tag:theconversation.com,2011:/ca/topics/mtn-27032/articlesMTN – The Conversation2020-06-15T15:08:54Ztag:theconversation.com,2011:article/1404482020-06-15T15:08:54Z2020-06-15T15:08:54ZAfrican countries need to seize opportunities created by US-China tensions<figure><img src="https://images.theconversation.com/files/341189/original/file-20200611-80789-p6p9x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The unfolding US-China power <a href="https://www.theguardian.com/world/2020/may/24/china-raises-us-trade-tensions-with-warning-of-new-cold-war">rivalry</a>
bears a striking resemblance to the tensions between the US and the Soviet bloc during the Cold War years. Back then, African countries were positioned like pawns on a grand chessboard. Their social and economic progress was hampered because they expended energy aligning themselves with either of the superpowers in the battle for world supremacy <a href="https://foreignpolicy.com/2019/01/07/a-new-cold-war-has-begun/">between communism and capitalism</a>. </p>
<p>With notable exceptions, African states generally failed to exercise positive agency for their own development. They also eroded the institutional and governance foundations vital for economic success. </p>
<p>In the current context of rising geopolitical tensions between the US and China, African countries may find themselves repeating the same mistakes unless they proactively shape their own destinies.</p>
<p>The tensions between the two great powers, characterised by <a href="https://www.scmp.com/economy/china-economy/article/3078745/what-us-china-trade-war-how-it-started-and-what-inside-phase">a vicious trade war</a>, are deepening at a time when the world economy is under enormous strain due to COVID-19. At the same time African countries are facing their worst economic crises since independence. </p>
<p>Africa is institutionally under-prepared to weather the combined effects of the health pandemic and severe economic recession. Its leaders will need to consciously design strategies of engagement that will help them to manage the ongoing superpower tensions to their advantage. They should do so without taking sides. This requires that they deal with each of these great powers based on pragmatic – rather than ideological – choices. </p>
<p>Despite their institutional under-preparedness, African countries can – and indeed must – be highly strategic and tactical in how they respond to the US-China tensions. Failure to do so will inevitably mean sacrificing their own interests. </p>
<p>There are three arenas of challenges and opportunities for the African continent in the current geopolitical climate. The first involves technological frontiers, the second is global supply chains, and the third is trade integration and economic cooperation. </p>
<h2>New technological frontiers</h2>
<p>There is <a href="https://www.mercatus.org/system/files/broughel-technological-innovation-mercatus-research-v1.pdf">overwhelming evidence</a> that technological innovation is the key driver of economic growth. Therefore, access to and exploitation of new technologies such as <a href="https://www.gsma.com/futurenetworks/ip_services/understanding-5g/">5G</a> is vital to Africa’s development. Fifth generation technologies are important options for a continent like Africa where mobile technology has leap-frogged more traditional technologies. </p>
<p>Access to technologies like 5G offers access to universal broadband, which is critical for the continent’s advance to a digital economy. </p>
<p>In May last year the US government put the Chinese firm Huawei, the world’s <a href="https://www.marketsandmarkets.com/Market-Reports/5g-technology-market-202955795.html">leading</a> <a href="https://carrier.huawei.com/en/spotlight/5g">supplier</a> of 5G network infrastructure, on its list of entities deemed to pose a significant risk to national security and foreign policy interests. </p>
<p>Huawei was effectively banned from importing and incorporating key US technologies into its products and services. This included both hardware, such as high-tech semiconductor components, and software, like Google Mobile Services (GMS). The ban was later <a href="https://asia.nikkei.com/Spotlight/Huawei-crackdown/New-ban-on-Huawei-blocks-access-to-non-US-chipmakers">extended</a> to key technologies from non-US firms. These included the Taiwan Semiconductor Manufacturing Company, a major Huawei supplier.</p>
<p>In the month following the initial ban, the CEOs of four major South African telecommunications operators – Telkom, Vodacom, MTN and Cell C – wrote a <a href="https://mybroadband.co.za/news/cellular/312767-here-it-is-the-letter-vodacom-mtn-telkom-and-cell-c-sent-to-ramaphosa.html">joint letter</a> to South African president Cyril Ramaphosa requesting his urgent intervention on the US action against Huawei. Their aim would have been to lend diplomatic weight to prevent damage to South Africa’s telecommunications sector. </p>
<p>In July last year Ramaphosa <a href="https://www.gov.za/speeches/president-cyril-ramaphosa-south-african-digital-economy-summit-5-jul-2019-0000">came out in</a> support of the four operators as well as Huawei. He said the ban was: </p>
