Beyond Commodities: How African Multinationals Are Transforming by [email protected]

Oil, gold, diamonds, palm oil, cocoa, timber: raw materials have long been linked to Africa in many businesspeople’s minds. And in fact the continent is highly dependent on commodities: they constitute as much as 95% of some countries’ export revenues, according to the United Nations Conference on Trade and Development.

But propping a country’s entire economy on commodities is risky business, like building a mountainside home on stilts. You can’t be sure about the weather, or in this case the commodities market. The current free-fall of oil prices to less than $40 a barrel is a glaring example. “The commodities cycle has tanked out,” says Austin Okere, founder of Computer Warehouse Group (CWG), a Nigerian emerging multinational financial services company. “And this time it looks more structural than cyclical, so it’s not a matter of waiting it out. Something has to give.”

Given that reality, the African business landscape is transforming itself — both in reality and in the world’s perceptions — to provide a firmer economic foundation and grow multinational enterprises.

Leapfrogging to Digital

Wharton management professor Katherine Klein says the traditional image of African business is “certainly changing.”  “Not surprisingly, there’s a huge push around digital … digital everything: solutions, a variety of platforms.” Klein, who is also vice dean of the Wharton Social Impact Initiative, notes that Africa has a “leapfrogging possibility” — unlike the West, it never accumulated layers of now-outdated technology and infrastructure, so it can start with the most advanced systems available.

“Folks in the African countries are far ahead of where we are — in developed countries — in mobile payments and mobile banking,” says Klein. Kenya’s M-Pesa is probably the best-known example today of African mobile money. The Economist recently noted, “Paying for a taxi ride using your mobile phone is easier in Nairobi than it is in New York.”

Yet it’s important not to generalize the success of a company like M-Pesa to the whole continent, cautions Sam Abadir, an INSEAD adjunct professor of strategy who does business in the Middle East and Africa. He notes that the continent has profound, widespread social and economic problems that remain to be solved. “You can [use M-Pesa] if you live in a nice villa in Kenya. You transfer money from England to Kenya, from your mobile phone to your kids’ because … your kids are going to the movies, or they spend their money in the mall. But this is still a tiny, tiny thing,” he says, noting that millions of Africans still struggle just to feed themselves and their families. “Economists [tend to] highlight the progress of the happy few.”

“Folks in the African countries are far ahead of where we are — in developed countries — in mobile payments and mobile banking.”–Katherine Klein

Abadir also holds that despite the success of many native African entrepreneurs, there is a powerful international presence on the continent that is little known in the West. “If you do business in West Africa — Senegal, Cote d’Ivoire, Mali, all the French-speaking ones — basically, the Lebanese run the show,” he says. And in eastern Africa, in countries such as Kenya and Tanzania, “the Indians run the show… This is unknown to people doing research at Wharton or Harvard or MIT.” He notes that these foreign businesspeople tend to have the advantage over local business owners, as generally they have traveled more, have graduated from prestigious universities and speak several languages.

According to Abadir, there are other challenges to African business whether run by Africans or foreigners. He says that the two biggest markets in sub-Saharan Africa, Nigeria and South Africa, are “tough and violent.” He attributes this to the presence of the terrorist group Boko Haram in Nigeria as well as simply to poverty. “Any poor country is violent … Mexico, Venezuela…. People are trying to find ways to survive.”  This environment also makes it nearly impossible to end corruption, in his view. “Now we [in the West] are telling people, you have to be nice and stop corruption. [People react,] ‘How do you want me to do that if I’m starving? I can hardly feed my kids and you’re telling me to stop taking bribes?’”

Abadir states that when you put Africa’s problems together, including lingering damage from European colonialism plus corruption, terrorism, violence and the lack of a traditional banking infrastructure, “you try to juggle with all that and [doing business] becomes one hell of a challenge.”

Toward Financial Inclusion

Among the African entrepreneurs rising to the challenge is CWG’s Okere, who is also a member of the World Economic Forum Business Council on Innovation and Intrapreneurship. According to Okere, CWG has about 600 employees with operations in Nigeria, Ghana, Uganda and Cameroon, and an average yearly revenue of $130 million. The firm’s self-stated goal is to become the top cloud platform provider in Africa by 2020.

Africa’s financial services sector, to which CWG belongs, is growing. The Initiative for Global Development and Dalberg Global Development Advisors recently published a list of the top 25 sub-Saharan multinational companies. Although the top three are commodities firms, a large number of the businesses (11) are in financial services.

CWG began life in 1992 as a distributor for Dell in Nigeria. The company added networking that provided customers with access to their bank accounts. CWG then acquired a software company and “went strongly into financial services software,” in Okere’s words. It partnered with Infosys to help sell that company’s Finacle banking solution. In 2004 CWG entered the managed services space to take advantage of Nigeria’s telecom boom, and began providing financial services for MTN, the South-Africa-based multinational mobile telecommunications company.

The relationship with MTN continued, and today CWG works with MTN and Nigeria’s Diamond Bank to provide a mobile money platform that Okere describes as “like the M-Pesa mobile phone in Kenya but different, better, because in this case it’s actually a bank account.”

“If you do business in West Africa — Senegal, Cote d’Ivoire, Mali — basically the Lebanese run the show.”–Sam Abadir

He adds, “The whole idea is to cover as many of the 70 million subscribers on the MTN network as possible…. About 20% of our population has financial inclusion, and 80% do not. So with mobile banking they can come into financial inclusion.” CWG also offers a number of other electronic products and services for banking and business.

Okere mentions some other up-and-coming firms based on digital innovation: e-retailers such as Jumia, part of Germany-based Rocket Internet, and Nigeria-based Konga, currently valued at about $200 million. There is also the Safaricom communications company in Kenya, which Okere says now deals in IT as well as telecom. Interswitch, a Nigeria-based payment processing company, provides the back-end services that make e-commerce possible. “These businesses are becoming bigger and bigger.… They haven’t gotten to the point where they are as big as U.S. firms, but are following that trend.”

In the world of telecom companies, Klein finds Mi-Fone an interesting case. It is an IT and communications retailer in East Africa with a footprint in over 15 African nations. “Their phones are actually manufactured in China, but the goal is to really make a brand of it.

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