brics business magazine · #2 · 2013
The World and BRAZIL · RUSSIA · INDIA · CHINA · SOUTH AFRICA
THE emerging future shibulal
There are certain topics on which a meaningful discussion is difficult due to having been reduced by overuse to little more than a series of declarations. Among them – though unquestionably deserving a better fate – is the idea of innovative development. Of course there can be no doubt that those countries which have produced the bulk of new technology have pulled quite far ahead of the rest. And the pessimistic medium-term scenarios which are inevitably thrust upon the public do not provide the complete picture, and in fact can even create a feeling of hopelessness. It is our deep conviction, however, that the prospects of those lagging behind are underestimated. The transformative power of finding a new approach or new solution – not unlike the power of new technology itself – is within the grasp of all of us, regardless of which country we live in. Evidence of this can be found in the twenty-five businessmen from Africa who cast their lots with innovation – and did so in the most diverse fields. We tell their story not only because they achieved success, but because they helped break down the existing stereotypes of their continent. And this is important because a positive example makes any endeavor more productive. Ruben Vardanian, Chairman of the Editorial Board of BRICS Business Magazine
BUSINESS MAGA ZINE
Chairman of the Editorial Board Ruben Vardanian Managing Editor Evgeny Arabkin Creative Director Igor Borisenko Publisher Arman Jilavian Business Development Director Alexei Medvedev Senior Editors Vladimir Volkov Tatiana Tkachuk
Photos & Illustrations by: East News, AP/Fotolink, Fotobank, ITAR-TASS, DepositPhotos, Reuters, Fotobank Lori, Russian Look, MEDIACRAT Registered as № ФС77-51070. 19,000 copies. BRICS Business Magazine is a registered trademark of MEDIACRAT. © 2013 MEDIACRAT. All rights reserved. No part of this publication may be reproduced or transmitted in any language, in any form or by any means, electronic or mechanical, including photocopy, recording, or any information storage or retrieval system, without written permission. The views expressed in articles are the authors’ and not necessarily those of BRICS Business Magazine. Best endeavours have been taken in all cases to represent faithfully the views of all contributors and interviewees. The publisher accepts no responsibility for the content of advertising materials, errors, omissions or the consequences thereof.
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Persons and companies mentioned in the issue Abbas, Youssouf Saleh Acquah, Hannah Adeyemi, Kunlé Amorim, Celso Bekker, Koos Bonsu, Henry Buffet, Warren Chua, Amy Cruise, Rupert Dangote, Aliko De Montgolfier, Joëlle Deming, Chen Elegbe, Mitchell Foster, Norman Gabre-Madhin, Eleni Gates, Bill Gates, Melinda Hassan, Abdiqasim Salad Ho Park, Seung Hofstede, Geert Ibrahim, Mo Kirubi, Chris Kourouma, Nvalaye Kress, Viktor Kuenyehia, Elikem Lalor, Michael Leterme, Yves Lu, Yonghua Lula da Silva, Luiz Inácio Mandela, Nelson Masiyiwa, Strive Mbeki, Thabo Meacham, Matthew Medvedev, Dmitry Mehta, Nitin Mengi, Reginald Miller, Alexey Milner, Yury
92 62 62 98 62 62 62 16 62 62 104 112 62 92 62 62, 104 104 92 122 21 62 62 62 56 62 88 38 122 98 62 62 92 104 116 88 62 92 56
Moolman, Tiaan 104 Motsepe, Patrice 62 Moyo, Dambisa 62 Mubarak, Hosni 92 Mujawamariya, Jeanne d’Arc 92 Mwangi, James 62 Nazarbayev, Nursultan 34 Nsue, Ruben Maye 92 Obi, Henry 62 Okunlola, Remi 62 O’Neill, Jim 24, 28 Onwubiko, Emmanuel 62 Opeke, Funke 62 Palin, Michael 28 Pohamba, Hifikepunye 92 Putin, Vladimir 92 Robertson, Charles 88 Rogoff, Ken 40 Rousseff, Dilma 98 Saraiva, Sombra 98 Sawiris, Naguib 62 Shetty, Devi 50 Simons, Bright 62 Singh, Manmohan 118 Solodovsky, Mikhail 92 Soros, George 62 Sy, Hapsatou 62 Sylla, Abdraman 92 Tinubu, Wale 62 Touré, Amadou Toumani 92 Toure, Mamadou 62 Tymms, Andrew 104 Ungson, Gerardo R. 122 Usmanov, Alisher 56 Xuejun, Tian 112 Zedong, Mao 16 Zhou, Nan 122
Afric Xpress 62 Africa 2.0 62 African Rainbow Minerals 62 Airtel40 Amoo Venture Capital Advisory 21 Andrade Gutierres 98 Aravind Eye Care 50 Asia Paints 122 Bain & Company 104 Barrick Gold Corporation 62 BYD40 C&K Mining 92 Camargo Correa 98 Capital Group 62 Celtel62 Citibank62 Coca-Cola 62, 104 Colourful Radio 62 Consolidated Breweries 104 Coopers & Lybrand Tanzania 62 Cowbell104 Dangote Group 62 Deutsche Bank 88 Diageo104 Econet Group 62 Equity Bank 62 Equity Building Society 62 Ernst & Young 16, 34, 62, 122 Esmaltec122 Ethnicia/Hapsatou Sy 62 ExxonMobil62 Facebook40 Gazprom92 Goldman Sachs 28, 34, 62 Google56 Haco Tiger Industries 62 Heineken104
Helios Investment Parners 62 Huawei112 IBM21 IDT & DSTV 62 Industrial and Commercial Bank of China 112 Infosys40 InterSwitch62 Investment South Africa (TISA) 114 IPP Group 62 Lâ€™OrĂŠal122 Life Spring 50 Linyang Group 122 Lodestone40 Lufthansa Cargo 38 Mail.ru Group 62 Main One Cable Company 62 Marcopolo98 Mindray Medical International 122 Mo Ibrahim Foundation 62 mPedigree62 Narayana Hrudayalaya Hospital 50 Naspers62 Natura122 Nle Works 62 Oando62 Observer Research Foundation 118 Ocean and Oil Limited 62 Odebrecht98 Oerlikon24 Olam104 Orascom Telecom Holding 62 Oxford & Beaumont 62 Parallels56 Penguin Press 16 Perchstone & Graeys 62 Petrobras98
Promasidor104 PSG Asset Management 62 Quieroz Galvao 98 Renaissance Capital 88 Renova24 Ricoh40 Rosneft38 RVC56 SABMiller 62, 104 SeaWolf Oilfield Services 62 Shankar Nethralaya 40 Shell International 62 Standard Bank 112 Sulzer24 TechnoServe104 Tencent Holdings 62 Texchange62 The Knowledge Channel 62 The Chamber of Commerce and Industry of the Russian Federation 116 Titan122 Transalloys24 Transparency International 92 TriMedx50 Txtnpay62 UBS12 United Manganese of Kalahari 24 Vale98 Velkom122 Vneshekonombank22 Vodafone62 Walmart 112 WBD122 Wind Telecom 62 World Bank 62, 88, 92, 98, 114, 118 Yandex56 ZTE112
EXPERTS AND CONTRIBUTORS
Founder and Chairman of the Renova
Founder and CEO of Infosys
Group Board of Directors
Former Chairman of Goldman Sachs
Governor of Russia’s Krasnoyarsk region
Deputy Prime Minister of Kazakhstan
CEO of Russian Venture Company
Deputy Chairman of the Board,
Independent consulting economist,
former Chief Economist of UBS
Seung Ho «Sam» Park
President of IEMS and Professor of
Professor of International Business
Strategy at the Moscow School of
at Old Dominion University
Director of Amoo Venture Capital Ad-
Aide to the President of Russia
visory, Co-Founder of place4BRICS
President of the Russian Chamber of
Senior Specialist with the World Bank,
Commerce and Industry of the
in the Capacity Development and
Partnerships Unit in the Africa Region
Pinak Ranjan Chakravarty
Secretary of Economic Relations at the
& National Secretary, Indian National
Ministry of External Affairs of India
Senior Advisor, Forum of Federations
commentS №2, 2013
There are many myths that surround any country, and Russia is one of the record holders in this respect. I often had to dispel myths of this sort, but the best recipe is for people to come and visit Moscow or St. Petersburg and see the reality on the ground for themselves.
12 16 21 22
Do Demographics Matter? The Hard-Working Culture Theory of Cultural Diversity The New Colonels
Technological Hunger and an Abundance of Resources
Five Surprises Ahead
POWER TALKS Today we live in an age where emerging trends in technology and society are changing the way we interact with each other. More than 50% of the world’s population is under the age of 30. There are close to 2 billion internet users globally and 87% of the world’s population has a mobile phone. If Facebook were a country it would be the world’s 3rd most populous – twice the size of the U.S.
In the near future, or at least by 2017, Africa will match the Chinese economic growth rate, which remains the most dynamic economy in the world. The five most significant African challenges are underdeveloped infrastructure, disorganized and fragmented retail landscape, lack of reliable market research, unclear and ever-changing government regulations and a severely limited talent pipeline.
Not Just About Oil Sub-Zero Gold
40 50 54 56
Innovation Is Imperative God’s Compassionate Home My Electronic Country Not a Large Country... But With a Bright Future
62 78 88 92 98 104 112 114
25 Faces of the New Africa BRICS on the Heels of Africa Africa in Rankings Privet, Yaounde! Two Parts of a New Gondwana Lessons From Africa’s Pioneers China Never Ends Desired Destination
116 118 120
The Economy of Forums Agenda for the BRICS Exploring New Shores
Do Demographics Matter? George Magnus Should you make allowance for the demographic situation in the countries where you invest your capitals? The answer is both yes and no. It all depends on your investment horizon.
the consumption and other economic potential of population characteristics in the BRICs and other emerging countries. First, investors looking to returns over a typical investment horizon, which may be from a week to a couple of years, will not be any wiser if they spend
Demographics have become a big deal, underpinning the widely held view about the shift in economic weight from rapidly ageing Western economies to more youthful, dynamic, emerging economies. But thereâ€™s more to this than meets the eye, especially for investors, who are often drawn to 12
Do Demographics Matter?
to look at profiles of important age cohorts, and to focus on the old-age dependency ratio, which measures the age structure of the population as the proportion of citizens aged over 65 dependent on the working age population, aged 15-64 years. India’s old-age dependency ratio of 8% [as the proportion of dependents per 100 working-age population] will still be just 12% in 2030, and 28% by 2050. Brazil’s will rise from 10% to 36%. But by then China’s will be 42%, compared with 11% now, and Russia’s will be 39%, compared with 18% now. So, on this basis, India and Brazil should top investors’ asset allocation, as the growth dynamic should be stronger, and the social and financial consequences lower. China has just about exploited its dividend now, while Russia has already banked it. Third, it doesn’t follow that India’s youthful population characteristics, for example, mean stronger economic performance than that of China, which is the fastest-ageing country on Earth. Russia’s strong growth record from 2000-2007, and still good showing since 2010, has occurred despite the fact that the population has been falling since 1992, and will continue to do so for the foreseeable future. Brazil’s model demographics in a solid middle income country have not prevented new concerns about the country’s weak savings and investment rates, and accordingly, its meagre growth performance. The reason is that in addition to the demogra phic structure of a country, it’s what people do that matters. If they’re largely employed, and engaged in productive work, surging young populations will prosper, and the economic consequences of older populations will be better managed. A third of India’s population is aged under 15, and as they join the labour force, India’s working-age population will increase over the next 20 years by more than the entire working-age population of Western Europe. But India has a notoriously weak system of labour laws and record of job creation, with a high incidence of poverty among people with any kind of work. China’s working-age population is close to peaking and is predicted to fall by over 100 million by 2040. If this decline is compensated by improvements in productivity growth, then all well and good. But if not, there’s a dark cloud hanging over China’s economic and social prospects. And even with its high educational achievement standards, China is still a long way behind the West in
a lot of time looking at demographics – and a lot poorer. In 2012, U.S., Japanese and European equity markets rose by around 20%, while BRIC markets fell or traded sideways. Changes in the level and age structure of the population are glacial with effects that cumulate slowly, if inexorably. On a trading or cyclical view, investors are better advised to stick to what they expect in terms of political stability, economic growth, profits, money and credit trends, other public policies, and so on. Second, that said, over the last decade or more, BRIC and emerging market equities have outperformed developed markets for a multitude of reasons, but the demographic support for BRIC markets has been solid. And within the BRIC universe, for example there’s no question that patterns of consumption and economic growth differ between countries with expanding or declining populations, for example Brazil and Russia, or with faster- or slower-ageing populations, for example China and India. Investors, therefore, need to consider corporate securities in the light of the demographics that determine market size, income growth and distribution, urbanisation rates, infrastructure and housing needs, and age-specific goods and services. Demographers often refer to the so-called ‘demographic dividend’, a phase when child dependency is declining and the working-age population is expanding, but before old age dependency has begun to increase. This phase is normally, but not always, associated with rising levels of consumption, savings, prosperity, productivity and economic progress. Young workers bring new ideas, effort and innovation, but they haven’t yet reached the point where they have become net savers supporting higher levels of investment. But when workers reach the ages of 35-55, they then tend to be big drivers of savings and investment. Over the next 20 years, China’s population of 35-55s will fall from 32% to 29% of the population, but in India this age group will rise by 5% to 27%, and in Brazil and Russia it will rise by 3% – but in Russia’s case this is entirely due to the fall in the population. So, it is important for investors George Magnus is an independent consulting economist, former Chief Economist of UBS, and author of The Age of Ageing (2008), and Uprising: Will Emerging Markets Shape or Shake the World? (2010). №2, 2013
India and Brazil should top investors’ asset
countries, compared terms of the quality of and allocation, as the growth dynamic should with developed maraccess to tertiary educabe stronger, and the social and financial kets. So, for the motion. Russia’s working-age consequences lower. China has just about population is forecast to exploited its dividend now, while Russia has ment, equity and capital markets returns fall by 20 million to 84 milalready banked it should favour BRIC lion, and even though the economies and other major emerging markets over oil and gas sector remains Russia’s core strength, faster-ageing countries. the underlying fabric of growth is weakening as a But this proposition is incomplete. Returns to result of weakening investment and productivity capital in the BRICs may be higher over time, but levels, which are partly demographics-related. This seems to have less to do with the country’s science, they may also be significantly more volatile, reflec engineering and education system, and more to do ting economic and political circumstances and the with economic government and governance. challenges of structural reform as they become Fourth, investors can draw some comfort from richer, and more complex. In their own ways, the the asset market implications of changes in age BRICs have reached just such a point in their destructure and the old-age dependency ratio. This velopment. is simply because market systems reward scarcity. So the lesson for investors is that demographics When labour is plentiful, as during the demomatter if you’re thinking about structural changes graphic dividend, capital returns should be higher. in societies and in consumption patterns, whether Later, when rapid ageing commences in earnest, companies are anticipating demand shifts related to and labour becomes relatively scarce, the pattern of ageing, and if governments have strategies to prereturns should switch back towards labour; that is, pare for the financial consequences. But for shortwages and salaries at the expense of capital. Moreoterm investment strategies, demographic arguver, higher interest rates and inflation are generally ments for buying and selling are little better than thought more likely to characterise slower-ageing tossing a coin. 14
The Hard-Working Culture To find the key to understanding China’s economic miracle, one should filter into the Chinese family. Professors Shaomin Li and Sam Ho Park speak about Chinese moms, kids, and other aspects of the world’s most convincing success story.
In fact, China’s economic institutions have some features that are not very conducive to growth: It has a huge public employee population supported by taxpayers, and these employees do not have high efficiency; state-owned enterprises account for a big share of the economy and enjoy government protection; property rights protection is weak, and restrictions on private firms are many. How could China achieve such great economic growth under such an institutional environment? In collaboration with Ernst & Young, we undertook a study to solve this puzzle.
The Puzzle in China’s Miracle
China has had a high economic growth rate of approximately 10% annually for about thirty years, creating an economic miracle that few will dispute. However, as to what factors caused such a miracle, there is little consensus. The dominant view is that the economic institutional change, started after Mao’s death in 1976, is the main cause of the phenomenal economic performance in China. While it is true that the economic reform, or institutional change, played an instrumental role in China’s economic growth, we must recognize that institutional quality alone cannot explain the high economic performance in China. As the table ( 1) shows, China’s institutional quality is similar to that of its peers (i.e., countries with a similar income level), and its change in institutional quality is also similar to that of its peers, but its productivity gain is five times that of its peers.
Shaomin Li is Professor of
Seung Ho Park is the
International Business at
President of IEMS
Old Dominion University
and Professor of Strategy
and Visiting Senior Fellow at
at the Moscow School of
the Institute for Emerging
Culture – the Missing Factor in the Equation
A factor that may help explain the economic miracle, but which has been missing in most academic research on this topic, is culture. The Chinese today can be said to have the most pro-economic growth culture for political, economic and historical reasons. Historically, the Confucian culture of frugality, hard work, and respect for the family is conducive to economic efficiency and productivity. Politically, the authoritarian political system has shaped a population that is relatively more obedient and respects authorities; traits that contribute to efficiency for low-skilled work such as manufactu ring. Economically, decades of poverty under Mao’s rule (1949–1976) made people extremely motivated to work hard to make money. The weak rule of law and lack of a legal tradition nurtured a relationbased culture that encourages people to circumvent the laws and get things done using private relations. All these cultural traits contributed to China’s high economic growth. That the Chinese culture is conducive to high productivity and performance has been widely dis-
Market Studies (IEMS). The authors thank Ernst & Young for its support for this study. 16
The Hard-Working Culture
as a student and is a law professor at Yale. Her two daughters are A-students in high school and one of them was accepted by Harvard and Yale after her book was published. For parents who want to do it, here are two of her insights: parents know what is best for the children, so be authoritarian; and plan long term – the children may hate you today, but they will be better off in the future, and appreciate you.
cussed and debated. And interestingly, such a debate has even been extended to overseas Chinese culture. In 2011, Amy Chua wrote a highly controversial book on this topic entitled Battle Hymns of the Tiger Mother (New York: Penguin Press, 2011), in which she reveals the secrets of a Chinese mother who has successfully molded high-performance children. “A lot of people wonder how Chinese parents raise such stereotypically successful kids…and whether they could do it too”, Chua begins her book, “I can tell them, because I have done it.” And then she lists the things her daughters “were never allowed to do.” “Attend a sleepover; Have a playdate; Be in a school play; Complain about not being in a school play; Watch TV or play computer games; Choose their own extracurricular activities; Get any grade less than an A; Not be the #1 student in every subject except gym and drama…” Throughout the book, the Tiger Mother shows how single-mindedly determined she was to enforce these rules at any cost, to drive her two daughters to excellence. Chua herself is a product of such highly-demanding parenting: she went to Harvard №2, 2013
Productivity gains and institutional qualities of low-income countries and China Group 1†
Income per capita
Annual labor productivity gain (2001-2011) Institutional quality (Economic Freedom Index) Сhange in institutional quality (Economic Freedom Index) †
Countries with per capita income $750-$1,250 (excluding China).
This, according to Chua, is precisely where the Western parents have failed. “Western parents try to respect their children’s individuality, encouraging them to pursue their true passions, supporting their choices, and providing positive reinforcement and a nurturing environment. By contrast, the Chinese believe that the best way to protect their children is by preparing them for the future, letting them see what they’re capable of, and arming them with skills, work habits, and inner confidence that no one can ever take away.”
Labor productivity gain
8 6 4 2 0
A Systematic Study on Culture and Productivity
Interestingly, what Chua summarized as the secrets of Chinese mothers’ success in childrearing are similar to the culture traits we find in our systematic study of culture and production using a database of more than 40 emerging countries. We identified three groups of cultural factors that significantly affect labor productivity in emerging countries (i.e. countries with a per capita income below $10,000). The first group are economic-related factors, including people’s perception about their own financial situation, and their attitudes toward income inequality and taxes. We found that people who are not satisfied with their financial situation tend to plan for the longer term and are willing to take greater risks, and this attitude in turn helps improve productivity. We also found countries with high productivity gains have a social attitude that tolerates inequality more, and dislikes taxes. The second group are attitudes toward authority and freedom. We found that the following three cultural factors are conducive to labor productivity gains: a culture that accepts and expects great power distance (i.e. less powerful people are willing to accept the fact that power is not distributed equally); people who perceive that they don’t have much freedom tend to be more productive; and a social attitude that prefers government-assured social safety and stability to deregulated society in which people are responsible for their own actions. In sum, the culture of the high-productivity-gain countries tends to be more authoritarian and less free. The third group of factors is all about family value. The family – the most basic element in a society and the primary organization in which a person is brought up and is socialized – plays the most important role in forming the culture of a person. It
low Culture index
mid Culture index
high Culture index
is the most important vehicle through which culture is passed through generation to generation. When the family is broken, it will adversely affect the children’s learning of the established culture of a society. We examined three family-value-related attitudes. High productivity-gain countries tend to frown on non-traditional family arrangements, and hold a view that “a child needs a home with both a father and a mother to grow up happily” (World Value Survey). These cultures also disapprove of single motherhood as a conscious lifestyle choice. Statistically high-productivity countries have lower divorce/separation rates. In general, the higher productivity-growth countries tend to have stronger traditional family values and more intact families. Combining the three groups of factors, we created a single ΄Cultural Index΄ that we believe captures the most important elements of a culture that is conducive to encouraging people to work hard and be productive. As can be seen from the chart of labor productivity gain ( 2), there is a strong correlation between the Cultural Index and productivity gains: countries high in the Cultural Index are also high in productivity gain. Of course, we must note that countries that have a strong productivity-enhancing culture and have achieved high economic growth rates all have implemented economic reforms. Without marketoriented economic reform, productivity-enhancing culture alone cannot achieve high economic growth. In other words economic reform, or economic institutional change, is a prerequisite for a country to capture the cultural dividend. Both have to interact to bring prosperity to a country. 18
The Hard-Working Culture
Especially for the least developed nations, implementing policies that can help establish an obedient and disciplined labor force may help increase productivity growth
Government policies often have either intended or unintended effects on culture, which in turn affect productivity gain. Here are some things a government can do (or avoid doing) to encourage a more productivity-enhancing culture. First, we found that the following economic-related attitudes are associated with higher productivity growth: unsatisfactory feelings toward one’s financial situation; an attitude against taxes; a belief that difference in income is an incentive for people to work hard; and the willingness to take risks. Several policy implications can be drawn from these. For example, high taxes and high social welfare that aim to reduce income inequality do not help nurture a productivity-growth culture. Governments should institute economic policies that encourage risk-taking and entrepreneurial behavior, such as making it easier to start a business (simplifying the process and instituting automatic approval of business registration). An extension of the above discussion is that governments should not raise the wage level of regions with low labor productivity, because
An interesting and important finding in our study is that while both economic reform and culture can positively affect productivity gains, the latter has a longer-lasting effect on improving productivity than that of economic reform. More specifically, the positive effect of economic reform on productivity gains will disappear when income rises to a relatively low level, ranging from $5,000 to around $10,000, whereas the positive effect of culture on productivity gains will not taper off until income reaches a much higher level, from approximately $15,000 to $60,000 income per capita. Policy Implications
What can we learn from this study in terms of government policies? №2, 2013
Western parents try to respect their childrenâ€™s individuality. By contrast, the Chinese believe that the best way to protect their children is by preparing them for the future, letting them see what theyâ€™re capable of, and arming them with skills and inner confidence that no one can ever take away
doing so does not address the source of the low productivity; on the contrary, it may exacerbate the problem by nurturing an entitlement culture that hinders productivity growth. Second, our finding regarding the attitude toward authority and freedom and its relationship with productivity gain shows that there is a positive association between a more authoritarian cultural environment and productivity gains in the emerging countries (with an income level less than $10,000). For the low-income, less developed emerging countries, the state should strength their capacity to formulate and implement policies that can nurture a productivity-gain-friendly culture. The educational policy should allow the school to have more authority over studentsâ€™ learning and discipline. Especially for the least developed nations, implementing policies that can help establish an obedient and disciplined labor force may help increase productivity growth. These policies work best if combined with economic reform that aims at instituting the free market and the rule of law. Third, we found that family is important in nurturing a productivity-growth culture. There is a strong association between high productivity gains and low divorce rate, a strong disapproval of single mother as a lifestyle choice, and a view that a happy family must have both father and mother present. While we do not intend to engage in the moral debate about traditional family values versus alternative lifestyles, our study indicates that government policies in the less developed, emerging countries, that either
directly or indirectly encourage traditional family values, will be conducive to productivity growth. Governments should not institute policies that directly or indirectly encourage teenage childbirth (which tends to end up with the child living with a single mother), births out of wedlock, or facilitate or even encourage the disintegration of the family. A Need for a Cultural Revolution
Today the world is still slowly climbing out of one of the biggest recessions in contemporary history and all countries are seeking policy tools to revitalize their economies. Our study may help this effort by looking into the role of culture in economic growth, and finding that there are certain cultural factors that are more conducive to productivity growth. The implication of our study is that social institutions, including governments, firms, schools, and families, can actively help nurture such productivity-growth-friendly cultures. It is our belief that this effort is much needed and will have an impact on the global recovery, especially on the emerging countries which have garnered so much hope from the world to be the engine of growth in the coming decades. 20
Theory of Cultural Diversity
Theory of Cultural Diversity Nzube Ufodike Are you thinking of expanding into new markets? If that is the case you need to become intimately familiar with the target country’s cultural and business traits. That is, of course, if you want to succeed.
Hofstede’s work has been influential with practitioners and academics; but how much does it reflect reality? Unfortunately, there are several inconsistencies and insufficiently expository elements, that make holistic adoption of the theory dangerous. For instance, the choice of the national level rankles because it leaves no room, not just for other organisational forms, but for the individual. Hofstede’s theory effectively condemns the citizens of nations to the attributes of nations. This is important, perhaps now more than ever. Many businesses are keen to explore new markets abroad. A large part of their success will derive from their ability to develop successful relationships. Relying on stereotypes from experience or from overly generalised research can and will undermine their ability to do so. This is particularly true when today’s business community is more likely than ever before to have an international background. Perhaps your new business partner is Nigerian, but what if she has been educated in England and spent the majority of her working life in the United States? And how should you engage with a Brazilian investor of Japanese heritage who secured an MBA from INSEAD in France and Singapore? This is not to say that nationality, culture or customs are not important. It is crucial to be informed and to read up on and respect local business practices. Equally or even more so, however, it is crucial to engage in relationships with an open mind, to inquire of those that you come into contact with and to make decisions based on a matrix of factors, most importantly the character and views of the individual sitting before you. It is prudent to acknowledge and prepare for the fact that the next generation of business leaders is going to be more diverse than at any time in modern history.
We were in London during the games last summer and spent most of our time at the business summits. The embassies of many countries hosted parallel business events and we were lucky enough to attend the majority of them. It was interesting to circulate around a room and observe different nationalities coming together and to remark on different customs: the formal, two-thumbed presentation of business cards, the handshake, the muted bow. We’ve all heard the stereotypes about how different cultures do business, and we all have our respective experiences and indeed biases and preconceptions of interacting and doing business with people from different backgrounds, and how they might differ from ourselves. Some academics and consultants have gone so far as to attempt to measure difference. Geert Hofstede, a consultant hired by IBM in the 1960s, is at the forefront of this blend of anthropology, business and research. He developed the cultural dimensions theory, which seeks to characterise different national cultures according to different dimensions, starting with four originally and expanding upwards to six by 2010: ŦŦ Power distance – “the acceptance of unequally distributed power by the less powerful” ŦŦ Individualism vs. collectivism – “the degree of integration into groups” ŦŦ Uncertainty avoidance – “a society’s tolerance for uncertainty and ambiguity” ŦŦ Masculinity vs. femininity – “the distribution of emotional roles between genders” ŦŦ Long-term vs. short-term orientation – “the time horizon of a society” ŦŦ Indulgence vs. self-restraint – “the degree of instantaneous gratification” №2, 2013
Nzube Ufodike is Director of Amoo Venture Capital Advisory, and Co-Founder of place4BRICS. 21
The New Colonels Sergey Vasiliev The quintessential Brazilian way of life can be summed up in one word – jeito, which literally means ‘find a way’. To resort to the jeito means to achieve one’s objective without formally breaking the law. One should strive to grasp this concept at least because, despite its geographic proximity to North America, today’s Brazil clearly gravitates towards the BRICS countries; the nation’s trade with China is greater than with the United States, reaching nearly $30 billion. However, to be able to do business with a Brazilian you need to become a friend. Even corruption is merely an element of friendship in this country.
A businessman who comes to work in Brazil expecting to follow the official rules would hardly succeed, and is not likely to stay there long. One needs to create a broad network of personal contacts to feel any positive effect from one’s investments. This should be done in those regions where you plan to do business, for it is there – and not in the capital – where the key decisions are going to be made, and it will be the local administration that will decide the fate of any project. The nexus between business and power in Brazil has everything to do with its decentralisation, and the two-hundred-year-old tradition of coronelismo (a term derived from the Portuguese word for colonel). In the middle of the 19th century the country’s national guard granted regional oligarchs, whose powers over the provinces alone already afforded them a great deal of authority, the special status of colonels and backed them with significant military resources. It was only in 1934 that the country adopted a constitution banning the acquisition of heavy weapons by state police. From the very outset economic activities evolved differently across various parts of the country. Sugar production flourished in the north, while other regions lived off agriculture and cattle farming. A sugar mill required a large territory and many slaves, which in turn laid the foundation for large-scale land farming. Prominent landlords in the northeast of the country were much richer and more powerful than the local authorities; they enjoyed what was virtually an unlimited level of
influence. With private paramilitary units at their disposal to control the slaves, they did not wage wars against their neighbours at all: class solidarity was characteristic of everything they did. In this divided country, which had no railroads and could rely on sea communications only, federal governors depended on rich people. This phenomenon later became known as coronelismo. Capitals often changed. The city of Salvador in the north became the first capital of the country. However, when gold was discovered in the south, the government moved to Rio de Janeiro. In the early 20th century São Paulo emerged as the country’s economic centre and later the capital was moved to Brasilia, a city built especially for that purpose on a high plateau. Today the country has at least four large centres, but the regions tradi-
Sergey Vasiliev is Deputy Chairman of the Board at Vnesheconombank. 22
The New Colonels
To this day the main political power in Brazil rests in the hands of the states and their representatives, or the ‘new colonels’, and not so much with the federal parties. These new colonels are not too poor and not too rich; they are not a part of the economic elite, even though several generations of their ancestors were well off. They love power more than money, and they are skilled at manipulating people. They charm the public with their improvised speeches and artfully build their relations with the local elites. The entire power of the new colonels is predicated on a system of personal relationships, on their ability to get the right people to join their teams. What sort of lessons can a foreign business learn from this situation? You should negotiate at the regional level. The local governor and the state assembly call more shots around here than meets the eye. Similarities with Russia are obvious, yet there is a major difference. In Russia, governors are appointed by the central government, while in Brazil governors are independent. Governors and senators are friends of the local press and often even control it. The mass media at the federal level are virtually non-existent. One of my friends, an entrepreneur, was very surprised to learn about the attitude to commitments in Brazil: “Nobody keeps their promises around here – how do people live?” I suppose that a part of the reason why the cooperation between Russia and Brazil is not developing as fast as it could have lies in the lax attitudes intrinsic to both countries. It would take a foreign national a long time to build long-term relationships. Therefore, my advice is to learn Portuguese. In an environment where the informal side of things plays the decisive role, and a joint fishing trip or game of golf are more likely to open doors to the local business reality than the best business case possibly could, one cannot survive without the language. Brazilians regard English as an alien language, and two alien languages in the same equation equals alienation squared. A Brazilian who speaks English would come across more as an American and this can be disorientating. He or she would never say what is truly on their mind; they would have to remain too politically correct. Parenthetically, the Portuguese language is sufficiently easy to learn – all you have to do is immerse yourself in the language for three months. This kind of knowledge will be repaid a hundredfold.
