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Africa’s missing companies

Patrick Smith
By Patrick Smith
Editor-in-Chief of The Africa Report.

Posted on Friday, 31 January 2014 11:50

Like so many statistics about Africa’s boom times, the figures about its companies seem at odds with the realities we see and hear.

there will have to be a corporate information revolution

At first glance, our survey of the continent’s Top 500 companies shows that Africa’s corporate giants – their combined turnovers have tripled to around $740bn over the past decade – are racing ahead.

But it is equally important to look at the African continent’s gross domestic product – estimated to be about $1.8trn in 2013 – and ask why that is well over double the turnover of Africa’s top 500 companies.

The conclusion is that Africa’s companies are missing in action from some of the brightest spots on the economic horizon. Even Africa’s biggest companies are growing more slowly on average than its national economies.

That is partly because Africa’s biggest revenues, in oil and mineral exports mainly denominated in US dollars, accrue to multinational, not local companies.

Likewise with agricultural production, which is growing rapidly in many countries.

Its growth is either measured through rising dollar-earning exports of soft commodities such as coffee, cocoa and tea, through the declining role of state commodity boards or through estimates of the size of the informal economies in the countryside.

And going down the corporate rankings to those companies that did not make the Top 500, our research suggests that their turnover is shrinking: as much as 23% between 2011 and 2012.

Capital market research shows also that the rate of new companies listing on African stock exchanges has been falling sharply. That generally means less accountability and less access to investor funds.

Some regional factors, such as the political turmoil in North Africa, help explain the lacklustre performance of African companies.

Equally, local companies in some sectors such as information technology and telecommunications are booming by any standards.

Services too are growing, but the dependence on unprocessed exports is, if anything, intensifying.

The performance of Africa’s processing and manufacturing companies, which will create the jobs of the future, is lagging behind.

The average share of manufacturing in African economies remains at around 10%, where it has been for the past 40 years.

Changing this and championing Africa’s companies will require policy innovation, political will and an information revolution.

The latest research from the African Development Bank (AfDB) and the World Bank on the factory floor dismisses the shibboleth that African companies cannot compete in terms of productivity or unit labour costs.

But both organisations urge governments to shed their suspicion of local governments, which may be rooted in fears of a political challenge from independently wealthy individuals.

Fixing electric power and transport would be a huge boost to local companies, and in most cases that requires determined state action.

So, too, does the financial industry.

Now is the time for governments to stipulate that all commodity exporters should repatriate their export earnings through domestic banking systems. Angola introduced such rules in 2011.

Provided the national banking system is properly regulated, this will boost transparency and allow for a more accurate measure of real output and export earnings.

It will also boost the availability of foreign exchange to the local market and help the development of local money markets.

Finally, for Africa’s companies to attract substantially more local and foreign investment, there will have to be a corporate information revolution.

Although the AfDB is making headway on improving macro and microeconomic data, there is still a lack of corporate data and independent analysis of companies’ performances of the kind readily available in Asia and South America.

That will also allow policymakers to identify more easily the illicit outflows of finance – through tax evasion and deliberate mispricing of contracts – another factor that is limiting the financing prospects for local companies.

Serious action is needed now if Africa’s companies are not to miss out on the growth. ●

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