world’s largest cities. Imagine that - five Mumbais in Africa…
In short, not only is Africa open for business - it is a place of huge business opportunity.
Its budget deficits are coming down.
Its capital markets are beginning to take off.
Its regulations and laws are starting now to encourage investment. Between 2006 and 2011, 39 African countries rose up the World Bank’s “Ease of Doing Business” Index.
There’s also a greater understanding that independent judicial systems give investors the confidence to know they will be treated fairly and not according to political whim.
And to those who say they’ve seen future dawns before in Africa, I say that it is the quality of its growth over the past decade that is profoundly different .
It’s no longer focused only on the commodities sector as in previous booms. Less traditional areas, such as the retail and financial sectors are attracting more interest.
Chinese, Indian and Brazilian companies are increasing their investments.
Twenty African companies can now lay claim to revenues of at least $3 billion, while small and medium-sized African businesses are seeking new openings.
Members of Africa’s diaspora are spotting the market opportunities and returning home, joining African businesspeople like Tony Elumelu, the Chairman of Heirs Holdings who’s here with us tonight. Or Josephine Okot who has developed her company, Victoria Seeds from a small enterprise into a business that’s now involved in research, production, processing and marketing.
I met returning members of the Nigerian diaspora myself when I was in Lagos just a few days ago: men and women like Tayo Oviosu who runs the mobile payment service, Paga. Or Tokunboh Ishmael, who returned to Nigeria from the UK and now runs the impact investment firm, Alithea capital.
And the changes in the business climate and opportunities are accompanied by other change too.
Across the continent there are some inspiring stories of democratic and political progress. Twenty years ago, presidents could rely on being in post for life, never catching sight of a ballot box or polling station, and kleptocracy was the norm. Today, far more leaders are appointed through contested elections, not least thanks to the adoption of the Harare Principles by the Commonwealth Heads of Government in 1990 when John Major was Prime Minister.
And in just the space of the past year alone we’ve seen:
- credible elections in Africa’s most populous nation, Nigeria
- the adoption of a new and improved constitution in Kenya and
- the birth of a new nation, as voted for in a broadly peaceful referendum, just this weekend in South Sudan
This is an important moment: Africa has reached a crunchpoint, because if it is to continue on this upward trajectory, its growth has to be intensified, broadened and deepened.
And some of the people who can make that happen are sitting in this room this evening.
Opportunity and choice
So, if this is a moment of opportunity in many places across Africa, it is also a moment of huge opportunity for business. Opportunity and choice. The nature of that choice will define the future for generations to come.
- I put it to you tonight that if you’re amongst the companies already investing in Africa and using local supply chains, helping develop the local workforce and thinking about the long-term - then you are in a very good place. You have the edge. This will be good for Africa and good for your annual returns.
- If you’re a company working in Africa and not incorporating sustainability into your business model, then I’m afraid you might just find yourself looking on enviously as your competitors streak ahead over the coming years.
- And if you’re not there at all, or haven’t gone beyond the propaganda that says all Africa is corrupt, unstable and unsafe, then - well, you’re missing out altogether.
As I say, a moment of choice. Scratch beneath the surface, go beyond CSR, and make a healthy profit for your shareholders while also creating lasting improvements for poor people. Or allow your company’s performance to be compromised so that it never reaches its full potential.
As a Minister I know that my duty to taxpayers provides an imperative for the Government to help stimulate growth in Africa. Helping create a prosperous, stable and secure continent is not just a nice thing to do, though I do believe it’s the right thing to do. It is also firmly in Britain’s interests.
That same logic applies to the options available to you. Invest in Africa, and do so in a way that generates deep-seated growth not just quick wins - and you’ll find that your duty, to your shareholders, is fulfilled too. I spent many years in business. I understand bottom lines.
There is no single business model. Just as we’d be alarmed if people thought about Europe as just a single undifferentiated economy; so the model across the diverse continent of Africa will vary. And, of course, a blueprint for the private sector is a contradiction in terms.
I think of a recent visit to Sudan, where one of my most memorable experiences was attending a meeting with a group of African, European and American entrepreneurs to discuss the business opportunities in South Sudan. What united them was not the business model they were pursuing but their enthusiasm, their innovation and sheer can-doism. It was absolutely electrifying.
Let me give you a few examples that illustrate the diversity of approach that businesses have adopted.
Some have chosen to find their competitive edge in using local suppliers and creating a local market.
SAB Miller, for example, is working with small-holder farmers in South Sudan to use cassava in the production of beer.
By sourcing ingredients locally it will improve market opportunities for around 2,000 poor farmers.
This is not altruism. This is a major industrial plant with a substantial turnover, using local supply chains because it makes business sense. The result for the company - a healthy profit and a whole new market. The result for Africa - employment, growth and consumer choice.