tionally put much emphasis on their own political significance. The decentralisation process also benefited from the limited suffrage: at first the law granted the right to vote only to the rich, then to the literate. Elections were held based on open ballot; one can imagine what it looked like in rural areas. Electoral commissions were formed by the very same colonels and naturally depended on their say. Who would dare speak against their boss in an open vote? Therefore, election results tended to be very predictable. As for the Federal Parliament, its role was limited to coordinating the interests of various states, which were mostly commercial in nature and ranged from coffee and sugar production to cotton mills and cattle farming. Specific production aspects determined the economic models, which in turn shaped interregional policies. At a later stage, population growth in the cities triggered some forms of democratisation. Colonels were replaced by populist politicians who in many ways resembled their predecessors. However, without the formal resources that used to be afforded to the colonels, the new leaders had to compete for the support of their electorate. Today there are 20 parties in Brazil and no single-candidate constituencies; during the elections votes are cast not only for the party but also for the candidate from the party. The individual comes to the forefront yet again. Having won a majority of votes, a charismatic politician can bring to the Federal Parliament up to seven or eight candidates who did not enjoy much popular support. In other words three or four powerful players are perfectly capable of forming a faction of 25 members. Considering that the Chamber of Deputies consists of roughly 500 representatives, such a faction could really shift the balance of power, put forward their own demands, and derive such benefits from supporting the ruling coalition as seats on boards of directors in state-owned companies, and appointments to the ‘right’ committees. In that way several people can enjoy a mechanism that enables them to make money and further promote their cause. However, once in the seat of power, they repay their debts to the electorate by taking part in the ‘proper’ redistribution of federal funds. The most advanced among them are keen to bring foreign investors on board in their regions. №2, 2013
Technological Hunger and an Abundance of Resources Developing countries often tend to outpace the developed world in terms of penetration of new technologies. Viktor Vekselberg, President of the Skolkovo Fund and Chairman of the Renova Group Board of Directors, knows it better than anyone else. Yet, according to him, it is technologies that remain the greatest and most sought-after resource for the BRICS countries. 24
Technological Hunger and an Abundance of Resources
I would not go as far as to say that Russia, for instance, has a specific business culture that is different from the rest of the world. I do agree that in Renova’s Swiss partners, high-tech companies such as Sulzer and Oerlikon, we found fine examples of well-organized and structured processes. We try to learn from them and replicate their experience. Undoubtedly, we can find negative examples in Russia and elsewhere, however the leading Russian companies have long been able to compete on foreign markets and were quick to find common ground and reach an understanding with their partners. I do not like it that many people are still affected by old stereotypes, believing that no deal can be made unless you and your partner drink a case of vodka together. In your opinion, in which country would a well-structured relationship with the government (and perhaps a personal relationship with specific personalities in the government) be particularly important for a large business? Or do you think this question is misplaced, and that after reaching a certain level, investors or entrepreneurs can no longer count on such a relationship to protect their investments? Your question already contains part of the answer. In my opinion, a large business and the government have no choice but to interact. However, it is not so much about protecting one’s investments or obtaining tax benefits. The crux of the matter is that a large-scale business presupposes significant influence in a number of critical social aspects. The larger the business, the greater the influence on economic development – and thus the greater the level of social responsibility in the region. We came to South Africa, set up a joint venture with a South African company, and performed exploration, and in so doing created additional jobs, providing an impetus for the development of small and mediumsized businesses in the region. To demonstrate that
Your companies operate in different countries. Is it possible to lead a global business and play by the same set of rules everywhere, or would the local culture and informal customs inevitably affect the way you do business? The Renova Group of companies owns assets in Russia, Europe, Africa and North America, in industries that show high growth potential. Even during the crisis virtually all the businesses demonstrated positive economic dynamics. So, one can be successful in leading a global business – but can one play football using the rules of tennis? The rules are predicated not on the wish-list of companies but on specific markets, and in that respect they may differ depending on the industry – even within a single country. I believe in this case it would make more sense to talk about the principles and values shared by specific companies and people rather than rules, for these principles and values can remain constant in different countries and sectors. For instance, regardless of the continent it operates on, the Renova Group strives to maintain world-class corporate governance standards and use state-of-the-art technologies in production and management, as well as to strike partnerships and alliances to maximize the effect of joint investments. What was your experience in South Africa in this regard? Our experience in South Africa has been exceedingly positive. In 2005, United Manganese of Kalahari, a company developing a manganese field, became the Renova Group’s first business in South Africa. Over a relatively short period of time, together with our partners, we managed to create a company that has become one of the world leaders in the manganese market today. Apart from producing manganese ore, the Renova Group also has a stake in a manganese processing business; Transalloys, a ferroalloy smelter, is a prominent driver of economic growth in the region. Developing markets (including Russia) are often accused of lacking the requisite business culture. How fair is this statement today? №2, 2013
The logic behind global economic development suggests that there will always be undervalued countries... Given the fact that there are many highly qualified professional investors among the readers of your magazine, I think if we name several specific small countries these could right away be classified as ‘overvalued’
ing risks and investment horizons. Given the fact that there are many highly qualified professional investors among the readers of your magazine, I think if we name several specific small countries these could right away be classified as ‘overvalued’. But on a serious note, instead of referring to specific countries, I would rather talk about the implementation of high-tech products in developing markets in general. For example, in recent years, the Renova Group has been working hard to transfer foreign state-of-the-art technologies to Russia, including cutting-edge coatings, alternative energy, biodegradable polymers, and the latest medical equipment. Investments funneled towards these projects total billions of dollars. Many believe the BRICS idea to be out of date. Oftentimes other countries in other configurations are declared leaders of the new world. What do you think about all these blocs (MIST, CIVETS, Next 11) and the BRICS countries in particular? I think that overall this daisy chain of acronyms goes to show that the significance of the so-called ‘new economies’ is growing in the world. In other words, the very fact that these new blocs keep emerging, and that they are relatively broadly represented in the G20 format, demonstrates that these economies are tending to get stronger – and the Russian economy in particular. Jim O’Neill believes that 25-50 years would be enough for Russia to earn the status of a developed economy. Moscow often perceives this prediction as excessively conservative. Do you think that O’Neill’s assessment is on the mark? Ultimately, everything will depend on ourselves, even though in my view such nomenclature as ‘developed’ or ‘developing’ is somewhat obsolete. In this rapidly changing world many of the so-called ‘developing’ economies are strongly outperforming the ‘developed’ ones, for instance when it comes to the level of penetration of advanced technologies. When you discuss Russia with your colleagues from other countries, do you tend to correct their errors of judgment? How would a standard set of misconceptions about Russia vary from Asia to America? As we already agreed there are many myths that surround any country, and Russia is one of the record holders in this respect. I often had to dispel myths of this sort, but the best recipe is for people
one can be successful in leading a global business – but can one play football using the rules of tennis? The rules are predicated not on the wish-list of companies but on specific markets, and in that respect they may differ depending on the industry – even within a single country
our interests were long-term, Renova joined efforts with its partners to open the Technical Training Center for local residents. Which developing market (other than Russia) do you find most interesting as an investor today? Are there any countries that are clearly undervalued and deserve greater attention? The logic behind global economic development suggests that there will always be countries of this sort. The real question is how you go about assess26
Technological Hunger and an Abundance of Resources
to come and visit Moscow or St. Petersburg and see the reality on the ground for themselves. From this perspective the St. Petersburg International Economic Forum has become a powerful tool that helps to bust negative myths about Russia, and I hope that your magazine will also put in an effort towards that end. Which investment opportunities and potential points of growth go unnoticed by large businesses from our BRICS counterparts? Is there something that in your view the Chinese, Brazilians and others miss out on in Russia, and is there something that we lose sight of in their countries? All of the investment areas that would pique the interest of large businesses are well known. Due to the fact that the BRICS countries are predominantly classified into resource-based economies (Russia and South Africa, with Brazil somewhat apart), and global consumers of resources (China and India), investments in joint production, refining, and transportation of resources are constantly on the rise. In this regard Africa plays a key part in supplying natural resources for the world economy, and has huge growth potential. For example, the largest gas field in the world was discovered in Mozambique, and some significant oil fields are being discovered as we speak. The interests of large businesses are centered on this region, and Renova’s plans for the future are also linked with Africa. Russia alone has invested $5-6 billion in production, and continues to raise the game. Does BRICS as a political project affect your business? I would not go as far as to qualify BRICS as a political project. It is more of a center, developing solutions alternative to what the G8 can offer for the twenty most industrialized nations. It is just that only recently the attempts to develop a common approach to politics have become more pronounced. The BRICS economies are big; these countries have strong development potential and enormous accumulated reserves. However, apart from investments, natural resources, and workforce, the development process also requires technologies. India, Russia and South Africa urgently need modern technologies; therefore, the best thing they can do is implement them fast. What role is assigned to the BRICS Business Council? What is the rationale behind this body? №2, 2013
Undoubtedly, we can find negative examples in Russia and elsewhere, however the leading Russian companies have long been able to compete on foreign markets... I do not like it that many people are still affected by old stereotypes, believing that no deal can be made unless you and your partner drink a case of vodka together
Back in 2011 Russia came up with the initiative to create the BRICS Business Council, which would include representatives of each country. During the upcoming fifth summit in Durban, the countries will discuss the mechanics of how to set it up. The Business Council’s core mission will be to strengthen trade and economic ties between the member states and, in particular, increase the turnover of goods, assist companies in negotiating contracts, and improve the investment climate. In your view, how promising is the idea of creating a BRICS Development Bank? Indeed, creating a development bank for the group will become the main theme at the summit. This idea does hold a lot of promise, since such a bank could offset the negative trends in the world economy and dilute the West’s financial clout. It is too early to talk about this bank becoming fully operational – a feasibility study for this project is currently underway. What do you think the agenda for the sixth (Russian) BRICS Summit could be? The BRICS countries are gradually transcending the economic realm and becoming a center for developing solutions to acute problems. Cybercrime, climate change, security issues and the war on terror, combatting drug trafficking, ‘volatile’ regions – unfortunately, all of these challenges will remain topical a year from now. 27
Five Surprises Ahead Jim O’Neill – the man who coined the BRIC acronym, along with the grand idea behind it – recently resigned as chairman of the Asset Management Division at Goldman Sachs. He is hardly a fan of inert thinking. In this interview, he warns his colleagues (investors and economists) that if one resorts to stereotypes in trying to gauge the new non-Western world, this choice is fraught with perils.
them traditional emerging markets underplays their economic influence on the world. In this regard, I believe that any emerging economy that has already become more than 1% of global GDP should not be thought of as a traditional emerging economy. Cur-
Why you don’t like the term ʹemerging marketsʹ? Is it incorrect now? I think one has to make a distinction between some countries that, although even with a low GDP per capita, are so big in terms of overall GDP, that to call 28
Five Surprises Ahead
rently, there are 8 such countries: each of the 4 BRIC nations, plus Korea, Mexico, Indonesia and Turkey – 4 of our so-called ʹNext 11ʹ group. These 8 countries collectively are 25% of global GDP, so the same size, if not slightly bigger, than the US, and therefore they are collectively having a bigger impact on the U.S. Note that South Africa is not close to this, being only around ½% of world GDP. In coming decades, a number of other large populated emerging economies are likely to cross the 1% of global GDP threshold, especially most of the other so-called ʹNext 11ʹ as I have called them, and possibly a couple outside of that group including Poland, Argentina, South Africa, Thailand and Malaysia. Those who are skeptical about the developing world explain that the main problem of this world was, is, and will be, a failure to sustain growth. And there is no doubt that you could argue. I think this is a very jaundiced, Western, backwardlooking view. China alone in 2011 created the economic equivalent of another Greece every 12 and a half weeks, or another Spain nearly just in that year! The four BRIC countries’ dollar GDP rose by $2.26 trillion, more than the size of Italy! This decade, even with somewhat softer overall Chinese and BRIC GDP growth, the world will grow by around 4%. China on its own this decade will contribute as much to the world economy as the US and Europe put together, something around $8 trillion in real terms, which will probably be between $10 to $15 trillion in nominal terms. I can understand that many observers find it difficult to understand, especially from my generation, as we are so used to a world where the U.S. is so dominant for us all economically, and of course they are not a democracy where our Western values have all been brought up to believe in these values. It is an even bigger problem for people in understanding Russia. But the people in their societies are, broadly speaking, happy with their style of leadership, so long as it delivers increasing growth, and especially wealth. Now all this said, the growth rate of the BRIC nations will slow this decade as they won’t be able to sustain the growth rates of the past decade, but anyone who expected them to do so has probably not thought carefully about such matters. It is very unlikely that they could sustain such growth. But even with softer growth, their impact on the world is getting bigger and world growth will be stronger №2, 2013
By 2050, each of THE BRIC countries, especially Russia, is quite likely to be as wealthy as most of the G7 economies, and Brazil won΄t be far behind. For China and India it will take quite a bit longer simply because each has more than ONE billion people
this decade as a result, possibly growing by around 4.1% compared to 3.4% the past 30 years. The world awaits the transition from quantity to quality in China. But why is 2013 so important in this process? Because it will be the first full year in which we probably see clear evidence of this happening with private consumption leading the strength of the economy. Just as for most other economies, responding and adjusting to the challenges of the 2008-2009 global recession was very demanding and for China, who before the crisis had a very export-geared economy, and needed to adjust their model, we now need to start seeing results, otherwise they will struggle to grow at the rate their economy needs to sustain their aspirations, and/or would remain highly vulnerable to the influences of the rest of the world. I often reflect back to 08-09 and think that, in some ways, it was perhaps quite helpful in forcing Chinese policymakers to realise that their cheap, low value-added export model was not sustainable, and that their own destiny depended on their own economy. In 2009-2010, the economy recovered sharply, but this was primarily due to massive increases in state-driven investment, which created its own set of issues including more environmental damage, excessive use of resources, which in turn contributed to inflation pressures, which also in turn contributed to growing inequality. The latest Five-year Plan, the 12th one, issued around 18 months ago, recognised all these dilemmas and made a fresh commitment to a better ʹqualityʹ of growth in which consumption played a bigger role in growth. There are some signs that this is starting to occur, but we will not really be able to be confident about this transformation until 2013. Are you bullish on all five BRICS countries? A lot of pundits used to criticize Brazil, Russia, India and South Africa and praise only China, which is also becoming less interesting for them because of the expected slowdown. Every one of the BRICS countries has its own challenges, and while I am bullish on most of them, one 29
has to remember that their progress is never going to be in a straight line. For the year 2013, I expect all five to positively surprise. For the decade as a whole, I think China, Russia will both easily do well, but I am a bit concerned about each of Brazil, India and South Africa. They all need to reform more to do as well as in the last decade. South Africa is very lucky to be regarded in the same status as the rest, given it is so small, and they need to start doing things to really change their outlook and justify it. I have often read, sometimes to the irritation of South African policymakers, that it is economically hard to justify the inclusion of South Africa, because it is much smaller than the other BRIC countries. It is about 1/5th the size of India or Russia, and there are many other emerging economies that have as much justification, if not more than them. This would include any of Korea, Indonesia, Turkey, Mexico and even Poland and Colombia. Of course, South Africa was probably included due to its historic trade ties with some of the BRIC countries, its associated role as a major commodity
For the year 2013, I expect all five countries to positively surprise. For the decade as a whole, I think China, Russia will both easily do well, but I am a bit concerned about each of Brazil, India and South Africa. They all need to reform more to do as well as in the last decade
producer, and the fact that it is the most developed of the sub-Saharan African economies. In this regard, some consider it as a sort of gateway to the rest of Southern Africa, but this is not something South Africa should take for granted, as some of the other African large populated economies don’t think this is warranted. So, South Africa has to do more to warrant this position both in terms of its domestic economic performance and its international leadership. Returning to discussing all the BRICS economies, China is the one that shows the clearest positive evidence that it is adjusting to the challenges around the world, and growing with what we have assumed for this decade. In fact, it is currently growing more than we have assumed, even though it has “slowed”. Peculiarly, Russia – often the least liked – is also growing in line with our expectations of the decade. Both India and Brazil have struggled in 2012 and they need to do more in terms of supply-side reforms, especially perhaps India, to reach the targets we have set for them. Observers usually cite Indonesia, Nigeria, the Philippines, and Sri Lanka, as examples of new high-growth markets. Do you see anything noteworthy beyond this group as well as Next 11 or MIST? Can any developing country overcome the curse of moderate growth in the next decade? I am quite excited about most of the Next 11 countries, I see some very encouraging signs in many of them. I am especially enthusiastic about the Phillipines, Indonesia, Turkey, Nigeria, and Mexico, and I think there are some quite exciting changes going on in Egypt. Of course, Korea is so strong and is a Next 11 country, but in reality we should treat it as an equivalent to one of the most developed countries, as its GDP per capita is now close to that of a G7 country. I often think that South Korea is perhaps the most interesting large populated country of my lifetime because it has transformed itself to be a reasonably high-income country from one that had as low an income as 30
Five Surprises Ahead
View of Seoul
as most of the G7 economany African countries South Korea has transformed itself to be mies, and Brazil won΄t 40 years ago. This is an a reasonably high-income country from be far behind. For China exceptional achievement one that had as low an income as many and I often tell many African countries 40 years ago. This is an ex and India it will take policymakers from other ceptional achievement and I often tell many quite a bit longer, simply because each has more large populated emergpolicymakers from other large populated ing economies that they emerging economies that they should study than one billion people. should study Korea care- Korea carefully and see what they can learn So, while they will be driving the world econfully and see what they omy, they still won’t get a developed status in the can learn. Their strength of education and use of next 20 years! This oddity will make the world a technology would appear to be two strengths in very peculiar place, or at least for the intellectual particular that others could mimic or pursue to leaders from the West, as they are used to thinkhelp their own advancement. ing of the biggest economy, i.e. the U.S., as also How long will it take for BRICS countries to being the wealthiest, which will almost definitely transit to developed market status? Is 15-20 years not be the case by 2050. This being said, to some not enough? extent it is a state of mind, as the U.S. is not the In Brazil and Russia’s case, perhaps 25-50 years wealthiest country in the world: smaller populatis enough as they already have wealth around ed countries such as Luxembourg and Switzerland $15,000 per head. By 2050, each of these countries, have enjoyed that position for many years. especially Russia, is quite likely to be as wealthy №2, 2013
actually do things to become as big and successful Is it possible for any of them to regress in as we have suggested and not just assume! the current economic and political condiIn terms of travel, I love to travel anyhow and tions? especially to these countries, so I can see and hear India has not made a lot of progress on their develanecdotes about their amazing development. Like opment since the BRIC concept came into being most people, it is difficult to not regard Brazil 11 years ago, but it has not really regressed. The as especially special given the diversity of their others have all shown strong progress, of differing people and the openness that goes with it. I somedegrees, but of course could regress quite easily if times think that Brazilians have an advantage in political leaders chose to do the wrong things. this complex world as they are so open-minded Our future is often described by such straightand used to dealing with people of different colour forward expressions as a ΄new economic order΄ and backgrounds, which is not the case for many or ΄post-Western world΄. How do you feel about of the rest of us, whether they are BRIC or othersuch simplifications? wise. And of course, they love football which I am I think it is extremely difficult to simply categorise obsessed about! I am trying to organise my life so the world in these brackets and neat little boxes. I can find myself in Brazil on ΄urgent business΄ for As I have already said, by 2050, the world’s biggest four weeks in the summer of 2014. I love to go to economies almost certainly won’t be the wealthiall the BRIC countries, as I said. St. Petersburg in est. The four BRIC countries in fact are on track to summer for the ΄white nights΄ is something quite become bigger than the G7 by 2035 but with the special, and an occasional visit to Moscow is alpossible exception of Russia, none of them are goways interesting. I would love to, one day, travel ing to be close to being as wealthy as the G7. China east to their Japanese and Chinese borders via will have already become as big as the U.S. some train. India, I have not travelled extensively, but years before that, perhaps 2025-27, but its wealth I love going to Mumbai, in many ways it is the will be at least four times smaller, which is quite a craziest and most intermaterial difference. This esting city I know, and means, in terms of global I get invited to visit the BRIC countries it is such an experience. governance, we are going frequently and I am given a fabulous China, I would also love to have immence chalreception by them... occasionally I tease to travel around more on lenges constructing a them that they have to actually do things peaceful and useful sys- to become as big and successful as we have their trains. Perhaps one day I shall persuade Mitem of global leadership suggested and not just ASSUME! chael Palin to join me on where the biggest realise a “train journey across the BRIC countries”. their global commitment despite being much less And how comfortable do you feel yourself staywealthy than others. It won’t be an easy task as it ing there for a long time? will involve reversing much of the post-Second I could quite easily stay in Rio for a very long time! World War forms of global governance. I could also happily be walking in the lower HimaWhat is your personal, non-economic, nonlayas of India for a long time too! I am not sure the investment experience with BRICS countries? rest would lure me away from the UK and watching I get invited to visit the BRIC countries frequently Manchester United! and I am given a fabulous reception by them. It is For many Europeans and Americans, who are especially true in Brazil and Russia where I am ofused to the idea that in a few decades the global ten treated with particular warmth, as they seem economy will be dominated by different counto think that my creation of the BRIC acronym tries, the future still looks pretty abstract. If in literally gave their country recognition that helped 2013 you had to explain to students from your change its position in the world. It is also the same hometown of Manchester, the world in which with China and India, but less than the other two, they will be living in 2030, what would you tell especially with India. I sometimes get the impresthem? sion that the Indian elite simply think that I recogIt is very interesting that you ask these two questions nised something that should have been obvious to together, as I often speak to students today, although all, and occasionally I tease them that they have to 32
Five Surprises Ahead
The growth rate of the BRIC nations will
lenge to us, and for not ones just from Manchesslow this decade as they won΄t be able to ter. Many students seem to be sustain the growth rates of the past decade. them personally. It is understandable I supless frightened about this posBut even with softer growth, their impact pose, because when sible future world than people on the world is getting bigger and world we get older it is more from my generation. In fact, growth will be stronger this decade difficult to adapt to their enthusiasm to host me is change, but I prefer the student response! so transparent that it affects me, and I often leave a I guess the other thing I cannot resist in saying student campus – whether it be a school or a univeris that if the Manchester students also happen to sity – with a real spring in my step, and think of all be Manchester United supporters, then they will the positives for mankind when I see their reaction already know that Manchester United are perhaps and listen to their questions. Most of them presumthe world’s best and most desirable BRIC ΄content΄ ably see all of such a world as a great opportunity. play as the team’s popularity around the world It is quite different compared to people of my genknows no limits seemingly, certainly something I eration who tend to be more set in their ways, and observe when I travel around and the response I get see the rise of China, India and the other growth as soon as I say that I am from Manchester! market economies as some sort of threat and chal№2, 2013
Not Just About Oil Even though crude oil remains a primary resource fueling the steaming economy of Kazakhstan, the country is rapidly diversifying away from oil dependency, seeking a bigger role in shaping the global agenda via BRICS mechanisms. How? Kazakhstan's Deputy Prime Minister Kairat Kelimbetov offers some hints in an exclusive interview with BRICS Business Magazine.
contend, and we are prepared to help shape this emerging future. Is Kazakhstan interested in contributing to the BRICS discussion on a full-fledged basis? Specifically, do such matters as the development of a new Global Financial Architecture stay relevant to Kazakhstan’s own agenda? We are undoubtedly interested in a full-fledged participation in any discussions that involve global economic policy dynamics, particularly with respect to emerging markets. The question of developing a new Global Financial Architecture (GFA) is one to which we have given much consideration. There is no doubt there is a desperate need for a new GFA, and Kazakhstan is ready to be instrumental in pushing this agenda along. We are confident that we can fix our own imbalances, but we still must contend with the effects of the imbalances caused by the actions and policies of other countries. Similarly, we cannot ‘fix’ the GFA, even in cooperation with other emerging economies. So, my point is that Kazakhstan, together with other key high-growth states, should have a say in the reworking of the GFA. But we need more than just to have a talk. In order to get the problem addressed specific steps are to be taken. Several years ago, the President of Kazakhstan, Nursultan Nazarbayev, proposed a G-Global group of nations to replace the G20 as the most influential force in setting international economic policy and to search for global anti-crisis solutions. Do you still stick to the idea? Yes, we do. Clearly enough the relative economic power of the West is fading, and all the stakeholders – both emerging and declining powers – need to adjust to the emerging environment. We do believe
Even though Kazakhstan is not a member state of the BRICS, what is your guess about the grouping as a cooperation mechanism? Does it have the potential to grow into a center of political gravity in the emerging world? As a cooperation mechanism of dynamically develo ping countries, BRICS is neither a new block of global powers nor a political alliance. It is rather a new partnership model of global economic cooperation. The BRICS mechanism contributes to the strengthening of contacts and exchanges between developed or countries on the basis of solidarity, cooperation, and mutual benefit, without confrontation or actions against any third party. As to Kazakhstan, formally we do not meet all the criteria originally set forth in the 2003 Goldman Sachs report Dreaming with BRICs: The Path to 2050. The BRICs are all populous, high-growth emerging markets, while our country has a small population size. We have, however, two of the original four BRICs countries as our direct neighbors and we have strong trade ties with both Russia and China. Anyway, we must all work collaboratively to address the huge challenges of the modern world. Global power relationships are shifting and there are increasingly more global players, and it is clear that the ‘going it alone’ approach does not work in the long term. As we all struggle to learn what it means to be a part of a ‘global community’ not only in theory but in practice, there will be missteps. However working together, thinking longer term and sharing best practices while creating a fertile environment for innovation, we have a much better chance to succeed. We do believe that the shift in geopolitical gravity from West to East as initiated by the BRICs is a force with which all nations must 34
Not Just About Oil
the G-Global, which is an international virtual platform based on the Astana Economic Forum, can be helpful in reshaping global development for the benefit of all. President Nazarbayev once mentioned global food and energy security amongst the most promising areas for cooperation between Kazakhstan and the BRICS. Do you feel Kazakhstan can play a role as a valuable supplier to the member states? Access to affordable food and energy is going to be one of the most pressing challenges given the unprecedented growth of the global population, as well as improving living standards in low- and middleincome economies. The so-called ‘energy ladder’ demonstrates that there is a non-linear relationship between energy demand and economic growth. The same concept applies to food and water resources. Kazakhstan has an enviable natural endowment of natural resources and arable land. So, given the low density of our population and the proximity to China, a net importer of oil and gas and foods, we are quite well positioned to play a key role in addressing the energy and food demands of the BRICS. Since independence in 1991, Kazakhstan has attracted more than $150 billion of foreign direct investment (FDI), including $20 billion over the past year alone. What are the reasons behind the success? As you know, Kazakhstan is a resource-rich country, with a strategic geographical location, and we currently rely heavily on our natural resources for wealth. However, we have always anticipated Kazakhstan’s economic stability and fiscal balance might be threatened by such a dependence on a single sector. As such, in order to diversify our revenue streams, we have been increasingly focusing on investments that can help achieve efficiency in other sectors of our economy such as agriculture, chemicals and pharmaceuticals, infrastructure, transport, and telecommunications. As one part of that effort the government continues to form an adequate legal framework for the protection of investor rights. The basic legal act in the field of investments is the Investments Act, which regulates the legal and economic framework of investment promotion. The Act, according to international experts, is highly regarded by the foreign community and is considered one of №2, 2013
Kazakhstan has an enviable natural endowment of natural resources and arable land. So, given the low density of our population and the proximity to China, we are quite well positioned to play a key role in addressing the energy and food demands of the BRICS
the best in the area of investments in transition economies. It guarantees the full protection of the rights of investors and the stability of contracts, and explicitly administers state authorities’ activity with respect to investors. The Act also contains provisions dealing with the rules on compensation and damages to investors, according to which Kazakhstan will now reimburse losses from force majeure situations. Beyond this, the government stays in continuous dialogue with foreign investors and Kazakh entrepreneurs seeking to provide an attractive envi35
ronment for doing business in the country. To this end, Kazakhstan has created a number of special economic zones, based on established international practice. Do you offer investors any special programs, conditions or benefits in line with Kazakhstan’s vision for attracting FDI and supporting diversified economic development? Kazakhstan has adopted a special program for 2010–2014 with the aim of attracting investments, development of special economic zones, and export promotion. The purpose of this program is to create an attractive environment conducive to direct investment in non-primary export-oriented and high-tech production, as well as to enhance integration into the world trading system through the promotion of exports of processed goods. To tell you more, many are aware of the ‘Kazakhstan 2030’ program, but perhaps not everyone knows our country has already attained a number of long-term objectives set out in the program ahead of schedule. This prompted the adoption of the new strategy ‘Kazakhstan 2050’ several months ago, in which diversification of the economy is defined as one of the priority directions. Following the diversification line Kazakhstan makes big bets on industrial clusters. Can you elaborate on that? At the beginning of this year President Nazarbayev tasked the Government with the development of the so-called ‘new generation clusters’. The concept behind the effort is to deliver industrialeconomic clusters that will capture deep value added from the industry value chains as opposed to export commodities. So far, we have envisaged four of them (see insert). We believe they will help us achieve balanced socio-economic development, and will allow us to focus our activities and capture high value added and the synergies that exist among them. For example, the development of an advanced incountry metallurgy capability will provide for the technology and processes to develop advanced materials for wind turbines, agricultural machinery, food processing plants and oil and gas equipment. The development of agricultural machinery will in turn be used to increase the productivity of our agricultural sector. Has the establishment of the Customs Union within the borders of Russia, Belarus and Ka-
Clustering out of oil dependency The government is focusing its industrial diversification strategy on the development of four industrial-economic clusters:
ŦŦ The integrated energy-economic cluster
Kazakhstan has large resources of oil and gas and these are being developed in an environmentally sustainable way. The country has implemented a roadmap to virtually eliminate flaring and venting of natural gas and is working with the energy community to develop local content substantially. Kazakhstan also has a large potential for wind energy, mainly in the north of the country, and we are selectively developing wind farms to provide clean power to homes and businesses. “We are adapting the best practices, and developing new ones as necessary, in order to create a sustainable energy-economic cluster for the 21st century,” says Kairat Kelimbetov. ŦŦ The metallurgy and machinery cluster
Kazakhstan is rich in iron ore deposits. The country is currently upgrading its industrial base and practices to make optimal use of this, and other mineral resources, and turn it into value added products, including industrial machinery. By doing it in-country, Kazakhstan will reduce the environmental impact, while also creating valuable highlyskilled jobs. ŦŦ The agricultural and food processing cluster.
Given the low population density and large amount of arable land, there is tremendous opportunity to increase Kazakhstan’s organic agriculture and cattle production, and to capture va lue throughout the entire value chain by link ing in to food processing before exporting within the Customs Union and beyond. ŦŦ The integrated chemicals-economic cluster in Southern Kazakhstan
This cluster will leverage Kazakhstan’s rich phosphorite reserves, the development of the oil and gas sector, and the recycling potential of sulfurous gases coming from the metallurgy sector and large stocks of various salts. 36
Not Just About Oil
zakhstan in any way affected your country regarding investors’ attraction? The establishment of the Customs Union has positively impacted on Kazakhstan’s attractiveness to foreign investors. According to the Ernst & Young’s 2012 Kazakhstan Attractiveness Survey, economic integration is an important factor in the improvement of our country’s investment climate. Investors see this regional organization as a stimulus to aid market expansion, enhance competitiveness and strengthen human capital skills. With the introduction of the Customs Union and Common Economic Space, the single market of Belarus, Kazakhstan and Russia contains nearly 170 million people. This will help to realize the economic potential of Kazakhstan. The establishment of the Development Bank of Kazakhstan is obviously part of the diversification line. On what principles does it work? What are the key objectives? The Development Bank of Kazakhstan (DBK), created in 2001, is a key state development institution that provides large-scale debt financing to companies active in the priority sectors of the economy to enable the development of infrastructure. The priority sectors, which include metallurgy, petrochemicals, chemicals, machinery, and infrastructure – for example transport logistics, tourism, electricity distribution and production, amongst others – are fully aligned with our country’s industrial diversification strategy. There are two key underlying principles that govern the Bank. The first one is the Development Principle meaning the potential of a project to improve the socio-economic development of the economy. The second one is the Payback Principle implying the ability of the company to service its debt to the Bank. The main objective is to stimulate the non-minerals sector of the economy by providing long-term debt financing. Given the large size of the country, one of the key objectives of the Bank is to ensure that the various regions receive a fair share of the financing. What are the DBK’s priority projects in that way? How do you evaluate success? According to our new strategy, approved in November 2012, the DBK’s priority projects fall into three groups. They include a) projects being implemented within the Accelerated Industrial & In№2, 2013
My point is Kazakhstan together with other key high-growth states should have a say in the reworking of the GFA. But we need more than just to have a talk. In order to get the problem addressed specific steps are to be done
novation Program; b) projects being implemented by SWF Samruk-Kazyna; and c) commercially attractive projects which are considered too risky for commercial banks. The Bank’s success is evaluated through several key metrics. Firstly, there are standard financial indicators such as ROE, ROA, the quality of asset portfolio, and the volume of investments. And secondly, we assess development effects, as measured by the Development Effect Index, developed by the DBK based on the best-class experience from similar development institutions worldwide. Are you happy with the DBK’s success? Are you looking to enlarge its mandate? According to these metrics, the DBK’s success has been on average very good, especially when it relates to its primary objective of investing in the priority sectors of the economy. The portfolio, which includes some historical bad loans, is currently being cleaned up in an ongoing process, expected to be completed by the end of 2013. Historically, the DBK has only provided traditional debt financing. So, you are right, going forward we intend to include other financing mechanisms, including project financing. This will allow us to implement our strategy faster and control risks better. That said, economic and social development is never truly finalized. This is an ongoing process and the President of Kazakhstan has tasked the government with creating the National Development Agency, and the DBK will be a driving force within this new institution. It is important to note that the various development institutions are very complementary given that they each focus on a particular niche development activity. For example, the DBK’s niche is to invest in larger projects, while the Damu Fund provides financing to SMEs. The National Development Agency will be created to coordinate the activities of the various development institutions in Kazakhstan to achieve a single overarching objective: “Balanced Socio-Economic, yet Environmentally Sustainable, Development”. 37
Sub-Zero Gold Lev Kuznetsov, Governor of Russiaâ€™s Krasnoyarsk region, is accustomed to hearing the never-changing litany of myths about Siberia from foreigners. Here he tells us that these myths can and should be dispelled, because both sides suffer from the resulting miscommunication.
