Why the corporate sector is critical to Africa

In Economics

January 8, 2017
The Citizen (Tanzania)
Content provided by Asianet-Pakistan
There is indeed a corporate sector in Africa and it is thriving. According to a report by McKinsey, there are 400 companies on the continent with annual revenue of $1 billion or more.

Another 700 enterprises have revenues of more than $500 million. Yet these numbers only tell part of the story. For Africa to continue its progress, Africa’s large companies need to expand, and small companies need to get bigger.

Large companies constitute the main drivers of economic growth. They tend to pay higher wages and taxes, as well as foster innovation and the use of technology.

They also drive productivity, tend to attract greater amounts of capital, and facilitate the creation and growth of vendors and small businesses that work with them.

For these reasons, the corporate sector is critical to Africa. And the indicators remain extremely positive. Africa’s large companies are growing faster, and are more profitable, than their global peers.

Half of the largest companies are African-owned and 40 per cent are publicly traded. Companies are flourishing in a variety of diverse sectors beyond natural resources, including financial services, food and agricultural processing, manufacturing, telecommunications and retail.

But there are gaps where Africa lags behind other emerging markets. No African-owned company has made the Fortune 500. Brazil and India have GDPs similar to that of Africa and each has seven Fortune 500 companies, and China nearly 100.

But Africa has only 60 per cent of large firms as compared with peer regions, with average annual revenue half that of large companies in Brazil, India, Mexico and Russia.

Africa also has fewer family-owned businesses than other regions, presenting a growth opportunity. Family businesses comprise 10 per cent to 20 per cent by revenue of Africa’s locally-owned companies, compared to 50 per cent to 60 per cent in Latin America, 35 per cent to 45 per cent in Western Europe and 15 per cent to 25 per cent in China and Southeast Asia, according to McKinsey data.

How can Africa’s corporate sector develop? One key area, which applies to all companies, no matter where they’re based, is to leverage innovation.

Only about a quarter of the top 100 African companies have expanded by adopting innovative new technology or business models. Compare that scenario with Asia, where half of all companies make innovation in technology, business models or products a priority. Mobile technology has allowed Africans to “leapfrog” poor landline infrastructure, according to Deloitte.

Uber has taken advantage of minimal public transportation and the difficulties of car ownership to delivered a million rides on the African continent.

African companies can explore and embrace “disruptive” technologies to make up for gaps in traditional supply chains, distribution networks and infrastructure, both to expand their own operations and to serve burgeoning consumer demand.

Talent is another key component for companies’ growth. By mid-century, Africa will have the world’s largest and youngest workforce.

Companies that have the resources need to invest in education and training so they have the skilled workers they need to succeed.

As an investor in African companies, I can say that it is necessary to have a long view.

But the picture is bright for Africa’s corporate sector. Africa’s large companies have real potential for growth as we progress in the 21st century. (The Huffington Post)

Zandre Campos is chairman and CEO of ABO Capital, an international investment firm that invests in companies in the healthcare, energy, transportation, hospitality, technology and real estate sectors throughout Africa. ABO’s mission is to create global value for developing countries in Africa, while contributing to their economic development.

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