Is Bigger Better?
US business pays more attention to emerging markets.
Renee Horne –Washington DC 28 March 2011
Everything is bigger in the United States, you can tell by the automobiles racing through the streets of Washington DC. Indeed the US tends to go grand and they will also go big in terms of investment. “The US companies tend to go in big but the big firms are not as nimble. You would not have a US firm go into Uganda to set up in a secondary city to make auto parts for the market only the size of Uganda. You would rather go in and try to produce automobiles for all of East Africa”. That’s the word from Dr Joel D. Barkan, Senior Associate for the Center for Strategic and International Studies, a public policy research institution situated in Washington DC. Barkan who served as the first regional democracy and governance advisor for eastern and southern Africa at the US Agency for International Development (USAID) spoke to World Entrepreneur Society (WES) about why most US firms may be hesitant to invest in Africa and will turn to other emerging markets?
US Hesitant to Heed the African Business Call
Repeatedly Africa has used the line that the continent is open for business, and many countries such as China have heeded that call. According to Barkan, “China is certainly a growing concern, the Chinese presence and what can the US do about it. What is happening across the African continent is that you have an influx of non- traditional investors. China is one example, but also investors from Pakistan, India and elsewhere. These are smaller companies that are investing in African countries making smaller investments. They are willing to accept a higher level of risk perhaps because they are familiar with such risks in their own home economies. So perhaps you are getting a different type of entrepreneur coming into Africa and this change is perhaps not happening a lot in the boardrooms of large American corporations”. So where does US investment lie in Africa? “US investment is in extractive industries; oil in particular and in mining. In other words US investment is going to be of a particular type, fairly narrow in focus and therefore ceding part of the market place which maybe an important investment share and market share to a new generation of investors coming from the South” said Barkan. Indeed one-fifth of US oil comes from Africa (mainly Nigeria) and US companies are looking for extractive industries not necessarily productive industries. “Oil is where the large American and even the large European companies have been heavily involved in Africa and will continue to do so. Also in computers IBM, DELL - these companies are expanding operations in Africa now but nonetheless these are large corporations the scale of investment is rather high, some others may not invest as they don’t consider the African market large enough”.
Prospects and Missed Opportunities
“US firms go where the market is big, so India, Brazil, Indonesia, Thailand and Chile. When you discuss emerging markets from the standpoint of American companies this is what they are thinking of. They thought foremost of China, then India and Indonesia coming later, and all of the rest are next and so investments in the Ugandas the Kenyas, the Malawis, the Zambias are really off the radar screen” said Barkan. He added that “China has always been attractive for investors from the start because it’s been huge and Americans have wanted to invest in China for years. India has been much less salient, until about five to ten years ago when suddenly many American firms were thinking about expanding to India. Where Africa has real constraint is that it has a large number of small countries with few notable exceptions such as Nigeria. Even the Kenyan market is considered small”. But are US firms missing the bigger picture? Perhaps starting off small first is the best approach, or perhaps investment today creates opportunities tomorrow?
Barkan said “The US is missing an opportunity by recognising that if you want to have a stake in the growth of African economies you have to start smaller or on an intermediate scale and be part of the process of scaling up rather than just coming in and investing in large scale operations which present a more narrow set of opportunities”. So what could be the thinking behind US firms’ hesitancy to invest in Africa? “Part of the problem is that the thinking among people at US firms is constrained, because they are prisoners of the American Markets”. The US has brought us big fast food chains such as McDonalds, Burger King to name but two but one has to wonder that perhaps US corporate leaders need a change of mind-set when it comes to Africa, or perhaps the heeding call by African business that the continent is open for business is a game of chance!