At an OECD conference recently held in Krasnoyarsk, the former prime minister of Belgium, Yves Leterme, told the audience that the old people in his country used to try and scare their youngsters into studying hard by telling them they would otherwise end up in Siberia. They were convinced that those who did not make progress or good grades were doomed to end their days in that wild country. We tend to encounter other examples of this sort of â€˜phantom thinkingâ€™ relatively frequently; most nonRussians have a very vague idea as to what Siberia is all about, while the civilised part of Russia is limited
in their mind to the Garden Ring of Moscow. While general perceptions of Brazil, India and China may well be more or less close to reality, when it comes to the eastern part of Russia, most people tend to think of sub-zero temperatures and long roads. However, in reality, things do look different. The Krasnoyarsk region has been consistently one of the top ten Russian regions in terms of level of investments. For example, today, the Vankorskoe oil and gas field produces almost 20 million tonnes of oil per year. Since the launch of this project, Rosneft has invested nearly $6 billion, with the estimated aggregate returns expected to reach $80 billion. 38
Naturally, the black gold is just another typical cliché associated with Siberia – much like the cold weather. Therefore, it would behove us to add that the region boasts a well-developed non-ferrous metallurgy industry, space industry, education system, and hydropower plants. Krasnoyarsk is also home to the Siberian Federal University – one of the largest in the country. Over 90% of Russia’s satellites used for civilian purposes, and a broad range of space vehicles commissioned by foreign partners, are produced right here in the Krasnoyarsk region – all based on local competencies that are generated, implemented and supported by us. Both Russian transnational giants and large European companies feel perfectly at home in Siberia. The share of foreign investments is not that great, but this trend is clearly about to be reversed. Today Lufthansa Cargo – the German airline’s cargocarrying division – uses our airport for refuelling, which enables them to save on fuel costs. With the passing of Open Skies laws the company plans to increase the number of flights. Sometimes people ask me if I am ready to lobby the interests of foreign investors. The story of our relations with Lufthansa Cargo helps to answer this question. This February, at the Krasnoyarsk Economic Forum, we signed an agreement to develop the airport with the Ministry of Transport, the Customs Service and Rosaviation, in the presence of the prime minister. If that is not lobbying in the best sense of the word, I do not know what is. It is rather obvious why we cannot come up with a hundred examples of this kind. The greatest obstacle is that we have a less intensive consumer market compared to European Russia. Once I asked a representative of a large international automotive company to share with me the criteria based on which his company selected the location to build their plant, and whether they considered regions located beyond the Urals at all. He honestly replied that they did not. Their shareholders believed that sound demand was the most critical requirement. Incidentally, the Krasnoyarsk region has consistently ranked high among other Russian regions in terms of per capita income levels, yet one could not say that the region is densely populated. Markets like ours would only pop up on radars after the most populated areas have been fully explored. However, our advantage lies in the fact that we have a clear understanding of our needs – and are ready to №2, 2013
the old people in Belgium used to try and scare their youngsters into studying hard by telling them they would otherwise end up in Siberia. We tend to encounter other examples of this sort of ‘phantom thinking’ relatively frequently; most non-Russians have a very vague idea as to what Siberia is all about, while the civilised part of Russia is limited in their mind to the Garden Ring of Moscow
translate them into investment proposals. Last century the Krasnoyarsk region was considered to be too far removed from any international centres and lines of communication. Now we know that its geographic location offers unique logistical opportunities. The best air route from America to Asia lies over the North Pole. Trans-Arctic flights would require spare airfield capacities and air-traffic control facilities in northern Russian cities. Many would find it hard to believe, but a powerful flow of commodities and people will course through Siberia in the near future. One does not miss out on such an opportunity. Another critical centre of gravity is the urban environment, with its energy component. In this area we truly need additional competencies. The regional administration is capable of creating an enabling environment that would help businesses to quickly obtain permits. We can manually fine-tune our operations, offer profit tax benefits and contribute our own funds to build a part of the infrastructure. If underinvested areas are transformed into business opportunities and concrete projects, that would be a good result. What is more important is to overcome the ignorance and miscommunication. Now Krasnoyarsk is competing to host the 2019 Winter Universiade, which is not just another sporting project for the city and the region, but a real opportunity to convey to the youth of the world who we really are. However, this project would require significant changes in the city’s infrastructure. That is why we are interested in investments and state-of-the-art technologies in the area of transportation and municipal and public services, as well as grassroots sports. We stand ready to demonstrate that we are capable of creating an enabling environment to support investments as efficiently as the rest of the civilised world. I believe that establishing new and reliable contacts with this world will become one of the key challenges for the whole of vast Siberia. 39
Innovation Is Imperative Victor Korolev Thirty years ago he helped create what was destined to become a global software giant, helping India become a new global center for economic growth and innovation. Today he is engaged in bringing about the enterprise of the future by investing in R&D and new talent. In an exclusive interview with BRICS Business Magazine, Infosys founder and CEO S.D. Shibulal discloses his secrets of success and explains how to best capitalize on the opportunities unfolding before us. 40
Innovation Is Imperative
Some experts say the new paradigm shift in technology could emerge as a disaster, not a blessing. For instance Ken Rogoff, a Harvard University professor of economics and public policy, earlier this year marked the proliferation of industrial robots and other productivity-improving technologies as a huge threat to thousands of jobs in emerging economies, and a risk factor for world inequality in wellbeing to deepen further. I don’t believe technical revolution is a disaster. Historically, technical revolution has only contributed to the large-scale benefit of the society, whether it was the industrial revolution or the rise of the digital era. However, every time we witness a paradigm shift in technology, there are bound to be unintended consequences. For instance, in the first phase, when automation in the manufacturing industry brought about huge productivity increases, it did come at the cost of thousands of jobs. In the second phase of the technical revolution, the one we are witnessing today, service jobs are becoming automated. The rise of automated teller machines replacing desk cashiers in banks is an example. The third wave of the technical revolution will witness the rise of niche or high-tech jobs in the near future, again coming at the cost of job redundancies. However, every new phase of technology will also create millions of jobs. The jobs of the future, in the next 5-10 years, will be created in several areas like robotics, healthcare, genome technology, personalized care and mobility, amongst others. However, leveraging these opportunities requires certain key enablers. What kind of enablers specifically? Firstly, it’s investment from all stakeholders – government, private sector, and individual – in building the talent and training infrastructure. Secondly,
Since the beginning of the financial crisis, finding new sources of economic growth has become central in global intellectual discourse. Do you believe advances in technology can provide the drivers and become a key to shaping the emerging future? Yes. Advances in technology, led by innovation, will continue to play a key role in shaping the emerging future. A new technological landscape is already here, led by trends like digital consumers, mobility, and cloud, amongst others. These trends give enterprise new opportunities for technology-led innovation and growth. To begin with, crisis or otherwise, the fact is that what helped governments and enterprises succeed yesterday will not help them succeed today. What will help them succeed today will not help them tomorrow. Businesses and business models alike need to constantly reinvent themselves to adapt to the changing social and macroeconomic environment in which they operate. To succeed, they need to be consistently relevant to the changing needs of the consumer or client. Today we live in an age where emerging trends in technology and society are changing the way we interact with each other. More than 50% of the world’s population is under the age of 30. There are close to 2 billion internet users globally and 87% of the world’s population has a mobile phone. If Facebook were a country it would be the world’s 3rd most populous – twice the size of the U.S. These trends are changing consumer mindsets and consumption patterns. Enterprises wooing these consumers are left with no option but to adapt to their evolving lifestyles. Businesses across the board have always had consumer choices and preferences at the heart of all their strategies. However, what has changed in recent times is the fact that there is little room for blunders. Products and services are voted a success or failure even before they hit the High Street, by consumers actively conversing on social media. Mobile internet has only exacerbated this trend. Enterprises seeking to leverage this enthusiastic and involved consumer to make more than just yes or no decisions, and collaborate with them to create unique value, have led to the growing focus on co-creation. №2, 2013
The business environment in India during the 1980s was by no means conducive to entrepreneurial ventures. In the midst of these challenging times, a group of seven software professionals with high aspirations, but limited resources, founded Infosys. The first ten years were characterized by the overcoming of tremendous obstacles. It took a year to obtain a telephone connection and two years to obtain the license to import a computer 41
emerging economies have been at the forefront of driving the engine of global economic growth. They were amongst the most resilient economies during the recent global financial crisis. While developed economies struggled with shrinking and stagnant economic growth, India and China continued to grow, albeit a bit slower. India and China grew on average at about 8% and 10% over the past 3 years and are expected to have grown by 7.5% and 8.1% respectively in 2012. Advanced economies like the U.S. are expected to grow by only 3.5% in 2012. Let’s take a closer look at India. What are the key factors driving its economic growth? There are several key factors. To begin with, India has a large demographic dividend: a working-age (25 to 60 years) population of 61%. India’s labor force is estimated to have touched 526 million in 2011, up from 472 million in 2006. By 2050, the percentage of people above the age of 65 will be 39% in the U.S., 53% in Germany and 67% in Japan. India, by contrast, will have only 19% above age 60, according to an International Labor Organization (ILO) paper. Secondly, India has one of the world’s largest talent pools, producing close to 3 million graduates every year from its over 480 universities and 22,000 colleges. Of this pool, over 700,000 are engineers and 20,000 are postgraduates. Finally, technology itself is a powerful change agent in India’s transformation story. India has the world’s second largest mobile subscriber base with over 919 million users. In addition, the number of internet users in the country is over 121 million, of which close to 15 million are broadband users. India also has the world’s youngest internet population with 75% of all users under 35 years of age. These unprecedented developments have made India the new hub for growth, talent and innovation. Global technology firms, hitherto focused on the developed markets, woke up to this opportunity a few years ago in a small way. Today, India plays a critical role in their growth blueprints. Would you give us a couple of examples? In India, Infosys, along with Airtel – one of the world’s largest telecom operators – have launched a first-of-its kind mobile payment platform that facilitates cashless payments. The platform will enable ‘airtel money’ customers to pay bills, recharge accounts, shop at over 7,000 merchant outlets, and transact online through multiple channels in-
it’s talent mobility – within and between countries. This is because, while the jobs are created in one country or region, the talent might be available in others. Thirdly, it’s global exposure. The competitive landscape today is certainly global, hence the preparedness and strategies should also be global. And finally, it’s skilling and continuous skilling. To conclude, yes, technological revolution causes job losses in the immediate short term. However, in the long term, it is a huge creator of jobs, wealth and economic progress. What are the chances for emerging economies to step in and succeed in the global race for innovation, as well as to reach higher ranks in the technological hierarchy of the emerging world? This is already happening. Emerging economies like India and China have established themselves on the global platform. Like manufacturing in China, IT in India can lay a reasonable claim to being a powerful force that has helped script the country’s economic success story in the last two decades. To put this in context, let us look at the big picture. In recent years, led by India and China, 42
Innovation Is Imperative
Infosys’ leap to China
Infosys’ experience in China was very unique and insightful. Since inception, the company’s revenues had been generated predominantly from operations in the developed economies, particularly the U.S. and Europe. However, in early 2000, Infosys realized that they had to consciously tap into the increasing opportunities in the emerging economies like China, Brazil and Mexico, amongst others. China had by then already established itself as the world’s manufacturing hub. Global consulting and IT services firms had also started to look at expanding their operations in China in order to tap into the large pool of talent. Infosys was no different. In early 2004, when China was producing close to 600,000 engineers a year, Infosys started its operations there through a local subsidiary. It was new territory for the company, with a unique set of challenges, and they knew they had to tread patiently and understand and leverage the local ecosystem before their strategies bore fruit. The learning curve was slow and at times frustrating in the initial years. Between 2004 and 2007 Infosys only managed to scale to an employee base of around 400. However, this phase also gave the company tremendous insights. Based on these, they conceived strategies for overcoming the challenges and leveraging the potential of an emerging-market country like China, which Infosys later intended to replicate in other emerging markets. In China, Infosys had three key challenges to overcome: tapping into the relevant talent pool, creating a corporate identity, and building a brand locally. Over the past nine years, they have come a long way, and addressed those challenges through focused interventions like partnering with local government and institutions, and investing in building the brand and infrastructure. Infosys’ efforts have paid off. Today, China is one of the company’s flourishing and strategic markets. Infosys China has been listed among the Top 10 Global Service Providers in China by the China Council for International Investment Promotion for the second consecutive year.
Infosys in China in numbers
ŦŦ In the third quarter of 2012, Infosys China reported revenues of $26.56 million on a standalone basis, and employed 3,066 people. ŦŦ Infosys has four development centers in China – Shanghai, Hangzhou, Beijing and Dalian – with a total capacity close to 5,000 seats. ŦŦ The company has an Education Center in Jiaxing city. This is in line with the investment in talent that differentiates Infosys from its competitors. ŦŦ In 2011, Infosys laid the foundation stone for a new campus at the Zizhu Science and Technology Park in the Minhang district of Shanghai. The company plans to invest $125-150 million in the new campus, one of the largest investments in China by a software company. On completion of this campus (estimated in 2013), Infosys will have the capacity to expand to 10,000 employees in Shanghai.
ness cycles have been a part of the game for us. We have witnessed three major economic crises in this period, including the most recent financial crisis, and we believe that the frequency of these crises is only bound to increase. Our ‘anti-crisis’ plan, if you will, has always been to remain consistently relevant to the changing business needs of our clients. This has been the one aspect that has enabled us to adapt to, evolve, and adopt changing technologies, business models and business cycles to stay relevant. It has driven our investments in strengthening our capabilities. It has helped us transform ourselves as an organization, consistently. How does it affect your strategic planning, internal structure and policies? Recently, we have embarked on the new strategic journey ‘Building Tomorrow’s Enterprise’. As a part of this journey, we have made significant investments in strengthening our capabilities in several strategic areas including cloud, enterprise mobility, analytics and social media. Our recently launched platforms such as BrandEdge are already helping our clients leverage the opportunities provided by the complex world of social media. Our capabilities in cloud have enabled global leaders like Ricoh to transform their IT infrastructure in order to reduce their carbon footprint and drive efficiencies. We have realigned our internal structure and offerings to enable industry-focused and global go-to-market capabilities. Last quarter we
Like most emerging economies, India is a country of contradictions. We have 8-8.5% growth in recent years, but 300 million people below the poverty line. We produce close to 700,000 engineers, but over 16 million students are still out of school. 35% of the world’s illiterate people are in India. Our literacy rate is 63%. While India accounts for one sixth of the world’s total population, it doesn’t even figure among the top 100 nations in the Human Development Index (134th in recent rankings)
cluding mobile phones, interactive voice response, ATMs and point-of-sale. On the other hand, hospitals like Shankar Nethralaya have been performing state-of-the-art heart surgery for a fraction of the cost in comparison to advanced economies. In China, BYD has been ranked amongst the world’s most innovative companies for being the first to bring electric power to public transportation. They achieved this by building the world’s first purely electric bus. Investing in the New Future
What was Infosys’ own ‘anti-crisis’ plan? How well prepared are you for the challenges of the emerging future? In the 32 years since our inception, changing busi-
Infosys’ pioneering way
ŦŦ Infosys pioneered the Global Delivery Model, which is an industry standard today. ŦŦ The company became one of the first in India to focus on creating a global brand, with more than 98% of its revenues now coming from outside India. ŦŦ In 1993, after making its Initial Public Offering (IPO), Infosys became the first Indian company to share its wealth with its employees through an Employee Stock Option Plan (ESOP), the largest of its kind in India. ŦŦ In 1999, Infosys became the first Indian company to be listed on the NASDAQ (as INFY), a hallmark of its global aspirations. ŦŦ Infosys was one of the first few companies to voluntarily and fully adopt the Sarbanes-Oxley Act in compliance with the relevant U.S. regulations and laws. 44
Innovation Is Imperative
The famous Bangalore pyramid on the Infosys campus
software professionals with high aspirations, but limited resources, founded Infosys. The first ten years were characterized by the overcoming of tremendous obstacles. It took a year to obtain a telephone connection, two years to obtain the license to import a computer, and business was hard to come by. Yet the company persevered, developing a strong value system built on the principles of customer focus, leadership by example, fairness, excellence in execution, and integrity and transparency. After economic liberalization in the early 1990s, Infosys began to grow in size and revenue. Slowly but steadily, it began to increase its dominance in the industry and began benchmarking itself with global players and best practices – one of the first Indian companies to do so. This focus and discipline showed results as Infosys began to develop into an industry leader, with many firsts to its credit. As I said earlier, we have recently acquired Lodestone, a Zurich-based global consulting firm, to strengthen our focus on inorganic growth. In an article you highlighted the importance for companies to stay relevant to the “new future” to survive. How do you envisage tomorrow’s enterprise? As business leaders, we have to grapple with the challenges of continuously changing business land-
also acquired Lodestone, a Zurich-based global consulting firm with a strong presence in Europe, the Americas and other global markets. These investments are enabling us to partner with our clients to overcome the challenges and leverage the opportunities. Last year you were quoted as saying you don’t think ‘Infosys’ and ‘conservative’ should be used in the same sentence anymore. What did you mean by that? Historically, Infosys has always been known to set industry benchmarks for others to emulate. We have always been aggressive in our aspirations to take advantage of opportunities far ahead of our peers. Any crisis, including the recent one, only enhances the need for companies to be aggressive in leveraging new opportunities – as well as creating opportunities where none yet exist. Our strategies have been no different. The business environment in India during the 1980s was by no means conducive to entrepreneurial ventures. The landscape was dominated by a handful of family-owned conglomerates, and byzantine government regulations and import restrictions made it extremely difficult for any new business to start or succeed. In this environment, entrepreneurship as a career choice was in its infancy. In the midst of these challenging times, a group of seven №2, 2013
Because of its unique architecture, the Infosys headquarters was nicknamed ‘The Washing Machine Building’
In the context of Building Tomorrow’s Enterprise, what is Infosys’ approach to innovation and R&D? While innovation and R&D are an integral part of all aspects of our business, we are not a traditional products company; hence, R&D in our context is different. Finacle is one of the most comprehensive, flexible and scalable universal banking solutions in its class, and is one of our oldest and most successful products. Let me say that it is the chosen solution in over 165 banks across 78 countries, touching 14% of the world’s banked population, and powering 423 million bank accounts across 48,500 branches. Infosys Labs has been established as part of Building Tomorrow’s Enterprise. Consisting of a dedicated research and innovation facility, it builds on the successes of the award-winning Software Engineering and Technology Labs (SETLabs), and envisages a broader mandate. The 600-member technology- and domainfocused team works on driving innovation across seven identified trends (see panel), to transform our
scapes and rapidly emerging technologies. These challenges make existing business models redundant and new models relevant. Every challenge also brings new opportunities. The world today is dramatically different from the world a decade ago. New technologies, along with changing societies and demographic profiles, are affecting human interaction. The unprecedented penetration of technology I mentioned earlier has changed consumer mindsets and consumption patterns. Along the way, new markets have emerged and sustainability has taken center stage. Amidst these changes, our focus on being relevant to the changing business needs of our clients has remained constant. It is evident to us that the enterprises of tomorrow will be those that will be able to drive innovation to leverage emerging opportunities. Innovation is imperative to build tomorrow’s enterprises – be it innovating to identify new markets, to create new products and services, or to create new consumer experiences. 46
Innovation Is Imperative
Infosys’ technological trends shaping the emerging future
Infosys believes the next decade will be marked by seven key themes, presenting a great opportunity for innovation and sustainable growth: 1.
THE AGE OF THE DIGITAL CONSUMER: SELF-SERVICE, MICRO-PERSONALIZATION, CO-CREATION Companies are focusing on technology as a way to strengthen key services, differentiate product lines, and enhance the digital consumer experience. When it comes to digital consumers, self-service, personalization and co-creation combined with social networks and mobile technologies lie at the core of a successful business strategy. THE RISE OF EMERGING ECONOMIES: GROWTH MOMENTUM, INNOVATION HUBS, SMART SOURCING Emerging economies such as Brazil, Russia, India, China and Mexico are quickly becoming leaders of world economic growth. Infosys believes that these markets offer tremendous opportunities, and are the new hubs of innovation and talent. A SUSTAINABLE TOMORROW: SOCIAL CONTRACTS, RESOURCE INTENSITY, GREEN INNOVATION Sustainability is no longer a choice. Organizations must be environmentally conscious and look at sustainability not only as a means to earn trust as responsible businesses, but also as a tremendous opportunity to engage with stakeholders and act as catalysts for innovation. In a survey of U.S. CEOs, almost two thirds of respondents indicated that sustainability has become a mainstream concern for business. THE NEW COMMERCE: MOBILE, MICRO AND INCLUSIVE The new commerce is about reaching out to markets previously not accessed for want of supply chain feasibility or financial viability. It leverages mobility and micro-sized interactions to usher in inclusivity – redefining access, size and markets. THE HEALTHCARE ECONOMY: AFFORDABLE, PREVENTIVE, PATIENT-CENTRIC Affordability, prevention and patient-centricity are driving transformations in healthcare and healthcare technology, enhancing patient experience and providing populations with effective care. SMARTER ORGANIZATIONS: SIMPLIFY, ADAPT, COLLABORATE & LEARN New ‘smarter organizations’ deliver long-term value by striking a fine balance between operational excellence and continuous innovation. These organizations must constantly simplify, collaborate, learn, and adapt to tomorrow’s challenges and business cycles. PERVASIVE COMPUTING: SENSOR NETWORKS, INTELLIGENCE, CLOUD Pervasive computing is made possible by embedding sensors, controllers, devices and data into the physical world, creating seamless interactions enabling everyday objects to become smarter. For example, refrigerators will be able to create grocery lists, and automobiles will inform service centers of necessary repairs. Technology will continue to play a key role in leveraging these opportunities.
At Infosys, Building Tomorrow’s Enterprise focuses on these seven global mega-trends to help clients overcome the challenges and leverage the opportunities of the emerging future.
The Infosys head office is located in Bangalore, India’s largest scientific center
the training of 14,000 new trainees at a time, inhouse, as well as a full-time faculty of over 600, of which over 200 have a PhD. The GEC is used to deliver our 16-week residential training program, designed to aid students’ transition from the academic world to the corporate world as qualified professionals. The program is focused on imparting generic and stream-specific training in various technology areas along with soft skills and leadership programs. At Infosys, the focus on training started as early as 1991, when we recruited four trainees from the country’s prestigious Indian Institutes of Technology. The GEC was a culmination of this focus on training and development. We were committed to imparting knowledge, sharing best practices and building intellectual capital. The GEC gives scale to this vision. To date, over 100,000 entry-level engineering graduates have successfully completed the Foundation Program. The GEC is also home to the Infosys Leadership Institute, which is our focused Tier-Leadership Program to identify and groom future leaders of the organization.
clients’ businesses globally. Working together with clients, technology partners, universities and the larger innovation ecosystem, Infosys Labs focuses on setting up joint innovation centers and developing solutions to complex business problems. Today, ‘Products, Platforms and Solutions’ offerings form a key part of our strategic direction. We are making focused investments to strengthen our R&D capabilities across our service offerings. Our R&D repository includes 3,000 cloud and more than 1200 enterprise mobility experts, as well as Cloud and Mobility Academies. We have also launched the Center of Innovation on Building Tomorrow’s Enterprise. This showcases our unique capabilities and framework of innovation, which is enabling clients to take advantage of emerging opportunities. The Global Education Center (GEC) in Mysore is Infosys’ unique investment in new talent. Would you tell us a few words about the facility? The GEC is the world’s largest corporate training university. It has an infrastructure that can support 48
Innovation Is Imperative
spend 2% of their profits on social causes. Infosys has been a front runner in this aspect, contributing part of its profits to social causes decades before the law made it mandatory. What is your own sentiment on that matter? Is it discomforting or dangerous being wealthy in a generally poor country such as India? Can charity be a solution? No. It is neither discomforting nor dangerous. India is my home country and it is a secular country that accommodates people from all religions, cultures, sections of society and financial status. I would not call India a poor country, but a country where a large section of the population lives below the poverty line. There is a huge gap of inequitable growth and all stakeholders including governments, the private sector, NGOs and individuals are doing their bit to alleviate the situation. As I said, enterprises have the unique ability to make a positive difference in the societies that they operate in. We are fortunate to have been able to do our bit. At Infosys, our focus has always been on fulfilling our responsibilities to all stakeholders – clients, employees, industry, shareholders and society at large. As part of our commitment to society, we have undertaken several initiatives. The Infosys Foundation in particular has been a successful example. It was established in 1996 to support underprivileged sections of society. Infosys contributes 1% of profit after tax to the Foundation for its campaign to improve the welfare of people in rural areas of India. The Foundation focuses on healthcare, education, culture, destitution care and rural development. Another successful initiative is The Infosys Science Foundation, a not-for-profit trust set up in February 2009 by Infosys and some members of its board. The Foundation instituted the Infosys Prize, an annual award to honor outstanding achievements by researchers and scientists across six categories: Engineering and Computer Science, Humanities, Life Sciences, Mathematical Sciences, Physical Sciences and Social Sciences. The underlying mission of the Foundation is to spread and encourage the culture of science. In addition, senior leaders in Infosys are involved in several charitable initiatives in their personal capacities.
India’s new face
Although Infosys is a clear manifestation of the ‘new face’ of India, the country as a whole remains pretty poor, at least in terms of per capita income. In this context, don’t you think Infosys is a sort of maverick in India, and has to contribute more to the national community? Like most emerging economies, India is a country of contradictions. We have 8-8.5% growth in recent years, but 300 million people below the poverty line. We produce close to 700,000 engineers, but over 16 million students are still out of school. Thirty-five percent of the world’s illiterate people are in India. Our literacy rate is 63%. While India accounts for one sixth of the world’s total population, it doesn’t even figure among the top 100 nations in the Human Development Index (134th in recent rankings). We have poor public finances, weak international positions, structurally flawed businesses, poor infrastructure, corruption and political atrophy. Clearly there are huge developmental gaps, and our growth story has not been inclusive. Corporations play a key role in bridging these gaps because, beyond governments, they are the largest and most influential bodies that can drive large-scale socio-economic development. They create jobs both directly and indirectly – they provide livelihoods – and they contribute to improvements in the general standard of living in the societies where they operate. At the same time, corporations also consume resources from the societies in which they operate to drive profits – whether it is local talent, natural resources, or public infrastructure. Therefore they have an implicit responsibility to fulfill their social contract. They have to focus on driving growth which is sustainable and inclusive. This is no longer a choice. The consequences of inequitable growth will impact everyone in a society through social unrest and rising crime. This is not an environment that is conducive for business or social growth. Therefore, all stakeholders – corporations, governments, academia, NGOs, and society in general – have to work together to address these challenges. Most recently, in India, the government passed an amendment to the Companies Bill. With this amendment, it is mandatory for companies to №2, 2013
God’s Compassionate Home Dmitry Yusov Quality healthcare can be made affordable in countries such as India, even for those who have no means to pay for it. To accomplish this task one needs but a dream – and an innovative approach to building business processes. Devi Shetty, a cardiologist and founder of the Narayana Hrudayalaya hospital in South India, succeeded on both counts.
the backdrop of India’s struggling health insurance system, private clinics, which account for 70% of healthcare services in the country, are simply too expensive for the poor and disadvantaged. Healthcare facilities themselves are not immune to problems either: they are plagued by staff shortages, high capital expenses, shortages of medication and many other issues. In rural areas the situation is exacerbated by the ‘local environment’: the harsh living conditions, lack of hygiene or regular medical check-ups, population growth, and specific diseases such as malaria or complications caused by snakebites. Still, India can offer numerous examples showing that quality medical care can be made affordable for the poorest people in the country. Aravind Eye Care, an ophthalmological company, and Life Spring, an organization offering inexpensive prenatal and childbirth support, certainly stand out. But the most striking example is Narayana Hrudayalaya, a center providing state-of-the-art medical assistance free of charge or at affordable prices. Its name translates from Sanskrit as ‘God’s compassionate home’, and this is precisely where my driver is taking me, to meet Dr. Devi Shetty, the man who founded this facility.
I leave the terminal of the recently-built airport in Bangalore and head for the taxi stand. I ask the driver to take me to the Narayana Hrudayalaya hospital, to see Dr. Shetty. He happily nods in response and rushes to open the door for me. One minute later we hit the road. As we leave the airport area I notice billboards advertising luxury flats for Rs20 million (roughly $40,000). Contrasts in India never cease to amaze me. We quickly reach Bangalore city but find ourselves immersed in typical Indian traffic chaos, which gives me a moment to stop and think about the purpose of my trip. Outside observers would never be able to tell that the Indian healthcare market is going through a veritable boom, yet it is. While in 2010 the market was estimated at $46 billion, this year it is forecasted to reach $64 billion. Private practices and hospitals, as well as the medical education received by Indian students, are among the main drivers of these advances. However, despite the rapid growth, a significant percentage of Indians – primarily those living in rural areas – still have no access to quality medical care. Several factors account for this phenomenon. State hospitals are few and far between and they are unable to cope with the influx of patients. Against 50
God’s Compassionate Home
The Health Colony
Efficiency and Technology
In the traffic jam, I sit and count the time I have left until my appointment – half an hour… then fifteen minutes. I was hoping we would make it there in two hours, but that is clearly not going to be the case. It is time I placed a call to the Narayana Hrudayalaya center and let them know, but I cannot seem to get through. Suddenly, I receive a call from Dr. Shetty himself. I apologize for being late. He assures me that it is perfectly all right, and I continue my journey. Dr. Shetty is a person worthy of the highest admiration. He was the eighth child in his family. He had wanted to become a doctor since he was a little boy. When he was in the fifth grade his teacher told him that a South African surgeon had performed the first ever heart transplant. It was at that moment that Devi Shetty decided to become a cardiac surgeon. He graduated from university in India and went on to complete an internship in the UK. He returned to his home country in the late 1980s, having been invited by an influential Indian family to head up a cardiac center they had built. He quickly became famous for his skills as a surgeon. One day he received a phone call right in his surgery room. The caller begged him to come and help a patient. That patient turned out to be Mother Teresa. After performing heart surgery on her, he became her personal physician. Meeting Mother Teresa turned Shetty’s life around completely. He decided to build a hospital of his own so that he could perform surgery for everyone who needed help – and not just those who could pay. His father-in-law, who shared this dream, financed the construction of a cardiac center on the outskirts of Bangalore, which opened its doors in 2001. In time, several other Narayana Hrudayalaya facilities were built nearby: oncological, neurological and ophthalmological centers. Dr. Devi Shetty and his colleagues refer to their center as the ‘Health Colony’. But the story does not end there. Narayana Hrudayalaya now operates or owns hospitals in 14 other cities in India, and its doctors often provide medical advice to colleagues as far away as Africa, via telemedicine. Every Narayana Hrudayalaya surgeon has a laptop with Skype installed. №2, 2013
As I enter the hospital I instantly notice a bas-relief of a deity. After all, how could one perform serious surgery without praying first? I am shown to Dr. Shetty’s office and watch him receive his patients for about half an hour. On average he receives around a hundred patients, and performs two operations, every day. He shows genuine concern for every patient. Despite the enormous foot traffic in his office, he remembers patients he has treated before and even the particulars of their diagnosis. Dr. Shetty invites me to talk over lunch and then rushes off to the operating room, leaving me in the “capable hands” of his business development manager. It is with him that I am taken on a tour of the center. I am impressed most of all by the pediatric ward, where I even see new-born babies coming out of surgery. We are driven quickly between facilities in an electric car. All buildings are clad with marble and kept very clean. There is a sense of gravity in the air. “Many poor people feel out of place surrounded by all this marble,” my guide admits. Indeed, as opposed to Indian tradition, which mandates that hospitals should primarily target wealthier patients, Narayana Hrudayalaya places greater emphasis on the poor. At the same time it is probably the most efficient hospital in the world. The Narayana Hrudayalaya cardiac center, the flagship facility, can offer up to two thousand beds. Here an average heart procedure would cost around $2,000. For the sake of comparison, a similar operation in the United States would range between $20,000 and $100,000. Where does the secret of his success lie? Dr. Shetty explains: an innovative approach to management processes is required, more than innovations in surgical methods and techniques. This approach can be broken down into five components. The first component is that hospital beds should always be filled – here the centers rely heavily on patient waiting lists. The second component is the optimization of equipment costs. Narayana Hrudayalaya hospitals maintain direct contact with manufacturers of medical equipment, bypassing intermediaries and helping to ensure competitive prices. “After the first cardiac center was built, it became easier for us to talk to manufacturers and branch out to other areas,” says Dr. Shetty. Equipment is also utilized to a very high degree. Narayana Hrudayalaya has reached an agreement 51
The Narayana Hrudayalaya approach to cutting costs dovetails with its declared set of values that are neatly packaged in the acronym ICARE:
INNOVATION & EFFICIENCY
RESPECT FOR ALL
EXCELLENCE AS A CULTURE
Hrudayalaya and the Karnataka State government launched a micro-insurance program enabling Indians to pay 10 rupees a month (roughly 25 US cents) for the right to choose from a thousand different surgical procedures. To be able to break even, the hospital also performs surgeries for relatively wealthy individuals who can afford to pay more for their medical treatment. For example, a heart surgery for a foreign national would cost on average $7,000. “We calculate the ratio between the surgeries that are paid and those that are offered free of charge on a daily basis, so that we could scale up the former if the need arises,” Shetty says. Recently the hospital came up with a new initiative to build a network of low-cost hospitals with 150300 beds each in suburbs and rural areas of India. The first hospital of this kind was completed late last year and is now able to accommodate 200 patients. The cost of building such medical facilities is low, as the walls and roofs are assembled from prefabricated parts; no marble. Locally-available materials will also be used to the maximum extent, while air conditioning will be installed only in those areas where it is truly needed, for example in operating rooms. “The way these hospitals were designed provides for efficient natural aerification and lighting, which cuts electricity costs,” explains Dr. Shetty. He says paramedical personnel costs can also be cut by giving patients’ families basic training to be able to provide in-patient care themselves. “Our specialists calculated that it would cost three times less to build this kind of a hospital than a traditional facility of a similar nature.” Beyond India, Narayana Hrudayalaya has plans to open medical facilities elsewhere in Asia, in the Cayman Islands, and in Miami. Dr. Shetty would not mind treating patients from Russia either. “Perhaps one day we will open a hospital in your country,” he says, and those are his parting words.
with healthcare equipment service provider Trimedx, whereby equipment is serviced and supported for a period of 14 years, as opposed to the market standard of 7 years, when hospitals usually have to replace their entire technical infrastructure with new equipment. In addition, the centers lease some of the equipment used in ambulances and electric cars. Together these efficiencies save a lot of procurement money. The third component is the minimization of personnel costs through high-quality specialist training and narrow specialization, which combine to pave the way to greater productivity. For instance, due to the high number of operations performed at Narayana Hrudayalaya, local surgeons tend to specialize in one or two operation types, which means they are exempt from doing routine paperwork and can focus entirely on their core duties. As a result, surgeons here perform about 12 operations per week – a number that is significantly higher than the average across Indian hospitals. They receive a fixed wage, which means that personnel costs remain at the same level even though the number of operations is growing. The fourth component is the outsourcing of everything that is not directly related to patient treatment, including laundry, catering, waste removal and similar services. The final component deals with the implementation and use of state-of-the-art information technologies across the board. Narayana Hrudayalaya was the first hospital in India to migrate its entire Enterprise Resource Planning (ERP) system to cloud technologies. The move enabled the center to reduce its IT infrastructure support costs and provide real-time access to information. The Rich Pay Their Way
Cost optimization, however, is not the only way to make high-tech medical assistance affordable for as many patients as possible. Some time ago Narayana 52
My Electronic Country Online coverage of presidential elections, and 10 million citizens’ trips between government agencies made virtually – Russia is stepping up the deployment of information technologies to be used in the country’s government and administrative systems. Igor Schegolev, aide to the President of Russia, talks about the best practices and solutions that Russia is ready to share with its BRICS partners.
