Today’s guest blog was contributed by Oladimeji Shotunde from the Global Prosperity group.
In 2020, Standard Chartered and Barclays took steps to reduce their presence in the African market. While Standard Chartered announced plans to quit in countries such as Sierra Leone, Zimbabwe, Gambia, Angola, and Cameroon, Barclays slashed its shareholding in Absa Bank by half, just six years after the company itself exited the continent in 2017. Recent developments in Nigeria have drawn further concerns. Major companies such as Sanofi, GlaxoSmithKline (GSK), Unilever, Shell, Bolt Food, and Procter & Gamble (P&G) have pulled out, prepared to, or scaled down their operations. It is believed that volatile economies, repatriation challenges, and shrinking demand make many African countries unappealing to multinationals. While these companies appear to have a valid premise for exiting these markets, a question to ask is: what do these exits signal for the attainment of prosperity in Africa?
A step backward?
When multinationals exit an economy, they leave with technical know-how, future capital investments, brand presence, CSR initiatives, and tax revenues that could have ended up in government coffers. Their exits, often devastating for economies, can lower living standards, affect the quality of domestic talents, and ultimately contribute to unemployment resulting from layoffs. In Nigeria, consumers are expressing concerns about soaring prices, especially in the healthcare sector. With over 60% of medicines being imported, routine medicine costs have surged by 300%, and GSK medicines now show a staggering 900% increase. This has effectively priced these products out of reach for the vast majority of consumers, signaling significant implications for those with medical conditions.
Consequently, it is understandable to dwell on what could potentially go wrong and inadvertently turn a blind spot to the opportunities that lie beneath.
New prosperity frontiers?
Attaining prosperity is possible, but it will only happen when prosperity creation, not poverty alleviation takes central focus. Prosperity can be achieved with market-creating innovations. Market-creating innovations transform complex and expensive products into simple and more affordable products, making them accessible to a wider segment of the population. These innovations create jobs, increase wealth, and generate taxes as they serve a whole new population who historically couldn’t afford products and services on the market. As they do this, they also pull in the necessary infrastructure needed to support these new markets.
Relying on established multinationals to dictate and drive critical sectors does not appear to be a sustainable approach, given the recent exit of multinationals from Africa. But the common alternative approach— to wait for infrastructure to be in place before local companies can invest or innovate— also does not lead to prosperity. Too often, government and industry leaders forget that innovation and investment should come before infrastructure.
The story of Japan and how Toyota’s market-creating innovations (economical vehicles) paved the way for the financing of infrastructure (roads) is applicable here. The car came before the road. Jeffrey Alexander, a historian and Japan specialist, explained that as more vehicles found themselves on Japanese roads, there became “a pressing need for coherent government policies on road traffic, vehicle and driver licensing, and the policing of city streets.” Essentially, the mass adoption of vehicles led to policies that made sense in Japan’s specific circumstances.
For local players in emerging markets, there is an opportunity here—one that can be unleashed by addressing nonconsumption. When nonconsumption is made the focus, market creation becomes possible. Local players need not have urgent desires to record “huge” turnovers, but instead, should focus on innovating to create products that have functional importance to consumers. So, can local players without ‘profit targets’ denominated in foreign currencies and the pressure for high margins create new markets? Yes, they can. This, however, requires two major stakeholders – the government and local players – to understand that market creation is often a function of top-down industrial policies (government) and bottom-up market-creating initiatives (players).
Rather than the government take on ambitious infrastructure projects and hope that market development follows, they should prioritize enabling markets that will generate revenues that fund these important infrastructural projects. When multinationals exit, local players with focus on nonconsumption should see these developments as avenues to gain market share and close the gap left by multinationals. Essentially, the exit of multinationals is an opportunity to steal market share and create new markets, especially in areas where nonconsumption is rife. Furthermore, local players need not wait to have the required infrastructure in place before they optimize the markets abandoned by multinationals. Rather, local players should innovate and engage authorities in co-creating industrial policies that facilitate market development.
Ultimately, the growth of local producers will be what pays for the development of public infrastructure. Low-income economies lose an estimated $ 100 billion per annum to tax avoidance schemes by multinational enterprises. Some broad inferences to draw are that (1) there is a huge market in low-income economies and (2) low-income countries are not getting optimal benefits from the presence of some of these multinationals. These premises strengthen the need for relevant authorities to support local players.
Now is not the time for these affected African countries to dwell on the misfortunes that come with multinationals exiting, but to focus on the potential to create new markets that can accelerate prosperity in Africa.