[BLOG] Dick Borsboom Column: Value creation and value capturing in Africa
I am relatively new to Africa. In 2012, I was offered the great opportunity to join a leading manufacturing group in Nigeria with impressive expansion projects across the African continent.
After having visited the region for which I am responsible (South and East Africa) and having lived half a year in Nigeria, I am convinced that Africa as a continent has a great future.
This great future does not come automatically. It needs a lot of hard work.
Today I am going to elaborate on the concepts of value creation and value capturing.
Africa is rich in a broad range of raw materials, from oil and gas to copper, gold as well as agricultural commodities. These raw materials represent great value to a country. It generates license and tax revenue and provides jobs.
Often these raw materials are directly exported to foreign countries where they are refined or used in the manufacturing process of sophisticated goods. Some of these goods are exported back to Africa.
This model is a classic case of starting off with great value (the raw materials) but in which a major part of the value is captured elsewhere.
Does this mean that African countries need to stop exporting raw materials? No certainly not, but they need to build on what they have. The next steps in the manufacturing process need to be performed locally, not abroad.
A good starting point for every country is to assess what kinds of raw materials are available locally and how an effective and competitive industry can be built around the use of these raw materials. A country like Botswana has been successful to build an industry, refining and trading diamonds mined locally.
What is necessary for building a strong industry base?
First, ingredient is a sound structure of public governance. Private enterprise develops well in a setting in which there is predictability, high level of security and fair and equal administration of tax and other laws. Administrative hurdles should be minimalized and incentives to start a business should be available. Some countries in Africa have made major progress in the last few years and some have not. If a country scores low on public governance, it is more likely than not that private enterprise has suffered and has not developed to its full potential. The right attitude at the highest government levels determines whether or not the public governance structure will develop in a positive way. As most countries in Africa are now democratic with elected presidents and other officials, it is the duty of each citizen to judge its candidates against this background.
An important second element is the existence of a functioning infrastructure: reliable electricity grid and a sound road infrastructure. This requires long term investment and careful planning. In developed countries many utilities and some roads are privatized. In a development stage I prefer this task to be taken care of by a functioning government. The efficiency loss of not having a reliable supply of electricity or even automotive gas oil (AGO) for trucking is enormous and can make a nascent local industry uncompetitive.
A third ingredient for creating and capturing wealth is the availability of an educated and motivated workforce. Basic and higher education is available in most countries. Sadly at this moment many graduates can’t find a suitable first job. Job creation is driven by the private sector, which in turn can only prosper in a setting of sound public governance and functioning infrastructure.
The attitude of the individual worker and employee is also important. If individuals are unpredictable in their behavior, don’t meet commitments and show a “the company is there to provide for me” attitude, it will become very difficult for a company to reach quality and efficiency levels necessary to survive and prosper in the international competitive arena.
A fourth element is the size of the market. The larger the available market, the better. It is very difficult for countries and regions to see beyond their borders. It has been proven time and again that a larger market creates a stronger, more competitive industry. Therefore from a macroeconomic point of view, the lower import duties are, the better it is for the industry as a whole. Together, Africa is strong.
Africa has a young and growing population. Natural resources are rich and abundant. Now it is time to take charge, create strong, innovative and competitive industries locally. We are ALL responsible for the happiness of this and future generations. When I say all, I mean all: it includes the president of a country, the entrepreneur seizing on business opportunities, the middle manager working diligently in a company, government official collecting tax or issuing licenses, the university professor teaching young students and the individual voter when they go to the polls on Election Day.
Regional Chief Financial Officer,
Dangote Industries Ltd.
Dick Borsboom is a regular columnist on Africa Business Communities