How would you characterize Russia in terms of IT development? The internet economy in our country is growing much faster than the real economy, at the overall rate of up to 30% per year. In 2012 ICTs accounted for nearly 4% of our country’s GDP and this figure continues to grow. Our country has become one of the leading nations in terms of exporting software and software development services – the only countries we are significantly lagging behind are India and the United States. In 2012 Russia jumped ahead of Canada, the United Kingdom, Switzerland and many other countries and is now ranked 14th in the world in terms of innovations. The government and government programs in this area are certainly not taking the back seat in this process. Which programs are you referring to? I am primarily referring to the government program entitled ‘Information Society’, in the framework of which we created the e-government. Our successes in this area are widely recognized. For instance, according to the United Nations E-Government Survey 2012: E-Government for the People, today Russia is ranked 27th in the world in terms of the level of e-government development. In just two years we jumped ahead of 32 countries, leaving half of EU members behind. Parenthetically, this was the best result among the BRICS countries and we are ready to share with our colleagues our insights as to how and why this approach works. It is probably the first time that the UN experts assigned such a high ranking to our country in terms of IT development. What brought that about? First off, we migrated a large variety of public services to electronic platforms, making them accessible anywhere in Russia. For the first time ever Russian citizens were given an opportunity to enjoy these services in the comfort of their own homes, without having to physically visit government agen-
cies. To this end we opened an Integrated Public Services portal on the web. Needless to say, at that time this was a bold move. Some were concerned that ordinary Russians would not accept this novelty and were not likely to use these services. However, on the day when the portal went live, all of our concerns dissipated when we saw the incredible public interest. This new and previously unknown resource shot to the top of the Russian Internet segment in terms of the number of hits. Today more than 4 million users from every corner of our nation enjoy the portal on a regular basis. More than 5,000 public services have been made available to them in electronic format. In 2012 alone Russians received 15 million services electronically. Secondly, to be able to make such a broad variety of services available to the public we needed to teach the authorities to communicate in an electronic format. Trying to connect 25,000 different federal and local agencies, and make them operate online as a single organism, is hardly a walk in the park. To facilitate this work, communication lines have been laid across thousands of kilometers in all 83 constituent entities of the Russian Federation, 54
My Electronic Country
tors watched up to 1 billion live videos – more than 500 years’ worth of video footage recorded in one day. Our lessons learned have already been replicated in the Ukraine during the parliamentary elections there. That project was also implemented by Russian programmers. Do you think Russia’s partners from the BRICS countries would be interested to learn about these successes? There is no doubt that in recent years the BRICS countries have made tremendous strides in developing and adopting various information technologies. However, the projects I was just referring to have never been attempted anywhere else in the world. They are too complex and ambitious even by modern standards. Now add to that the size of Russia, diverse landscapes and climatic regions, and a varying population density across different regions, and you will have an idea as to why it would pique the interest of our partners. The solutions and technologies we created could be successfully replicated in any other country in the world with an initial computer penetration level, and any population size. Naturally, we would not have been able to do so much over such a short period of time if it were not for the help of our powerful national telecommunications operator, who handled the main infrastructure and resource load, acting both as the developer and the operating organization, and assumed responsibility for the project’s outcome. So it is also a fine example of partnership between the private and the public sectors. You are dealing with the development of electronic democracy in Russia. Do you think the government is ready to hear the voice of the citizens? Of course it is ready. A project entitled ‘Russian Public Initiative’ – a system that enables ordinary Russians to submit their proposals and initiatives online – will go live already this April. According to a decree issued by the President of the Russian Federation, if any of these initiatives are supported by 100,000 citizens within one year, they must be addressed by the government. It has been decided that similar mechanisms for collecting initiatives will be used at the regional and municipal level. This will enable our citizens to get directly involved in running the country. Together we can change the country the way we see fit, which is what democracy is all about.
and the required computing capacities have been deployed. However, we still had to motivate the authorities to get connected. We came up with a simple yet efficient solution: it was expressly prohibited for government agencies to require that citizens submit certificates or other documents maintained by other agencies. That brought about a situation where officials either had to personally run and fetch such certificates required by the public, or start interacting electronically. As a result, today all of the federal agencies and most local authorities are connected to the e-government infrastructure. By the end of 2012 we registered more than 10 million exchanges of information and electronic certificates between government authorities that did not involve the general public. In other words the Russian people were spared 10 million physical trips to various agencies. Essentially, you managed to help people feel the advantages offered by information technologies. Do you think there would be an enabling social environment for replicating the lessons learned from the e-government project in other public areas? Of course I do. For instance, last year we successfully completed a project called ‘Web Elections’, where the Russian presidential elections were broadcast online from all polling stations. Imagine, just 2 months before the elections kicked in we had to develop a solution, buy and deliver the hardware to 90,000 polling stations, and make it all work together. Add to that 53,000 new ‘last miles’, and the requirement to build more than 9,000 kilometers’ worth of new communication lines, and to arrange for 3,700 satellite communication channels. The sheer scale of this project is measured in nine time zones! The software used to support the video broadcast was developed by Russian specialists, based on open-code resources. Granted, on top of that, not only did we have to resolve numerous technical issues, but also garner the support of millions of people, who voluntarily agreed to go to the polling stations in the virtual mode and observe the voting process and the counting of votes. On the election day – March 4th, 2012 – 500 million hits were registered on the webvybory2012. ru website, which means that one million unique users visited the site every hour. All in all, site visi№2, 2013
Not a Large Country... But With a Bright Future Preconceptions about Russia – especially concerning its size and potential – tend to be wide of the mark. But it is set to become a world center of design and a cultural conduit between the developing and the developed world, says Igor Agamirzian, CEO of RVC (Russian Venture Company OJSC).
other major differences: in demography, labor distribution and education levels. Colleagues from developed countries are amazed to discover our high literacy rate, given that the standard in other BRICS countries is so very different. Despite the fact that Russia is rightly considered to be one of the emerging markets, it seems to me that Russia could be the leading BRICS country, acting as a cultural and business conduit between the developed world – of which it is a member – and the developing world. But are the other BRICS countries ready to see Russia in that way?
Is there any accuracy in the lay opinion that the BRICS countries, and emerging markets in general, are associated with cheap labor, a talent for copying, high consumer demand, and a complete lack of innovation or breakthrough technologies? It is a relatively fair judgment with respect to the main BRICS countries, but Russia stands out from the crowd: it is the only one to also be a member of the G8. Brazil, India, China and South Africa are in the throes of their industrialization, while Russia has already been there and done that – way back in the last century. Naturally, there are 56
Not a Large Country... But With a Bright Future
In some ways, yes – but in other aspects, no. Both India and China, as we know, are importers of high-tech exports from the Russian defense industry. They have generally been heavily influenced by the Soviet Union. For example, the Chinese Academy of Sciences was built by Soviet academics, just like India’s current education system. Currently, that system is a curious hybrid of classical British schooling and a quintessentially Soviet approach. Incidentally, it turns out that this generates a synergetic effect, and is extremely effective. Our ties with Brazil and South Africa have historically been weaker, but they are now deepening. The received knowledge is that cutting-edge innovation comes from a small number of countries. Might the intellectual and technological balance shift in 15-30 years? I think so, yes. And, strange as it may seem, Russia has outstanding opportunities here. Despite the fact that only the USA and India are net software exporters, Russia could yet join that exclusive club. We often do not know how many new technologies are born in Russia, only to find their way into the products of the world’s leading companies. They usually wend their way back to us, fully packaged and under the label of one or other major brand. I only need to list one example – the Skype engine is built on Russian technology! Can we expect to see a new division of intellectual labor within that same timeframe? And if so, what will the geographical breakdown be? As regards the prospects for a global redistribution of labor and, most importantly, the prospects for the redistribution of added value and profit margins, we need to understand that the modern, postindustrial economy is shifting from production to engineering and development. Profit is generated not by production facilities, which can even be lossmaking in many sectors, but by design, which guarantees the uniqueness of a specific product. The trend is now to move from traditional, vertical integration in all forms of technological business, to horizontal cooperation. Twenty-five to 30 years ago, automotive companies did everything themselves, while today the structure is completely different, with several tiers of suppliers, and the car manufacturers themselves acting as developers, designers and systems integrators, choosing between products that either already exist on the market or are manufactured at their request. №2, 2013
Twenty years ago, people did not know they had a need for mobile telephones. That was an idea that touched a nerve, triggering a genuine psychological need
The same is true for microelectronics and aviation. That is, the center of added value has shifted from production to development, and here there are plenty of opportunities to participate not only in the markets of developing countries, but in the global economy. I see Russia as a world center for design, with production out-sourced to other developing markets. In the automobile industry, Russia is seen as a no more than an assembly plant. No – the assembly plants are China and the new countries of Southeast Asia. Russia is not seen as a player at all in global technological processes – only as a supplier of raw materials. Here, naturally, there is also a large sales market – you can see that from the large volume of high-tech products that are in demand in Russia, from Airbus and Boeing to mobile telephones. But this is not a massive market; Russia remains a relatively small country. Perceptions of the size of its territory are deceptive for outsiders, who imagine there is an equally large economy and population. I suspect that few people in the world understand that the population of Russia is only a little bigger than that of Japan. And the domestic market of China alone is ten times greater. The population there is huge, although the per-capita GDP is several times lower, and in India it has fallen even farther behind. Yet the potential demand, driven by a decent per-capita income and the rate of growth of the standard of living, make us more attractive. The mission of RVC aims at the “accelerated creation of a globally-competitive national innovation system.” This sounds rather utopian... As ironic as it may appear, our assessments and those of key foreign analysts researching the venture market and its influence on innovative entrepreneurship in our country, suggest that the accelerated development of our venture industry is all but guaranteed. If we look at the Dow Jones report published by the Wall Street Journal at the end of January, we can see that Russia has reached fourth place in Europe in terms of the absolute volume of venture investments, after Great Britain, France and Germany, and is in first place in terms of market growth rates. 57
many times over: technology is the easiest box to What level of interest is private capital showing tick. Technological business has nothing to do with in these markets – will private capital compete for technology; the crux of the matter is all about inthese projects? spired people, relevancy and latent potential. Private capital is the backbone of this market, while The most successful projects remain relevant state interests account for no more than 10%. The today, and we are interested in those things that competitive environment has already formed definhave the potential to become relevant. Twenty itively. Yes, the market is unbalanced, and includes years ago, people did not know they had a need for strong distortions. This primarily concerns specific mobile telephones. That was an idea that touched sectors. A huge proportion – more than 70% of a nerve, triggering a genuine psychological need. investment – goes towards the internet and comAs a rule, such things are impossible to predict. mercial IT projects that target the domestic marAfter all, no research ever indicated that people ket. They are simple, and built on tried-and-tested across the world had the need to constantly stay in business models. So, quite literally, they take a contact. The same can be said of social networks. model that has proved to be effective in other marBefore online communication technologies apkets, and simply deploy it here under a new name. peared, nobody knew that there was such a need. Such projects do bring a return very quickly, but Therefore, all the copying of systems and mechathey suffer from one fundamental drawback: they nisms is a matter of catch-up modernization. This have no competitive advantage in the world maris the sort of development that can never produce ket. Even the very successful Yandex, which was a fundamental breakthrough. launched almost simultaneously with Google, is So, China is engaged in catch-up modernization today encountering problems as it tries to develop – and what about Russia? in foreign markets, and Odnoklassniki and VkonEugene Kaspersky distakte cannot transform covered a need before themselves into the next Beijing is pursuing the right policy, Facebook. However, other intelligently shifting skills in business – and it had truly materialtechnological segments are copying technologies is of little significance ized, and became one heavily under-invested. For there. They do more than just copy: they learn of the world leaders in that market. The example, there is very little how to properly manage markets, perform same is true for Paralinvestment in alternative analyses and build business models lels, for example. We energy, one of the main tarhave companies that have discovered latent niches. gets for investment in developed markets. There are far fewer of these than we would like, but Which of the large group of developing counthey do exist. I do not know of any such Chinese tries has come closest to achieving your formula – companies. Beijing is pursuing the right policy, inthat is, to have created a system of accelerated, telligently shifting skills in business – and copying globally-competitive development? technologies is of little significance there. They do China – simply because that country set itself the more than just copy: they learn how to properly task 20 years before Russia did. China invested manage markets, perform analyses and build busimore effort to attract foreign, mainly American, ness models. Even China, with its massive scale, competencies. The issue is not even foreign investhas almost completely exhausted its potential for ments, although those undoubtedly were present, industrial development. The low cost of local labor but specifically competencies – that is what we have is driven in the same way as the industrialization an acute need for. of the Soviet Union was fuelled in the 1930s – by Meanwhile, Chinese companies are often acpeasants. This resource is almost exhausted. We cused of stealing technologies. can expect a significant redistribution of markets, You need to understand that the way a business is with emphasis re-shifting to domestic demand, organized, market analysis and supply chain busiwhile the domestic market becomes globally atness models are not subject to protection, and tractive. core skills are needed specifically for this section All this suggests a different form of criticism. of technological business. I have a pet theory, and Leading companies that generate a demand for in 30 years in this business I have seen it proved 58
Not a Large Country... But With a Bright Future
I am convinced that we are now on the threshnew products make people spend their lives chasold of a major social change, and even the economy ing after imagined needs, wasting their time and itself is of secondary importance to that. This is energy. By conjuring up yet another dubious need, something of a taboo subject in some circles, but such as endlessly ‘hanging out’ in social networks an elementary analysis of our history shows that on ever more convenient tablets, these companies the driving force behind the development of social actually diminish our quality of life. So although relations has, throughout the last 100 years, always we are now mobile, permanently reachable and been technology. online, we also think less, and live less. What do Can this be enough to change the structure of you think of accusations like these? society? I do not agree – over the past decade we have lived Yes, over the course of the 20th century a number through massive changes, comparable to the indusof structural changes have taken place in society, trial revolution at the turn of the 19th century. Afand they were linked not to revolutions, but to the ter that, the world was never the same again. Today, birth of automobile transport and passenger aviawe have reached a unique moment in history, when tion, which boosted our mobility. Computers, and the minority is capable of feeding the majority. At later the internet, generated an explosion in the the beginning of the 19th century, 95% of the popuavailability of technologies that help us handle inlation met the basic needs of 100%, but now 5% can formation. Today they are generating even greater accomplish the same feat. Therefore, the remaining social changes than the automobile did 100 years 95% are left in an unfamiliar situation: they have ago. After all, every social structure, starting with a lot of free time on their hands. In the past, only tribes and ending with states, has been tied down the elite would have leisure time. Now this resource to geographical territories. But today, distance is has become accessible to almost everyone, and this completely irrelevant for is a major social change, communication, and this because the challenge is My parents’ generation could rest assured to fill that time construc- that, upon graduation from university at 25, cannot fail to produce social changes on a global tively. they would live off the knowledge they had level. But it is impossible, When there is no longacquired until the end of their lives. For my er any need to keep one’s children’s generation, I suspect that they will as yet, to predict where change will happen, or nose to the grindstone to be studying throughout their lives what it will look like. earn a crust, we can focus If we change focus from general existential maton elevating our minds and our souls, rather than ters to our day-to-day lives, are we going to become simply being mindless recipients of organized feednarrowly specialized within a specific profession, ing, like turkeys before Thanksgiving. And this is education, and mode of thinking? how needs that had remained latent, undiscovered This is an important question, but I am afraid and unsuspected, and for which no technologies there is no unambiguous answer. Any effective had been developed, suddenly become drivers of professional must have a deep knowledge of his growth. The volume of information being profield, and at the same time must possess a broad cessed has already multiplied by a factor of tens and understanding of related sectors, as well as how hundreds. the world works in general. The problem of excesYes, but how productive is this data processing? sively narrow specialization may yet be resolved, It is productive for someone. In previous centuries, ironically, by the appearance of even more, new, the aristocracy included people who spent their encommunication systems! tire lives enjoying social pleasures, while there were Those generations that are now coming of age are others who created great works of literature. This certainly not going to have accumulated sufficient will never be evenly balanced, because people will knowledge during their youth. My parents’ generaby definition always be different; they are not born tion could rest assured that, upon graduation from equal. The most that society can offer is the potenuniversity at 25, they would live off the knowledge tial for self-realization, and whether people realize they had acquired until the end of their lives. But I their potential or not, that is up to each of us, indihave had to go back to school two or three times. vidually. №2, 2013
In Russia itself you focus on Moscow – we can For my children’s generation, I suspect that they see this in the RVC project portfolio – with Tomsk will be studying throughout their lives. in second place, as a critical Russian center of inAll of this can incite populist criticism of the novation. Why Tomsk, rather than Novosibirsk or increasing differentiation of human capital. The St. Petersburg? economic differentiation of society is a scientific That is just the way it happened. I don’t even know fact, even if it is not particularly well-known. The how to answer. It also appeared to me, starting in global Gini coefficient was almost identical in the time of the Soviet Union, that Novosibirsk 1900 and in 2000. But it fell to almost half in the was far more advanced, and has always attracted middle of the century. That is to say, throughout more investment – even Akademgorodok [‘Acadthe 20th century property differentiation at first emy Town’] alone, which is a world-class univerfell heavily, and then started to grow again tosity campus. wards the end of the century. However, in the new economy, Tomsk turned And I am confident that the role of traditional out to be far better adapted and effective. Tomsk finance capital will fall, while we will see a growth is an atypical Russian city, which is only compain the significance of other types of capital: intelrable, I think, with Oxford, where students also lectual, human, social and organizational. At the make up a significant portion of the total popuend of the day, financial capital is just an accountlation. There is investment there, and companies ing tool. In recent years, the financial sector has that are present in the global market, and business developed at a high speed compared to more tanincubators. Despite the geographical isolation, gible industries. Derivative financial instruments Tomsk is at the very forefront of globalization in have started to appear, which are a new kind of Russia. nonsense. A derivative of an accounting method is RVC also has comjust a different accounting panies in St. Petersmethod, and nothing more Last fall we brought potential investors from than that. The importance Southeast Asia, and they showed an interest, burg. However, St. Petersburg has proved of these tools will fall, and but only at the level of initial contacts. to be very ineffective real capital will again be of Equally, Russian investors do not focus on over the last decade. primary importance. developing markets, but head for Silicon Of course, the issue is Valley, simply because they understand what is Here, national factors come into play: the atnot the financial physical happening there titude of regional auassets, and not natural rethorities to business and the economy play a very sources, but people engaged in science, education, significant role. For example, progress in Tomsk and business. is largely the achievement of the governor, Viktor You’ve said that the changes taking place in the Kress. He understood that the economy of the reworld today are shifts “on the level of civilizations.” gion would not develop sufficiently if they focused Yes. For a long time, there has been an ongoing on natural resources, although Tomsk is enviably process whereby the main core of development is rich in that respect. In Tatarstan they understood shifting from Atlantic civilizations to Pacific ones. this too. But in St. Petersburg there is a slightly Here, incidentally, Russia is presented with anothcondescending attitude to innovation, and this er set of opportunities: few countries have a foot generates multiple management errors. in each of these worlds. But Europe is gradually As the Soviet state ran out of steam, St. Petersslipping into the periphery – it has exerted much burg – then Leningrad – turned out to be the effort to that end over the last decades. most highly-educated city. One quarter of the Is Europe doomed to become a theme park? adult population had graduated from universiYes, and this is generally true of continental Euty or college – no other city in the USSR could rope. From the viewpoint of innovation-driven match that achievement. The main body of the eddevelopment, it will be on the periphery. Today, ucated population worked in structures linked to the center has to be recognized as the west coast of the military-industrial complex, which collapsed the USA, and Southeast Asia, plus some pockets in the 1990s. Subsequently, the city failed to find of Europe, as well as Israel and Great Britain. 60
Not a Large Country... But With a Bright Future
Progress in Tomsk is largely the achievement of the governor, Viktor Kress. He understood that the economy of the region would not develop sufficiently if they focused on natural resources, although Tomsk is enviably rich in that respect
Russia and, conversely, interest amongst Russian investors with respect to the developing markets? I can see some rudimentary interest, but not tangible investment. Last fall we brought potential investors from Southeast Asia, and they showed an interest, but only at the level of initial contacts. Equally, Russian investors do not focus on developing markets, but head for Silicon Valley, simply because they understand what is happening there. In this sense Alisher Usmanov, and Yuri Milner with his DST, are not revolutionaries, but following a well-beaten path? I think so, yes. In general, in order to provide oligarch-type capital growth rates on the technology market, you really do need to follow the well-beaten paths. These should be low-risk, understandable investments, or financially inexpensive seed capital. Developing markets have high country-specific risks, and I understand the investors who are scared of getting burned. Investors from Silicon Valley must swallow such risks in order to get access to human capital, but there is simply not the same appetite for Russian human capital.
any application for that impressive intellectual resource. On the other hand, now we can see a paradoxical phenomenon: St. Petersburg, or ‘Peter’ as Russians call it, hosts Russia’s leading software development cluster. Many transnational companies are now deciding which city to work in, i.e. which is the ideal technological capital and a good alternative to Skolkovo – and St. Petersburg, of course, is number one on the list. This is not the achievement of the local authorities, but rather that of several universities that retained a pool of educators, and several large corporations that produce technical managers. Unfortunately, they were never supported by the people who are responsible for development. Instead, emphasis is placed on depressing industrial projects, like car assembly plants. Can you see a conscious interest amongst investors in the developing countries with respect to №2, 2013
of the New Africa Vladimir Volkov Africa is faced with many challenges, and one of the gravest is a negative perception amongst foreign investors, many of whom still consider it to be a ‘hopeless continent’. This thought was recently expressed by Chris Kirubi, one of Kenya’s most successful businessmen and philanthropists, and chairman of the board of directors of Capital Group. He captured an actual state of affairs with which, as it happens, Africans themselves do not seem to be overly concerned. Be that as it may, today the number of people living on the African continent or forming part of the African diaspora who are unwilling to rely on someone else, and stand ready to roll up their sleeves and take control of their own destinies, is greater than ever before. Their successes serve as an example: not only do they help improve the lives of African communities, but they also change the perception of Africa, which is transforming itself in front of our very eyes into one of the most dynamic regions in the world. In presenting our 25 faces of the New Africa, BRICS Business Magazine does not offer readers an exhaustive list of the many that have contributed, and continue to contribute, to improving Africa’s image. When selecting candidates to be included, we prioritized businesspeople representing innovative areas of the economy, and who operate concurrently in several markets. If there is one thing that all of them know for certain, it is that Africa’s future remains in its own hands.
25 Faces of the New Africa
Funke Opeke, Nigeria
CEO, Main One Cable Company
What does one need to do to win the prestigious CNBC All Africa Businesswoman of the Year Award? Here is one possible answer: you need to be born in Nigeria, graduate from the local Obafemi Awolowo University as an electronics engineer, continue on to your master’s degree at Columbia University, find a job in the United States, return home, mastermind and then head up a huge business project, and then see it come to life. At least, this was the path chosen by Funke Opeke – last year’s winner, and CEO of Main Cable One, the first private African company specializing in telecommunication services in the West Africa region. Main Cable One’s chief asset is a cable system, laid in deep Atlantic water, which runs for 7,000 kilometers from Portugal to Ghana and Nigeria and feeds into the company’s IT infrastructure on the African coast. This massive project, launched in 2007, was completed within two years. It was delivered precisely on schedule and within a budget totaling $240 million, which Funke managed to raise exclusively among African investors. The risks and efforts seem to have paid off. Just two years after going into business, Main Cable One has become financially and operationally self-sustaining, while the number of its customers – telecommunication operators, internet providers, public institutions and large commercial companies – already exceeds one hundred, and continues to grow. According to Opeke, in the near future her company will focus its efforts on enhancing communication capabilities in Nigeria and Ghana and continuing to expand in the West Africa region. “If you look at this part of the world, broadband services have a very low penetration and so does ICT in general. We have played a significant role already and we think we have an opportunity to play a leadership role,” Opeke told Hot Telecom. Technical challenges seem not to stand in the way of these plans – today Main Cable One is utilizing a mere 5% of its total capacity. There will be no lack of leadership either, as long as Funke Opeke continues to take it upon herself to see these plans through.
The risks and efforts seem to have paid off. Just two years after going into business, Main Cable One has become financially and operationally self-sustaining
Dambisa Moyo, Zambia
International economist, board member at SABMiller PLC and Barrick Gold Corporation
Dambisa Moyo’s list of academic achievements alone would be enough to make even a blue blood proud. This 44-year old native of Zambia boasts a master’s degree from Harvard, a D.Phil. in economics from Oxford, and a BA in chemistry and MBA in finance from American University in Washington D.C. Her career achievements are equally impressive and include many years at the World Bank and Goldman Sachs, where she specialized in debt markets, hedge funds and global macroeconomics. As a popular commentator, and author of several bestsellers in macroeconomics, she also covers an impressive range of topics. However, of all the subjects she deals with, Africa has always held a special place. The fact that her vision of how the continent should develop often runs contrary to popular beliefs – providing ammunition for numerous critics – does not seem to faze Dambisa Moyo in the least. In 2009 she wrote in the The Independent that, “[among] its shortcomings, aid is correlated with corruption, fosters dependency, and invariably instils bureaucracy that hinders the emergence of an essential entrepreneurial class. For Africa to grow in a sustained way, foreign aid will have to be dramatically reduced over time, forcing countries to adopt more transparent strategies to finance development.” This became the leitmotif of her book Dead Aid: Why aid is not working and how there is a better way for Africa. Moyo is convinced that the current economic crisis that forced the West to shift its focus to its own internal issues offers the people of the African continent a unique opportunity to regain control of their own destinies.
As a popular commentator, and author of several bestsellers in macroeconomics, she also covers an impressive range of topics. However, Africa has always held in her coverage a special place
25 Faces of the New Africa
James Mwangi, Kenya
CEO, Equity Bank
How does one transform a dying microfinance organization into the largest banking group in East and Central Africa? Train your employees and make them believe in their own power, earn the trust of your clients, foster innovations, implement state-ofthe-art technologies and continue to work towards your goal regardless of what obstacles may lie ahead
How does one transform a dying microfinance organization into the largest banking group in East and Central Africa? James Mwangi has a straightforward ‘no-frills’ answer: train your employees and make them believe in their own power, earn the trust of your clients, foster innovations, implement state-of-the-art technologies and continue to work towards your goal regardless of what obstacles may lie ahead. He has his own experience to show that this recipe really works. In 1993 Mwangi took over as strategy and finance director at Equity Building Society, a small company specializing in microcredit for farmers, with 27 staff, 27,000 customers, and 5 million Kenyan shillings ($65,000) worth of losses per year, Kenya Yetu reported. Some 11 years later the company launched a private offering, reinventing itself as a banking organization called Equity Bank. In 2006 it followed that up with an IPO at the Nairobi Stock Exchange, organized jointly by the International Finance Corporation (IFC), UK development finance institution CDC, George Soros, and the US-based Overseas Private Investment Corporation (OPIC). The latter acquired 25% of Equity Bank shares for $125 million, transforming it into the company with the highest market capitalization in East and Central Africa. Since that time the company has shown an incredible pace of development. “Now, building on the IT platform, we launched an aggressive growth campaign. In seven years we increased our branches from 36 to 200, with over 5,000 agencies, and the customer base rose to eight million – nearly half of all bank accounts in Kenya,” Mwangi told Kenya Yetu in an interview last year. For the year past the bank showed a net profit of 16 billion Kenyan shillings ($208 million), and boasts a 900% increase in market capitalization since the IPO. Equity Bank – now the largest financial institution in Kenya, also with a presence in Uganda, Tanzania, Rwanda and South Sudan – employs 8,000 staff. With 250 billion Kenyan shillings ($3.3 billion) on its balance sheet, it accounts for roughly one fifth of Kenya’s budget. It is therefore hardly a surprise that in 2012 Ernst & Young named James Mwangi ‘World Entrepreneur Of The Year.’ One wonders who his role model might be. “Nelson Mandela,” he said in the interview. “The way he has changed people’s lives inspires me every day. That is what drives me – the feeling that I am changing lives for the better, being an agent of social-economic transformation in Africa.” 65
In her native Ethiopia, Eleni Gabre-Madhin earned the title ‘Iron Lady’ – a moniker backed by some equally ironclad logic: this elegant woman’s steely resolve and remarkable efforts gave her country – one of the poorest on the African continent – a chance to overcome what could well be its greatest adversity: hunger. Dr. Eleni (most Ethiopians are properly addressed by their given name) told Oprah.com: “In 1984–85, the year of the famine that killed nearly a million Ethiopians, I was an undergraduate at Cornell. At dinner one night, other students started throwing food. And suddenly – shocking myself – I got up on a chair and I screamed, ‘Stop doing this! In my country people are starving!’ In that moment, I knew that I owed my country something.” Her journey home took a long twenty years. During that time she earned a PhD in applied economics at Stanford University and occupied leading positions in several of the largest finanDr. Eleni Gabre-Madhin, cial institutions in the United States. She returned to Ethiopia in 2004 as a program head at the International Food Policy Ethiopia Founder and former CEO, Ethiopia Commodity Research Institute (IFPRI), set up to improve the agricultural production and sales system. Speaking at a TED conference in Exchange (ECX) 2007, Dr. Eleni confessed that she’d always dreamed of creating a market that would protect African farmers from the vagaries of transient trends and greedy middlemen, and remained a firm believer that Ethiopia could be transformed from a country incapable of surviving without outside food assistance into one of the major agricultural producers in the region. Her tenacity and talent brought this dream much closer to becoming a reality: 2008 saw the opening of the Ethiopia Commodity Exchange (ECX), the very first of its kind in the nation’s history. The new exchange offered local farmers an opportunity to sell their goods – coffee, sesame seeds, beans, and corn – at Dr. Eleni is a firm believer Ethiopia prices that were realistic, and much higher than in the past. In could be tranformed from a nation just three years the ECX turnover rose from 138,000 to 601,000 incapable of surviving without tons, and $1.2 billion, while the farmers’ share of the ultimate outside food assistance into a one of price for coffee – the core Ethiopian export staple – doubled. the major agricultural produsers in Dr. Eleni is convinced that the right market incentives will the region continue to drive local farmers to implement new technologies, leading to greater performance, which means that in the near future hunger could once and for all cease to be a part of life in Ethiopia, and in time across the entire continent.
25 Faces of the New Africa
Remi Okunlola, Nigeria
Co-founder and Executive Director, SeaWolf Oilfield Services Limited
Giving up an incredibly successful career as an international lawyer and reinventing oneself as a petroleum expert? Many would find such a move drastic, but not Remi Okunlola. Before taking the helm of SeaWolf Oilfield Services – the first oilfield service company in Nigeria, which he helped create in 2007 – Okunlola had spent ten years as a partner in law firm Perchstone & Graeys in Lagos. There his main task was to advise companies operating in the oil and gas sector. He oversaw several large transactions including the multi-billion-dollar deals that saw the Chinese National Offshore Oil Corporation (CNOOC) and the Indian Oil and Natural Gas Corporation (ONGC) acquire assets in Nigeria. Against this backdrop his part in setting up SeaWolf – itself a critical stage in Nigeria’s strategic drive to strengthen the role of national businesses in the country’s oil and gas sector – looks perfectly logical. Okunlola’s objective is to transform SeaWolf into a key player in the rapidly growing market for oilfield and drilling services in West Africa, with Nigeria accounting for roughly one half of it today. The company boasts a number of famous successes in this area, having entered into several large oilfield services contracts with international industry giants over the last several years. The most recent was signed in September 2012 with ExxonMobil, for a total of $140 million. On the basis of this contract SeaWolf will make one of its three offshore oilrigs available to the American company, with work scheduled to begin as early as the third quarter of 2013. According to SeaWolf, this deal serves as a sign of the company’s growing success, and validates the strategy adopted by the Nigerian cabinet. “SeaWolf Oilfields has come a long way since inception. Its signing with ExxonMobil is testament to how far indigenous players have come in the ownership and operation of offshore oilfield assets, and in earning the trust, confidence and support of the world’s most substantial oil and gas companies,” the company said in a press release. Be that as it may, both SeaWolf and Nigeria have an even longer journey ahead of them, and Okunlola is fully determined to join them on the path.
