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Posted on Tuesday, 12 May 2015 10:54

Powerful state - disciplined market

The upswing in Nigeria tech companies has taken some by surprise. With Konga, Dealdey, iROKOtv and Computer Warehouse Group, the tech space now boasts serious players. And, so the standard thinking goes, they have not relied on government to get there.

Chika Nwobi, an entrepreneur who created MTech – the largest pan-African mobile-telephone content company – says that government was not involved in his latest venture, an accelerator for a new wave of tech companies called 440ng.

Actis's former co-head of private equity for Africa, Simon Harford, goes further and warns investors in Nigeria to stay away from sectors with active government involvement. There are other views out there.

Government research created the internet so that all the companies could make money off the internet

"If you've got a business, you didn't build that. Somebody else made that happen," said US President Barack Obama in 2012.

His point was that government investment in infrastructure is what fosters corporate growth.

"The internet didn't get invented on its own. Government research created the internet so that all the companies could make money off the internet."

Not surprisingly, in the poisonous partisan atmosphere in Washington DC, this went down badly.

The truth is somewhere in between. Successful countries, including the US, allow their companies the freedom to stretch their wings and treat their companies like engines of growth and development.

Are there sectors better suited to active state involvement – high-tech rather than textiles? Given the pitfalls of crony capitalism, should state involvement be avoided at all cost?

In recent history, countries in Asia with similar endowments and similar traumatic histories to African countries have seized the initiative and embarked on accelerated stretches of development.

African Development Bank president Donald Kaberuka says Africa needs double digit growth for several decades, so the 'Asian Tiger' experience speaks to Africa.

These successful 'development sprints' in Asia were achieved when the state helped the private sector flourish.

Be it through the Darwinian 'export discipline' that South Korea and Japan used to allocate extra finance to successful exporters, or the stock market listing of 30% stakes in parastatals in China, there are ways to combine the rigours of the market with the nurturing powers of the state.

All this is a far cry from the more primitive forms of state/corporate combinations seen earlier, such as when Britain sent gunboats to open new markets for its East India Company or the US used brutal economic diplomacy to open the way for its oil companies.

There is today a small band of African countries that use the state strategically to nurture the private sector.

These 'African Lions' are following their Asian peers.

There is a marked similarity between China's 'going-out' policy, whereby Beijing encouraged and financed its companies' global expansions, and Morocco's own 'going-out' policy that has seen Moroccan companies sweep across West Africa in finance, telecoms, aviation and construction.

To make developmental states succeed, firstly it involves getting the business environment right, including both the physical infrastructure and administrative burden.

In Ethiopia, H&M, Tesco and Ikea are looking to operate in the country's growing manufacturing clusters, and Turkish textile giants have already invested $2bn.

Secondly, businesses need cheap inputs to compete in world markets. South Korea knew heavy industry would need cheap steel and so created steel giant POSCO, ultimately privatising it.

Morocco's strategic fund, the Société Nationale d'Investissement, is investing $2bn in a gas terminal at Jorf Lasfar. More plentiful power will be the result.

Another key input to business is people. A healthy and well-educated workforce would boost any business, and the government's role here is obvious.

"We actually have some pretty good universities in and around Lagos," says NTech's Nwobi.

"We have seen people from Obafemi Awolowo University, Babcock University and Covenant all producing good technology and engineering graduates."

Tellingly, only the first is a government university. Morocco and South Africa both have strong training programmes in their automobile production sectors, but the number of engineers Africa trains is still low.

Beyond good graduates, you want people with a bit of money in their pockets.

You cannot have a consumer-facing business – which will sweep the continent according to the 'Africa rising' trope – if consumers have spent all their money getting home on a series of buses.

That is why cheap mass transit systems, put in place by governments, are essential to creating that space in people's wallets for an extra beer or telephone credit.

That is why the Addis Ababa light rail, inaugurated on 1 February, is feted as an example of Ethiopia's pro-poor growth polices.

Thirdly, government can use the power of procurement to boost local businesses, something Emmanuel Katongole of CIPLA Quality Chemicals talks about.

The Ugandan government helped provide an anchor order of anti-retroviral and anti-malarial drugs, which helped local investors bring in Indian expertise and create one of Africa's largest pharmaceutical projects.

But the Asian leaps forward were not just about building slick infrastructure and guaranteeing some state contracts.

Instead, governments worked with business to help them – with a combination of carrots and sticks – transform from rent-based import/ export models to more productive
forms of enterprise.

Nigeria is trying this: the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending has inspired players like cement tycoon Aliko Dangote, who began life as a major importer of commodities.

He has now launched a tomato-canning factory in Kano.

It is generally at this phase that developmental-state governments trying to bring on their private sectors come unstuck.

A late 2014 World Bank report showed that Tunisia before the revolution was "an environment where cronyism and [rent] extraction, rather than competition and performance, drive economic success", and that 20% of the country's corporate profits ended up in the hands of just 114 relatives of then President Zine El Abidine Ben Ali.

That is why Ethiopian commentators such as Merkeb Negash are so keen for the government to keep a close eye on new parastatals like the Metals and Engineering Corporation and the Sugar Corporation.

These will either augur a new economic dawn or drag the country back into poverty. ●



Nicholas Norbrook

Nicholas Norbrook

Nicholas Norbrook is Managing Editor of The Africa Report, helping to set up the magazine in 2005. He has been a producer for Radio France International, and has lived and worked in West Africa. In 2011 he won the Diageo Business Reporting award for Journalist of the Year.

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