Investing In Africa: Shedding The Developed Market Mind-Set
Many of the key lessons for businesses entering Africa stem from the differences between operating in a developing country and developed country markets. Using a developed market mind-set – which benchmarks everything to how it works at home in San Francisco, Dallas, Toronto, or Manchester – causes companies to often misevaluate an opportunity in an African market and adopt costly strategies.
The developed market mind-set assumes that life and business in the United States or Europe is the same as the rest of the world.
Understanding African markets, and all frontier markets, for that matter, requires empathy, a good read of history, and an openness to local cultures and context. By 2020 one billion people are predicted to live in slums globally. Companies that cannot do business in the narrow alleyways, the dense and informal housing, among the mass of people who characterise the slums, will be punished by the market.
The developed market mind-set is not only a large driver of misconceptions about Africa; it is also one of the most important obstacles that businesses seeking success on the continent need to overcome.
The developed market mind-set assumes that life and business in the United States or Europe is the same as the rest of the world. It assumes that there is electricity when you need it; that there is (generally) good road, rail, and aviation infrastructure; that there are excellent data sources to inform decisions; that there is an ecosystem of supportive businesses; that trash gets collected; that drivers follow trafﬁc laws; and that contracts get enforced.
These things are the exception not the norm in the rest of the world. The vast majority of humanity lives in countries deﬁned by different realities – countries where systems don’t work, where trust (the lifeblood of business) breaks down, where trafﬁc chokes the street, and where informal economies carry the day.
The following thought experiment can be particularly helpful in building empathy and breaking down mental barriers. The Great Depression of the 1930s was one of the most traumatising periods in American history. The hardships of the era loom large in collective memory. By the mid-1930s, unemployment in the United States soared to 25%, people migrated across the country in search of work, and the Dust Bowl destroyed agricultural livelihoods.
Companies were starved for capital, and politicians struggled to tamp down populist impulses. This American experience characterises the everyday situation in some African countries despite rapid growth and transformation: unemployment is high, migration for survival is rampant, and African governments are constantly dealing with competing crises.
To be successful in the region’s frontier markets, businesspeople need to dig deep into their empathy, imagination, and creativity. Solving one problem in this context often requires solving two, three, or four simultaneously, and proving to your partners that you are a long run, valued resource.
Other developing countries, such as China, India and Brazil, have successfully and rapidly ramped up their engagement in Africa, in part because their companies are not burdened by a developed market mind-set. The operating environment in their countries is more similar than different from that found in African countries.
Companies and businesspeople from other developing countries have fewer problems doing business in African villages or slums, because they have villages and slums in their own home markets and are as used to operating in them as they are in posh neighbourhoods and central business districts. In order to compete, US companies will need to free themselves from the developed market mind-set and step out into the world as it truly is.
This Article is excerpted from THE NEXT AFRICA: An Emerging Continent Becomes A Global Powerhouse by Jake Bright and Aubrey Hruby. Copyright © 2015 by the author and reprinted by permission of Thomas Dunne Books
JAKE BRIGHT is a writer, consultant, and Whitehead Fellow of the Foreign Policy Association focusing on global finance, business, and Africa’s transformation. AUBREY HRUBY is an advisor to investors and companies doing business in Africa.