Okunlola’s objective is to transform SeaWolf into a key player in the rapidly growing market for oilfield and drilling services in West Africa
Founder, Africa 2.0
President, Dangote Group
Mamadou Toure is certain that Africa can and must transform itself into a prosperous continent as early as 2020, but first and foremost it needs to outline specific objectives and develop a joint action plan. “If you think about it, China has an agenda for Africa, India has an agenda, Europe, America. It’s about time we Africans set an agenda for ourselves,” CNN quoted Toure as saying. Toure is the founder of Africa 2.0 – a pan-African organization that brings together young leaders representing African countries and the diaspora, who share a common vision of the continent’s future. Their primary objective is to find and implement sustainable solutions to accelerate Africa’s development. Toure calls Africa 2.0 a social contract between the private sector, civil society and governments. Africa 2.0 was created to promote the idea of a free trade area that would span 26 African countries. The group also plans to improve governance and encourage entrepreneurship. Its strategy is based on four core elements: inclusive growth, the upgrading of infrastructure, an enabling environment, and the “uplifting” of Africans. Toure, who also works as an investment consultant at the International Finance Corporation, believes that it is the last element that holds the key to the project’s overall success. “It’s about building an African ‘can-do’ attitude that would get Africans to take ownership of their own future and to start rolling their sleeves to actually face the challenge ahead,” he told CNN.
A native of Kano in the north of Nigeria, and the wealthiest resident of Africa, Aliko Dangote did not make his fortune of nearly $12 billion from oil, which his country is so famously rich in. The Dangote Group – the industrial conglomerate which he owns – is predominantly made up of companies producing sugar, flour, salt and cement. Dangote told CNN’s i-List that “Nigeria is really the best place to invest,” although he was one of the first people in Africa to do business internationally. The jewel in his group’s crown is Dangote Cement – a company that operates in 14 African countries and plans to build factories in Myanmar and Iraq in the near future. Dangote is not only a successful entrepreneur but also a generous philanthropist. “Dangote’s benevolence wears no ethnic or religious garb. Such virtues are rare in an oasis of selfcentered rich persons as is the case in our clime”, writes the head of Nigeria’s Human Rights Writers Association, Emmanuel Onwubiko, in a column on allAfrica.com. “Rich persons in Nigeria should emulate the shining examples of people like Aliko Dangote in whom industry and philanthropy means the same.”
25 Faces of the New Africa
COO, Helios Investment Partners
Executive Chairman, African Rainbow Minerals Limited (ARM)
Nigeria and Ireland
Perhaps you need no convincing that Africa offers wonderful investment opportunities, but you have only a vague idea as to how to seize them? If that is the case, you should turn to professionals such as Henry Obi for help. Obi holds a Nigerian and an Irish passport and works as a top manager at Helios Investment Partners, a London-based company specializing in direct investments in Africa, in which he is an expert. He prefers stakes to be high. For instance, back in June 2011 Helios completed the incorporation of its second African fund – holding $900 million – which will, according to CNBC, focus on “businesses that are core to the functioning of African economies, businesses that are leveraged to the domestic growth of those economies, rather than broader global factors” – in other words, on the financial and consumer sectors, energy and telecommunications. The investor race is merely gaining momentum in Africa, and Obi seems certain that a professional approach will ensure a win-win situation for all stakeholders.
The fall of Apartheid in South Africa over two decades ago opened the door to business for millions of the country’s black citizens. However, few of them have managed to match the successes achieved by Patrice Motsepe in capitalizing on these new opportunities. In the early 1990s he bought at a discount from the government several gold mines that were considered low potential, and managed to turn them to profit. Today Motsepe is at the helm of one of the largest and most diversified mining companies in the country. He became South Africa’s first (and only) black billionaire, whose net worth Forbes magazine estimated at $ 2.7 billion. In late January Motsepe publicly announced that half of his fortune would be earmarked for charitable causes, a move inspired by The Giving Pledge campaign initiated by Bill Gates and Warren Buffet. “I decided quite some time ago to give at least half of the funds generated by our family assets to uplift poor and other disadvantaged and marginalised South Africans. It has always been part of our culture and tradition to assist and care for less fortunate members of our communities,” Motsepe said in a statement. His decision is a manifestation of a simple thought addressed to the rest of the world: Africa is not only capable of seeking help from the international community; it stands ready to help itself.
Founder and CEO, mPedigree Network
Founder, Ethnicia and Hapsatousy
Bright Simons – a native of Ghana – studied astrophysics and political science at European universities. However, after reaching the conclusion that they were “not sufficiently practical”, as he told The Observer last year, he decided to return home and reinvent himself as an entrepreneur. He decided to take on the problem of counterfeit drugs – a widespread phenomenon in Africa. Under his scheme an embossed code is placed on each pack of medicine. Consumers send this code via regular SMS to a dedicated number, and receive a response authenticating the product. Today nearly seven million packs of pharmaceuticals have been coded, and the system developed by Simons’ mPedigree is now standard in three countries. After success in India, it is being extended across other Asian countries. “It’s the first time that innovations from Africa are going to other parts of the world. It’s changing the traditional story about the continent. This is a genuine reversal of the usual narrative,” he told The Observer.
Born near Paris into a family of immigrants from Senegal and Mauritania, Hapsatou Sy was only 24 years old when in 2005 she opened Ethnicia, her very first ethnic beauty parlor, on the Île Saint-Louis in Paris. It opened its doors to people of all ethnic and cultural backgrounds. “I wanted to provide a solution to black and mixed-race women’s beauty issues, but not only them. The idea was more to group together around the values of sharing, respect, tradition and open-mindedness,” the Beyond Beauty blog quotes her as saying. Her idea worked. Today the company that now bears her name – Hapsatousy – has 17 locations in France, Switzerland and Angola. Sy told the blog she has already achieved much of what she dreamed of; a dream not of material wealth, but rather of values – and chief among them the idea of human solidarity, ably exemplified by Hapsatou Sy and her business.
25 Faces of the New Africa
Executive Chairman, IPP Group
Head of the Mo Ibrahim Foundation
Should you expect pennies from heaven if you are born into a poor family in the north of Tanzania, if you rarely had more than one meal a day, and had to walk long distances to school barefoot? Reginald Mengi decided that for him the answer would be in the affirmative, especially if he could take his destiny into his own hands. Mengi’s journey is nothing short of a miracle: he studied accountancy in the United Kingdom, returned to Tanzania and was employed by the accounting firm Coopers & Lybrand. In 1989 he started his own business. He made his first million dollars selling ballpoint pens, then went on to set up IPP Group, an industrial conglomerate with a broad variety of assets, from print and electronic media, to soft drinks manufactured under license from Coca-Cola, to mining. How did he manage to do all that? “You must believe in yourself, that you have power to make things move”, he told international students in 2008. Mengi’s word of advice to the young people of Africa is not to be afraid to take risks and dream big. He told students visiting IPP Media in 2012 that, “in fact, life is full of risks. Even crossing a road is risky. So, there is no need to hesitate. If one wants to succeed, one must take risks…Youth must always learn to dream big because when you dream big, you will never be worried about the risks in your life”.
Before becoming a philanthropist and heading up his eponymous foundation, Mo Ibrahim was a successful businessman who – it wouldn’t be a stretch to say – transformed Africa. In the early 1990s the Sudanese-born entrepreneur was the first to introduce mobile communications in Western Africa, instantly improving quality of life and creating new opportunities for millions of people in the region. Today, Ibrahim’s former company Celtel, which he sold in 2005 for $3.4 billion, operates in 23 African countries. Meanwhile he himself is striving to transform African leadership with the $5 million annual Ibrahim Prize for democratically elected leaders who have governed well. Regrettably, last year was the third in which no award was made – there were simply no worthy candidates who could meet all of the criteria. Yet Mo Ibrahim, quoted in an Ibrahim Foundation statement, was as uncompromising as always: “You make your bed, you have to lie on it. If we said we’re going to have a prize for exceptional leadership, we have to stick to that. We are not going to compromise.”
Founder and Managing Director, Texchange
A three-story triangular structure on a floating platform made up of several rafts bound together – this is what Kunlé Adeyemi, a 37-year old avant-garde architect, believes a school should look like in Makoko (an infamous slum on stilts off the coast of Lagos, where he himself was born). Adeyemi, who now lives in Amsterdam where his architecture firm NLÉ is headquartered, is convinced that this project should not only improve the life of a particular Nigerian community, but also become a conceptual prototype for hundreds of similar settlements along the African coast. “The building can be adapted for other uses, such as homes or hospitals. Ultimately, it’s a vision that can be used to sustainably develop African coastal communities,” Adeyemi told The Guardian last year. This visionary spirit permeates Adeyemi’s architectural designs in London, Doha, Seoul, and Lagos. One would be hard-pressed to find a better poster child for the New Africa.
Rupert Cruise’s working life has been dedicated to one particular calling: developing the technology behind linear motors and generators: electromechanical devices which can convert electrical energy into mechanical linear motion, and vice versa. He started his career as a scientist and experimentalist but there came a day when Cruise realized that his academic knowledge was insufficient to successfully promote his designs on the market, which drove him to apply to Oxford’s Saïd Business School. One year later Texchange was born. Its hoisting designs have since become a fixture in many unexpected places across the planet – from deep-water gold mines, to silos on the American aircraft carrier USS Gerald Ford. “I would never have been able to set up my own small, yet truly global, business – UK-based, manufacturing in South Africa, partners in Europe, and customers in the USA – without the MBA,” he said in an interview for the Saïd Business School. Today Cruise continues to work on improving Texchange technologies, which he hopes will serve mankind by capturing the energy of sea waves. He is convinced that his technologies will find applications not only in the UK and South Africa – his company’s chief markets – but around the planet, if for no other reason than because ocean energy – unlike petroleum – is a resource that cannot be depleted.
25 Faces of the New Africa
Chairman, Haco Tiger Industries and Capital Group
The entrepreneurial successes that Chris Kirubi – one of the wealthiest people in Kenya – can show for his 71 years are hard to argue with. His business empire includes: a patchwork of assets in several West African countries, including many residential and commercial properties in Nairobi; Haco Tiger Brands, which manufactures household appliances; investment company Centum; and insurance company UAP. Kirubi also owns the DHL franchise in Kenya, and Capital FM – Kenya’s most popular radio station, where he doubles as a DJ on a regular basis. Kirubi is one of the most consistent advocates for the development of trade and economic reforms in the East Africa region. He seems convinced that over the next century the African continent will offer the best opportunities for investors. He admits, however, that one of Africa’s biggest issues is the negative perception held by foreigners, many of whom think it is the “hopeless continent,” as he told a discussion at the Global Forum in Cape Town in 2010. His greatest hopes for the future of Kenya and Africa lie with local youth. He said on Twitter, “I am on a mission. I want to get more involved in mentoring and working with young great minds. Kenya belongs to us and we need to help each other.”
Koos Bekker didn’t inherit his fortune, and has never collected a paycheck or annual bonus for the work he does, yet that has not prevented him from becoming one of the most influential and wealthiest residents of the African continent. Most of his fortune, estimated at $450 million, comes from his share of profits in Naspers. Over the last 15 years his hard work and talent has transformed Naspers from a local player into a diversified international media group with a market capitalization of $25 billion and a presence in 129 countries, including the BRICS. Under Bekker, the Johannesburg-based company’s interests have expanded far beyond its traditional areas of publishing, newspapers and magazines. Today the group’s presence is rapidly growing in pay television and internet, with interests in a number of large companies including Chinese internet giant Tencent Holdings and the Russian Mail.ru group. Shaun le Roux, PSG Asset Management portfolio manager, was quoted on MoneyWeb as saying that “this combination of pay-TV and internet is unique.” Bekker himself seems eager to invest in promising ideas and talent in Africa and other developing markets, regarding such investments as Nasper’s ticket to prosperity for the years to come.
Founder and CEO, The Knowledge Channel
Founder and CEO, Oxford & Beaumont
For millions of young Africans the dream of getting an education that will enable them to find a decent job and start their own successful businesses is coming closer with the arrival of The Knowledge Channel (TKC), officially inaugurated last spring in London. TKC is a platform that provides e-training resources and programs online, on television and through mobile applications. Hannah Acquah, founder and CEO, is a trained economist specializing in business and economic development strategies in Africa. Describing the channel’s goals and objectives she told ThePeoplesHub.com, “We are looking to bridge the education gap for students, young professionals, entrepreneurs in Africa as well as diasporian youths of African heritage.” The channel that opened representative offices in Ghana and Nigeria targets primarily Africans under 25, who account for roughly 60% of the continent’s population – around 600 million people. According to Acquah, her company plans to reach out to “at least 1%” of this audience by 2014 – an ambitious goal for the TKC and its founder, which opens unprecedented horizons for Africa.
Dare to dream, but don’t dream unless you are willing to live your dream. This was the best advice ever given to Elikem Kuenyehia, a native of Ghana whose entrepreneurial fortunes have been on the rise up until now. He was only 32 when in 2006 he started his own law firm, Oxford & Beaumont, specializing in corporate and commercial law. “I had been disappointed and frustrated by my last job prior to Oxford & Beaumont. I had a boss with whom I did not share the same values and this affected my job significantly. As a result of that, I was keen to start an enterprise where I could imprint my own values,” he explained in an interview with Kate Douglas on the website How We Made It In Africa. Kuenyehia’s clients certainly seem to share those values. Today, Oxford & Beaumont is a leader in its area of expertise, with offices in Accra and London. It has advised clients such as Coca-Cola, Goldman Sachs, Shell International, Vodafone and Citibank. Kuenyehia, who is no stranger to awards, was named a Young Global Leader in 2010 by the World Economic Forum. Young, yes – but this wise entrepreneur believes in a bright future for Africa. His words of advice to the continent’s youth? “I’d like to encourage Africa’s young aspiring businesspeople and entrepreneurs to focus on the things they are passionate about and to pursue those passions with integrity,” he told Douglas. Kuenyehia seems certain that this formula can help make any dream come true.
25 Faces of the New Africa
Mitchell Elegbe, Nigeria
UK and Ghana
Co-founder and lead presenter, Colourful Radio
“A lot has been said about electronic payment but perhaps the most important things we must realize is that a robust electronic payments system enhances the commercial reputation of any country, improves the investment climate, strengthens the image of the banking sector and provides the much needed vehicle for increasing economic growth, and improving welfare. Our company is committed to seeing Africa in global payment landscape,” said Mitchell Elegbe in a 2011 interview with Marketing World. As the founder and CEO of InterSwitch Limited – the largest integrated electronic payment system operator in both Nigeria and West Africa – these comments accurately mirror his entrepreneurial attitude and the nature of the business that has been the focus of his efforts over the last several years. Today Nigeria feels too small for his company – some time ago InterSwitch started expanding into neighboring markets. For instance, recently it acquired a controlling interest in Bankom, the only licensed inter-bank settlement operator in Uganda. It also struck a partnership deal with Helios Investment Partners, a direct investment fund with a strong position in the West Africa region. This talented and ambitious entrepreneur is obviously not going to rest on his laurels.
Henry Bonsu, a native of Manchester, England, has made a stellar career as a journalist in the UK, but the co-founder and lead presenter of London’s Colourful Radio makes frequent trips to Ghana, where his roots are. “Yeah, I do hang out on the beach for some of the time and check out the night clubs and other interesting retreats”, he said, speaking to NewAfrican. “But, more seriously, I also take the opportunity to visit my relatives, which I love doing, and do some work.” Bonsu is not alone. According to him, lately many representatives of the African diaspora have moved back to their native countries from Europe. “They do not want to become a clerk or a lower middle-manager for this or that public sector in the UK. After serving for 35 years, they do not want to retire with little more than a pension that is barely adequate”, he explains. “They actually make the conscious decision of wanting to do something in and for their country of origin,” he told the magazine. When it comes to Bonsu’s own mission, he believes that he should serve as a bridge between Africa and African Diasporas no matter where they live. With fans and listeners on the African continent and in Europe, he has done a fantastic job so far.
Nvalaye Kourouma, USA and Ghana
Zimbabwe, South Africa
You no longer need to be one of the most technologically advanced countries in the world to use modern mobile banking to pay for goods and services, buy prepaid air time, check your account balance or transfer money using your mobile phone. Mobile users have recently become beneficiaries of these services in Ghana, where in 2008 Afric Xpress (AX) launched its txtnpay service. Nvalaye Kourouma, CEO at the New Yorkbased AX, is convinced that txtnpay is capable of transforming the lives of millions of Africans by, for example, giving them access to a system of microcredit. Today AX is engaged in negotiations to expand its geographic coverage and business opportunities in Africa, with numerous partners including Vodafone, IDT and DSTV. If these plans come to fruition it will mean Kourouma has inched closer to realizing a dream which he formulated as a student at Harvard. “I am dreaming of making life a little bit easier for my fellow Africans. I am scared of this challenge but I am committed to living my dreams rather than dreaming my life. I know only this will make me very happy,” he says on the Harvard Business School website.
Strive Masiyiwa had to work hard, and spend five years in litigation, to get a mobile operator license in Zimbabwe for Econet – the IT company he founded in 1993 – ultimately shattering the state monopoly. Today Econet is a leading telecommunications operator in Zimbabwe and in neighboring Botswana, as well as in Kenya and Burundi. It is the only African company that has managed to acquire a telecommunication license in the UK and the right to build a 3G network in New Zealand. Yet business is not Masiyiwa’s only passion. The richest man in Zimbabwe – now a permanent resident of South Africa – founded Capernaum Trust, a charitable foundation that today extends a helping hand to 28,000 orphaned children in Zimbabwe. Last year Masiyiwa donated $6.4 million towards scholarships enabling gifted African orphans to study at the Morehouse College in Atlanta, USA. One scholarship holder, Nadjena Hamim from Burundi, is dreaming about coming back home to make life in her country better. “I have a dream of fighting ethnic divisions in my country and I am encouraged to realize my vision… After all, I believe that I was born at a time like this to serve and develop my community,” she told the Morehouse College website.
CEO, Afric Xpress
Chairman, Econet Group
25 Faces of the New Africa
Former CEO, Orascom Telecom Holding and Wind Telecom
If one is born in West Africa’s oil capital Lagos, and grows up to specialize in corporate law in the oil industry, one cannot help but become an oil trader. Wale Tinubu is Nigeria’s uncrowned oil king. In 1994 the 27 year-old Tinubu and two friends founded Ocean and Oil Limited, the first company in Nigeria to export petroleum products abroad. Within the next several years Tinubu and his team acquired various assets, managing to transform the company now known as Oando into the second largest oil trader in Nigeria by revenue, and one of the leading local players in oil exploration and oil field services. Oando also became the first Nigerian company to be listed beyond the borders of its country of origin. According to Tinubu, this will help implement his development plans for international markets. “A foreign listing is the logical step for Oando to achieve its pan-African objectives,” he told CNN International. Tinubu’s company has already gained traction in achieving this objective. Today, apart from in Nigeria, it maintains a market presence in Ghana, Sierra Leone, Benin and Togo.
In May 2011 Egyptian billionaire Naguib Sawiris announced that he would be giving up his role as executive chairman of Orascom Telecom Holding in order to pursue his political ambitions: “Personally, I have decided to be more focused on social and political work, aiming to play a role in the transformation of post-revolution Egypt into a civil democracy,” Forbes quoted him as saying. The announcement came one month after the long-awaited merger of Sawiris’ Wind Telecom with the Russian VimpelCom. The newly formed company became the sixth largest mobile operator in the world, with 186 million subscribers in 21 countries. The Egyptian entrepreneur now controls an estimated 18.8% stake. Last year he co-founded the Free Egyptians party, winning seats in the parliament. But politics, his public calling and philanthropy have never managed to stifle Sawiris’ entrepreneurial spirit. In an interview with Reuters in February, the 57-year old billionaire unveiled new plans to sell non-core assets and acquire new interests in mobile services operators and telecommunication licenses in Europe, the Middle East and Africa.
BRICS on the Heels of Africa
BRICS on the Heels of Africa If you are used to thinking of Africa as a dark spot on the economic map of the world – a continent rife with ethnic conflicts, corrupt dictatorships, religious strife and hunger – think again. You should rid yourself of this stereotype once and for all, believes Charles Robertson, chief economist at Renaissance Capital and lead author of a book on the investment appeal of the New Africa, The Fastest Billion: The Story Behind Africa’s Economic Revolution. According to him, at the end of the last century the continent went through a long period of stagnation, but now stands to get on a faster growth track and ultimately bridge the gap with the most developed regions of the world, whose economies have slowed down significantly as a result of the global economic crisis.
Indeed, for the last several years the African region has remained a world leader in terms of GDP growth rate. Libya, the fastest-growing economy in the world, grew 21.9% in 2012, and will continue to show the same rate in 2013 according to Deutsche Bank. Notwithstanding that this dynamic development might be spurred on by the country’s post-war recovery, the rates of economic expansion shown by other African countries also impress. According to the World Bank, last year the GDP of sub-Saharan African countries – excluding regional leader South Africa – showed on average 5.8% growth, with a third of them showing a growth rate in excess of 6%. Deutsche Bank forecasts that in the near future, or at least by 2017, Africa will match the Chinese economic growth rate, which remains the most dynamic economy in the world. It is not just the current favorable environment on world commodity markets that accounts for Africa’s successes. Thanks to economic reforms, democratic transformations and strict financial dis№2, 2013
cipline, in recent years many countries in the region have managed to significantly improve their image with investors, as confirmed by the sustainable increase in investments as a share of GDP. Furthermore, competition for a chance to invest on the African continent, which apart from being rich in natural resources is transforming itself into a promising market for finished goods, is becoming stiffer. And the BRICS countries are certainly not outsiders in this rapidly accelerating race for Africa. Suffice it to look at the following (far from exhaustive) list of companies from Brazil, Russia, India, China and South Africa that have already invested and continue to invest significant amounts in the African economy, and study the map prepared by BRICS Business Magazine jointly with the Russian Academy of Sciences Institute for African Studies. We can be sure that each year there will be fewer and fewer uncharted areas on it. Those companies that have not yet staked their claim in Africa should get a move on; otherwise they risk missing out on these opportunities. 79
THE BIG FIVE REPRESENTED
Ru s si a Algeria Hydrocarbon production Gazprom Rosneft
Libya Hydrocarbon production Gazprom Construction Zarubezhstroy
Egypt Hydrocarbon production Lukoil Nuclear power Rosatom
Burkina Faso Mining Nordgold (gold)
Republic of Congo Mining Nordgold (gold)
Côte d’Ivoire Hydrocarbon production Lukoil
Democratic Republic of Congo Finance IFС Metropol Construction Renaissance Group
Guinea Mining Nordgold (gold) Rusal (bauxite) Sierra Leone Hydrocarbon production Lukoil
Uganda Construction Zarubezhstroy
Ghana Hydrocarbon production Lukoil Nuclear power Rosatom Construction Renaissance Group
Kenya Construction Renaissance Group Zarubezhstroy Tanzania Nuclear power Rosatom Construction Zarubezhstroy Zambia Construction Renaissance Group
Liberia Mining Nordgold (gold) Nigeria Hydrocarbon production Gazprom Nuclear power Rosatom Equatorial Guinea Hydrocarbon production Gazprom
Gabon Mining Evraz (manganese, platinum, uranium) Renova Nordgold (gold)
Malawi Hydrocarbon production Rosneft
Angola Finance VTB Mining Alrosa Electrical power Technopromexport Exploration Syntez Namibia Hydrocarbon production Gazprom Nuclear power Rosatom Exploration Syntez
Mozambique Hydrocarbon production Rosneft Mining Sual (tantalum)
Botswana Mining Norilsk Nickel (nickel) Construction Zarubezhstroy
South Africa Mining Evraz (vanadium, steelmaking) Norilsk Nickel Renova (manganese, platinum, uranium) Russki Chrome (chrome iron ore) Nordgold (gold) Nuclear power Rosatom Exploration Syntez
Zimbabwe Hydrocarbon production Rosneft Construction Zarubezhstroy
BRICS on the Heels of Africa
Algeria Hydrocarbon production Petrobras
Libya Hydrocarbon production Petrobras Odebrecht*
Democratic Republic of Congo Mining Vale (copper and cobalt) Oil Field Services Odebrecht*
Burkina Faso Mechanical engineering Embraer
Egypt Mechanical engineering Embraer Marcopolo Group
Rwanda Construction Queiroz Galvão
Mauritania Mechanical engineering Embraer
Djibouti Infrastructure Odebrecht*
Senegal Hydrocarbon production Petrobras Mechanical engineering Embraer
Guinea Bissau Mining Vale Guinea Mining Vale
Liberia Railroad construction Odebrecht*
Tanzania Hydrocarbon production Petrobras
Benin Hydrocarbon production Petrobras
Nigeria Hydrocarbon production Petrobras
Gabon Hydrocarbon production Odebrecht* Mining Vale Angola Hydrocarbon production Petrobras Construction Andrade Gutierrez Camargo Corrêa Queiroz Galvão Mining Vale (copper and nickel) Odebrecht* Mechanical engineering Embraer Electrical power Eletrobras
Zambia Mining Vale
Botswana Infrastructure Odebrecht*
Namibia Electrical power Eletrobras
South Africa Mining Odebrecht* Mechanical engineering Marcopolo Group
* Diversified industrial conglomerate.
Mozambique Mining Vale (coal and metallurgy) Odebrecht* Chemicals Petrobras (biofuels) Electrical power Eletrobras Construction Andrade Gutierrez Camargo Corrêa
Senegal Road construction China Henan International Cooperation Group of Companies Limited (CHICO)*
Mauritania Hydrocarbon production China National Petroleum Corporation (CNPC) Mining China Minmetals Resources (metal ores) Road construction 小hinese Transtech Engineering Corporation
Algeria Hydrocarbon production China Petroleum and Chemical Corporation (Sinopec) China National Petroleum Corporation (CNPC) PetroChina
Guinea Mining Aluminium Corporation of China LTD (Chalco) (bauxite) Road construction China Henan International Cooperation Group of Companies Limited (CHICO)*
Mali Hydrocarbon production China National Petroleum Corporation (CNPC)
Morocco Hydrocarbon production China National Petroleum Corporation (CNPC)
Ghana Hydrocarbon production China National Offshore Oil Corporation (CNOOC) Electrical power Sinohydro Corporation Gas power Shenzhen Energy Investment Co.
Chad Hydrocarbon production China Petroleum and Chemical Corporation (Sinopec)
Niger Hydrocarbon production China Petroleum and Chemical Corporation (Sinopec) China National Petroleum Corporation (CNPC) Mining 小hina Uranium Corporation (uranium) China National Nuclear Corporation (CNNC) (uranium)
Republic of Congo Mining China Sichuan Hanlong Group (iron ore)
Libya Hydrocarbon production China National Petroleum Corporation (CNPC)
Central African Republic Construction China Foreign Engineering Company
82 Kenya Hydrocarbon production China National Offshore Oil Corporation (CNOOC) Electrical power Sinohydro Corporation Telecommunications Huawei Technology
Ethiopia Hydrocarbon production China Petroleum and Chemical Corporation (Sinopec) Electrical power Sinohydro Corporation Road construction China Road and Bridge Corporation (小RB小) Telecommunications ZTE
Uganda Hydrocarbon production China National Offshore Oil Corporation (CNOOC) Telecommunications Huawei Technology
Sudan Hydrocarbon production China National Petroleum Corporation (CNPC) Electrical power Sinohydro Corporation
Egypt Hydrocarbon production China Petroleum and Chemical Corporation (Sinopec) Telecommunications ZTE
Angola Hydrocarbon production China Petroleum and Chemical Corporation (Sinopec) China National Offshore Oil Corporation (CNOOC) Construction China Machine-Building International Corporation (CMIC) Road construction China Road and Bridge Corporation (СRBС) Railroad construction China International Fund Limited Telecommunications ZTE
São Tomé and Príncipe Hydrocarbon production China Petroleum and Chemical Corporation (Sinopec)
Cameroon Mining China Sichuan Hanlong Group (iron ore) China Iron and Steel Corporation (Sinosteel) (iron ore) Electrical power Sinohydro Corporation
Benin Hydrocarbon production China Petroleum and Chemical Corporation (Sinopec)
* Diversified industrial conglomerate.
Nigeria Hydrocarbon production China Petroleum and Chemical Corporation (Sinopec) China National Petroleum Corporation (CNPC) PetroChina China National Offshore Oil Corporation (CNOOC) Electrical power Sinohydro Corporation Gas power National Machinery & Equipment Import & Export Corporation (CMEC) Telecommunications Huawei Technology ZTE Construction Сhina Civil Engineering Construction Corporation
Côte d’Ivoire Hydrocarbon production China Petroleum and Chemical Corporation (Sinopec)
Liberia Hydrocarbon production China Petroleum and Chemical Corporation (Sinopec) Mining China Union (iron ore) Wuhan Iron and Steel Corporation (iron ore) Road construction China Henan International Cooperation Group of Companies Limited (CHICO)*
Sierra Leone Mining Сhina Railway Materials Commercial Corporation (iron ore)
South Africa Hydrocarbon production China Petroleum and Chemical Corporation (Sinopec) Mining China Iron and Steel Corporation (Sinosteel) (chrome) China Minmetals Resources (metal ores) China Metallurgical Group Corporation (iron, titanium) Sino Gold (gold) Jinchuan Group LTD. (platinum) China National Nuclear Corporation (CNNC) (uranium) Railroad construction China Railway Group
Namibia Mining China Guangdong Nuclear Power Corporation (CGNPC) (uranium) Road construction China Henan International Cooperation Group of Companies Limited (CHICO)* Construction National Corporation for Overseas Economic Corporation
Gabon Hydrocarbon production China Petroleum and Chemical Corporation (Sinopec) Unipec Mechanical engineering China National Machinery and Equipment Import and Export Corporation (CEMEC) Electrical power Sinohydro Corporation
Botswana Road construction China Road and Bridge Corporation (СRBС)
Democratic Republic of Congo Mining China Minmetals Resources (metal ores) Electrical power Sinohydro Corporation
Zambia Mining China Nonferrous Metal Mining Company (CNMC) (copper) Electrical power Sinohydro Corporation
Zimbabwe Mining China Iron and Steel Corporation (Sinosteel) (chrome) China Minmetals Resources (metal ores) China Metallurgical Group Corporation (copper metals) Telecommunications Huawei Technology Railroad construction China Northern Railways
Mozambique Mining Wuhan Iron and Steel Corporation (coal) Kingho Energy* Road construction China Henan International Cooperation Group of Companies Limited (CHICO)* Water supply China International Cooperation Group (CNIC)
Madagascar Mining Wuhan Iron and Steel Corporation (iron ore)
Tanzania Telecommunications Huawei Technology Construction China Machine-Building International Corporation (CMIC) Сhina Civil Engineering Construction Corporation
Somalia Hydrocarbon production China National Offshore Oil Corporation (CNOOC)
BRICS on the Heels of Africa
Senegal Electrical power Eskom Holdings Limited
Morocco Paper pulp Mondi Group Mauritania Electrical power Eskom Holdings Limited
Mali Mining AngloGold Ashanti (gold) Electrical power Eskom Holdings Limited
S o uth A f r ica
Republic of Congo Telecommunications MTN Group
Democratic Republic of Congo Finance Standard Bank Group Telecommunications Vodacom Group Limited Logistics Barloworld Limited*
Tanzania Mining AngloGold Ashanti (gold) Telecommunications Vodacom Group Limited Retail Shoprite Finance ABSA Packaging Nampak
Rwanda Telecommunications MTN Group
Uganda Electrical power Eskom Holdings Limited Telecommunications MTN Group Finance Standard Bank Group Retail Shoprite
Sudan Telecommunications MTN Group
Angola Finance Standard Bank Group ABSA Retail Shoprite Logistics Barloworld Limited* Packaging Nampak
Cameroon Telecommunications MTN Group
Guinea Bissau Telecommunications MTN Group
Guinea Mining AngloGold Ashanti (gold) Telecommunications MTN Group
Liberia Telecommunications MTN Group
* Diversified industrial conglomerate.
Nigeria Telecommunications MTN Group Mass Media Naspers Packaging Nampak Finance Standard Bank Group Retail Shoprite Chemicals Sasol
Ghana Mining AngloGold Ashanti (gold) Telecommunications MTN Group Finance Standard Bank Group Retail Shoprite
Benin Telecommunications MTN Group
85 Botswana Telecommunications MTN Group Finance Standard Bank Group Retail Shoprite Logistics Barloworld Limited* Packaging Nampak
Namibia Paper pulp Mondi Group Finance Standard Bank Group Retail Shoprite Mining AngloGold Ashanti (gold) Packaging Nampak
Zambia Electrical power Eskom Holdings Limited Telecommunications MTN Group Finance Standard Bank Group Retail Shoprite Logistics Barloworld Limited* Packaging Nampak
Lesotho Finance Standard Bank Group Telecommunications Vodacom Group Limited Retail Shoprite
Swaziland Telecommunications MTN Group Finance Standard Bank Group Retail Shoprite Packaging Nampak
Zimbabwe Finance Standard Bank Group Retail Shoprite Paper pulp Mondi Group Packaging Nampak
Malawi Finance Standard Bank Group Retail Shoprite Packaging Nampak
Mauritius Finance Standard Bank Group Telecommunications Vodacom Group Limited Retail Shoprite
Mozambique Hydrocarbon production Sasol Telecommunications Vodacom Group Limited Retail Shoprite Finance Standard Bank Group ABSA Paper pulp Mondi Group Logistics Barloworld Limited* Packaging Nampak
Madagascar Finance Standard Bank Group Retail Shoprite
Kenya Finance Standard Bank Group Mass Media Naspers Packaging Nampak
Ethiopia Packaging Nampak
BRICS on the Heels of Africa
Senegal Mechanical engineering Tata Group*
Liberia Metallurgy ArcelorMittal
Libya Hydrocarbon production ONGC Videsh
South Sudan Cement production Sanghi Cement
Sudan Hydrocarbon production ONGC Videsh Road construction RITES* IRCON International*
I n di a
Rwanda Telecommunications Bharti Airtel Essar Group* Cement production Mehta Group Mechanical engineering Tata Group
Kenya Cement production Sanghi Cement Gleen Investment Electrical power Kalpataru Power Transmission Power Grid Corporation of India Telecommunications Bharti Airtel Essar Group* Mechanical engineering Tata Group* RITES* IRCON International* Agricultural Karuturi Global Jain Irrigation Systems Ltd. Pharmaceuticals Ranbaxy Laboratories
Ethiopia Road construction RITES* IRCON International* Agricultural Karuturi Global Vadodara-based ACIL Cotton Industries Verdanata Harvest PLC Sannati Agro Farm Enterprises (SAFE)
Uganda Telecommunications Essar Group* Mechanical engineering Tata Group* RITES* IRCON International* Agricultural McLeod Russel India
Angola Hydrocarbon production ONGC Videsh Indian Oil Corporation GAIL (India) Limited Road construction RITES* IRCON International* Information Technology Talentedge Mechanical engineering Mahindra & Mahindra Tata Group*
Democratic Republic of Congo Road construction RITES* IRCON International*
Cameroon Information Technology Talentedge
* Diversified industrial conglomerate.
