The Changing Dynamics of International Business in Africa

Africa is rising. Dubbed “the hopeless continent” by The Economist at the turn of the millennium, it is now widely regarded as “the next growth frontier” for global capitalism. Foreign direct investment (FDI) has tripled, from $15 billion in 2002 to $46 billion in 2012; real income per person has increased by over 30 percent; and the number of countries that are democratic has nearly doubled. According to the Doing Business 2015 report of the World Bank (2014), more than 70 percent of the region’s economies have carried out at least one reform in the last couple of years. The region accounts for 75 of the 230 regulatory reforms carried out worldwide, and also for five of the ten most improved economies in the world in 2013–2014. Acknowledging the progress made, The Economist produced a special report, “A Hopeful Continent: Africa Rising”, in 2013. What a difference a decade makes.

The United Nations Conference on Trade and Development (UNCTAD, 1999), opined that foreign direct investment (FDI) in African states have not been as large as that enjoyed in other nations; the drive, therefore, at the time was to increase the inflows of this source of investment. In recent years, this has been on a steady increase, especially to middle-income countries (UNCTAD, 2013). China, for instance, has increased its activities in resource-rich, developing nations for a number of reasons; one of such is to be able to tap from the abundant resources in these regions, including natural resources, cheap labour, etc. On the other hand, governments of developing countries, in order to grow their economies, have sought to increase the flows of FDI to their economies through measures and policies that encourage FDI, like trade, education, infrastructures, construction of free-trade zones, etc.

Although Chinese investment in Africa has long been a subject of policy debate (Alden, 2007 ; Brautigam, 2009; Michel and Beuret, 2009; Rotberg, 2008; US Senate, 2012),¹ it has received relatively little attention from business scholars. We aim to correct this oversight, not least because Chinese investment in Africa represents new and important opportunities for scholars of international business (IB), particularly those interested in political strategy, organizational theory and behavior, and the social impact of business. Of course, no single paper could possibly do justice to the panoply of research possibilities opened by this enormous flow of financial and other resources; thus, we aspire to a more modest goal. In this paper, we outline the significance of this phenomenon for business scholars in terms of possible theoretical and methodological research avenues. We also provide a preliminary report on some data we have assembled to offer insights into the geographic and economic breadth of Chinese investment in Africa in recent decades.

In recent years, emerging economies like China and India have shown greater interest in Africa and gained increasing attention as “new partners” for the continent. These countries have strengthened their commercial ties with Africa, as the demand for resources to fuel industrialization in their home countries has increased along with the pursuit of new markets and frontiers of growth (Alden, 2007; Bräutigam and Tang, 2011; Renard, 2011).

Since the early 2000s, much has been written about surging investment by Asian-based businesses in Africa (Ajayi, 2006; Brautigam, 2009; Michel and Beuret, 2009). Conferences have been organized, institutes founded, and numerous articles have addressed Asian foreign direct investment (FDI), with special attention given to the spread of Chinese capital across the continent (Brautigam, 2014). However, there is an equally significant phenomenon that has yet to receive much consideration: African firms are actively investing as well. Intra-African foreign direct investment is growing faster than FDI from any other region and has increased over 30 percent since 2007 (Ernst and Young, 2013). In the decade from 2003 through 2013, there were actually more greenfield investments from African companies (994) than there were from Asian companies (959) (fDi Markets, 2014).

Amidst the continuing rebalancing of the global economic power, there is mounting evidence that outward foreign direct investments from the “South”, a trickle not too long ago, are increasingly the new orthodoxy. Recent UNCTAD (2012) statistics indicate that South-South FDI account for up to a third of inflows. This is signified by the vast FDI footprints of BRIC economies, especially China, across Africa. It is also suggested by the considerable outlay of Developing Asian MNCs in Latin America and the Caribbean (reportedly 60 percent of the total in 2010); and the rising intra-regional FDI flows, particularly within the transition economies, West Asia and Africa (70 percent of mergers and acquisitions and greenfield projects in 2010) (UNCTAD, 2012).

