Time to re-examine the Africa risk/reward ratio…

What most Americans know about Africa you can fit into a small shoe box. I mean the real Africa. Not the one we see on CNN or read about in the New York Times. That Africa is a largely negative one dominated by stories of poverty, terrorism, disease, hunger and corruption among other things.

Politically, the U.S.’s Africa policy is primarily centered on the fight against terror. Yes, there are economic initiatives and aid packages in place but, for the most part, the fight against terror has dominated U.S. policy there since September 11th.

China however, has a different view of what makes Africa important. With African eyes wide open, the Chinese have blanketed the continent with massive amounts of capital, manpower, and broad technical knowledge in their unending quest for natural resources. Despite the current down cycle in commodities, China has driven the proverbial stake into the ground and are there for the long haul.

Their motives are clear: trading money, infrastructure and manpower for Africa’s abundant natural resources. Some call it Colonization 2.0. Maybe so.

But the average American on the street knows very little, if anything, about Africa. And that includes most of our leading corporations and CEOs too.

Yes, the concept of doing business in Africa sounds good to them. It is the home to seven out of the top ten fastest growing economies in the world. Check that box. It is a wide open market with a rapidly growing middle class. Check that box too. And don’t forget cheap labor. Numerous studies laced with pages of statistics by one think tank after the other have articulated all the reasons why American business has to be there.

So, many U.S. companies are increasingly discussing Africa as a business strategy citing all the reasons why they need to operate there. Most however, go no further than that. Essentially, American companies are taking out their notebooks – but not their checkbooks.

Yet there are some that have heeded the call. General Electric, Proctor & Gamble, KFC, and Google to name a few. But the vast majority of U.S. companies still view Africa with a mix of both fascination and trepidation. It remains the great unknown and there are certainly other “safer” markets to sell their products and services in.

But one undeniable fact remains: What makes Africa’s upside so significant is that there is no other market in the world that is both so large and in need of so much.

Africa is a devilish mix of upside and risk. It is a tricky market that plays by a different set of rules in many instances. Yes, there are all the negatives that the New York Times and CNN reports on for sure.
But one has to look at both sides of the equation. The risk side is significant. But risk can be managed.

As for the upside, one word: massive

Simply stated, Africa needs everything. Technology, clothing, education, food, retail, pharmaceuticals, machinery, engineering, agricultural products, construction equipment, etc…in short, everything. KFC took the plunge some years ago in South Africa and now has over 700 locations there and it continues to add to that number. Starbucks, which is new to the continent, is planning 150 stores over the next five years. And GE is bringing cutting edge, state of the art Western technology and knowhow to huge infrastructure projects across the continent.

So the question is, what do these companies know that others don’t? Is it how they see the correlation between upside and risk?

Or maybe it’s a statistic like this: consumer spending in Africa is set to rise from $860 billion in 2008 to $1.4 trillion in 2020, according to the McKinsey Global Institute. And that cuts across every consumer sub-sector you can think of from food to clothing to technology. That’s a pretty nice jump in 12 years. Not to mention that roughly 45% of its population is under 18 years of age and are just beginning to mature as consumers of products and services.

On the industrial side the list seems infinite. Water, power, roads, bridges, tunnels, airports, rail and housing construction are all brimming with opportunities – and U.S. companies are missing the proverbial boat. Smart American CEOs need to bring their state of the art technology, quality driven products and services, best practices and investment capital and compete in what will be a market of 2.4 billion people by the year 2050, according to most estimates.

So it’s time U.S. companies reexamine the African risk/reward ratio.

Yes, there are many risks. And there are most certainly many safer markets as well. But Africa’s single most important characteristic as a market is its sheer size. And one thing is clear; if you couple Africa’s explosive growth projections with its completely lopsided supply and demand equation, most U.S. CEO’s would be hard pressed to find a reason to not operate there.

So here’s the bottom line: The U.S. leads the world in technology, power, consumer staples and even farming. And Africa needs all of it. Forward thinking American companies should be looking directly to Africa to extend their reach into what some are calling “The Final Frontier”

Is America ready?

Originally published here.