Nigeria Hydrocarbon production ONGC Videsh Information Technology Talentedge Pharmaceuticals Ranbaxy Laboratories Mechanical engineering Tata Group*
Benin Telecommunications Talentedge
Ghana Mechanical engineering Mahindra & Mahindra Tata Group*
Côte d’Ivoire Hydrocarbon production ONGC Videsh
Namibia Mechanical engineering Tata Group*
Zambia Mining Vedanta Resources Information Technology Talentedge Mechanical engineering Tata Group* RITES* IRCON International* Pharmaceuticals Ranbaxy Laboratories
Gabon Hydrocarbon production ONGC Videsh
South Africa Hydrocarbon production ONGC Videsh Mechanical engineering Mahindra & Mahindra Tata Group* Telecommunications Reliance Telecom Bharti Airtel Information Technology Talentedge Pharmaceuticals Ranbaxy Laboratories
Botswana Information Technology Talentedge Pharmaceuticals Ranbaxy Laboratories
Zimbabwe Diamond Cutting Surat Rough Diamond Sourcing India Ltd (SRDSIL)
Mauritius Mechanical engineering Tata Group* RITES*
Mozambique Hydrocarbon production Videocon Industries Mining Coal India (coal) Mechanical engineering Tata Group* IRCON International* RITES*
Tanzania Road construction RITES* IRCON International* Mechanical engineering M&M Group
BRICS on the Heels of Africa
Africa in R ankings Too often the Western world views Africa as a single entity; too few specialists can truly tell the difference between one African nation and the next. Meanwhile, numbers often tend to speak louder than words. BRICS Business Magazine has analyzed some key rankings, identifying the leaders and outsiders among African countries based on a whole variety of parameters – from happiness to GDP.
Happy Planet Index 2012 New Economics Foundation Centre for Well-being Algeria has managed to become the happiest African country, despite failing to achieve the highest ratings across all of the indicators used to calculate the Happy Planet Index (HPI). Libya demonstrated the highest life expectancy (74.8 years) while Mauritius had the highest level of experienced well-being. Africa Ranking
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42
26 39 42 49 72 81 86 91 94 96 98 99 101 106 108 111 112 113 114 115 116 121 124 125 126 127 128 129 131 132 133 134 135 137 139 141 142 144 147 148 150 151
Algeria Tunisia Morocco Madagascar Malawi Libya Ghana Egypt Ethiopia Namibia Kenya Zambia Sudan Djibouti Rwanda Mauritius The Comoros Islands Côte d’Ivoire Mozambique Zimbabwe Liberia Congo Cameroon Nigeria Senegal Angola Mauritania Burkina-Faso Uganda Benin Tanzania D.R. Congo Burundi Guinea Sierra Leone Togo South Africa Niger Mali Central African Republic Chad Botswana
73.1 74.5 72.2 66.7 54.2 74.8 64.2 73.2 59.3 62.5 57.1 49.0 61.5 57.9 55.4 73.4 61.1 55.4 50.2 51.4 56.8 57.4 51.6 51.9 59.3 51.1 58.6 55.4 54.1 56.1 58.2 48.4 50.4 54.1 47.8 57.1 52.8 54.7 51.4 48.4 49.6 53.2
5.2 52.2 4.7 48.3 4.4 47.9 4.6 46.8 5.1 42.5 4.9 40.8 4.6 40.3 3.9 39.6 4.4 39.2 4.9 38.9 4.3 38.0 5.3 37.7 4.4 37.6 5.0 37.2 4.0 36.9 5.5 36.6 3.9 36.5 4.2 35.9 4.7 35.7 4.8 35.3 4.2 35.2 3.8 34.5 4.4 33.7 4.8 33.6 3.8 33.3 4.2 33.2 5.0 32.3 4.0 31.8 4.2 31.5 3.7 31.1 3.2 30.7 4.0 30.5 3.8 30.5 4.0 30.0 4.1 28.8 2.8 28.2 4.7 28.2 4.1 26.8 3.8 26.0 3.6 25.3 3.7 24.7 3.6 22.6
Africa in Rankings
Doing Business 2012 The World Bank According to the World Bank, Mauritius is the best place for doing business in Africa, while the Central African Republic offers the least conducive environment in this respect. Mauritius offers the best conditions in terms of access to electricity and international trade, as well as tax regime. South Africa was ranked the best in terms of investor protection, getting credit, and construction permits. Rwanda is the easiest country in which to start a business, while Sudan offers the most enabling environment for registering property. Tanzania would be the best place to sign a contract, and Botswana offers the easiest solutions when it comes to bankruptcy issues. “Out of the many investment-worthy market sectors, investments into infrastructure would be the most sought-after segment: Africa definitely needs roads and electricity,” says Nitin Mehta, Managing Director of CFA Institute for Europe, Middle East and Africa. According to him, potential investments into Africa’s infrastructure could top $100 billion per year.
Mauritius South Africa Tunisia Rwanda Botswana Ghana The Seychelles Namibia Zambia Morocco Egypt Uganda Kenya Cape Verde Swaziland Ethiopia Nigeria Tanzania Lesotho Sierra Leone Madagascar Sudan Mozambique Gambia Liberia Mali Algeria Burkina-Faso Togo Malawi The Comoros Islands Burundi São Tomé and Príncipe Cameroon Equatorial Guinea Senegal Mauritania Gabon Djibouti Angola Zimbabwe Benin Niger Côte d’Ivoire Guinea Guinea-Bissau D.R. Congo Eritrea Republic of Congo Chad Central African Republic №2, 2013
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51
19 39 50 52 59 64 74 87 94 97 109 120 121 122 123 127 131 134 136 140 142 143 146 147 149 151 152 153 156 157 158 159 160 161 162 166 167 170 171 172 172 175 176 177 178 179 181 182 183 184 185
Starting a Business
2 6 4 1 11 14 16 25 7 3 2 28 23 24 37 35 18 15 9 8 3 20 10 21 5 17 16 19 36 26 39 4 12 22 45 13 34 32 19 41 27 31 38 42 33 29 30 46 43 44 40
Dealing with Construction Permits
8 1 9 15 27 40 6 5 36 7 16 22 3 23 2 4 11 44 31 43 34 38 29 12 25 16 14 9 30 45 7 32 13 14 17 28 20 18 15 24 42 19 39 41 37 21 10 46 35 26 33 89
1 31 8 2 10 3 28 7 32 13 14 22 36 15 34 12 42 13 23 41 46 16 40 20 29 18 19 25 9 43 14 37 5 3 6 44 21 24 17 17 35 27 19 33 8 45 26 11 38 30 39
4 10 7 5 3 2 7 40 14 17 12 21 37 8 23 18 46 27 33 39 29 1 31 20 43 13 19 19 36 15 9 22 37 34 16 42 6 41 16 24 11 26 12 35 30 44 17 45 32 28 25
9 1 6 4 9 4 39 7 2 6 2 7 2 13 9 13 4 22 35 12 44 39 22 38 13 22 11 22 22 22 35 39 44 13 13 22 39 13 19 22 22 22 22 22 35 22 43 44 13 13 13
2012 Environmental Performance Index Yale University Here, Gabon showed the best result on the continent, but was ranked 40th in the world. South Africa ended up at the bottom of the list ahead of only three former Soviet republics and Iraq. However, Michael Lalor, Lead Partner at Ernst & Young’s Africa Business Center, believes that we should not jump to conclusions and compare developed and the developing countries: “At the end of the day African economies are in the middle of a development stage. They are still in the throes of early growth, industrialisation and urbanisation, therefore, it makes no sense to compare them with Scandinavian countries, for instance. And if we compare their scores with those of the BRICS economies we will see that China, for example, is only several points ahead of South Africa (12 points, editor’s note).” World Ranking
1 2 3 4 5 6 7 8 9 10 11 12 13 14
40 57 60 64 66 67 68 70 78 80 83 85 86 89
57.91 55.56 55.18 54.26 53.74 53.55 52.76 52.71 50.68 50.38 49.28 48.66 48.56 47.82
Gabon Zambia Egypt Tanzania Botswana Côte d’Ivoire Zimbabwe Ethiopia Namibia Benin Kenya Togo Algeria Mozambique
15 16 17 18 19 20 21 22 23 24 25 26 27
90 91 92 95 98 99 104 105 112 119 122 123 128
47.57 Angola 47.5 Ghana 47.49 D.R. Congo 47.18 Republic of Congo 46.73 Senegal 46.66 Tunisia 46 Sudan 45.76 Morocco 42.97 Cameroon 40.14 Nigeria 38.39 Eritrea 37.68 Libya 34.55 South Africa
Corruption PERCEPTIONS Index 2012 Transparency International “A number of African countries jumped ahead of the BRICS in the Corruption Perception Index published by Transparency International”, says Michael Lalor. “Nigeria, for example, has the same ranking as Russia, while 34 other African countries scored better than Russia. The most ironic thing about the least corrupt countries in Africa is that as a rule, they tend to be small niche markets. However, some of them offer ‘soft entry’ opportunities and serve as financial hubs for doing business on the entire continent. Perhaps, Mauritius would be the most illustrative case in point.” Africa Ranking
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27
World Ranking Country
30 39 43 50 51 58 64 64 69 72 75 75 83 88 88 88 88 94 94 94 102 102 105 105 105 113 113
Botswana Cape Verde Mauritius Rwanda The Seychelles Namibia Ghana Lesotho South Africa São Tomé and Príncipe Liberia Tunisia Burkina-Faso Malawi Morocco Swaziland Zambia Benin Djibouti Senegal Gabon Tanzania Algeria Gambia Mali Ethiopia Niger
65 60 57 53 52 48 45 45 43 42 41 41 38 37 37 37 37 36 36 36 35 35 34 34 34 33 33
28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53
World Ranking Country
118 118 123 123 123 128 130 130 133 139 139 144 144 144 150 150 154 157 160 160 163 163 165 165 173 174
Egypt Madagascar Mauritania Mozambique Sierra Leone Togo Côte d’Ivoire Uganda The Comoros islands Kenya Nigeria Cameroon Central African Republic Republic of Congo Eritrea Guinea-Bissau Guinea Angola D.R. Congo Libya Equatorial Guinea Zimbabwe Burundi Chad Sudan Somalia
32 32 31 31 31 30 29 29 28 27 27 26 26 26 25 25 24 22 21 21 20 20 19 19 13 8
Africa in Rankings
Top 100 Nation Brands 2012 Brand Finance Few African countries managed to make it into the world’s one hundred best brands. As could be expected, South Africa proved to be the most valued brand, probably due to the fact that the country continues to capitalize on brand dividends in the wake of the 2010 FIFA World Cup. Three of the five nations topping the African list are traditionally considered to be the most developed countries in North Africa. However, Botswana ended up as one of the leading nations in terms of growth – its brand value has gone up 61.4%. Africa Ranking
1 2 3 4 5 6 7 8 9 10 11 12 13
31 47 51 60 63 70 80 84 85 93 94 98 100
Brand Value, $ billions
South Africa Egypt Nigeria Morocco Algeria Angola Tunisia Kenya Ghana Ethiopia Tanzania Botswana Cameroon
222 112 94 49 47 33 25 20 19 13 12 10 9
Change in Brand Value compared to 2011, % 40.8 36.5 40.9 20.7 11.1 9.3 28.1 38.1 31.2 -15.3 28.0 61.4 3.0
GDP – per capita (Purchasing Power Parity) The CIA World Factbook “The economic growth that we see in Africa today is particularly visible in Ghana and Nigeria”, explains Nitin Mehta. “These countries are very rich in oil, gold and cocoa, which enables them to maintain stable currencies and continue to grow.” “South Africa – the country that tops the list – is truly a great and diversified economy”, adds Michael Lalor. “It is one of the 30 largest economies in the world with services accounting for nearly 66% of their GDP”, he explains. “However, the country is yet to sort out both its domestic and external constraints. The former include insufficient involvement of the poor and mostly marginalised (and the largest) part of the population in economic processes, while external constraints are predicated on the country’s close integration with the global economy with the latter’s overall state affecting South Africa.” Africa Ranking
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
26 27 31 48 59 66 70 73 78 79 80 84 85 95 96 104 112 114 115 117 118 120 123 124 128 129 130 132
South Africa Egypt Nigeria Algeria Morocco Angola Tunisia Ethiopia Libya Ghana Sudan Kenya Tanzania Uganda Cameroon Côte d’Ivoire Botswana Equatorial Guinea D.R. Congo Gabon Senegal Mozambique Burkina-Faso Zambia Madagascar Chad Mauritius Republic of Congo
Estimated GDP, $ millions
578,600 537,800 450,500 274,500 171,000 126,200 104,400 103,100 87,910 83,180 80,430 76,070 73,500 50,590 50,320 39,640 31,490 28,030 27,530 26,710 26,500 26,220 24,030 23,680 21,370 21,340 20,260 19,270
2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012
29 137 30 138 31 139 32 141 33 142 34 144 35 149 36 153 37 156 38 159 39 160 40 163 41 164 42 165 43 171 44 173 45 174 46 175 47 184 48 186 49 187 50 191 51 194 52 205 53 208 54 214 55 227 91
Estimated GDP, $ millions Date
Mali 17,350 Namibia 16,840 Benin 15,510 Rwanda 14,910 Malawi 14,580 Niger 13,530 Guinea 12,250 South Sudan 9,664 Mauritania 7,615 Zimbabwe 6,909 Togo 6,899 Swaziland 6,148 Somalia 5,896 Burundi 5,489 Eritrea 4,412 Lesotho 3,945 Central African Republic 3,847 Gambia 3,495 Liberia 2,693 The Seychelles 2,410 Djibouti 2,377 Cape Verde 2,188 Guinea-Bissau 1,902 Western Sahara 906 The Comoros Islands 872 São Tomé and Príncipe 403 Saint Helena, Ascension 18 and Tristan da Cunha
2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2007 2012 2012 1998
Privet, Yaoundé! Vladimir Volkov Having spent a decade working in Central Africa, Mikhail Solodovsky believes that doing business in what was once called the ‘dark continent’ requires a keen understanding of the local realities and mindset. And if you do not yet have that, he is prepared to guide you.
Stepping from a minus-20-degree Moscow frost into an old mansion just a few paces away from the Kremlin, you would rather expect a cup of hot tea than stories of the permafrozen soil. However, the host in this office, Mikhail Solodovsky – an imposing, grey-haired man in his early sixties, not devoid of a youthful chic (dressed in a red knitted pullover, brown checked jacket and blue jeans) – starts by lay-
ing out a presentation of a new garden city beyond the Arctic Circle. This is a hi-tech, multilevel building of steel and glass, whose futuristic design would make Norman Foster envious. It will soon be built in Salekhard, the Russian gas producers’ capital where, by the way, convicted criminals were once exiled. With a hand bearing a massive gold band on its ring finger, Solodovsky is turning the leaves of a colorful 92
Russia and left for his homeland. We were keeping folder showing drawings of wall paintings and decoin touch by phone, and then I went to visit them. rations in the Lord’s Transfiguration Church – inThat’s how it began,” he says. tended to be one of the highest and most prominent While in Moscow, Jean Mari (the Cameroonian buildings in the city. student, who later became a minister in his own “As to the size, it will be inferior only to the Cacountry) had driven a red Porsche. Recently Solothedral of Christ the Savior in Moscow. Now, we dovsky learned from a newspaper that several years are choosing the design for the bell icons,” he says. ago the car had shown up in the garage of a wellSolodovsky manages projects for a Russian comknown Russian oligarch. pany involved in the comprehensive Yamal min“When I told Jean Mari, he laughed a lot. By the eral resources development program supervised by way, a great number of Africans who studied with Gazprom. To mention a few: the company contractus later became high-ranking officials in their home ed the building of the 572 km-long, world’s northcountries. This is a unique resource almost unused ernmost railway – on the Arctic Yamal peninsula – by Russia today,” he notes. started in the middle of the 1980s. In 2010, the branch Solodovsky, who is also an expert at the State line was extended to Bovanenkovo. In October 2012, Duma consulting on economic relations with Cena huge gas deposit estimated at 5 trillion cubic meters tral Africa, and who prefers to be mentioned in mass was launched into production there in the presence media as an ‘Africa expert’, did not come to know this of President Putin. The fuel produced from this denew world quickly and easily. There were some tragiposit (prospectively about 140 billion cubic meters comical encounters. One a year) will enter the unitook place while driving fied gas distribution netThe CIA World Factbook says “Cameroon’s with Jean Mari through work via a separate longbusiness environment – one of the world’s distance pipeline, which worst – is a deterrent to foreign investment.” Cameroonian countryside considered off-limits is, needless to say, also the That statement – Solodovsky insists – has for white people. Here he northernmost one on our nothing to do with reality learned the importance of planet. Add to this a new knowing local customs for avoiding unpleasant inairport with a 2.6 km runway, and the Arctic port cidents. On his iPhone screen Solodovsky shows me Sabetta founded last July to export liquefied natural a photo of a big, spreading tree, asking whether I nogas, and you will have a good picture of the extraortice anything in it. To my negative answer he urges dinary deeds of the builders of the North. me, “look more attentively, for your life may depend “No country in the world has built anything in on it.” After a while he explains that a man armed the Arctic latitudes. Today, Russia has clearly demwith a spear is hiding there, hunting for a man’s head onstrated it has no equals in the Arctic,” Gazprom to present to his bride’s parents, in order to propose CEO Alexey Miller stated on the day of the Boto her as custom prescribes. vanenkovo triumph. Solodovsky and Jean Mari had been making for Solodovsky generally shares this pride, but he feels a village in the foothills, along the trail passing by like drawing attention to the working vigor not only that tree. of the Far North, but of more southern regions – spe“Suddenly he pulled me back sharply and started cifically Central Africa, where he worked for a long to look about. Then he fixed his stare on the tree and time as a project manager and consultant, building talked with it – and the tree answered.” Solodovsky roads, houses, and even an airport. It is in Africa that smiles. After a few minutes the man left his ambush he believes he can fully utilize the invaluable experiand climbed down. ence and connections he acquired there. “He turned out to be a nice, friendly guy with a shining snow-white smile, having nothing against That’s How the Tamtam Works us personally. But his situation was hopeless, for he Most of Solodovsky’s African odyssey was spent in had to marry and needed somebody’s head to do so.” Cameroon, where he arrived in the early 1990s by Plain killing was unacceptable by local standards of pure chance: honor, which is why he had drawn a line across the “My wife’s friend married a Cameroonian who trail – to use his weapon against a trespasser in good had studied at the Peoples’ Friendship University of №2, 2013
Cameroon and elsewhere in Central Africa, and conscience. Fortunately, the experienced Jean Mari thinks of himself as a guide capable of opening the noticed the line and saved his companion before the required doors for his clients. fatal step. “Many of those who want to do business here just Ignorance of local laws – formal or informal – does can’t do it, or lose it eventually. There are very many not relieve you of responsibility in business as well, the things to be understood here, and a pilot is required expert continues, although the consequences of such for that,” he says. mistakes are not so lethal. To illustrate this, SolodovsRemarkably, so far only non-Russian companies ky tells another story. A French company, having built and representative offices in Cameroon have sought a new supermarket on the outskirts of a city, could Solodovsky’s services. Russian businessmen have not understand why the locals gave it a wide berth. It preferred to act by themselves, yet to no sufficient turned out that they had made an unforgivable misavail. For example, some years ago, the management take at the very beginning. Although having completof a leading Russian oil company (which he asked us ed formalities with all other local authorities, they had not to name) arrived on two large aircraft, but were failed to solicit the support of the chief of a local tribe, admitted to see only middle-ranking officials. on whose land the supermarket had been built. Solodovsky does not conduct any other business “Everything improved instantly as soon as they on his own behalf in the country on principle. paid honor to the chief: the store was flooded with “I believe that everyone people. That’s how the should do what he can. tamtam works,” SolodovsIt is impossible to discuss business with For example, I don’t know ky explains. Africans by phone or email – one should There is another story be aware of the local mentality. They think much about the cultivation of cocoa or the extracof the same kind. Once, that if you can’t come to talk the matter the wife of a high-rank- over, then it’s not worth talking with you tion of diamonds, but I can help specialized companies ing local official, who was at all to get licenses for their exFrench, showed insuffiport,” he explains, and stresses that all of this is done cient respect to the chief of her husband’s tribe. strictly within the framework of the country’s laws. “As a punishment, the chief ordered him to kneel at a dusty crossing, and he remained there in the same posture the whole day, in a white suit. Even Investment Climate being a member of the government, he remained The last remark is not devoid of meaning given the subordinate to his chief to the end of his days. Imdiversity of prejudice towards sub-Saharan Africa, agine what happened to his spouse after that. Howoften perceived as a lawless land afflicted by limitever, the same could have happened to a company. less corruption. International institutions financed And there are a lot of such nuances here, which canby Western governments, such as Transparency Innot be ignored,” Solodovsky notes. ternational (TI), add grist to the mill. Cameroon Of course, protecting clients from such uncame 144th in TI’s 2012 Corruption Perceptions pleasant stories is only part of the work SolodovsIndex. Russia fares not much better in that list, in ky does as a consultant in Africa. Several years 133rd place. ago he had to return to Russia as one project finThe CIA World Factbook regards “endemic corished and an interesting proposal from Moscow ruption” as one of the major weaknesses of Camefollowed. Nevertheless, he still regularly travels roon’s economic development, along with a substanto Central Africa on business. tial unevenness in income distribution, top-heavy “It is impossible to discuss business with Afristate sector, and generally unfavorable business clicans by phone or email – one should be aware of mate. At the same time, the CIA acknowledges the the local mentality. They think that if you can’t reforms started by the Cameroonian Government come to talk the matter over, then it’s not worth in the 1990s, including several programs promoted talking with you at all,” he explains. by the IMF and the World Bank aimed at raising He views his mission as a consultant as being to productivity in the agricultural sector (where over provide the most favorable treatment possible for 70% of the population is employed), recapitalizing companies and businesspeople willing to work in banks, and improving trade and investment treat94
ment. In mid-2012 Cameroon, claiming to become a major diamond producer and exporter, joined the Kimberley Process – fueling the interest of foreign investors in the sector. C&K Mining Inc., a joint venture of the Cameroonian and South Korean governments, took on the development of the Mobilong diamond deposit in March 2012. The American intelligence analysts say launching big projects takes a lot of time, but that “Cameroon’s business environment – one of the world’s worst – is a deterrent to foreign investment.” That statement – Solodovsky insists – has nothing to do with reality. According to his observations, Cameroon is now experiencing an investment boom, and the competition for the right to invest there is getting visibly keener. The United States are actively pressing out the historically dominant French businesses which still have control over the most important sectors, such as hydrocarbon production, telecoms and banking. “Previously, there was a kind of unspoken agreement to divide areas of influence, by which Americans did not meddle in Cameroon. But they have not been standing on ceremony since the French refused to support them in Iraq,” he explains. №2, 2013
China Weighs In
Unlike many sub-Saharan countries, Cameroon has a developed democracy, with stable government having done a lot to make foreign money comfortable there, assures Solodovsky. In particular, it has protected investment capital with state guarantees. He agrees that, formerly, the government was reluctant to let foreigners develop the country’s rich natural resources, but that in fact this policy proved to be very wise. “Due to this, Cameroon has avoided a serious armed struggle for local resources which is going on elsewhere in the region, where one can still meet people – mostly immigrants – with a hand cut at the wrist or elbow. That’s how the rebels and guerrillas of various kinds punish for cooperation with the government,” he notes. Solodovsky explains the surge in Western investors’ interest in Cameroon, as a gateway to Central Africa, by the lack of investment opportunities domestically. It may turn out, however, that in the foreseeable future the leading role will be played by China, which is rapidly increasing its presence in the African continent. This presence was felt in Cameroon for the first time four or five years ago. 95
The Russian Trail in African Policy
Leaders of African states who graduated from Russian higher education institutions.
Youssouf Saleh Abbas Former Prime Minister, Republic of Chad
Abdramane Sylla Vice-chairman, Mali National Assembly
Thabo Mbeki Former President of South Africa
Peoples’ Friendship University of Russia
Peoples’ Friendship University of Russia
Faculty of Law
Faculty of Humanitarian and Social
Institute of Social Science at the Central Committee of the Communist Party of the Soviet Union
Hifikepunye Pohamba President of Namibia
Jeanne d’Arc Mujawamariya Former Minister of Education, Rwanda
Amadou Toumani Touré Former President of Mali
Lomonosov Moscow State University
Peoples’ Friendship University of Russia Faculty of Physics, Mathematics and Natural Science
Ryazan Higher Airborne Command School
Rubén Maye Nsue Mangue Former Minister of Justice, Equatorial Guinea
Abdiqasim Salad Hassan Former President of Somali
Hosni Mubarak Former President of Egypt
Lomonosov Moscow State University Faculty of Biology
Frunze Military Academy, Moscow Postgraduate School
Peoples’ Friendship University of Russia
monds weighing less than one carat were not priced in Cameroon. They were literally worthless, because nobody was interested in them. Today, traders from China buy these stones by the kilogram, with special scales using one-liter cans and mugs as measuring units. According to Solodovsky, Chinese expansion has already worried the local authorities, who would like to balance it by attracting investors from Russia and other developing countries. He is ready to help international businesses improve their position in Central Africa by acting as their pilot, provided that the project is interesting enough to convince him to leave the Russian North. If it happens, then, during our next meeting, I will be dreaming not of a cup of hot tea, but rather of a glass of ice-cold cola.
Solodovsky first came to realize the significance of the Middle Kingdom’s expansion when he saw a Chinese person following his car as a passenger of a motorbike – the cheapest and the most dangerous form of transport, used by the poorest people (one ride costs about five cents). “As a rule, they ‘drop’ into a place as a team, spread over the neighborhood, and start doing business,” he says about the Chinese tactics he has noticed in Cameroon. The ‘foreman’ stays in a hotel, and nobody knows where the others live and eat. “I saw how she – it was a woman – instructed them in the lobby every morning, after which they left on some business,” Solodovsky says. The nature of such business can be understood with the following example. Before the Chinese came, dia96
President of Brazil Dilma Rousseff and President of South Africa Jacob Zuma
Two Parts of a New Gondwana Susana Carrillo Thousands of millions of years ago Brazil and Africa were parts of the same landmass. Today centripetal forces of mutual economic interests again push the two closer together, setting up a new South-South axis of cooperation.
Susana Carrillo is a Senior Specialist with the World Bank, in the Capacity Development and Partnerships Unit in the Africa Region. 98
Two Parts of a New Gondwana
principles of Brazilian foreign policy aiming to find new spheres of political expression for an intermediate power such as Brazil, and a more just social order globally. According to this vision, the traditional decision-making centers do not represent the developing world – not even the interests of its emerging economies. During Lula’s presidency, Brazilian diplomatic and economic relations with Africa moved higher on the agenda, contributing to the reinforcement of the new role of the ‘Global South’, and this attitude was shared by some African leaders. In 2007, during trade negotiations between Mercosur and SACU, a high-level government official from Angola highlighted the need to further enhance the concept of the South Atlantic as a strategic space in order to effectively promote South-South cooperation initiatives.
Financial and technical cooperation agreements between developing countries gained increased recognition during the past decade, moving away from the traditional North–South model of developmental assistance. According to practical research, the traditional North-South approach to developmental cooperation has not succeeded as expected, as it was ‘supply-driven’ with economic and policy reforms dictated by the ‘developed North’ to the ‘poor South’. Technocratic prescriptions usually missed the local realities and did not accommodate cultural, social and economic peculiarities on the ground. A ‘one-size-fits-all’ approach was a norm, rather than an exception. Since the emergence of the G-20 in 1999, developing economies are playing a stronger role in shaping the new global architecture. The positioning of the BRICS as a group of economically powerful emerging economies has also contributed to a changing of views as to where the axis of power is. Other forums, like the India-Brazil-South Africa (IBSA) Dialogue Forum, are equally contributing to reshaping not only economic, but political, and official relations. Other groups continue to emerge or grow as well, including the Africa-South America Cooperation Forum (ASACOF), the Southern Common Market (Mercosur), and the Southern African Customs Union (SACU). As UNCTAD’s report Economic Development in Africa 2010 stresses, South–South cooperation is attractive to African countries because it promises an alternative to the problems of the existing foreign aid mechanisms, and represents a new dimension of the international economic, financial, and trading systems, which they can influence. According to the report, South–South connections significantly increase the region’s bargaining power in other international negotiations, such as those related to international trade and climate change. The vision of the world order of former Brazilian President Luiz Inácio Lula da Silva (2003 to 2010), and his Foreign Minister, Celso Amorim, were closely aligned with forums emerging in the South. While incumbent, Lula da Silva strengthened the №2, 2013
New Africa, old problems
The global view of sub-Saharan Africa has dramatically changed in recent years. Seen traditionally as a lost sub-region with entrenched poverty, corrupt dictators and perpetual conflicts, it is now frequently portrayed in the media as a region of opportunities that should not be missed by global corporations and investors. The persistent GDP growth (4.7% in 2010, 5.3% in 2011, and 4.6% in 2012) coupled with improvements in governance, and a better business environment in some countries, has contributed to the optimism about future developments. GDP is expected to grow by 4.9% in 2013 and by 5.2% in 2015. But despite these positive trends, there are about 20 fragile states, social and economic inequality has not yet been dealt with across the sub-region, the infrastructural gap remains significant, and the lack of human skills is still weighing against long-term sustainable economic growth. According to the World Bank, there is only one medical school graduate per 117,300 inhabitants of subSaharan Africa, compared to one per 54,500 in South Asia. Only 11% of all graduates have natural sciences as their majors and only 7% of them are engineers. In countries like Angola, only 20 petroleum engineers graduate each year, though oil and gas make up 98% of the country’s exports. Malawi has only 22 veterinarians, although 80% of its people are employed in the agricultural sector, which in turn accounts for 80% of the country’s exports. 99
Heading for rapprochement
Brazil and Africa have strong historic and cultural ties dating back several centuries. Once united in a single landmass, Gondwana, the two sides of the Atlantic were reconnected by the slave trade from the 16th to the early 19th century. According to José Flávio Sombra Saraiva, Professor of International Relations at the University of Brasília, not only were slaves traded, but also goods, ideas, skills and social norms. After the abolition of slavery and Brazil’s independence from Portugal, the country’s early connections with Africa faded, due partially to the repositioning of the European countries as colonizers of the African continent. Later, in the 1950s and 1960s, when African countries gained their independence, Brazil’s foreign policy towards Africa rose as a priority again – although to a limited extent, due to its anti-colonialist stand in respect of the European presence in Africa, and relations with its former colonizer, Portugal. Progressive movements in some African countries (Angola, Tanzania and Nigeria) in the 1970s and 1980s contributed to a stronger and more formal realignment of Brazil’s foreign policy towards Africa. During the presidency of Lula da Silva, Africa (and Latin America) became priorities of Brazilian foreign policy. The interest in building closer relations with Africa corresponded not only with common political and economic (Brazil-Africa) strategic interests, but also with the wishes of a huge part of the Brazilian electorate descending from Africa (more than 50% of the total population), as well as with the need to pay more attention to the role of the African Diaspora. During his eight years in tenure, President Lula made 12 visits to Africa. During his first year as president, he visited Angola, San Tomé, Mozambique, Namibia and South Africa. In his visits to Africa, he was frequently accompanied by diplomats and businessmen, showing the renewed orientation of Brazilian foreign policy towards Africa. Between 2003 and 2010, heads of various African states visited Brasília 48 times, and their foreign ministers did so 67 times. These frequent visits, and intensive diplomatic exchange, confirmed the presence of mutual strategic interests on the emerging Brazilian-African agenda. Brazil now hosts 33 African embassies and there are 38 Brazilian embassies in Africa. This network
South–South cooperation is attractive to African countries because it promises an alternative to the problems of the existing foreign aid mechanisms, and represents a new dimension of the international economic, financial, and trading systems, which they can influence
has become an instrumental platform to promote business development and facilitate knowledge exchange and technical assistance. Brazilian President Dilma Rousseff (January 2011 – present) has reconfirmed Brazilian foreign policy towards Africa. During her first year in office she visited Mozambique, Angola and South Africa, and participated in an India-Brazil-South Africa (IBSA) forum. Brazil’s stronger interest in Africa is attracting other Latin American countries to Africa and vice versa. Mercosur now has two trade and cooperation agreements with African countries: one with Egypt, and the other with a group of Southern African countries. Both African and Latin American governments are increasingly recognizing the importance of the support of cooperation initiatives, for example during the ASA Forum. In 2011, one business forum devoted to agriculture was held in Johannesburg, and another was held in Fortaleza, in the Brazilian state of Ceará, to explore business opportunities for Brazilian firms in Africa and African firms in Brazil. One more South-South cooperation forum is being prepared by the governments of Brazil and Equatorial Guinea, to take place in Malabo in 2013. With the increasing flow of information and growing internet connectivity between the two regions, increased commercial interactions are expected across the South Atlantic. Partners in similitude
Besides historical and cultural ties, Brazil and Africa share similar climatic and geological conditions. These facts make Brazilian technology and expertise relevant to Africa. The Cerrado eco-region, the Brazilian savanna, has a soil and vegetation regime similar to that of significant parts of sub-Saharan Africa (the tropical belt). Brazil’s important achievements in the agriculture and social sphere – which resulted in a sharp decrease in income inequalities – as well as in the energy sector, continuously draw the attention of many leaders of non-lusophone African countries. 100
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The idea to create the South-South axis started to gain traction when the former President of Brazil Luiz Inácio Lula da Silva was still in office
ing influence on the population, the countries, and their policies. Other donor countries have already recognized the importance of Brazilian structuring projects. As a result, trilateral cooperation projects have recently been launched in such areas as tropical agriculture, and some development agencies (for example JICA of Japan and USAID of the USA) are participating in them with financial inputs. The Brazilian Agricultural Research Corporation (EMBRAPA), collaborating with the Brazilian Cooperation Agency (ABC), have jointly designed and implemented development projects in several African countries in consultation with local African partners. The success reached in the Brazilian savanna (which was transformed into the most productive area in the country) is expected to be repeated in the Nacala corridor in Mozambique, supporting the development of agriculture and business. Two other important ongoing agricultural structuring projects include the Cotton-4 project (with Benin, Burkina Faso, Chad and Mali) and the Rice-Culture Development Project in Senegal. The Cotton-4 project was conceived in 2008 to support the development
In addition to sharing knowledge and expertise in the power and agricultural sectors with African peers, joint projects are being carried out in education, e-government, public administration, environment, information technology, urban development, sanitation, bio-fuels, air transport, tourism, justice, culture, human rights and sports. Brazil is now providing technical assistance to 25 sub-Saharan African countries. The Brazilian approach to the sharing of knowledge with African countries offers important lessons to other emerging and developing economies. ‘Structuring projects’ are a key instrument of Brazilian technical cooperation. Such projects are customized to local economic, geological and climatic conditions, a significant amount of time is invested in identifying local needs and priorities, and continued participatory consultations with local stakeholders are carried out during all phases of the projects. They are conceived for the long term, in contrast with traditional development projects with shorter life spans, with a view to fostering social development and building local capacity. They apply cross-sector coordinated approaches aiming to exert a long-last№2, 2013
learning, mobile training units, and onboard training for coastal and riverside communities – are especially relevant for Africa. SENAI also supports Brazilian private sector firms operating in Africa to build the technical skills of local workers and develop social programs for poor and disadvantaged people through the Social Industrial Service (SESI). Along with SENAI, this is one of the two Brazilian institutions supporting the industrial sector. Youths’ skills development is critical for many African countries, therefore the application of successful Brazilian practices can help African governments to design their policies and implement quick-win approaches to address the lack of professional skills.
