Big is better: Building job-creating businesses in Africa
Experience the world over illustrates that, more than any other economic actor, big businesses are the creators of large-scale employment and drivers of rapid economic growth. Small businesses don’t scale and don’t create enough jobs to address situations of mass unemployment. If we want to create hundreds of thousands, if not millions of jobs, Africa needs to think big and seize truly global opportunities.
Yasmin Kumi is the founder and CEO of the Africa Foresight Group (AFG). Kumi holds two graduate degrees from Oxford and is a member of the Harambe Entrepreneur Alliance, the leading network for African entrepreneurs.
Hailed as one of the most influential books of the second half of the 20th century, Small is Beautiful: Economics as if People Mattered remains a profoundly salient work for our time. Its crucial emphasis on sustainability speaks powerfully to one of the great dilemmas of the 21st century: how to balance economic growth with the human costs of globalisation. Namely, the hundreds of millions of people in the Global South who are stuck in crushing poverty, for whom globalisation seems to have delivered only more suffering.
Small is not always beautiful, however.
This is especially true in African economies, where levels of formal employment are terrifyingly — and persistently — low. Insofar as job-creating businesses are concerned — and at risk of sounding uncomfortably similar to Gordon Gecko — big is definitely better.
African governments have long grappled with the question of how best to accelerate economic growth and create jobs. Eighteen million people enter Africa’s job market every year, but we are only creating three million jobs annually. In other words, there are six times the number of job seekers than there are jobs available.
Our unemployment crisis began long before Covid-19 and extends to every country on the continent.
As worryingly, every year the gap between developing and advanced economies gets wider, making it even more difficult for people to lift themselves out of poverty. In 2019, Africa’s combined gross domestic product (GDP) reached $2.3-trillion, representing one billion people. Germany, on the other hand, has a population of only 80 million and a GDP of $3.8-trillion.
It’s clear that our current policies are not working.
The focus on incremental growth and various forms of support to small and medium enterprises (SMEs) — whether by African governments or their development partners — has not delivered the economic changes Africans are desperate to see.
Only big business can do that.
Experience the world over illustrates that, more than any other economic actor, big businesses are the creators of large-scale employment and drivers of rapid economic growth. Small businesses don’t scale and don’t create enough jobs to address situations of mass unemployment.
Africa needs to think creatively about how we can support big businesses to come out of our African markets. Whether through advocating for grants, investments, loans, tax incentives or other means, this mission could hardly be more urgent.
By big businesses, I am referring to large-scale businesses that are corporate-controlled, financial or commercial-purposed, and often with great social or political sway. These big businesses generate comparatively far more employment opportunities than small businesses.
In the United States, they create about one in three jobs, though constitute only 0.03% of the total number of businesses. This is in sharp contrast to Africa, where arguably disproportionate attention is given to small compared to big businesses, given the latter’s potential for wide economic and social impacts.
The mega supermarket retailer, Shoprite Holdings, is the largest private sector employer in South Africa and one of the biggest employers in Africa, employing nearly 150,000 people across the continent. Impressive though Shoprite has been in creating jobs, it pales in comparison to global heavyweights such as Walmart, which employs nearly 10 times that number in the United States alone.
The sheer size of big businesses convey an impression of success. In the African context, governments have tended to assume that such businesses do not require support to scale and grow. Indeed, some governments have an unfortunate proclivity to halt their expansion efforts through ever-heavier taxes and other levies. The employment dividend to be gained from successful businesses getting bigger is often neglected.
Even if this were not the case, Africa’s domestic economies are, generally, too small to support the growth of large businesses — ergo, they are too small to support widespread job creation. Current economic development initiatives are deemed “successful” if they are able to create a thousand or two thousand jobs in a year. Fine for advanced economies, but hardly a dent in Africa’s unemployment crisis.
Moreover, most African companies are only focused on serving their local markets, which are price sensitive (i.e. prices change dramatically based on fluctuations in demand), fragmented, and offer limited opportunities for growth. If African companies were able to globalise their business, however, these problems fall away and the potential for mass job creation is unleashed.
If we want to create hundreds of thousands, if not millions of jobs, Africa needs to seize truly global opportunities. This is exactly what companies elsewhere in the world have done.
Governments in South Korea, Taiwan, China and Brazil, for example, invested in sectors that had the potential to create world-leading companies — or what my firm, the Africa Foresight Group, likes to call Global Champions.
South Korea was one of the world’s poorest countries in the mid-20th century but is now one of the wealthiest. Samsung, Hyundai and LG are just three of its global champions that grew out of its national business support initiatives, which zeroed in on one particular sector the government believed South Korea could excel in: technology. Exports now account for over 42% of South Korea’s GDP, a good chunk of which is high value/high technology goods.
Where might Africa’s sweet spot lie — the sectors where the continent’s potential to create global champions is greatest? Opinions vary widely. We have identified six sectors where African companies have the potential to play a global role: renewable energy; superfoods (i.e. nutritional foods); travel and tourism; staffing and business process outsourcing; chemicals and elder care services.
To take the first sector, renewable energy, as an example, huge opportunities lie in wait for governments willing to invest in big companies that harness and export renewable energy and related technology.
Africa has an abundance of wind and solar resources, and demand for renewables is set to increase substantially with the shift away from fossil fuel technology to more climate-friendly energy options across the world.
According to South Africa’s Independent Power Producers Procurement Programme Office in 2020, South Africa could have created “165,688 more decent jobs in the renewable energy sector if the country did not import most of the components used in the solar photovoltaic (PV) field and concentrated solar power (CSP) technologies”. Instead, only a fraction of that number of jobs was created.
But African companies will not be able to capitalise on the vast opportunities opening up in renewables and other sectors unless there is a business ecosystem in place that supports growth and investment. A supportive ecosystem is likely to include an enhanced role for private equity, with those investors looking for and rewarding more global thinking from business.
For examples of policy environments that support global growth, it is instructive to look at India and China. Both countries have supported companies through tax exemptions, dropping the statutory rate to 22% in India for companies that claim no exemption, and 15% for new/high tech enterprises in China.
While African governments might not be able to offer tax exemptions on the same scale, equally there is no reason other ways to promote and build globally competitive firms cannot be implemented.
Whilst many global firms reluctant to invest in Africa tend to focus on the comparatively small size of African markets and the related high costs, less is said about the potential expansion to the global horizon from the stepping board that is Africa. The launch of the continental free trade area at the beginning of this year will make this stepping board infinitely more attractive to potential investors, should it be successfully implemented as envisaged.
Governments, for their part, need to think long term and identify opportunities for global industry leadership. Singapore, for instance, has an ambitious 10-year plan to grow its manufacturing sector by 50% and maintain its share of about 20% of GDP. Which African governments are thinking long term about how to develop certain sectors of their economies into global leaders?
Unfortunately, all too often good policy intentions are hostage to election cycles. To sustain the growth of businesses and allow them to scale, election-related policy volatility must end.
We cannot carry on supporting stale economic initiatives which have not paid off and only offer incremental growth results. This is not a call for support to SMEs to be curtailed. SMEs must continue to be supported in every way possible. But we need to do things differently in order for African companies to grow and create jobs on a truly massive scale.
We all need to think big. DM
Yasmin Kumi is the founder and CEO of the Africa Foresight Group (AFG). Kumi holds two graduate degrees from Oxford and is a member of the Harambe Entrepreneur Alliance, the leading network for African entrepreneurs. In 2020 AFG, in partnership with the German development finance institution DEG, launched the African Hidden Champions initiative to showcase and celebrate the unique stories of sub-Saharan African businesses.