As I completed this article, the Economist wrote a story retracting its “hopeless” tag on Africa and said it is the “hopeful” continent. The article also shared that Oprah Winfrey (worth $3 billion) is no longer the richest person of African descent, but Aliko Dangote (worth $13.8 billion) of Nigeria is. How things have changed. I think this is a perfect introduction to this piece.
In 2011, ten of the richest Africans have a combined worth of approximately $47 billion. While this represents stores of wealth and not annual income, it is still staggering that only a few people have wealth greater than annual revenue generated in many countries in the world. There isn’t a problem that individuals have accumulated such wealth, actually. It’s a good sign that Africa is on the move.
In fact, it is not only a few Africans on the continent who are becoming wealthier. The African middle class (including lower middle and high middle) numbered about 313 million, or 34.3% of Africa’s population, in 2010, according to the African Development Bank (AfDB). This represents almost three times the number of people that were considered middle class in 1980.
The challenge still remains that the economic growth that fueled economies globally in the last decade was by and large unequal – the rich getting richer and the poor getting poorer (or going nowhere). This unfortunately is also the case in many parts of Africa.
While there are many reasons for this, some are rooted in the weaknesses in the current free market/capitalist economic models. I have suggested before that free market/capitalist economic models need to evolve to provide economic opportunity for all. Current models still too often allow a few to control markets and opportunities. However, redistribution of, or state-dominated, wealth is not the answer, creation of new wealth is.
So, where does all this new wealth come from? First, I want to return to other pieces that I did in this series, “Emerging Shifts in Africa.” The increased world population and increased consumption will make commodities – mineral, metal, and agriculture – extremely valuable. Because Africa has an abundance of natural resources, proper strategy and implementation should make sure that Africa develops much more of this wealth. While Africa, because of both internal and external influences, has not lived up to its potential, better overall governance, more savvy leadership, more vocal and active citizens, etc. are increasingly directing Africa to the right course. However, the next ten years will be volatile not just for Africa, but for the world.
Next we can look to two key population segments in Africa that have heretofore been marginalized – youth and indigenous nations. African youth is one of the fastest growing population segments and represents a huge consumer market. Second, indigenous nations sit on a lot of the arable land for agriculture and from which minerals are extracted (this varies from country to country). Businesses will eventually seek out the opportunities represented by these groups, and like natural resources, if the human capital is developed, the wealth will follow.
Also, technology and innovation will have a lot to do with it. As ICT infrastructure continues to grow on the continent, people will be able to tap into more knowledge, connections, and resources to improve their livelihoods. To catalyze this potential, researchers, like Lucienne Abrahams and Mark Burke of the University of Witwatersrand in South Africa, are informing government policy by urging government to support the potential in “home” economies.
The ICT sector will bring new wealth to more people in the industry as we have seen in Western markets, but more importantly ICT is one of the enablers for creating and collaborating on new innovations. It still sticks out in my mind how through crowdsourcing with the public, a Canadian company discovered minerals worth several hundred million on land they already owned.
Then, there are intangible assets, including intellectual property. Intangible assets are the fastest growing asset class. Companies actually account for intangible assets in their book value. On the S&P 500, the intangible value of companies as a percentage of market capitalization has doubled every ten years while tangible book value decreased (based on 2005 data).
Africa has not been sufficiently represented in building wealth from intangible assets as Western markets. Unfortunately, most countries are not well-diversified within primary sectors like mining and agriculture, much less secondary (e.g., manufacturing), tertiary (e.g., services), and quaternary (e.g., intellectual) sectors.
There is a lot of innovation in mobile and web platforms emerging across the continent. However, South Africa is the leading country on the continent for secondary, tertiary, and quaternary sectors. All of these sectors beyond primary are diversified. Recent examples include a new affordable and modularized defense airplane called the AHRLAC; solar-powered, containerized, connected school by Samsung; and a portable waste plant.
