The Rise of the African Multinational Enterprise (AMNE)

We live in a world of familiar names, brands and personalized preferences. From the mundane to the most sophisticated of our needs, we seek out products and services that assure us of our quality, convenience, affordability, availability, value or whatever preference we yearn for. These products are provided by enterprises that innovated, and continue to do so, as they expand into new territories seeking markets, resources and efficiency. Their products and services hold significant market share and their knowhow, technology, and other capabilities imbue them with the confidence to venture abroad. Often with vast footprints, clout and revenues, these firms are intriguing and understanding their motivation, strategies and behaviors is the abiding objective of international business studies.

Multinationals were the creation of European merchants who invested in trading companies that ventured out seeking produce from far out continents to sell for profits in their home markets. A product of ingenious interplay of enterprise and adventure today’s multinational corporations are economic entities, formed to create wealth through the sale of innovative products and service. The industrial revolution, with its increased output of goods, made it imperative to seek out new markets to sell excess goods and source of raw materials. Thus, multinationals ventured out from Europe to seek new markets in America, Africa and Asia. At the turn of the twentieth century, American companies also started investing outside their home markets, expanding to Canada, Europe and Latin America. Before the close of the twentieth century, the concept of the multinational corporation had diffused globally and firms from South America, Asia, and Africa are now among the world’s largest multinationals.

Through several theoretical postulations and empirical studies, scholars have been able to identify a swath of determinants that prompt firms to expand abroad. Different factors also influence the entry mode strategies adopted by multinationals in their foreign market entry. Governance of the behavior of MNCs on a range of issues has preoccupied governments and regulators in recent times. The global expansion of MNCs has raised questions of their impact on society, the role they play in host countries and the larger global economy. These questions arise due to the immense power MNCs wield and the seeming inability of their home and host governments to hold them account.

Africa has 60% of the world’s arable land and is endowed with a cornucopia of minerals, yet shortfalls in agricultural production has left several countries needing to import food and vulnerable to food insecurity. African lags behind other regions on most of the metrics of development, wellbeing and self-sufficiency. There is shortage of consumer goods, pharmaceutical and healthcare products, financial services, utilities and infrastructure. Africa’s chronic battle with shortages in rooted in her history, politics and policies. Rapid population growth and urbanization has also had its part in fostering the dire circumstances on the continent.

Africa is a continent of contrasts made up of 54 countries that are remarkably different in their geography, history and culture. This reality has created a fragmented continent with countries that have different economic and administrative systems. African countries are divided by their historical affiliations as many adopted the business practices, legal codes and administrative systems of their former colonizers and continue to maintain close cultural, political and economic ties with these former rulers. Africa’s fragmentation has created a complex marketplace with disparate economic agents who contend with a challenging business environment that lacks the structures to supports entrepreneurship and economic development.

Entrepreneurship in Africa has passed through phases as private businesses have at different times been either stifled or encouraged. Through three distinct epochs, African founded firms struggled with politics and policy changes as countries transited from colonial to post-colonial and later through a post-structural adjustment and liberalization era. Today, several African Founded Firms have evolved from small and medium-sized businesses to multinationals companies. This transformation has been on the back of changes in policy, economic structure, demography and business climate that have catalyzed the resurgence of indigenous private investment in Africa.

The decade following implementation of structural adjustment was a one of stagnation. However, commodity prices increased between 1999 and 2008 spurring a decade long growth spurt in Africa. In that decade, the IMF noted that some of the fastest growing economies in the world were on the continent. This growth gave African Challengers the impetus to expand in their domestic markets. African Challengers won market share and dominant positions through a series of competitive strategies that saw them leapfrog incumbents.

The evolution of African Founded Firms from domestic challengers to multinationals enterprises, the so-called African Lions, was as rapid as their growth in their domestic markets. Buoyed by their improved market positions, African Lions ventured into new territories to compete with host country incumbents including MNCs. Their cross-border expansion was first into neighboring countries, and eventually into other parts of Africa. International expansion gathered pace as changes within the African context created opportunities for an attractive and expanded marketplace. Meanwhile African governments intensified their drive to attract investments by offering incentives to foreign and domestic investors alike, while also ramping up efforts at regional and continent-wide integration.

The three-sector model divides economies into three areas of activity: The primary, secondary, tertiary. The primary sector is made up of the extraction of resource minerals and the farming of agricultural commodities. The secondary sector is manufacturing, where value is added to primary products. The tertiary sectors are services. African countries have relied on their endowments in mineral resources and agricultural commodities to drive their economies but increasingly, investments made by African Lions is stimulating the growth of the manufacturing and services sectors. Already, African Lions have taken commanding positions as leaders and sector champions in the African market place.

There is a new crop of entrepreneurs in Africa who are the driving force behind the African Multinational Enterprise. These are men and women who looked beyond Africa’s limitation and challenges to found some of the largest corporate entities on the continent. They are visionaries, activists and salesmen. They are managers of complex relationships, innovators and risk takers who are unafraid of making humongous capital investments. They are magnets of capital, redistributors of wealth and agents of diversification. They are the warriors who navigated Africa’s business jungles to oversee the birth, growth and expansion of the African Lions.

Economic development in Africa had stagnated for several decades but since the turn of the new millennium there has been a resurgence in growth as African private enterprises took a greater role in the economy. In a period that saw Africa shunned by MNCs, African Lions did the heavy lifting of providing goods and services to the African consumer. The contributions of African Lions have permeated every sector as they have played an impactful role in improving food security, industrializing and integrating the continent, increasing intra-African trade and FDI and diversifying the economies of several African countries.

Africa is changing. High population growth and rapid urbanization is creating an urgent need for the sustainable development of the continent. Governments have increased their effort to improve the business environment through reforms and massive investments in infrastructure. Geopolitical changes in the world has, however, prompted a new scramble for Africa’s resources and growing consumer class. The opening up and liberalization of African economies engendered the expansion of private investment. The success of Africa’s Lions has signaled to the world that there are opportunities for profits despite the risk and challenges associated with the continent and this has spurred increased investments by MNCs. The African market place is now more diverse and contestable and it is now to be seen if the African Lions will survive the changing business jungle.

The economic structure in Africa has changed following liberalization and the private sector is now driving economic development. But entrepreneurship in Africa still faces existential challenges. For the African private sector, the business climate and lack of finance remains major suppressants of growth. Efforts need to be intensified to expand access to capital, improve business climate and sustain the growth of the private sector in Africa.