Retail chains such as Wal-Mart, Carrefour, Aldi and Tesco are turning to developing economies for fresh opportunities as a result of intense domestic competition and saturation in developed-country markets. High growth rates, growing middle class and relatively weak competitors in those countries are attractive factors, and these are found in much of Africa (Weatherspoon and Reardon, 2003). There has been a noticeable drive by developed and emerging economy firms to launch into African markets (Ibeh, Wilson and Chizema, 2012). Intra-African internationalization is also taking place, notably of South African (Dakora, 2010), and to a lesser extent, Nigerian firms (Bolaji and Chris, 2014), in spite of inherent challenging country factors (Dakora and Bytheway, 2014).

The Tata Group, India’s largest multinational conglomerate, has been a developing-country pioneer in Africa. It began its African journey in the late 1970s when much of the continent was in a state of political and economic transition and global companies were looking elsewhere. More than 35 years later, Tata Africa Holdings, born from the Tata Group, is restructuring its operations to deal with a new phase of expansion. Facing increased competition and a much-changed operating environment, the group is considering how to reposition its African operations across more than 14 countries and nearly a dozen sectors.¹ Part of the strategy is to grow its already large footprint to cover about 20 countries by 2020.²

Companhia Vale do Rio Doce (CVRD) was formed by the staunchly nationalist Brazilian President Getúlio Vargas in 1942.¹ At the time, it was an entirely state-owned mining company. CVRD went through several decades of mixed success, based primarily on the exploitation of Brazil’s significant iron-ore mineral resources.² In the 1980s and 1990s, CVRD was sometimes cited as a case study in the operation of a successful state-owned enterprise (SOE) at a time when the trend throughout the Western world was toward the privatisation of SOEs.³

On a rainy afternoon of March 1, 2012, Victor Stone,¹ a high ranking representative of Research in Motion (RIM), Canada, landed at the Murtala Muhammed Airport, Lagos. He was accompanied by Charles Mobumba, a director of Goldstar, one of the two distribution companies for RIM in Africa. While riding down to the hotel, the duo wondered how to craft RIM’s distribution channel strategy to increase its market share from 2 percent in the Nigerian mobile phone market (see Table 11.1).

Standard Bank was the largest bank in Africa, with assets of $185 billion, stock market capitalization of $19 billion, and more than 52,000 employees worldwide in 2011. The Standard Bank Group (referred to as “the Group”, hereafter) included a commercial bank, an investment bank and an insurance/wealth management company.

By June 2010, Jan Potgieter, chief executive of the Johannesburg-based Massdiscounters — a division of Massmart — had gone some way to achieving his goal of “painting Africa pink” with the expansion of Game, one of the group’s large-format, general merchandise discounters, into the rest of the African continent. (Game’s corporate color was pink.) In that year, Game had stores in 11 other African countries, with plans to expand into another six in the near future. However, there was a strong possibility that a large international player would soon be entering the African market and competing directly with Game. Potgieter therefore had to consider whether Game’s Africa strategy was sound, or whether it needed to change so that Africa did indeed become pink and not different shades of blue.

Mr Bisi Onasanya, Managing Director and Chief Executive Officer of FirstBank of Nigeria Ltd (FBN) was collecting his thoughts after a meeting held with officials of Central Bank of Nigeria (CBN), the apex regulator of the Nigerian financial services industry. He had been appointed Managing Director of FBN in 2009 and was directing the bank’s ambitious agenda of establishing its presence in most major cities of Sub-Saharan Africa. He reflected on CBN’s plan to make Nigeria Africa’s financial capital and major financial services hub and the role FBN had to play as Nigeria’s largest bank in this process. Bisi synthesized some crucial lessons he would have to bring to bear as Nigeria moved up the African scale of economic importance and relevance. FBN’s Nigerian heritage laid the framework for its proposed aggressive internationalization.