How to develop Africa's economy?
Posted Tue, 20 Sep 2005

There is a great deal of passion that comes into Stanley Subramoney's voice when he speaks about the development of the African continent. It is for this reason that his chosen topic for the African Leadership Conference is "Strategies for Business Growth".

Subramoney, who is PriceWaterHouseCoopers Southern Africa's deputy chief executive , says there is a critical need for turn-around strategies. The continent is in dire straits.

"The tragedy of the African continent is that foreign derived investments are very low. The continent receives a mere 1% of global investments. That is too low to facilitate sustainable development and growth. The result is that there are many countries on the continent that continue to live on hand-outs and foreign aid.

“This economic reality is particularly saddening since Africa is a treasure trove. Some 90% of chromium is found in Africa, in excess of 55% of our gold is found in Africa, but the problem is that we export raw materials and we import the finished product. With the result that Africa gets poorer and the nations north of us get richer."

Subramoney says achieving these objectives calls for strategies to speed up development and growth on the continent. is brings a critical urgency to the issue of development on the continent.

"We need to create an enviroment that will attract more global investments while also encouraging a shift towards Africans carrying out more trade with fellow Africans.

"We need promote intra African trading so more of the wealth is trapped in the African continent improving our balance of payment, improving the currency and strengthening long term sustainable economic growth.”

He added that the growth and development strategies have to have specific focus on creating jobs and wealth in order to break the cycle of poverty. For that to happen, there has to be economic growth, preferably in excess of 5% levels.

Afro-pessimism

Subramoney says there are several obstacles that stand in the way of foreign investment coming into the continent. The first is afro-pessisim - the belief that the entire continent is corrupt and riddled with inefficiencies.

"This is incorrect. There are countries that have maintained an admirable record of good government and good governance. What is really encouraging is the new thinking around governance.

"It is largely influenced by peer review mechanisms engineered by the African Union. The mechanisms put emphasis on good political governance."

The key, according to Subramoney, is using continental and regional bodies to create a stable, investor friendly environment. Subramoney says there are many similarities between strategies for running successful businesses and successful countries.

Therefore, strategies for attracting investment into a company through good governance and subsequent growth can be applied to the process of building a country set to attract investment.

However, the trouble with delinquent countries is that unlike unprofitable businesses, one cannot simply shut them down.

The peer review mechanism can play a major role in regulating country behaviour.

Economic and corporate governance

Subramoney says the second factor that can improve Africa's position in the global arena is economic governance. This includes the independence of the treasury and the reserve bank.

Lastly, Subramoney says the continent's success levels will be enhanced by improved corporate governance.

"The corporate sector is a critical driver of growth in any country. With the best intentions in the world, Government is not a good creator of employment and wealth. When Government does create jobs, this is often at great cost to the economy."

"Those three components of governance set the framework required to attract foreign investment. The sign for foreign investment is domestic investment. If domestic business does not seem to believe in investing in its own country, it becomes difficult for foreign investment to flow in."

Subramoney say there are some positives in the outlook for the continent. The International Monetary Fund in its world economic outlook said while the global economic trend has not been consistent, 2004 recorded the highest economic growth in the history of trading.

The African continent recorded growth that was,on average around 3%-5%. The continent’s GDP rose to 5.1% of the global GDP. Interestingly, Angola, Mozambique and Botswana have shown high growth rates.

On the other hand, states such as Zimbabwe and the Ivory Coast have recorded negative growth, largely due to political instability.

Subramoney emphasised that it is important for the African continent to develop its own strategies for development and growth.

"We must be careful of importing eurocentric strategies for the continent. We also have to be careful of one size fits all stragies. What may work in Johanesburg may not work in Timbuktu or Kinshasha."

Disruptive innovation

Subramoney says at a purely business level, there is a great need to produce business strategies that will result in organisations that are sustainable in the medium to long term.

A lot of businesses are created in such a way that they are only sustainable in the short term, because they based on short term goals and strategies. Some businesses a structured in such a way that they can only survive for twelve months or less.

A lot of failures are due to limited understanding of the product, the markets and the competition.

On the other hand, talent and good leadership are increasingly becoming key to sustainable businesses. While in the past, there was much emphasis on assets, there is an increasing focus on people as the core of every successful organisation.

Subramoney says such talented leadership should be driven by disruptive innovation.

"There is a lot of value in stability, but modern business calls for leaders who are willing to bring in new thinking and create new ways of doing things. For this reason, increasingly leadership is going to be young, agile and disruptive in this way of doing things."

Statistics indicate that there are at least 15 million people around the world who are fully global in the way they work and live. These are people who are hardly confined by borders in their work and life patterns.

They are highly mobile, moving from country to country. That mobility causes challenges for stability. This creates a need for succession in any organisational plan. At the same time, the mobility is reflective of the new business internationalism and needs to be encouraged.

Another factor is that mobile people do not have a high degree of loyalty to organisations.

The third strategic issue is around the workplace.

"The typical office is becoming irrelevant. What you work on is the greatest relevant factor. People are working from their homes, they work from cafes, hotels and beaches. This affects the organisational planning that has to come into place."

There are technological innovations that support this shift. The training of future leaders is going to be affected by this because we are now in the 24/7 working environment supported by online communications, hand-held communications tools.

The most successful leaders will be those who are able to utilise technology to the fullest and work within these seamless time frames.

Strategically therefore, companies need to align themselves with these new trajectories.




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