More broadly, Africans are excellent at what is called “work-around” innovations. They solve problems with what they have access to and what they can afford. One of our clients in Africa purchased a used incubator from the United States for about $20,000, which is beyond what most small-scale African farmers can afford. A Kenyan farmer developed an affordable small incubator for the small-scale farmer market. This innovation will help small-scale farmers increase the production of eggs and chickens to serve local markets, which have sufficient demand, and thereby increasing their incomes. As more of these “work-around” innovations become commercialized, there will be an increase in wealth as well.
Also, Africans already hold a lot of intangible assets, even intellectual property, in their indigenous knowledge and heritage. What has been difficult is protecting it and understanding the value it brings to others outside of African communities, so as not to be exploited and be able to develop the value into a commercialized product.
The sources of new wealth already mentioned are logical observations, leading to a new future in Africa if the continent stays on track. But there are other sources of new wealth – a change in what is considered most valuable and the ability to trade in concepts – that will re-map the entire globe . They will shape the “New Africa” more than any other source of wealth.
An example of a change in what is considered valuable is the carbon market. The issues of climate change are dominating global discussions and governance, resulting in the development of the concept of carbon offsets – those who create too many carbons pay those who offset the carbon gases.
Africans manage a good portion of the natural resources that support the environment in which all people live. As we speak, projects involving African communities in sustainable development, like re-forestation, bring new revenue into those communities. People who have been pitied and recipients of aid now have the power to create a foundation for a sustainable future and become architects of their own destinies.
There are also traces of trading in concepts. The world is in a transitional state from transacting in physical assets to intangible assets – social capital, concepts, knowledge, and others. We see platforms like Innovation Exchange on which people get paid by major companies for the best innovative idea and social currency, but it is a very fragmented landscape. In order for this to explode, the value in ideas must be as easy to quantify and exchange as cash.
Imagine anyone in Africa, or anywhere, who has an innovative idea that someone finds of value can get paid in a transactional currency. This is a transformation of the principle of bartering, which is only a shadow of what this could be.
I have been pondering this problem for a long time. As an entrepreneur myself, there is always the continual struggle to get sufficient capital to establish and grow a new venture, which is our core business. Having gone through the creation of several brands, we have developed a process for transforming ideas into tangible, profitable ventures. Yet, we have hundreds of ideas that are useful solutions for different markets that we cannot develop because of capacity tied to the amount of resources we have available. In this new paradigm, we would be paid for these ideas, increasing our wealth and providing additional capital to the ventures we want to develop.
Some consider this a little far-fetched, so I haven’t written about it until this time. Everything changed when I read, “Opportunism: How to Change the World – One Idea at a Time,” by Shraga Biran. For the first time, I see a framework that could be executed from a policy and structural level, which means that implementation can follow. He says of this emerging economic paradigm, “value of an opportunity is so great that it must be understood as a positive asset – not a means to create wealth but a form of wealth in itself.”
When we are speaking of an economy based on ideas, however, it is not about vague or broad ideas for the most part. It is focused around an opportunity. Opportunity is something that someone sees that others have overlooked and make it something of value. In business and to me, this represents a sustainable business model which provides value to a market and for which they are willing to pay. It is putting pieces together so that the sum of the pieces is greater than the individual pieces (and something that can be leveraged to do more).
To a great degree, this type of economy cannot exist until many people in a society see themselves as creators instead of just workers. According to Biran, “…a creator uses his human capital: the accumulation of individual intelligence, education, expertise, and imagination to discover or create wealth. This person cannot be replaced, but can be assisted by new knowledge industries.”
While not at full thrust, the shift is beginning to occur with African youth. In a small study of African international students in the United States, many whose parents became successful professionals but still with moderate means, express their desire to become entrepreneurs and go back to Africa to make a difference. They want to develop wealth for themselves and for others.
And finally, if this is the seed of the African youth generation, this means they will be able to multiple the wealth on the continent in infinite ways that could never have been conceived before this generation. Biran summarizes how this can be done very well, “The shift from physical to intellectual property as a growing component in the economy also creates an almost infinite source of dynamism, because – unlike natural resources such as fossil fuels, newly opened prairie, or even the grains of sand that are processed into silicon chips – the human intellect never runs out.”
What does all of this have to do with business in Africa? If firms do not capture these waves of change, they will find themselves left behind on the continent.
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