I recently read an interesting piece by Tobi Lawson titled “Wither Non-consumption.” I subscribe to Mr. Lawson’s and his co-blogger, Feyi Fawehinmi’s newsletter, 1914 Reader, and highly recommend it if you’re not yet a subscriber. Their writing is intelligent, articulate, passionate, and sometimes mixed with a touch of humor. It is truly a pleasure to read.
After reading Mr. Lawson’s piece, in which he referenced my blog on multinationals exiting Africa, I felt grateful. I am grateful that he took the time to read my piece and even more grateful that he wrote something about it. In the spirit of respectful and constructive debate, I think it’s only appropriate that I write a response.
On the focus of the piece
In his subheading, Mr. Lawson writes, “Why betting on the patience of big firms is not a development strategy…” and here’s how the piece ends: Only about half a dozen countries have gone from poverty to being rich in the last five decades… what is certain is that their development process was kickstarted by serious and competent national governments. MNCs [Multinational Corporations] can be very useful partners in development – but they are certainly not drivers. It is time to stop making excuses for incompetent governance. It is time to take the politics of delivering economic transformation very seriously.
It’s easy to read this conclusion and be mistaken that I had written a piece on multinationals as drivers of development and economic transformation, regardless of the performance of a country’s governance practices. But my piece was not about development. It was about specific decisions managers at multinational companies make to do business in today’s Africa. It was also about multinationals leaving Africa a little less than a decade ago for similar reasons: a smaller-than-expected middle class and a difficult business environment.
On explaining versus excusing
Another important consideration is that explaining a phenomenon is not the same as excusing it. In my piece, I explained that “doing business in Africa is hard. And it should be.” This is largely because many African countries have little to spend on building a strong business environment. This is not an excuse but an explanation that few experts seem to highlight in their assessment of poor countries. I wrote about how global rankings should rethink measuring progress in a different piece. These rankings should include factors such as GDP per capita, government spending per capita, percent of formal vs. informal workers, and length of time a country has practiced democracy. These things matter as Nauro Campos of University College London and his co-authors help us understand in this Economist article: On average, countries lose 20% of gdp per person in the 25 years after escaping dictatorship relative to their previous growth path, in part because many struggle with the transition to democracy.
There is no excuse for corruption or incompetence in government, especially when both are connected. However, if one chooses to do business in a country, then learning how to mitigate these inefficiencies’ effects is important. In addition, I’m not certain how we actually make progress with the many issues poor countries face if the primary recommendation is economic reform and competent governance, especially when no contextually realistic or pragmatic strategy on how to achieve robust economic reforms and competent governance is provided.
On primary audiences
My primary audience is the business community: investors, entrepreneurs, corporations, and the like. Much like my late mentor, Clayton Christensen, those are the constituents I often have in mind when I write. Asking a business to develop a robust strategy to control for something that can derail your entire operation in a country isn’t “handwaving.” It is simply good business strategy, especially when the “something” is a government. Understanding the theory of modularity is helpful here.
The theory explains that a system can have a modular interface when “there are no unpredictable interdependencies between subsystems, people, teams, or organizations. Modular components and subsystems fit and work together in well-understood and highly-defined ways.” This theory explains why millions of people in Nigeria and other poor countries purchase generators to power their homes and businesses. The electricity interface from the grid isn’t predictable, so people “control” their electricity needs by purchasing generators.
When one chooses to do business in a country with an unpredictable government interface, the choice is not simple, but it is clear: Control the government interface as best as you can or choose not to do business in the country.
On Aswani’s comment to “never deal with government again”
There is a difference between doing business IN a country with poor governance and doing business WITH the government. Mr. Aswani indeed said he “will never deal with government again,” but in the same Financial Times article, he also said: “When you do business here [Nigeria] you have to mitigate your risk…Sometimes it’s at a high cost but if something goes wrong, it’s worth it.” It is Mr. Aswani who is saying one must “control” for the environment. When the article was written, Nigeria accounted for $900 million of Tolaram’s $1.1 billion annual sales. Just recently, his Tolaram Group purchased a 58% stake in Guinness’s business in Nigeria for $70 million.
