Africa: From Hopeless Continent to Rising Star
In just one decade, The Economist magazine has gone from referring to Africa as “the hopeless continent” to a “rising star.” And the forecast is getting even better. While speaking at a conference at IESE, Jay Ireland, President and CEO of GE in Africa assured listeners that during the next ten years we will see “tremendous growth” in indicators such as the GDP (near 6%); in the growth of mineral resources (from 31% to 40% of world production); in the electrification level within the population (from 35% to 55%); as well as in the number of airline passengers (from 40,000 million to 75,000 million). Powering this move forward will entail an investment of between $50 billion and $90 billion in infrastructure, with a median return of 29%. Which equals a great opportunity for business investment in Africa.
Reality surpasses fiction
Although today the continent stands among the first choice for investors, many companies still hesitate to make the move to Africa. According to Ireland, who has been in Nairobi since 2011 directing activities for GE in 20 countries, “the reality of Africa surpasses some perceptions.” For example, the size of the continent is deceiving when looking at a map: the distances exceed those which may be found on other continents. These distances “require that directors that operate in the region practically live on an airplane.”
Another aspect that holds companies back is the immensity of rural areas, populated by ancestral cultures, which are lacking in development. “Although the opportunity to create infrastructure is enormous, you must create your own infrastructure in order to build infrastructure in these areas,” said Ireland. The same applies to financing projects: There is very little supply of local capital, which requires strong financial muscle from companies. In addition, the time frame is distinct from other markets: “At least seven years is required to develop any project, and the first two are only in order to set up and begin operations (permits, bureaucracy, etc.).”
In order to meet these challenges, GE has carried out a market approach distinctive from its traditional focus. Rather than selling products or offering services, the company has opted for “project co-development,” which ranges from manufacturing for local companies to providing services to the base of the pyramid, or lending financing to projects in the region. As Ireland explained, this type of focus demands dedication to developing resources on the ground; adopting a funding development approach that can translate into medium range demand and return; tolerating risk and having the will and the patience to conduct business in Africa.
The importance of innovation
The areas with the greatest potential in Africa are those which deal with basic needs such as transportation, health and electricity, as well as industries involved in gas and mineral extraction. In each of these cases, it is necessary to create infrastructure and to make up for a lack of local experience, a lack of qualified technical staff, administrative obstacles and problems with financing. Nevertheless, Ireland says that these types of difficulties can be a source of innovation for business, as GE has demonstrated with its telemedicine project, which allows radiological imaging (x-rays) to be transmitted and interpreted from a distant site, or with initiatives such as gasification from biogases from animal residue.
“Innovation means providing advanced solutions to meet local needs,” affirmed Ireland. In order to generate this kind of innovation in Africa, GE has pushed forward a series of programs and collaborative agreements with local companies, universities and governments, permitting them to bridge existing gaps and train the next generation of technicians that will utilize these solutions.
Betting on Africa
Although GE entered Africa at the end of the 19th century, since 2010 it has strengthened its stakes in the continent, particularly in the Sub-Saharan region. In 2010, the American multi-national was present in thirteen countries. It was invoicing $1.4 billion and had 800 employees in the region. By 2015, the company expects to invoice $6 billion and employ 3,500 people in twenty-five countries.
GE is not alone. In the last decade, there have been many companies and governments around the globe which have launched into the African adventure. Among them is China, which has thrown its weight behind large civil engineering projects on the continent. In Jay Ireland’s opinion, “This is a government to government endeavor with which GE can not compete.” He explained that his company is very focused on the private sector, where they compete for technology and price, not for the exchange of services.
Ireland volunteered to move to Africa after years working in Asset Management for GE. He is convinced that, beyond his expat adventure, his mission can be summed up in three areas: “As an advocate of Africa within GE (in order to obtain resources, employees, etc.), as an advocate of GE in Africa, and as an advocate of Africa worldwide.”