Others have established partnerships with a range of local enterprises. In Tanzania, Unilever has worked with the Tanzanian Government to develop a wide coalition, including local farmers and businesses. As a result, they’ve been able to boost agricultural productivity among smallholder farmers and make sure that poor people benefit from increased investment.
I want to see more of this sort of collaboration. I want to see companies going out of their way to find local producers, to create local supply chains, to engage local communities.
And I want to see more partnerships with the indigenous business community within Africa.
This approach is as good for business as it is for Africa. The more deeply enterprises can embed their practices locally and regionally, whether through jobs or partnerships or trade, the more sustainable - and profitable - those businesses will become.
Others have made a profit out of finding sustainable ways to use scarce resources. In Ghana, Abellon CleanEnergy is using degraded land to plant biomass-rich crops, such as bamboo, palmarosa and sweet sorghum.
They want to bring sustainable power to one million customers, reduce CO2 emissions by 200,000 tons a year, create 25,000 jobs by 2015 - and let’s not forget - because they want to make a profit.
Yet others, have found a market in responding to basic needs.
- Inexpensive water filters that promote the health of the local workforce
- Solar-powered lamps - cheap enough to be within reach of Africa’s poorest people
- Fertilizer sold in 1 kilogram bags at prices farmers can afford - creating jobs and increasing yields, as I saw for myself in Nigeria
Then there’s the hand-held technology that allows local traders to save money without having to spend time away from their shops. In Lagos, I met a businessman who was selling air conditioning units. Like other shopkeepers he’s just found it too difficult to take time out to go to the bank.
Now, thanks to a system called E-susu - which DFID part-funds - the bank comes to him instead. As a result, he’s been able to borrow £500 to develop his company and to send his two children to school. It’s thousands of small businesses like these which can make such a difference to Nigeria’s economy and help to provide a secure platform for its future prosperity.
Government is helping business to invest
I come now to my third message: that this Coalition Government is working to make it easier for companies to do business in Africa - so creating more opportunities for poor people. We are absolutely determined to make this the defining message of the Coalition Government in this area.
Take a step back for a moment and you’ll get a better perspective on the sheer scale of Africa’s potential. The opportunity is immense.
This Coalition Government’s commercial diplomacy agenda will help you identify those opportunities. Its 14 UK Trade and Investment offices and its missions across Africa are supporting British businesses.
We’re also supporting emerging African businesses because we know that small and medium enterprises are the key to job-creating growth. The new UK-South Africa Business Forum, agreed last month, will connect business leaders and deepen links between future generations of UK and South African entrepreneurs.
At DFID, we are structuring support for business in three ways, in part through the new Private Sector Department.
First, by addressing some of the blockages that are the biggest deterrent to investment.
Secondly, by offering to share some of the risk and reforming and reinvigorating CDC.
And thirdly, by setting the framework for more sustainable investment.
First then, the blockages. Here are just a few examples:
We’re investing in Africa’s most precious resource - its people. By 2014, British aid to Africa will get another 5 million children into school, protect 30 million people from malaria, and provide 14 million people with access to clean drinking water. Sick people, mothers with sick children, can’t work and won’t be economically active.
We’re working with governments to reduce start-up times, as in Ghana where instead of taking ten weeks to register a business it now takes under two.
We’re helping refine legal systems, providing support to the new commercial courts in Uganda and Nigeria. Indeed, we’re going further in Nigeria, helping to develop Alternative Dispute Resolution mechanisms so that investors can settle commercial disputes without wasting lengthy and costly periods of time in congested courts.
We are tackling corruption head-on, improving public financial management, promoting transparency, and funding anti-corruption units within the Metropolitan Police and the City of London Police.
We are addressing the vital issue of property rights, supporting the land reform that can unlock economic growth and empower women by enabling them to borrow. Women represent 70 per cent of agricultural labour across Africa but own only 1 per cent of the land. We’re helping to provide secure tenure for the vast majority of adult Rwandans who own land - a total of some 10 million plots.
And we’re investing in Africa’s infrastructure:
- helping to fund part of the North South corridor to link ports in South Africa and Tanzania with the copper-belt of the Democratic Republic of Congo and Zambia
- investing in the one-stop border post between Zambia and Zimbabwe - cutting crossing times from three days to three hours
- working with the President of Nigeria whose top priority is boosting the power supply in a country with a population three times that of England yet which produces the same amount of power as the population of Bradford consumes - and
- investing in transformative innovations like the SeaCom cable which has brought broadband to the whole of East Africa, boosting bandwidth supplies by 700 per cent in Kenya, 850 per cent in Mozambique and 1,000 per cent in Tanzania. Not bad.
To sum up, we are helping Africa to do business. Piece by piece we’re dismantling the barriers.