of the cotton industry. The countries involved in this project face significant losses as a result of subsidies in the international cotton market. The project has been recognized by UN technical bodies as a success, despite the communication and coordination constraints the participating countries face. The RiceCulture Development Project will help Senegal to become self-sufficient in rice production; rice is the major food product there. Another area where cooperation between Brazil and Africa is increasing is tropical medicine. Brazil now has 53 bilateral agreements with 22 African countries. The successful experience of Brazil in HIV/AIDS and sickle-cell anemia treatment is in high demand with African partners. A pharmaceutical plant in Maputo, for the production of generic drugs to treat HIV/AIDS and other diseases, is under construction and expected to start operations soon. The plant will provide neighboring countries with low-cost generic drugs. Brazil’s achievements in vocational training are also in very high demand in African countries. SENAI, the Brazilian National Service for Industrial Apprenticeship, has provided technical support to build training centers in Cape Verde, Guinea Bissau, Mozambique and San Tomé, and is also partnering with Angola, South Africa, Congo and Zambia in that area. The innovative programs developed by SENAI – distance
Future investments and business opportunities will further evolve between Brazil and Africa in the biofuel and energy sectors. One of the challenging areas of development in Africa is the power sector. Only about a quarter of the population uses electricity. Power consumption amounts to one tenth of that of developed countries. To address this issue, private and public investment will be needed. According to a World Bank study on infrastructure in Africa, $38 billion a year will be required to address Africa’s infrastructural deficit; operation and maintenance will take a further $37 billion. 102
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$12 billion over the same period. This is partially a result of political measures taken in Brazil, such as the Integration with Africa program (for which $360.5 million was spent in 2010), intended to boost exports, and a foreign policy strategically oriented towards Africa. The Brazilian Development Bank (BNDES) is also supporting the expansion of trade and investments in Africa. Diversification of Brazilian exports to Africa is at the core of an agreement between the BNDES and the Brazilian trade and investment agency APEX. Brazilian private sector investment in Africa started in 1980 covering only lusophone countries, but expanded to almost every country of sub-Saharan Africa. The investment is directed mainly towards infrastructure and the mining and power sectors. Hiring local workers and investing in the development of local facilities are among the approaches used by Brazilian firms investing in Africa, such as Vale (mining), Odebrecht (infrastructure, housing, agribusiness), Camargo Corrêa (infrastructure), Queiroz Galvão (infrastructure), Andrade Gutierrez (infrastructure), and Petrobras (oil and gas). Other Brazilian companies, like Marcopolo – the thirdlargest manufacturer of bus bodies in the world – has built two plants, in Egypt and South Africa. It is expected that more Brazilian companies will do business in Africa and that some will even move there. APEX supports small and medium enterprises (SMEs) willing to invest in Africa. However, SMEs still perceive Africa as a challenging environment and most of them are not in a position to manage the risks associated with doing business in Africa. More efforts are required to make information about Africa available to Brazilian small and medium investors, and vice versa. With the upcoming implementation of the 12,800-gigabyte ocean bottom cable connecting Southern Africa with the north of Brazil, the flow of information between the two sides of the Atlantic will improve. However, both sea and air transportation between Brazil and Africa remain costly, and therefore limited. First of all, this is because all the available flights go through Europe. For example, it takes about 30 hours to fly from Accra to Sao Paulo (through Frankfurt), while a direct flight from Dakar to Recife (in northern Brazil) would take only three hours, and from Dakar to Rio de Janeiro – only five. The Brazilian government and some African governments are working to improve the situation.
Brazil has managed to develop alternative sources of energy, and that whets the interest of African governments. In 2006 Brazil was able to declare oil self-sufficiency, because the country is the world’s most efficient producer of biofuels. With the recent discovery of pre-salt deposits, Brazil’s Petrobras (a state oil company) is further developing its deepsea drilling technology. Petrobras now operates in 28 countries including Angola, Benin, Gabon, Nigeria, Namibia, Senegal and Tanzania. Brazil also has one of the largest hydroelectric dams in the world; Itaipu is located on the border of Brazil and Paraguay and supplies zero-emission electricity, with most of the power going to Paraguay. Other energy initiatives include the signing of a memorandum of understanding on biofuels with the West African Economic and Monetary Union (UEMOA) to conduct feasibility studies to analyze bio-energy production in Benin, Burkina Faso, Ivory Coast, Guinea-Bissau, Mali, Niger, Senegal and Togo. Brazil can also share its expertise in the areas of efficient charcoal production, charcoal gasification and cogeneration, power crisis management, power sector reform, the operation of large hydrothermal systems, and concessions for water use. There are other areas in which Africa and Brazil can develop to mutual benefit, such as second-generation ethanol, efficient cooking stoves, rural energy saving, greenhouse gas emissions, hydro-reservoirs, regulatory mechanisms to foster wind-power production, solar water-heaters, and uranium enrichment. Social protection programs in Brazil, like the Zero Hunger program (implemented by 12 ministries and agencies in Brazil), and its four pillars – access to food, strengthening family agriculture, income generation and articulation, and mobilization and social control – are being widely analyzed by African governments. Some countries are already implementing some of the components of the program. Angola, Kenya, and Senegal are adapting it to help to build conditions for more inclusive growth. Other countries, such as Ghana, are focusing on strengthening family agriculture. Brazil is the only BRICS country managing to maintain economic growth while decreasing social inequality. Trade, investment and risks
Between 2000 and 2010, Brazil’s trade with Africa increased from $4 billion to $20 billion. In respect of sub-Saharan Africa, it jumped from $2 billion to №2, 2013
Lessons From Africa’s Pioneers By Matthew Meacham, Andrew Tymms, Tiaan Moolman and Joëlle de Montgolfier It is better to learn from the mistakes of others especially when large investments are at stake. Partners from the analytical firm Bain & Company studied some early foreign investment projects in Africa and identified five key lessons learned that need to be internalised to achieve success on this continent.
Matthew Meacham, a Bain & Company partner based in Madrid, leads the firm’s Consumer Products practice in Europe, the Middle East and Africa. Andrew Tymms and Tiaan Moolman are Bain partners in Johannesburg and leading members of Bain’s Global Consumer Products practice. Joëlle de Montgolfier, based in Paris, is senior director of Bain’s Consumer Products practice in Europe, the Middle East and Africa. 104
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shows that five of these challenges are more pronounced in Africa than elsewhere, requiring Africa-specific solutions. The five most significant African challenges are underdeveloped infrastructure, disorganized and fragmented retail landscape, lack of reliable market research, unclear and ever-changing government regulations and a severely limited talent pipeline. Through our research and experience working with market leaders, we’ve identified a range of effective approaches for companies to navigate this thorny landscape. Consider creative ways to bypass Africa’s poor public infrastructure, reduce operating costs and innovate to compensate. Throughout Africa, business growth is hampered by frequent power outages. Nigerian companies experience on average 26 power outages in a typical month. In addition to power woes there is unreliable transportation. Outside South Africa, the transportation network is underdeveloped, even compared with other emerging markets – less than 100 meters of road per square kilometer of land area compared with 400 meters in China or 1,500 meters in India ( 1).
Heineken beer is sold in more than 170 countries, but when the world’s third-largest brewer does business in Africa, it knows it needs to play by some different rules. In Africa, Heineken not only operates breweries but also its own power and water treatment plants. That’s how the company overcomes a major African obstacle: the continent’s notoriously weak and undependable infrastructure. Heineken has learned that, while Africa poses substantial operating challenges for consumer products makers, those hurdles are not insurmountable. And finding innovative ways to clear those obstacles can pay off. The company is about to pass the €2 billion milestone for annual beer sales in Africa and the Middle East, and its operating profit margins there were 26% in 2010. Many of the obstacles in Africa are similar to those encountered in other emerging markets, and multiregional players may already have honed the skills needed to tackle them. Even so, our research 1
Outside of South Africa, the continent’s transport network is underdeveloped, and power outages are more frequent than in Brazil or Russia
Rail density km. of rail per 100 sq. km. of land area, 2010
Road density km. of road per sq. km. of land area, 2010
Number of power outages in given month 2006–10, most recent used
Top African markets
0.1 0.1 0.1 0.1
South Africa Nigeria Egypt Kenya Morocco Tunisia Algeria Angola Sudan
India China Brazil Russia
African retail trade is composed of three segments
Traditional trade ŦŦ Accounts for majority of African retail ŦŦ Consists of small retailers, specialty stores ŦŦ Highly fragmented and dispersed across urban and rural areas
Modern trade ŦŦ Similar to western modern trade ŦŦ Populated by local and multinational retailers ŦŦ More developed in South Africa; starting to grow elsewhere but from small base
ŦŦ Significant share of African retail market ŦŦ Trading by unregistered sellers (such as “hawkers,” “spaza shops” or “shebeens”) or reporting evasion in modern economy ŦŦ Prevalent in rural areas and fringes of urban sectors
with the milk powder. Promasidor replaced the animal fat in milk with vegetable fat to give its product a longer shelf life, thereby diminishing the dependency on a cold supply chain. African children pour the powdered milk directly on their tongues, a way to avoid concerns about finding fresh water. As a result, Promasidor is now a leader in the powdered milk market in Nigeria. Moreover, the lack of infrastructure contributes to an uncertain supply of raw materials. The market leaders surmount this challenge by building strong supplier relationships or even becoming vertically integrated to stockpile critical materials, better manage costs and mitigate supply unpredictability. Heineken has set the ambitious goal of buying 60% of its raw goods from local suppliers to guarantee product quality and a reliable supply source. It’s a win-win: The brewery avoids disruptions at local operations and the local economy benefits from new jobs, generating income that may spur consumer spending and possibly improve government relationships. The company also provides farmers with agricultural education to increase crop yields – another move that helps establish a more dependable supply chain. Similarly, The Coca-Cola Company, in collaboration with the nonprofit TechnoServe and the Bill & Melinda Gates Foundation, has successfully partnered with local governments and farmer associations in Kenya and Uganda to enhance the quality and quantity of locally produced passion fruit and mangoes. In both countries, growing demand for
Successful companies know that they can’t depend on Africa’s infrastructure and dealing with it will add to costs. They develop strategies to invest in their own support systems when necessary and to offset the additional expenses. They buy power generators, build water tanks and even occasionally pave roads. For example, in Ghana, which experiences frequent water shortages, one beverage company bypassed the unreliable municipal service by building huge water tanks, ensuring consistency of water supplies for its factories. Market leaders remain competitive by balancing the high costs of infrastructure solutions with rigorous cost and cash management. Take Heineken’s local subsidiary in Nigeria, Consolidated Breweries. The company puts cost management at the heart of its business. Salaries are in line with regional and local companies rather than with multinationals. To further curb costs, Consolidated Breweries employs a lot of manual labor in some parts of its operation and substitutes second-hand equipment where possible for expensive new machinery. Another creative way to overcome some of the challenges posed by the lack of proper infrastructure is to innovate on the product front. One successful example is Cowbell, a milk powder packaged in small sachets, provided by Promasidor, an African dairy, beverage and food enhancement company. This product has enabled the company to overcome some of the root causes behind the low availability of milk across Africa: limited access to refrigeration and to sanitary fresh water to mix †
Friedrich Schneider, Size and measurement of the informal economy in 110 countries around the world, July 2002; Gavin
McLachlan, Wire Craft and Urban Space: A case study of the wire art trade in South Africa, 41st ISoCaRP Congress 2005. 106
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One Red Eye / David Parry
The challenge is to gain traction in a marketplace where the majority of consumers still buy from traditional or informal retailers ( 2, 3) Traditional trade represents more than 80% of formal retail across Africa and consists of very small outlets and specialty stores dispersed across urban and rural areas. Modern retail is growing, primarily out of South Africa, but is still a minor portion of the formal retail landscape. Informal retailers are unregistered sellers – such as “hawkers” (street vendors), “spaza shops” (run out of homes) or “shebeens” (unlicensed pubs) in South Africa – and are deemed to account for a significant, although hard to measure, share of the African trade market. One benchmark: The informal economy is estimated to represent 30% to 60% of the Gross National Product in selected African countries,† and some consumer packaged categories, such as food, alcoholic beverages or tobacco, are particularly prone to being sold through informal channels. Winning companies gain a competitive advantage by having the flexibility and adaptability needed to accommodate such a varied retail market. They strike partnerships with third-party distributors and wholesalers to maximize reach, collaborate
fruit juices has created a significant market opportunity, but production was stymied by low-quality fruit and inadequate supplies. By partnering with some 50,000 local producers, the beverage company was able to ramp up its fruit juice business – benefitting both the beverage maker and area farmers. Develop multitiered models to route products to market and reach the largest number of consumers. 3
Within formal retail, traditional trade drives—and will continue to
drive—greatest share, more so than in BRICs
Traditional trade percent of formal sector grocery retail sales (2010) 100% Africa average
60% 40% 20% G7 average
In Africa, there’s a dearth of data and insights about consumers’ needs and behavior, as well as the retail environment. The shortage is made even more challenging because of the diversity of both African consumers and markets. Leading consumer packaged goods makers rebuild capabilities that they had long outsourced to external agencies in developed markets, gathering their own information on Africa instead of depending on limited and not-so-reliable data from public research firms
Bureaucracy is a major consideration
in African countries
Percentage of firms identifying licensing and permits as major consideration
helps traditional retailers improve their business by teaching them category display and shopper management. In some categories, players can also bolster sales by encouraging unauthorized sellers to formalize their businesses. Brewer SABMiller helped illegal taverns in South Africa convert into licensed outlets by offering support, including assigning dedicated employees to assist with the application process and leading information workshops. In addition, the company made all license applicants eligible for training in customer care, stock management, bookkeeping, credit control and responsible alcohol use. SABMiller’s investment, launched in 2002, has transformed offthe-books sellers into a thriving new retail segment. The company has trained 12,400 tavern owners. The number of newly licensed retailers has increased sales by an average of 31%. Finally, leading players in Africa are proactively preparing for the growth of modern trade. They’re investing in category management, joint shopper research and integrated supply chains. Some companies have started designing their own in-house distribution operations to service more densely concentrated urban centers and centralized trade networks. Gain a competitive edge by compiling your own information about Africa’s fast-evolving consumer or trade landscape. Building in-house consumer and customer research capabilities, systems and know-how is a proven way to fill a critical gap. In Africa, there’s a dearth of data and insights about consumers’ needs and behavior, as well as the retail environment. The shortage is made even more challenging because of the diversity of both African consumers and markets. Leading consumer packaged goods makers rebuild
21% All countries 14% 10%
Top African markets
with traditional retailers at the point of sale and help informal retailers formalize and progressively develop capabilities required to grow alongside modern retail. Many companies establish a network of trusted third-party distributors and wholesalers to accelerate market coverage, teaming their own salesforce with distributors to ensure a measure of control. For example, one leading food company appoints sales supervisors to each one of its sub-distributors – they have 10 to 30 of them per market. The sales supervisor works at the sub-distributor, managing inventory and brand image while the subdistributor handles logistics and accounting. Similarly, another food player relies on its distributors to replenish products and collect cash, but its local sales employees will be on the ground to identify new outlets, place product displays and help distributors build their capabilities. Another approach involves collaborating with traditional outlets directly to increase sales and improve distribution, and in the process, professionalize the way shopkeepers work. For example, Diageo 108
Lessons From Africa’s Pioneers
Corruption in certain African markets is worse
than in BRIC markets
Increasing corruption 4.3
2000 1000 2.9
Top African markets
capabilities that they had long outsourced to external agencies in developed markets, gathering their own information on Africa instead of depending on limited and not-so-reliable data from public research firms. Some companies establish research programs to identify consumer preferences and behavior in each African market. Olam, a global leader in agricultural products, which also operates a packaged foods business in Africa, is investing heavily to analyze the extreme differences among consumers in West Africa. Its investments aren’t simply to help them tailor products to local needs and preferences, but to also help identify possible new categories for growth. Leading consumer packaged goods players also gather retail data through internally led censuses and point-of-sale studies. In 2008, one beverage company performed an extensive survey of retail outlets in Nigeria to gather information about the location, size and turnover of distributing stores. The resulting insights helped the company assess the relative importance of the different outlets and make appropriate adjustments to its distribution №2, 2013
strategy. Among the changes: It was able to re-prioritize the stores it served and visited. Partner with local stakeholders – governments, businesses and communities – to establish credibility. It’s a smart way to deal with the political complexity and web of regulatory and trading barriers that companies face in Africa. It’s no secret that the business environment in many countries is hindered by bureaucracy, corruption, ever-changing regulations, as well as multiple currencies and protectionist measures that often result in high import costs ( 4, 5, 6). By developing strong relationships with local stakeholders, companies ultimately earn the ability to influence local agendas and effect change. Market leaders collaborate with local business networks. They appoint local business leaders to their board of directors or get listed on the local stock exchange. They also invest in community development. They seek to form mutually beneficial partnerships with local governments. For example, Kenya faced high illicit alcohol consumption, creating dangerous side effects, including blindness and even death, from consuming poor-quality alcoholic beverages. At the same time, relatively high taxes were making the lower-income market inaccessible for East Africa’s scale brewers. Diageo won government support for a new product by offering a safer and legal alternative: regulated beer in a sanitary keg. The government helped make the offering affordable to consumers by providing reduced tax rates. Out-invest in recruiting, developing and retaining local talent, especially mid- and top-level management.
high tariffs on imports
Cost to import ($ per container, 2010)
Corruption Index (2010)
Legislation is country-specifi c and places
Africa’s brain drain of highly educated workers is a major challenge for companies
ŦŦ Since 1990, about 20,000 professionals migrate out of Africa annually ŦŦ In 2000, one out of every eight Africans with university degrees lived in an OECD country ŦŦ Approximately 70,000 students leave Africa annually, and only 50% return ŦŦ Brain drain is costing Africa $4 billion a year to replace skilled professionals with 100,000 expatriates from the West
also rely on expatriates to temporarily fill local talent shortages. For one leading fast-moving consumer goods company, a well-devised talent plan was an integral part of its strategy. The company hired more than it actually needed – a safety cushion to limit future shortage. To develop its workforce, the company drew up training programs and implemented a mentoring system with quarterly feedback and guidance. To retain talent, it improved remuneration, rewarding strong performers differentially. Another important measure was to put in place processes and metrics to monitor the talent evolution. For example, it implemented attrition incident reports. Finally, to address immediate capacity gaps, the company repatriated talent working in other markets and temporarily introduced additional layers in the organization to make spans of control manageable. Though talent shortage remains a key challenge for the company, these actions allowed it to successfully fill a portion of the gap and make strides toward its growth goals. These are pragmatic examples of how companies beat the specific challenges of doing business in Africa. But as these pioneering companies have also discovered, one critical capability to master in the African context is having an entrepreneurial mindset. That means easily adapting to unexpected roadblocks and opportunities, becoming comfortable taking the kinds of risks that aren’t required when doing business in most other parts of the world, and following gut-level instincts to make less-informed decisions. To win in Africa, you don’t need to throw out everything you’ve learned in sophisticated markets, but you do need to foster a culture of boldness, agility and resourcefulness.
It’s well known that Africa suffers from a critical shortage of skilled professionals, mainly due to the population’s low education level and a troubling brain drain – the steady exodus of the continent’s highly educated workers ( 7). Consider the fact that more than 70,000 students leave Africa each year, with only half returning. Leading companies understand that, amid such scarcity, creating a rich talent pipeline requires a substantial commitment over time. To attract top local talent, leaders leverage and promote their corporate reputation, brand strength and presence. Some companies launch graduate recruiting and training programs and provide clear career development paths to increase skills and retention. Among the lures: offering attractive transfers and sought-after job rotations. Successful companies also ensure that salaries are correctly benchmarked not just against direct competitors in the local marketplace, but also against companies in other fast-growing sectors, such as financial services or telecom, that could raid their talent. They 110
The new face of a new world He is young. He thinks he is small and insignificant. But he is not. He is growing bigger and stronger, everyday. Soon he will be a leader at the forefront on economic policy, business and politics. His decisions will change lives, industries, communities, Africa and the world. And he will not be alone. He will have an entire continent with him. A continent with the resources, minerals, political stability, human potential, technology and backing of BRICS â€“ the 5 fastest growing economies in the world. And with all this to help grow this young man and his ambitious generation, we think maybe itâ€™s time you change the way you see Africa. Because Africa and its people, are the future.
South Africa. Your African growth story starts here.
China Never Ends Former US Ambassador Professor David Shinn comments on the Chinese approach to direct investments.
There is agreement among those who follow China-Africa relations that state-owned and private Chinese companies have become major investors in Africa over the past 10 years. Even Chinese individuals are investing small amounts in enterprises ranging from restaurants to acupuncture clinics. It is possible that in the past several years, China was the single largest bilateral source of annual foreign direct investment (FDI) in Africa’s 54 countries. There is, however, considerable confusion as to what constitutes Chinese investment in Africa. Many analyses, especially journalistic accounts, conflate investment with multi-billion dollar loans from China to African governments that often use the loans to build infrastructure by Chinese construc-
tion companies. These loans tend to go to resource rich countries such as Angola, Democratic Republic of the Congo and Ghana and are usually repaid by shipping natural resources to China. These loans are not FDI; they are commercial deals, albeit often with a concessionary loan component. It is important to keep them separate from investment. So how much have Chinese companies and individuals invested in Africa? I have concluded that no one, including no one in China, knows the answer to this question. For that matter, it is not even clear how China defines FDI. China’s Minister of Commerce, Chen Deming, stated in mid-2012 that as of the end of 2011 China’s cumulative FDI in Africa “exceeded $14.7 billion, up 60 percent from 2009.” Also in mid-2012, China’s ambassador to South Africa, Tian Xuejun, in a wide ranging speech on China-Africa relations, said: “China’s investment in Africa of various kinds exceeds $40 billion, among which $14.7 billion is direct investment.” He did not explain the difference between investment of “various kinds” and “direct investment.”
David Shinn is an adjunct professor in the Elliott School of International Affairs at George Washington University, coauthor of China and Africa: A Century of Engagement, and former US ambassador to Burkina Faso and Ethiopia. The article first appeared on China-US Focus. 112
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Many scholars from China and elsewhere have looked at China’s FDI in Africa. There is no consensus on a total cumulative number except that it is considerably higher than the official figure. When I raised this conundrum early in 2012 in Beijing with a room full of Chinese officials, including one responsible for determining the official figure, he acknowledged the total is based only on FDI reported to the government. He commented that many Chinese invest without government authorization and these figures do not show up in government statistics. In addition, there is no way to ascertain how much Chinese FDI is funneled to Africa through tax shelters like Hong Kong and the Cayman Islands. Ambassador Tian’s undefined $40 billion plus total may well be close to the actual number. More than 2,000 Chinese companies have invested in Africa. Most of the investment has gone into energy, mining, construction and manufacturing. China’s state-owned oil companies are active throughout the continent. The China National Petroleum Corporation, for example, invested up to $6 billion in Sudan’s oil sector. The China Power Investment Corporation plans to invest $6 billion in Guinea’s bauxite and alumina projects. Privately-owned Huawei and publiclytraded ZTE have become the principal telecommunications providers in a number of African countries. While most of their activity is sales, their operations are so large in some countries that they have established huge local offices. Increasingly, Chinese companies are moving into finance, aviation, agriculture and even tourism. In 2007, for example, the Industrial and Commercial Bank of China purchased 20 percent of South Africa’s Standard Bank for $5.5 billion. Ever since, China has invested increasingly in the financial sector of African countries. The bulk of China’s FDI has been concentrated in a relatively few countries. Between 2003 and 2007, five countries—Nigeria, South Africa, Sudan, Algeria and Zambia—accounted for more than 70 percent of China’s FDI. While these countries remain important recipients, others such as Guinea, Ghana, Democratic Republic of the Congo and Ethiopia have joined the list in recent years. In 2010, Ethiopia had, for example, 580 registered Chinese companies operating with estimated investment capital of $2.2 billion. №2, 2013
How much have Chinese companies and individuals invested in Africa? I have concluded that no one, including no one in China, knows the answer to this question. For that matter, it is not even clear how China defines FDI
Some of this new FDI is coming thru Chinese special economic and trade cooperation zones. China is working with African counterparts to establish seven of them: two each in Zambia and Nigeria and one in Mauritius, Egypt and Ethiopia. China began to increase significantly its investment in Africa at a time when Western companies, including those in the United States, were drawing back from Africa. China took advantage of opportunities and, to some extent, filled a void left by the West. However, because Western companies began investing in Africa much earlier, their cumulative investments far exceed China’s FDI in Africa. As of the end of 2010, for example, the U.S. Bureau of Economic Analysis calculated that cumulative U.S. FDI in only Sub-Saharan Africa (SSA) totaled $54 billion. U.S. FDI flows to SSA in 2010 reached $3.4 billion. We may be witnessing a return to growing U.S. investment in Africa. Early in 2012, for example, Walmart finalized a deal worth more than $2 billion to acquire 51 percent of South Africa’s leading retailer, MassMart. The economic situation in Europe probably precludes in the short-term an increase in FDI flows to Africa. On the other hand, countries such as India, Brazil, Russia and Turkey are stepping up their FDI in Africa and, together with Western companies, will compete with China for the African FDI market. The economic slowdown in China coupled with the arrival of new players in Africa may bring to an end China’s outsized FDI flows to Africa. In addition, China was willing, at least until recently, to take greater investment risks in Africa than most Western companies. Following attacks on Chinese operations in Ethiopia’s Ogaden region, Sudan’s Southern Kordofan region and the need to evacuate 35,000 Chinese workers from Libya, there are signs that China is reassessing the degree of risk it is willing to take in Africa. Nevertheless, China will remain an important source of FDI in Africa for many years to come. 113
Desired Destination Poverty and inequality. Both problems have to be solved in South Africa by 2030. Pumla Ncapayi, Deputy Director-General of Trade and Investment SA, explains that governmental efforts are insufficient in realizing these goals. They could be reached by drawing on the energies of people.
