“Large firms are more productive and more profitable than their more modestly-sized counterparts. They also pay higher wages and are more competitive in international markets. Not surprisingly, economically more successful countries have a greater share of large firms.”
The above statement is a key summary from a recent paper published by Rubini, Desmet, Pigullem and Crespo. Per the authors, economically successful countries have a greater share of large firms than less successful ones. Sub-Saharan Africa (“SSA”) as at 2017 has no company headquartered in the region represented on the Fortune 500 list. However, Old Mutual PLC, listed on the London Stock Exchange is of South African Origin and occupies the 500th position. A corporate is defined as a large company or a group of companies held by another company. Examples of corporates in Nigeria include UAC, MTN, Lafarge Africa and a host of others.
Sub-Saharan Africa (“SSA”) posted the worst growth and development numbers in the last 55 years Worldwide, posting worse numbers than the South Asian countries who equally underperformed. The Gross Domestic Product Per Capita (“GDP per capita”) as compiled by the World Bank for SSA grew from an average of $118 in 1960 to $1,571 in 2015. Compare this to Latin America’s growth from $367 to $8,133 over the same duration. A myriad of explanations exists for the miraculous growth of East Asian countries and the continued dominance of the OECD countries. For SSA, no policy thrust or ideology since 1960 has pulled the region out of its unenviable position at the bottom of the pile in human development.
Based on data from a variety of sources, one can conclude that in the last 55 years, SSA governments have delivered little in terms of tangible improvements in the lives of their citizenry relative to other regions in the World.
Unfortunately, discourse across the region still centres on the importance of agriculture and other extractive industries as the strategy for growth and development. The 2014 work of economists Dercon and Gollin found no tangible growth support for the agriculture resource driven ideology of SSA governments. As at 2012, 47% of the SSAs population lived on less than $1.90 per day. The current ideas and approach to development in SSA are not working and have not worked since the 1960’s. In Nigeria, the recent yam export drive is another example of agricultural policy focused on basic exports without processing into a higher value commodity like pharmaceutical grade starch which would fetch higher revenues.
The recent decline in commodity prices has exposed SSA countries to significant currency fluctuations and imbalance of trade. Perhaps the focus of development needs to move well away from the historical governmental led programmes and ideas to the major micro agents in the economy, African Corporates, the new agents for change. A change agent is an entity that works on or leads to changes in the status quo. African corporates are small when compared to their global peers, however, per Mckinsey and Co. in 2016, African companies grow faster and are more profitable.
The impact of large firms in Europe was further expounded by Rubini Et al. “The firm size distribution in Europe differs significantly in different countries. In the seven countries analysed via the EFIGE (European Firms in a Global Economy) dataset, Italy and Spain have smaller shares of large firms (in terms of employees), compared to countries such as France, Germany or the United Kingdom.” Within Europe, the firm effect is profound on growth and the expectation is that within Africa it would be more pronounced.
Africa needs many more successful corporates, however, there are currently no institutions devoted specifically to growing corporates across the continent nor are there clearly defined programmes to achieve this objective. Company growth involves a variety of key parameters not limited to; quality human capital, clearly defined processes and procedures, well defined strategies and access to financing. Whilst access to financing improves with support from Development Finance institutions across the globe, finance alone is unable to lead to the growth required from African corporates.
The average African is familiar with brand names like Samsung, Hyundai and LG which are all from the Republic of Korea, formed around the 1960’s during the “Chaebol” programme and industrialization drive. Chaebol means “Wealth Clan”. Without a deliberate attempt to develop these Chaebols, they might not exist today and the South Korean miracle could very well not have manifest. The reach and success of these companies are far reaching and their impact remain staggering across the globe. Samsung employs more than three hundred thousand people. It is important to note that in 1960, GDP per capita in South Korea was a mere $155 but in 2015, it stood at $27, 221. The Chaebols played a significant part in this growth story.
Whilst an attempt at the Chaebol model was made in 2004 in Nigeria when the Obasanjo government created the Transcorp, it is important to ensure that criticisms and problems experienced with the South Korean companies are not replicated in Africa. Cronyism, corruption and monopolistic tendencies must be avoided and discouraged in Africa, only individuals with impeccable character can effectively manage these institutions and earn respect from the rest of the World.
Growing African corporates means a reduction in unemployment rates, increase in Africans disposable income, increased funding for healthcare via health insurance programmes, higher government tax revenues and increased demands on institutions for protection of property and property rights. The UK government in 2012 alone spent GBP 8.7bn in aid to poorer countries for a variety of reasons. Whilst funding is helpful, perhaps some of this funding needs to be redirected to achieve a significant impact in the lives of Africans. Perhaps some of the aid be utilized for the development of Africa’s true change agents, the entities that create employment, pay for healthcare insurance and eventually reduce poverty.
Whilst governments are unable to learn, companies can learn, people can learn, imbibe the right approach to develop channels and imbibe progressive practices in their everyday lives.
A conscious effort on the part of governments and development institutions should be made to promote corporate growth through fiscal policies and incentives with less emphasis on quotas and trade blockades. Greatness is within the grasp of Africans; African corporations could help realize this.