Entering a Public Private Partnership (PPP) with the Nigerian government differs greatly from selling noodles, snacks, and adult beverages in the country. First, the entire PPP fails if one P in the PPP fails. Second, by his own admission in the article, Aswani notes: “This [the port project] is a real game changer for us, doing project financing of this scale . . . It’s easy to raise money for a factory — you need $30m, $50m. But you want to raise $800m? That’s a whole different ballgame.” And a whole different ballgame it is, one that Danish economic geographer and the world’s leading thinker on megaprojects, Bent Flyvbjerg, has written a lot about.
Flyvbjerg’s work helps us understand that nine out of ten megaprojects–like the Lekki port–are late, go over budget, and underdeliver on their economic projections. He calls this the iron law of megaprojects. Much of his research analyzes megaprojects in wealthy countries where the environment is more conducive to business. This means the decks were stacked against the Lekki port project even before it began, especially considering that transparency, accountability, and robust legal and regulatory frameworks are not as strong in Nigeria.
All this is not to absolve the Nigerian government of its mismanagement of the economy. But it is to say entrepreneurship–and more specifically, market creation–is a full-contact sport in almost any country, let alone Nigeria. Here’s how Richard Sandor, the father of carbon trading, put it about creating the Chicago Climate Exchange: “…the big challenge is the execution and building of that market, which involves a whole range of players and disciplines including trade associations, accounting, and legal, as well as educating the press and academics, and building human capital — all of those things… I think there’s added institution building that’s critical… In my case, it is a 10-year institution-building process.”
In Nigeria and many parts of Africa today, if one decides to do business, one must develop a strategy to manage the difficult environment. This doesn’t guarantee success. After all, most businesses fail, and most megaprojects struggle. But if one is to succeed, this gives it the best chance. As Howard Stevenson, Professor Emeritus at Harvard Business School, put it, entrepreneurship is the pursuit of opportunities beyond resources controlled.
On good governance and development
There is no doubt that African countries need more competent governance. The fact that only a handful of countries have catapulted their economies from poverty to prosperity over the past several decades is evidence that competent governance is not the norm. Admittedly, I’m not certain how poor countries get competent governance when I consider the realities of the politics on the continent. Recently, I came across this quote from Mark Hanna, United States Senator from Ohio from 1897 to 1904: There are two things that are important in politics. The first is money and I can’t remember what the second one is. Hanna is also quoted as saying: You have been in politics long enough to know that no man in public office owes the public anything. Hanna’s second quote may be too fatalistic, but it is instructive in combination with the first.
In most countries, people in top government positions are often the wealthiest or most powerful members of society or both. This reality, coupled with the scarcity of resources in poor countries and how difficult reform is, makes the governance and institutional reform path tortuously difficult without a countervailing force. I think market creation in a poor country is the second most difficult thing anyone can choose to do. The most difficult is institutional reform.
In his book, A History of American Law, Lawrence Friedman, Professor of Law at Stanford University, describes how the political situation of Americans changed over time: Politically, the rage of the victims counted for very little in 1840, not much in 1860; by 1890, it was a roaring force. Labor found a voice and agitated in every forum for protection… The rules were pawns in a political chess game; as the balance of power shifted, so did the rules. In other words, an increasingly organized and empowered labor force or other grassroots group may just provide such a countervailing force.
I’m also reminded of what Yuen Yuen Ang, a political scientist I deeply admire, says about development: the first step in development is using what you have, not what you want. The poor cannot innovate with what they lack: wealth and modern capacity. Necessarily, they must repurpose what they have…” I think the sooner we begin to use what we have–however little–to get what we want, the sooner we can develop sustainably.