surpassed by Mauritius at no. 19. In another survey conducted by the World Economic Forum, the Global Competitiveness Report 2012-2013, South Africa is ranked 52nd and remains the highest-ranked country in sub-Saharan Africa and the third-placed among the BRICS economies. The country benefits from the large size of its economy, particularly by regional standards (it ranks 25th in the market size pillar). We have also done well on measures of the quality of institutions and on factor allocation, such as intellectual property protection (20th), property rights (26th), the accountability of its private institutions (2nd), and goods market efficiency (32rd). Particularly impressive is the country’s financial market development (3rd), indicating high confidence in South Africa’s financial markets at a time when trust is returning only quite slowly in many other parts of the world. South Africa also does reasonably well in more complex areas such as business sophistication (38th) and innovation (42nd), benefitting from good scientific research institutions (34th) and strong collaboration between universities and the business sector in innovation (30th). These combined attributes make South Africa the most competitive economy in the region. South Africa is supported by an investment promotion and facilitation strategy whereby it promotes the country as an investment destination. Trade and Investment South Africa (TISA) is the entity mandated for this function. It provides a full suite of services for the investor and undertakes promotion activities locally and abroad. It is supported by nine provincial agencies that promote their respective regions. What is your approach to building relations with foreign investors? Do you offer any kind of preferences whatsoever to lure them into South Africa? As mentioned TISA undertakes and coordinates all official investment promotional activities. A strategic three year plan is developed whereby the objectives are defined and the ways to achieve them are
Since the fall of the apartheid one major focus of the governmental policy has been on development of the most favored environment for doing business and opening career opportunities to the black population of South Africa. Was it the right bet? Are there model stories of success or failure? The South Africa government continuously endeavors to improve the business environment by lowering the cost and improving the ease of doing business. The government is acutely aware that it is imperative to maintain or improve in these areas in order to have a sustainable and competitive economy. In addition, through its Competition Policy it seeks to promote and maintain an environment that promotes and maintains competition within the economy. A fundamental principle of competition policy and law in South Africa is based on the need to balance economic efficiency with socio-economic equity and development. Specific legislation was also enacted to broaden economic participation of the previously disadvantaged groups. These include: The Broad-Based Black Economic Empowerment Act, the Preferential Procurement Policy Framework and the Employment Equity Act. The interventions and policies mentioned here have most definitely provided millions of black South Africans access to the formal economy which would not have happened otherwise. Social and economic equity is an imperative for a stable democracy. What is your assessment of the climate for doing business in South Africa on both regional and global scale? A progress made? Has there been any policy implemented to improve South Africa’s profile for investors and business? What specifically has been done and is being done? South Africa has ranked relatively well by the World Bank’s Doing Business Survey. For the 2012 period, South Africa was ranked no. 39 out of 187 countries for the Ease of Doing Business. Regionally it is only 114
outlined. The plan focuses on sector priorities, and key markets. The promotional activities are undertaken in foreign markets and support is provided by the country’s foreign missions abroad. Ongoing relationship building is maintained both through the Head Office component and the missions abroad. Potential foreign investors are encouraged to visit the country and are facilitated by TISA operationally as well as financially. All interested investors are treated equally and no particular preference exists. This also applies to investors who have invested – the assistance (financial and non-financial) is provided on a non-partisan basis. We subscribe to the most favoured nation status. Do you have a policy or a plan to diversify from producing and exporting raw materials? Are there any special requirements or conditions to businesses willing to invest into raw materials in terms of their input to development of local infrastructure and communities? The South African government has a specific policy on beneficiation and applies to the Minerals Industry. The strategy seeks to advance development through the optimisation of linkages in the mineral value chain, facilitation of economic diversification, job creation and industrialisation. It also aims to expedite progress towards knowledge based economy and contribute to an incremental GDP growth in per-capita mineral value addition in accordance with the vision outlined in the National Growth Path, National Industrial Policy Framework and the Advanced Manufacturing Technology Strategy (AMTS). Another policy which is in place to further enhance beneficiation is the National Industrial Policy Framework (NIPF). In order to contribute towards government’s goals for 2014 and beyond, the vision for South Africa’s industrialisation trajectory is inter alia: ŦŦ To facilitate diversification beyond our current reliance on traditional commodities and nontradable services. This requires the promotion of increased per-capita value addition characterised particularly by movement into non-traditional tradable goods and services that compete in export markets as well as against imports. ŦŦ The long-term intensification of South Africa’s industrialisation process moving to a knowledge economy. №2, 2013
How do you envisage South Africa 2020 in terms of economic and social development? Do you have a blueprint to meet the goal? South Africa has a long term development plan for itself and this is enshrined in the National Development Plan 2030 (NDP). It offers a long-term perspective of the country’s future. It defines a desired destination and identifies the role different sectors of society need to play in reaching that goal. The main objective of this plan is to eliminate poverty and reduce inequality by 2030. South Africa can realise these goals by drawing on the energies of its people, growing an inclusive economy, building capabilities, enhancing the capacity of the state, promoting leadership and partnerships throughout society. The Planning Commission believes that the country can create 11 million jobs by 2030 by: ŦŦ Improving economic policy coordination and implementation ŦŦ Building partnerships between the public sector, business and labour to facilitate, direct and promote investment in labour-intensive areas ŦŦ Raising competitiveness and export earnings through better infrastructure and public services, lowering the costs of doing business, improving skills and innovation, and targeting state support to specific sectors ŦŦ Strengthening the functioning of the labour market to improve skills acquisition, match job seekers and job openings, and reduce conflict. The planning processes carried out by departments and other government entities will have a vital role to play in bringing the vision and proposals contained in the NDP to life. NDP proposals are being incorporated into the existing activities of departments and broken down into the medium and short-term plans of government at national, provincial and municipal level. The NDP provides the golden thread that brings coherence and consistency to these different plans. Within this context the Department of Trade and Industry is responsible for the implementation of the National Export Strategy. Government has already started a process to align the long term plans of departments with the NDP and to identify areas where policy change is required to ensure consistency and coherence. Each government programme will have to be backed by detailed implementation plans which clearly set out choices made, actions that need to be undertaken and their sequencing. 115
The Economy of Forums On the eve of the fifth BRICS summit in Durban, Sergei Katyrin shared with us his vision of how the five countries should interact economically
Today the BRICS countries account for more than 40% of the planetâ€™s population, one fourth of its landmass, and one quarter of the global gross domestic product measured by the purchasing power of their national currencies. What is even more important than these figures is that during the global financial and economic crisis it was the BRICS countries that made the greatest contribution to the world economy, enabling it to maintain growth. But in international institutions such as the World Bank
and the International Monetary Fund (IMF), the BRICS countries play a rather modest role compared with their clout in the real world. Among these five countries, only Russia was admitted to the G8 club, while Russia and China are the only BRICS to be permanent members of the UN Security Council. So far, none of the BRICS countries have joined the Organisation for Economic Cooperation and Development (OECD), a body that commands a great deal of authority. Something is out of balance in this picture. Having said that, all of the BRICS countries are members of the World Trade Organisation
Sergei Katyrin, President of the Russian Chamber of Commerce and Industry of the Russian Federation. 116
The Economy of Forums
(WTO) and the G20, whose role in resolving global economic issues has increased considerably today. Most importantly however, these countries share a common vision of global challenges, their positions are close, and sometimes they share the same stance on the core challenges faced by the global economy and the ways to resolve them. The G20 has made significant strides in advancing and agreeing common macroeconomic policies, and in my view much of the credit for this success should be attributed to the BRICS countries, because during the G20 meetings their positions remained very similar. It must be added, however, that economic ties between the BRICS countries are at different levels. Russia’s main trade partner is China, which in recent years has moved into first place not only among the five BRICS nations. Our economic relations with India, which rightfully holds the second place in this group, remain on growth track as well. In terms of trade turnover and levels of economic cooperation, South Africa remains Russia’s leading partner in sub-Saharan Africa, while Brazil plays the same role in Latin America. Today all of Russia’s BRICS partners have become the leading economies in their respective regions. Each of them has a role in various regional and economic associations, much like Russia’s customs unions and common economic space with her geographic neighbours. Other welcome news is that Russia’s cooperation with the BRICS involves not only the traditional supply of commodities but also the high-tech sector, which enables them to develop relations in a multilateral format. For instance, as a result of Russian Prime Minister Dmitry Medvedev’s recent visit to Brazil, the Russian GLONASS satellite navigation system will also become available on the South American continent. There is no doubt that business forums play a vital role in the development of economic cooperation between the BRICS. It all started with the meeting of the BRICS leaders in Hainan, China, in 2011, and now these forums are held exclusively in the format of summits between heads of states. Meetings between business leaders identified the need to ensure greater five-way coordination not only at the macroeconomic level but also in terms of interaction between the respective business communities. №2, 2013
Most importantly, BRICS countries share a common vision of global challenges, their positions are close, and sometimes they share the same stance on the core challenges faced by the global economy and the ways to resolve them
Business meetings based on the BRICS platform have become a forum for fostering business contacts. Usually, trade relations tend to develop on a bilateral basis and many of our entrepreneurs take part in various forums held on the margins of BRICS summits to meet their partners from specific countries. Yet their businesses can benefit greatly if these entrepreneurs have an opportunity to listen to their colleagues, exchange business cards and expand business networks, which could later translate into real contracts. Therefore, on the Russian side, the Russian Chamber of Commerce and Industry organises such meetings on a regular basis. Russian entrepreneurs are greatly interested in organising a business forum on the margins of the upcoming BRICS summit in South Africa. More than 70 leading Russian companies that operate in various economic areas have already indicated their willingness to attend. Among them there are quite a few companies representing the high-tech sector, which in our view holds the greatest promise today. Among key ideas identified during the previous BRICS forum, in Delhi in 2012, our interest was particularly aroused by the proposal to set up the BRICS Development Bank. Such an institution will presumably become the main centre lending financial support to development projects, which entrepreneurs from the BRICS countries could carry out jointly. In a report prepared by the heads of development banks from the five BRICS countries, the authors stated that setting up such a bank would be both “desirable and possible”. The bank’s chief objective would be to lend money to infrastructure development projects in the BRICS countries and beyond. The question of the initial chartered capital has already been brought up, and a figure of at least $50 billion was mentioned. More often than not development banks tend to be state-owned credit institutions; that is why such projects are frequently financed based on sovereign guarantees. At any rate, this project is still under discussion, and the issue is very likely to be analysed in greater detail by the BRICS leaders in Durban. 117
Agenda for the BRICS Pinak R anjan Chakr avarty Since its formal inception in 2006, the BRICS have elaborated a number of mechanisms of cooperation. Under India’s chairmanship of the BRICS they were further strengthened.
India is committed to the strengthening of the BRICS cooperation framework. The BRICS Delhi Action Plan, annexed to the Delhi Declaration issued by the heads of states at the Fourth Summit in New Delhi in March 2012, laid down the broad contours of cooperation under India's chairmanship of the BRICS. It provided an enabling framework for cooperation in identified areas. India’s initiative relating to a new BRICS–led Development Bank, for mobilizing resources for infrastructure and sustainable development projects in the BRICS and other emerging economies and developing countries, is a crucial initiative that has
attracted wide attention. The bank’s role would be to supplement the efforts of existing mechanisms such as the World Bank Group and other multilateral development banks. The BRICS finance ministers and technical experts are exploring the feasibility and viability of this idea. In the run-up to the Fourth BRICS Summit in Delhi in March 2012, India hosted the first meeting of an Economic Research Group to bring economic content of the BRICS cooperation into sharper focus. The Prime Minister of India, Dr. Manmohan Singh, proposed at the Fourth Summit in New Delhi that in view of common challenges presented by urbanization for all BRICS countries, we should encourage sharing of experience in areas such as urban water supply and sanitation, waste management, storm water
Pinak Ranjan Chakravarty – Secretary of Economic Relations at the Ministry of External Affairs of India and Indian Sherpa for the BRICS. 118
Agenda for the BRICS
drainage, urban planning, urban transport and energy efficient buildings. Pursuant to this suggestion, India hosted the First BRICS Urban Infrastructure Forum in New Delhi on February 1, 2013 which facilitated sharing of experiences on water supply and sanitation, effective solid waste management for improved environment and urban transport. India coordinated a BRICS Study with special focus on synergies and complementarities which was released at the Delhi Summit. This was initiated at the suggestion of Prime Minister Dr Manmohan Singh at the First Summit in Yekaterinburg, Russia in June 2009. A mention must also be made of the two agreements – a Master Agreement on Extending Credit Facility in Local Currencies and a BRICS Multilateral Letter of Credit Confirmation Facility Agreement – signed by the BRICS Development Banks at the Fourth Summit. These are enabling instruments to reduce trade transaction costs and thus significantly promote intra-BRICS trade. BRICS Track-II engagement among the leading think-tanks of the five countries was formalized by India in their first meeting in New Delhi in May 2009, before the First Summit in Yekaterinburg, Russia in June 2009. The leading Indian thinktank, Observer Research Foundation, in consultation with its BRICS counterpart think-tanks, has worked on the 'Long Term Vision for the BRICS' proposed to be presented at the Fifth Summit in Durban in March 2013. A number of the BRICS activities and meetings have been held under India’s chairmanship since the Fourth New Delhi Summit in March 2012. The BRICS foreign ministers met on the sidelines of the UN General Assembly in New York in September 2012. The BRICS trade ministers met in Puerta Vallarta, Mexico in April 2012 on the margins of G20 Trade Ministers' Meeting. The BRICS health ministers and the BRICS high representatives responsible for the national security met in New Delhi on January 10-11, 2013. Other meetings include those of finance ministers and central bank governors on the sidelines of G20 meetings and other multilateral (WB/IMF) meetings; two meetings of CGETI (Contact Group on Economic and Trade Issues); a preparatory meeting of experts on agroproducts and food security issues and the second Meeting of Agriculture Expert Working Group; №2, 2013
The BRICS–led Development Bank’s role would be to supplement the efforts of existing mechanisms such as the World Bank Group and other multilateral development banks
the BRICS agriculture experts on climate change and food security; the Second BRICS Senior Officials’ Meeting on Science and Technology; and the second BRICS Friendship Cities and Local Governments Cooperation Forum in 2012 in Mumbai. India will host the Third Meeting of BRICS Competition Authorities in November 2013; BRICS Competition Authorities hold regular biennial meetings since their first meeting in Russia in 2009. Useful platform
BRICS serves as a useful platform for consultation, coordination and cooperation on issues of mutual interest to all five constituents in an environment of mutual trust and understanding. It has facilitated the evolution of convergent positions on many global issues such as reform of IFIs, support for a democratic and multi-polar world order, WTO, sustainable development, and certain regional and political issues. The BRICS countries are together working in an environment wherein supply side constraints, including the challenges of the global economic slowdown, volatility in financial flows and food and energy security are prevailing trends. Maintaining the pace of high economic growth and reconciling developmental needs with the imperatives of sustainability and inclusiveness, are major challenges for the BRICS countries. The BRICS process is relatively new. It is exploring new forms of cooperation. We wish to strengthen cooperation under BRICS in a gradual manner; consolidating on the existing areas and simultaneously exploring new areas. Our objective is to project BRICS as a serious and effective grouping in the global discourse. India looks forward to the Fifth Summit in Durban in March 2013, where the responsibility of chairmanship of the BRICS passes from India to South Africa. The Durban Summit will be a historic opportunity for the BRICS Leaders to review progress so far and lay down a future roadmap for more intense cooperation. 119
Exploring New Shores Dalbir Singh explores the economic development process in the BRICS countries over the last ten years and their potential transformation into global centres of power.
Dalbir Singh â€“ Senior Advisor, Forum of Federations & National Secretary, Indian National Congress. 120
Exploring New Shores
In the past decade the world has experienced significant geopolitical and economic transformations. Brazil, Russia, India, China and South Africa (the BRICS countries) have acquired a key role in the global economy as major producers of goods and services, receivers and exporters of capital, and high-capacity consumer markets. The BRICS are also emerging as protagonists in international development cooperation. The five countries have increased financial and technical assistance, alongside the establishment of distinct ways and means of economic interaction – especially through south-south cooperation with Low Income Countries (LICs). That said, the BRICS are still battling strong headwinds on their way to becoming more tangible contributors to global development processes – both individually and as a commonwealth. Challenges facing each of the five states are fairly plentiful. To start with Brazil: Some envisage macroeconomic stabilization for sustainable growth, and highlight the need to grow its tradable goods sector as well as augment saving and investment rates. Besides that, Brasília should take care to promote improvements in the way it manages the public sector, atop enhanced financial sector depth and the availability of long-term financing structures for business. The key challenges facing Russia are the need to accelerate and implement structural reforms – particularly in connection with its fairly inefficient and undercapitalized natural monopolies – and to strengthen its investment climate. India’s major challenge lies in diversifying its growth into manufacturing, as well as in making the development process more inclusive, improving physical infrastructure, developing the agricultural sector, and promoting the efficient delivery of essential public services. China needs to better balance exports and domestic demand, increase spending on education, health and social care, and improve investment structures. South Africa’s key challenge is to achieve higher levels of inclusive growth to boost employment and reduce inequality. Problems to be tackled include №2, 2013
The BRICS have a remarkable opportunity to work together on strategic agendas, and coordinate their economic policies and diplomatic strategies to play a more significant role in global affairs. The benefits of cooperation will be phenomenal – not only for the BRICS, but for the global economy as a whole
low domestic saving rates, the volatility of the rand, inadequate investment in the economy’s productive sectors, and a lack of skills and talent, as well as inefficient government service delivery and regional disintegration. The BRICS are not free from institutional issues either. A common challenge that the five economies face is the need for institutional development. As long as it is not provided, sustainable development cannot be ensured. Public-private partnerships can boost improvements in infrastructure. Similarly, the credibility of reform agendas is critical if the BRICS economies are to make their growth processes more solid and development oriented. A decade-long endeavour
In the next decade, the way we meet the challenges of the modern world – the yawning fiscal gaps, global uncertainty leading to weak export demand, trade protectionism, record high unemployment, poverty, inadequate public health and education facilities, environmental degradation and climate change, among others – will be crucial in determining the development trajectory of the BRICS economies. In this endeavour the BRICS will have to rely heavily on subnational governments’ economic policies. But the five countries can build their cooperation around investment in infrastructure, industrial development, transportation, food and energy security, technical education, institution-building, and the setting up of an international development bank for south-south investment, among others. The BRICS have a remarkable opportunity to work together on strategic agendas, and coordinate their economic policies and diplomatic strategies to play a more significant role in global affairs. The benefits of cooperation will be phenomenal – not only for the BRICS, but for the global economy as a whole. 121
Rough Diamonds Seung Ho Park, Nan Zhou, Ger ardo R. Ungson SKOLKOVO-Ernst & Young Institute for Emerging Market Studies Moscow School of Management SKOLKOVO and Ernst & Young Breakout Enterprises in BRICs and Strategies for Sustained High Performance†
viability of the RDs, and provides implications for business practices.
The economic prominence of emerging markets, particularly the BRICs (Brazil-Russia-India-China), has spurred a new quest to define the next set of resurgent markets and breakout nations. In contrast to these initiatives, this study proposes a different perspective in which to examine the sustainability of emerging markets: the ability of countries, in this case the BRICs, to generate exemplary firms over time. Newly competitive firms not only signal future growth but also define the dynamism and resilience of these emerging markets in the future. Following a rigorous test that combines the assessment of several financial indicators against different comparison groups, a set of 70 firms from BRICs were identified, which we call the ΄rough diamonds,΄ reflecting their underrepresentation in the popular press. The process in which these RDs achieved success is represented in a systematic and sequential process of value creation, which we call the Four Cs for Sustained High Performance. This paper details the process, assesses the †
Rough Diamonds: A Different Perspective ON Sustained Growth
Attention is slowly shifting to the next frontier, whether this be CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey, South Africa), or VISTA (Vietnam, Indonesia, South Africa, Turkey, and Argentina), or even the Next 11 (Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, Turkey, South Korea, and Vietnam). Given the hype that often accompanies such alluring projections, however, one should not overlook the fact that the BRICs are still in an evolving state of development. In contrast to many existing publications about emerging markets that seek to identify future resurging countries, we offer an alternative focus of sustained growth: the generation of exemplary firms over time. Much like legendary
This joint publication with Ernst & Young is a slightly modified excerpt from a forthcoming book to be published by Jossey Bass/
Wiley in May 2013. Seung Ho Park is President of Skolkovo-Ernst & Young Institute for Emerging Market Studies (IEMS) and Chair Professor of the SKOLKOVO Business School. Nan Zhou is a Research Fellow of IEMS and Assistant Professor of the SKOLKOVO Business School. Ungson is a Non-Resident Fellow of IEMS and also the YF Chang Professor at San Francisco State University. 122
(cut, color, clarity, and carat). In our study, we find that RDs employ a similar rigorous and progressive process, ranging from entrepreneurial ventures to developing core competencies in marketing and operations, and fostering profitable growth. We describe this process as the Four Cs for Sustaining High Performance. 1. Capitalizing on Late Development – RDs are adept at converting market signals into viable opportunities. Such signals relate to changing industry conditions and to new government policies oriented at market liberalization and import substitution – what we term as ΄late development.΄ ‡ ŦŦ Yonghua Lu, the founder of China’s Linyang Group, saw a propitious opportunity for upgraded electric meters after observing a rising middle class with heightened service expectations; ŦŦ India’s Asia Paints capitalized on a failing import industry to resuscitate a fledgling local industry into a viable one; ŦŦ Esmaltec, a Brazilian white goods manufacturer, defied convention in introducing new differentiated product features in a saturated white goods appliance market; ŦŦ Velkom, a Russian meat processing firm, spotted a nascent change in consumer tastes from traditional to specialized meat flavors and successfully upgraded their product offerings. 2. Creating Inclusive Market Niches and Segments – Beyond generating demand for an already established product, RDs excel in consolidating pockets of fragmented demand that were previously unattended. ŦŦ Mindray Medical International, a Chinese manufacturer of medical equipment, challenged the dominance of foreign-made goods with its own locally-manufactured automatic blood cell analyzer, and secured a formidable market niche; ŦŦ Russia’s WBD revitalized its brand management system by providing different productbrands for juice and nectars for low, middle,
and elite sports teams, their development will not be graded on current progress but on their ability to produce a consistent flow of successful players over time. Similarly, newly competitive firms not only signal future growth but also define the dynamism and resilience of these emerging markets over time. Identifying the next generation of high performing firms in the BRICs was an arduous effort culminating in a three-year period of study, in partnership with Ernst & Young. Multiple measures were employed to evaluate firm performance over close to a 10-year period from 2000 to 2009: growth, market share, profitability, and efficiency. We focused on private companies because other types of firms, such as state-owned enterprises, might pursue other goals, such as administrative tasks. In addition, we compared prospective firms against a pool of similar firms using highly rigorous tests and standards. The result was a list of 70 firms from the BRICs that we metaphorically call ΄rough diamonds΄ in development. Simply stated, ΄rough diamonds΄ are the bestperforming firms in the BRICs. Placed in perspective, these RDs have grown at an average rate of 43.12% over 10 years. In other words, they double their sales every 1.93 years. In the case of Chinese RDs, the time to double their growth is an astonishing 1.45 years. But growth alone cannot capture the full significance of this stellar performance. These same firms compare favorably with the top 500 firms in their respective countries, as well as the top 25 manufacturing firms in their countries and comparable firms worldwide – exceeding them in terms of profit margins and return on assets over an extended time period. But how did these firms achieve their success? Can they sustain their performance over time? What can firms from the rest of the world learn from these best-performing firms? The 4Cs Framework for Sustained High Performance
How do real-world diamonds get their value? Part of it derives from their scarcity, but a host of other factors ultimately determines the extent to which a particular gem is prized. Rough diamonds are painstakingly cabbed, cut, and polished to remove infirmities, an intricate and rigorous process that leaves the diamond even more valuable than before – a value-creating protocol called the Four Cs №2, 2013
In this report, ΄late development΄ is the period following the
initial industrialization that led to growth within the BRICs in the 2000s. In regard to RDs, late development thus describes the time of their rapid growth (2000–2010), rather than the date of their founding. 123
financial capital, as a basis for focused diversification; ŦŦ Indian RDs excel in indigenous entrepreneurship before international expansion.
and high price points and quality levels according to customers’ income segmentation; ŦŦ India’s Titan gambled that a nascent consumer sector would value quartz technology instead of the traditional mechanical watches, but this venture required exceptionally good design, branding and distribution at the local level-competencies that Titan eventually developed. 3. Crafting Operational Excellence – To sustain performance and to prepare for the next phase of market expansion, RDs employ drivers at all stages of the value chain, in particular internalized supply chain management, collaborative innovation, stringent quality assurance, and agile and coherent management systems. ŦŦ By pioneering strategic partnerships with leading universities around the world, Jinglong, a Chinese solar and photovoltaic firm, produced the first solar battery to reach a high-standard of photoelectronic transformational efficiency; ŦŦ MLVZ, a Russian company, built an exceptional management system that earned it an esteemed Passport of High Quality Enterprise; ŦŦ Thermax, an Indian manufacturer in the turbine and boiler business, managed its innovation program by forging long-term technological partnerships, nurturing indigenous talent, and relentlessly improving product quality; ŦŦ After learning from L’Oréal, Brazil’s Natura revamped its R&D Center into an integrative operational platform consisting of many researchers coming from famous institutes in the country, and offered incentives for distinctive achievements in their fields. 4. Cultivating Profitable Growth – RDs are able to leverage their internal competencies through phased market expansion and incremental internationalization aimed at achieving world-class standards. ŦŦ Chinese RDs nurture close local relational connections for rapid and broad diversification around the world; ŦŦ Brazilian RDs adopt gradual diversification, building local connections and brands before embarking overseas; ŦŦ Russian RDs employ logistical services, market intelligence, management skills, and
Can Success Be Sustained Over Time?
In our analysis, we probed deeper to understand whether the success of these RDs might be sustained over time. In this regard, we examined changing patterns in privatization, industry trends and transitions, shifting demographics in the middle-class segments in the countries the RDs are situated, anticipated changes in demand and consumption, the prospect of future competitors, and the pressure for accelerated internationalization. Ultimately our results showed that RDs’ competitive positions were relatively secure and defensible over the ten-year study period, despite the few barriers to entry or the moderate growth of their industries. In other words, sustained success goes beyond merely developing a favorable competitive position; it means sustaining that position through excellent execution over time, especially when evidence suggests that the industry characteristics might not be as attractive as other sectors. Implications for Academic Research and Business Practice
But why pay attention to these RDs? We suggest three reasons. First, their success and future growth trajectory foreshadow the ΄rules of the game΄ not only for firms in emerging markets, but also developed countries. Understanding their performance provides important clues about how to succeed in an era of late development in emerging markets. Second, these RDs might well be formidable competitors or strategic partners for other firms in the foreseeable future. Hence, disregarding or undermining them might lead to vulnerability in one’s business strategy should they become direct competitors, while understanding their motivations and aspirations might be of benefit should these firms become complementary partners or key suppliers in the future. Third, knowing these RDs also reveals important changes within the BRICs, notably developments in institutions, changes and transitions in industrial development, recent government policies, and growing shifts in the balance of competitive standings among firms. 124
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概览 如今发展中国家再也不满足于在全球政治经济舞台上扮演次要角色了。他们准备掌控自己的命运，利用自身丰富的国内 资源和创新技术正在积极的缩小同世界公认的发达国家之间的差距，并越来越多的扮演起了主导角色。这正是第二期金砖国 家商业杂志（BRICS Business Magazine）刊登的几篇重要文章里的中心内容。
发展中国家常常在新技术的传播速度方面超越发达国家。对此问题俄罗斯“斯科尔科沃”创新发展基金会主席、“Renova” 公司董事会主席维克多·韦克谢尔贝格具有权威的发言权。作为商人和国际投资人，他的业务范围涉及从冶金、能源到电信、 半导体等各个领域。在本期主要专访文章中，韦克谢尔贝格发表了自己的观点：正是加快的技术发展成为了金砖国家主要和 最迫切的需求。近年来，“Renova”公司自身积极的把外国先进技术引进俄罗斯。比如先进涂层技术、能源技术、生物降解聚 合体以及医用新产品生产等领域的技术。韦克谢尔贝格证实：“这些项目的投资总额超过数十亿美元”。
大约30年前，七位印度企业家创建了印孚瑟斯技术有限公司（Infosys）。这家公司后来不仅成为了世界经济增长和创 新中心印度IT工业的巨头，更是跻身进入全球软件行业巨头之列。如今该公司联合创始人、首席执行官S.D.希布拉尔正在筹 建未来公司，预备向研发领域投资以及投入新的人才。本期金砖国家商业杂志专访中，希布拉尔讲述，缘何为了抓住新兴世 界的机会以及使商业生存下去必须走创新的道路：“创新 – 这是‘未来公司’结构的必需元素，这些创新关系到对未来市场做出 判断的方法，关系到为消费者创造新产品、服务或者新经验。”
非洲存在很多问题，最大的问题之一就是外国投资者对这个地方抱有负面的理解。很多投资人直到现在仍然把非洲看做“ 无望的大陆”。这一席话不久前出自肯尼亚最成功的商人和慈善家之一、“Capital Group”集团董事会主席克里斯·基鲁比之口。 他表示，指出现实并不是使非洲人丧失对自己的信心。无论如何，今天越来越多的非洲大陆居民和移民以前所未有的热情挽 起袖子准备掌控自己的命运，不依靠外来的力量。这些人的成功例子不仅改变着非洲社会的生活，更改变着外界对非洲本身 的看法。如今，非洲正在变成现代世界最有活力的地区之一。 金砖国家商业杂志向读者展现25位新非洲的代表人物。但是这个名单包括不了所有为改变非洲大陆形象曾经做出和继续 做出自己贡献的人们。 列举出的这些代表都是涉猎了经济创新领域，同时在几个国家市场上有所作为的企业家和商人，排名顺序没有先后。他 们中有CNBC非洲商业大奖获得者、年度女性、Main One Cable Company 首席执行官丰克·奥佩克，国际经济学家和评论 员丹比萨·莫伊欧，Equity Bank 首席执行官詹姆斯·姆万吉，Dangote Group总裁阿利科·丹戈特，埃塞俄比亚商品交易公司 (ECX) 创始人和前首席执行官叶列尼·加布列-马丁，Orascom Telecom Holding 和 Wind Telecom公司前首席执行官纳吉布·萨 维里斯等人。无论他们之间有多大的不同，总有一点是相通的：即所有人都清楚的知道，非洲的未来在他们自己手中。
来自俄罗斯的项目经理米哈伊尔·索洛多夫斯基在中部非洲，主要是在喀麦隆工作了十年。他认为，在非洲大陆拥有成功 的生意是可能的，前提是需要详细的了解当地的实际情况和人们的思维习惯。如果您对此没有准备，那么他打算承担起向导 的角色：为您在当地的生意打造最优惠的规程：“非常多的想在这里做生���的人不能够做到了解当地情况或者渐渐失去了对此 的努力。在这里有很多需要弄懂的东西，为此需要引航员。”
哈萨克斯坦 – 中部亚洲地区最具活力的发展中国家之一。虽然这个国家发展的主要动力依旧来自碳氢化合物的出口，但 是如今她正在努力减少对“黑金”的依赖，同时通过参与到金砖国家机制中致力于在世界范围内提高自己的地位。本期金砖国 家商业杂志一篇专访中哈萨克斯坦副总理凯拉特·克利姆别托夫讲述了该国政府正在努力使地方经济多样化和为何新兴市场需 要整合力量。“为了解决现代世界摆在我们面前的严峻任务，我们所有人需要在一起工作。国际范围内的力量对比在变化， 全球舞台上的玩家数量在增加，显然，在长远的未来独立的解决问题已经行不通。我们所有人努力弄清，国际社会的一部分 意味着什么。因为我们不仅在理论上，而且在实践这么做，错误是不可避免的。但是只要我们一起工作，考虑更加长远的未 来，分享自己最好的经验并为创新提供肥沃的土壤，我们就能够拥有更多的成功机会。”
BRICS Business Magazine thanks chief-correspondent of China Radio International in Moscow Sheng Jingjing for the translation 126
Sumário Os países pertencentes ao “mundo das economias emergentes” não se contentam mais com um papel de segundo plano na economia e política mundiais. Atualmente estão prontos para controlar o seu destino com as suas próprias mãos e reduzem ativamente o atraso que existe entre si e os países desenvolvidos, tudo isto graças ao uso de recursos naturais internos e algumas inovações, que cada vez mais ocupam um papel fundamental na economia mundial. Este é um do motivos que se encontram no “core” da razão desta segunda publicação da BRICS Business Magazine. Fome tecnológica e abundância de recursos Os países em desenvolvimento muitas vezes encontram-se à frente dos países desenvolvidos em termos de penetração de novas tecnologias. Sobre este tema, o presidente do Fundo russo para o Desenvolvimento de Inovações "Skolkovo" e presidente do grupo de empresas "Renova" Viktor Vekselberg sabe e está a par de todos os pormenores como ninguém. Na entrevista principal deste número, o empresário e investidor, possuidor de ativos numa variedade de indústrias e sectores da economia, da metalurgia e energia elétrica às telecomunicações e semicondutores, expressa a sua opinião: Precisamente o aceleramento do desenvolvimento tecnológico é a necessidade principal e mais urgente da BRICS. A própria "Renova" nos últimos anos está desenvolvendo ativamente a transferência para a Rússia de avançadas tecnologias estrangeiras na área dos últimos revestimentos, energia alternativa, polímeros biodegradáveise produção de novos dispositivos médicos. Vekselberg testemunha: "O investimento total para esses projetos anda na quantia dos bilhões de dólares." Contornos do Futuro Há cerca de trinta anos atrás, sete empresários indianos fundaram a Infosys, uma empresa que esatava destinada a tornar-se num dos gigantes mundiais de software, um líder da indústria de IT na Índia. País que se tornou no novo centro de crescimento econômico global e da inovação. Hoje, o co-fundador e CEO da Infosys, SD Shibulal Corporation está desenvolvendo o futuro, investindo em P & D e em novos talentos. Numa entrevista exclusiva dada ao BRICS Business Magazine, ele diz que para aproveitar melhor as oportunidades do mundo emergente ou simplesmente para sobreviver o negócio deve ser inovador: "Inovação – é um elemento chave e obrigatório da empresa do futuro," seja na parte dos métodos de deteção de mercados promissores ou criação de novos produtos, serviços ou experiências novas para os consumidores." 25 figuras da nova África A África apresenta uma série de problemas. A perceção negativa acerca dela aos olhos dos investidores estrangeiros, muitos dos quais ainda olham para ela como um "continente sem esperança e não fidedigno ao investimento," é um dos maiores. Esta ideia, expressa recentemente por um dos empresários e filantropos mais bem-sucedidos do Quênia, Chris Kirubi, presidente do Grupo Capital, é uma constatação de fatos reais, que apesar disso, não desencoraja os próprios africanos. De qualquer maneira, hoje em dia está aumentando como nunca o número dos habitantes do continente e da diáspora que não estão mais dispostos a confiar em forças externas, mas querem arregaçar as mangas para controlar o seu próprio destino com as suas próprias mãos. O sucesso individual dessas pessoas é um exemplo para todos os africanos, não só para mudar a vida das comunidades africanas para melhor, mas também a percepção da própria África, que se está tornando numa das regiões mais dinâmicas do mundo atual. A Business Magazine BRICS apresenta aos seus leitores uma lista de 25 individualidades de uma nova África, que apesar de tudo não é uma lista completa de representantes do continente que fizeram, e ainda fazem a sua contribuição pessoal para uma imagem mais atualizada. Na seleção dos candidatos, deu-se preferência para os homens de negócios, nos sectores inovadores da economia, que trabalham nos mercados de mais de um diversos país, colocando estes sem ordem de grandeza e aleatoriamente. Entre eles estão o vencedor do prêmio prestigiado da CNBC Mulher de Negócios da África do Ano e CEO da Main One Cable Empresa Funke Opeke, o economista internacional e comentarista Dambis Moyo, o CEO do Equity Bank James Mwangi, o presidente do Grupo Dangote Aliko Dangote, o fundador e ex-CEO da Etiópia Commodity Exchange (ECX) Eleni Gabre-Madin, o ex-CEO da Orascom Telecom Holding e Wind Telecom Naguib Sawiris, e outros. Embora pessoas diferentes, todos eles compartilham algo extremamente importante: todos eles sabem que o futuro de África está nas suas próprias mãos. O nosso homem dos Camarões Tendo passado uma boa dúzia de anos na África Central, principalmente nos Camarões, o gestor de projetos russo, Mikhail Solodovsky, está convencido que para fazer negócios de sucesso na África, é necessário estar ciente das subtilezas das mentalidades, idiossincrasias e realidades locais. Se você não tem esta experiência, ele está pronto para assumir o papel de guia pessoal e criar as condições mais favoráveis para o seu negócio na região. "Muitos daqueles que pretendem começar um negócio aqui, não o podem fazer ou então ele acabará por se perder. Aqui há muito para se compreender e entender, e para isso, você precisa de um guia."
Translation into Portuguese: Andre Cardoso, Victor Bereznoi №2, 2013
Translation into English: Alexandre Ponomarev, Edward Coulson, Vadim Rouminsky, Laurence Binnington, Alexandre Bakaev 127
The Magnificent Ten The choice of a city to host the headquarters of a company targeting emerging markets is a critical element of success. The list of criteria can be endless but the Institute for Emerging Market Studies at the Skolkovo Business School and Earnst & Young (IEMS) contend that four such criteria merit special attention: “proximity to an airport and a conducive environment for doing business, access to innovative ideas in a business cluster, access to professional knowledge (even through cyber channels) and a decent location that one could call home (at least on a temporary basis).” Having assessed all candidates based on each of these criteria IEMS identified ten regional leaders. On the face of it, all of them may appear to be an obvious choice, but not everyone will actually be able to appreciate their true advantages. For example, Santiago, the capital of Chile, apart from being a convenient location for anyone who wants to work in Latin America proved to be a real gem as a staging ground for largescale cooperation with China. 128