Parts of Africa are now one of the most exciting regions of the world for business. 10 – 20 African countries have achieved steady, high growth rates during the last few decades. A wide range of sectors in these “lion” economies – commodities, tourism, agribusiness, e-Commerce, oil and gas, retail, etc – are buzzing with activity and attention from foreign investors and multinationals. But how can companies and investors enter and operate efficiently in African countries still characterized by weak institutions? What challenges characterize the private sector in Africa, how do they vary with context, and what strategies can firms and organizations adopt to overcome them? Where can new MBAs interested in Africa add the most value? East Africa is the perfect region to address and explore these questions. Armed with a framework and analytical tools from economics, we will meet with executives in Kenya and Uganda that have “cracked the code” of doing profitable business in institutionally weak countries, local industry experts, and African business leaders. We will also meet with policymakers that “make the rules” for the private sector in East Africa.
Africa’s consumer market has large potentials. Africa is the world’s second-fastest growing region – after emerging Asia according to the African Development Bank Report. About half of the growth of the continent’s GDP growth is due to consumer-facing industries. 1.3 billion people live in Africa and the population is expected by the United Nations to increase to 2.5 billion by 2050. The working-class population in Africa is growing by 2.7 percent each year (compared to 1.3 percent in Latin America and 1.2 percent in Southeast Asia). McKinsey projects that by 2025 two-thirds of the estimated 303 million African households will have discretionary income and consumer spending will reach $2.1 trillion. Not surprisingly, many firms and investors try to tap into Africa’s consumer market.
This program tries to train students’ global intelligence, i.e. the understanding of specific cultural aspects of different consumer markets by analyzing the potential and challenges of Africa’s consumer markets
Bakhresa Group is similar to many of Tanzania’s leading conglomerates – private, family-run affairs with reclusive founders who started out very small. In what was long a closed economy, suspicious of outside investment, they built up diversified companies that supply the nation with everything from soap to soft drinks, ferries to fuel. These little-known homegrown multimillionaires are now fast expanding their businesses throughout the region and beyond, taking on international giants.
Of 50 industrial companies in Tanzania analysed by the London School of Economics in a study published in 2013, 29 had their origin in the domestic private sector. They took off when Tanzania loosened its statist ways and started allowing private business back into the economy from the mid-1980s, and a handful of family-run businesses bought out state entities that went into receivership. They went on to develop into multimillion-dollar conglomerates.
Only in the past few years have these companies really accelerated, after riding assured growth in a market largely closed to outside investors for a generation. As a result, international private equity houses are keen on taking a stake in these fast-moving consumer goods companies, which all turn over between $100m and $1bn a year. Most of their targets are determined to stay private, however.
Over long years of exposure to the market, these trading families have come to know and understand their customers, have established well-loved brands and can largely draw on their own internal finances to power their growth according to classic management principles.
Ethiopia is one of the fastest growing countries in the world. Its current population of over 100 million is expected to double in the next 30 years, hitting 210 million by 2060. Due to this accelerated surge in population growth, the country is facing a critical challenge of creating enough jobs.
The Ethiopian government identified industrialization as the means to transform the economy, reduce poverty, provide jobs, and achieve the ambitious aim of transitioning the economy to lower-middle-income status by 2025. But growth in the manufacturing sector lags.
The country looked to a new model to promote growth and create jobs. Given the importance of small and medium enterprises (SMEs) to the Ethiopian economy, the government started focusing on private sector growth and support for SME competitiveness, to help facilitate the creation of three million jobs each year.
One approach the government has taken to spur industrialization is through the setting up and expansion of industrial parks with the aim of attracting investments and improve the competitiveness of companies in these industrial parks.
The development of the manufacturing industry or industrialisation has now become indispensable in the renaissance drive of the country. In the upcoming years, the growth of manufacturing industry is critical in order to ensure sustainability of the current economic growth and to realize the vision of becoming a lower middle income country by 2025. Rapid economic structural transformation is crucial to achieve the country’s vision within the set time frame.