Now, I want to dwell for slightly longer on trade.
As a single market of one billion people, Africa could rival China or India. But Sub Saharan Africa is a jigsaw of countries, many of them landlocked, and the tariffs and regulations created by national boundaries get in the way.
The geography isn’t great but the solution is clear. African economies need to be more closely integrated with each other.
Last month, governments from Cairo to the Cape opened negotiations to establish a Free Trade Area covering 26 countries and some 60 per cent of Africa’s total population and GDP. Just consider for a moment that one historic step: a new free trade area amongst 26 countries. This is a prize worth pursuing and through our work with a number of regional economic communities in East and Southern Africa we are determined to help Africa secure it.
This push for free trade in Africa will, and must, be linked to efforts to integrate Africa more firmly into the global trading system. The UK is leading an aggressive push for the Least Developed Countries to access G20 markets, duty free and quota free, and for the locking-in of the benefits of the Doha trade talks.
So, as the Prime Minister has said, we will use all of our diplomatic and aid levers to support African Free Trade - and our embassies will do far more to support trade in Africa.
Why should this matter to you? Well, if, as some say world markets are reaching saturation levels, then Africa is the next, maybe even the last, big market.
(ii) Sharing the Risk
I know that investment decisions aren’t to be taken lightly. But there are ways you can minimise your exposure, and where we can help.
A revitalised CDC with its new business plan and soon, a new CEO, is looking for businesses to co-invest with. It’s committed to being the most pro-poor investor in development, considering the most speculative options, but at the same time managing those risks tightly.
If infrastructure is your thing, the Private Infrastructure Development Group, the PIDG, that we support, can help to mitigate some of the associated risks and costs. It was involved with the SeaCom internet cable which I mentioned a few moments ago.
Then there are our Challenge Funds that provide grants and loans to support innovative, high-impact schemes. In Kenya, for example, our collaboration with Vodafone on M-PESA, has helped 14 million Kenyans to have access to easy and affordable money transfer services. If you want to know more about M-PESA let me recommend August’s edition of “Wired”, no less.
(iii) Responsible and Sustainable Investment
The other key way in which the Government is helping the private sector is by setting the framework and incentives for deeper and more sustainable investment.
So many of the countries in Sub-Saharan Africa are rich in oil, gas, coal or minerals. The potential for growth is immense. However, as the distinguished professor Paul Collier argues, if countries are to move from poverty to prosperity they need to make the right decision at every stage from the early days of discovery through to the wise investments of proceeds.
We look at this issue of responsible natural resource management from many different angles:
- The Extractive Industries Transparency Initiative
- The Voluntary Principles and
- The Natural Resource Charter
The Business Secretary and the Chancellor are pressing for a European agreement which matches new standards set in the US, to make it mandatory for extractive companies to disclose the payments they make to governments. The Chancellor also raised the issue of new international rules at the G20 earlier this year.
Sustainable investment also means new ways of doing things that don’t degrade the environment for future generations. In Tanzania, for example, Unilever collects water that it stores in reservoirs and lakes during the rainy season so that it can use to it irrigate its tea estates in the dry season.
And through its support for the Ethical Trading Initiative, DFID is bringing business together with trades unions and NGOs to tackle poor conditions in the workplace. Because how can you sustain and grow a business over the long-term if you don’t adopt policies that protect the vulnerable, including women and children, from exploitation?
We’re helping to blaze a trail for others to follow. CDC has its own code that sets out the environmental, social and governance standards it expects from the companies in which it invests.
And we’ve passed the Bribery Act to make sure that businesses play fair, and do not win contracts through the back door.
Our emphasis on raising standards and transparency should help to pull others along with us. We want businesses in other countries to meet these same standards too. We won’t allow British businesses to be at a disadvantage simply because they are playing by the rules. We want you to succeed.
So, Ladies and Gentlemen, I hope today I’ve gone some way to showing you that Africa’s growth is your growth. That those of us who have “international development” in our job titles and those of you in the business community absolutely have similar interests when it comes to the development of Africa.
In fact, let me invite you to consider this reality.
When people talk about doing good in Africa, they tend to think of women and men in T shirts handing out food and medicine. I’m the first to say that these are some of the heroes of the modern world.
But so too, are the men and women of business who have the potential to help transform the continent. Africa still needs some help through aid, yes, but the power of your companies and the power of your ideas can also help Africa bank the moment of opportunity that it now faces.
Well-directed action by people sitting in boardrooms can improve the lives of people in Africa just as much as aid workers and charity campaigners can.
Over the next decade, you have the chance to contribute to a change in Africa that is as substantial as the one that has taken place over the last 10 years, while also fulfilling your responsibilities to your shareholders.
Now that, Ladies and Gentlemen, is a serious business proposition.