“Doing business in Africa is incredibly challenging and very expensive,” says Dr Davies. “And South Africa in particular is what I like to call the Japan of Africa, as despite having been the continent’s commercial engine for decades, its growth averages 1-1.5%, while some of its competitors grow at a constant 5-7% rate. There seems to be some significant ‘handbrake’ on the growth potential of South Africa’s economy and we appear to have a speed limit of 2.5-3%.”
“Why the Japan of Africa?” continues Dr Davies. “In Asia, Japan has been a major economy for the past two decades, with a fantastic cluster of multinational companies and a distinct difference between the national economic performance and that of Japanese corporates; not too dissimilar to here,” he states.
Dr Davies explains that “around 1990, South Africa accounted for roughly half of Sub-Saharan Africa’s GDP, and while I’m really pleased that African economies are growing, South Africa’s economy has moved to representing just one fifth of the GDP. This means that our contribution to the regional GDP is being eroded, hence the need to expand.”
In short, he affirms that running a business in an economy growing by 1-1.5% is not sustainable, and that Sub-Saharan Africa offers the opportunities to capture, consolidate, and generate revenue, and ultimately a shareholder return, in very fragmented, nascent marketplaces; hence the imperative to expand.
As an example of what Africa should do, Dr Davies uses Hong Kong as a model; a city which despite facing immense competition, has retained a strong commercial position by being more efficient and providing a home to a huge corporate cluster of professional services. “It’s exactly the same as Singapore in South East Asia, and particularly Indonesia. Johannesburg must aim to become a gateway and launch pad for regional expansion,” states Dr Davies.
According to Davies, “real, long-term, sustainable economic growth is based on the growth of an embedded middle class. The real question is whether we are establishing the foundations for this in Africa.”
“The paradox of this continent is that its business and commercial opportunities are so high, yet the real prospects in most countries are so low. Poverty in Nigeria, for instance, has increased over the past 20 years, despite a 7% economic growth,” says Dr Davies.
“Nowadays, to do business in Africa one must go to South Africa, Kenya and Nigeria, because the others are just too small. Countries such as Angola should be interesting, but spending concentrates within small elites of about 60,000 people; a bit like Moscow, where wealth is highly concentrated. The issue in many resource-laden African countries is that wealth just does not trickle down,” states Dr Davies.
What is the future for Africa? Davies believes that “African countries should focus on their human capital in order to make efficient use of their resources, but most importantly, they need to diversify and form services hubs, just like Hong Kong or Singapore; to cluster together to easily tap into millions of consumers. Governments do not need to intervene; they just need to enable. That is what it’s all about.”