Tue, Mar 1, 2016
Blackstone recently signed a 5 billion dollar investment with the Dangote group, one of the biggest conglomerates on the continent
According to the World Population Review, Africa’s population is currently estimated to be 1.1 billion. Most of the population gains that have brought the numbers thus far were experienced in the last two decades when most African countries experienced relative peace and prosperity. Although this population increase has posed some challenges to African governments, by and large, it has opened up a host of opportunities for businesses and entrepreneurs. Indeed, the new trend in both population growth and increased relative prosperity has fueled a sense of optimism and positive expectation about Africa’s future across the globe. The Financial Times, in a special report boldly titled “The New Africa,” reaffirmed this optimism although it was also keen to acknowledge the challenges that the continent continues to face.
I was recently reflecting on Africa's economic future and its implications for business and savvy entrepreneurs and came up to some surprising realizations that I will share with you in the rest of this article. My arguments are based on the premise that for any country to develop sustainably, it has to provide conditions for the success of job-creating businesses and other enterprises.
Therefore, I decided to examine the ingredients that have to be present before businesses and other entrepreneurial ventures can succeed in any country. These ingredients, which I call the “triple formula," are: 1) access to financial capital, 2) presence of problems that need solutions and 3) presence of skilled human capital to help in implementing the solutions. For example, with Facebook, there was a need for people to connect and communicate with each other (the problem) and the founders of Facebook had access to both the financial and human capital that was required to build the company—in essence, all the ingredients of the “triple formula.”
In Africa today, there are plenty of problems that could be solved through business and entrepreneurship. Healthcare systems in most countries are broken, access to electricity is still minimal and infrastructure is also comparably underdeveloped. All these problems are opportunities that make Africa seem like an entrepreneur’s paradise.
In addition, capital is becoming increasingly available for individuals and companies intent on building enterprises in Africa. For example, according to the same special report by the Financial Times, private equity (PE) firms currently hold an estimated 25 billion USD in assets in Africa, an unprecedented figure. Multinational PE firms such as the Carlyle group recently announced multimillion-dollar funds targeted specifically on investing in Africa. Blackstone recently signed a 5 billion dollar investment with the Dangote group, one of the continent’s biggest conglomerates. Other big multinationals continue to eye the possibility of investing capital in the continent. The same trends can be seen in other funding sources such as venture capital, with a number of international groups setting up specialty funds dedicated to the continent. All this serves as evidence that problems associated with access to capital have, at the very least, been greatly reduced.
However, despite all this promise, Africa still lacks one critical component of the triple formula—the skilled human capital needed to build functional and successful organizations. Many African countries still maintain education systems that do not do a very good job at imparting the critical thinking and technical skills needed for people to engage in productive and efficient work. Some countries like South Africa, Rwanda, and Botswana have been taking significant strides, but the need is still too enormous to be taken lightly. African governments will have to invest heavily in education if they are to fully provide the ingredients of the triple formula that are needed to spur sustainable economic development.