<blockquote>
<p>an example of protectionism that will affect our own telecommunications sector, particularly the efforts to roll out the 5G network, causing a setback on other networks as well. </p>
</blockquote>
<p>This was an example of pragmatism on the part of the South African government.</p>
<p>African policymakers should strenuously safeguard their right to choose from the widest possible range of technology options that suit their countries’ development needs. And they should insist on acquiring and developing new technologies like 5G based on pragmatism. </p>
<h2>Global supply chains</h2>
<p>The second theatre of struggle for African countries is in global supply chains. </p>
<p>The COVID-19 reality, combined with the ratcheting up of US-China tensions over trade, technology and supply chains, has opened up opportunities that African countries should exploit. </p>
<p>Combined, they have exposed serious problems in supply networks across various sectors. These include digital products, food, pharmaceutical and medical supply chains. </p>
<p>These sectors represent opportunities for African countries to develop new products, services and capabilities. They could, for example, provide answers to safeguarding <a href="https://www.news24.com/fin24/Opinion/opinion-africas-food-security-under-fire-20200423">Africa’s food security needs</a>, local production of <a href="https://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=2375">essential drugs and medicines</a>, low-cost medical <a href="https://allianceforscience.cornell.edu/blog/2020/05/african-science-steps-up-to-covid-challenge/">tests and equipment</a>, and <a href="https://oxfordbusinessgroup.com/news/impact-covid-19-global-supply-chains">logistics</a>. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/341191/original/file-20200611-80770-1amn4sy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/341191/original/file-20200611-80770-1amn4sy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/341191/original/file-20200611-80770-1amn4sy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/341191/original/file-20200611-80770-1amn4sy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/341191/original/file-20200611-80770-1amn4sy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/341191/original/file-20200611-80770-1amn4sy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/341191/original/file-20200611-80770-1amn4sy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A mural of presidents Donald Trump and Xi Jinping in Berlin.</span>
<span class="attribution"><span class="source">EFE-EPA/Omer Messinger</span></span>
</figcaption>
</figure>
<p>But African countries will need to work more collaboratively to develop thriving economic sectors and cross-border industrial linkages. Trade will, in our view, be a critical enabler for this.</p>
<p>This leads us to the third domain, namely the need for African countries to deepen trade integration and economic cooperation. This will provide a basis for diversifying from over-reliance on export markets such as China and the US, and to build internal resilience. </p>
<h2>Intra-Africa trade</h2>
<p>Intra-African <a href="https://s3-eu-west-1.amazonaws.com/demo2.opus.ee/afrexim/African-Trade-Report_2019.pdf">trade</a> accounts for just 16% of total African trade. This compares with 52% in Asia and 73% in Europe. African trade is highly concentrated on a few economic hubs: China and Europe together account for 54% of total African trade, with China being Africa’s single largest trading partner. It accounts for over 14% of total African trade.</p>
<p>The <a href="https://au.int/en/cfta">African Continental Free Trade Area</a> creates the institutional and infrastructural framework for Africa to strengthen intra-African trade, diversify its trading partners and implement long-overdue trade policy reforms. </p>
<p>COVID-19 has induced significant delays in the implementation of this trading arrangement. It should, in fact, have magnified a sense of urgency. But instead of showing adaptability, African leaders pressed a pause button. As a result, the continent could miss an opportunity to accelerate development of cross-border value chains in medical supplies and equipment and other areas.</p>
<h2>Imagination and courage</h2>
<p>African countries should seize the opportunities presented by deepening tensions between China and the US to realise positive agency and chart their own future. They will need to be more proactive and adaptive under the fluid and uncertain global environment. This will require a great deal of imagination and courage. </p>
<p>African countries face a daunting set of challenges and constraints. But policymakers always have options.</p><img src="https://counter.theconversation.com/content/140448/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>African policymakers should strenuously safeguard their right to choose from the widest possible range of technology options that suit their countries’ development needs.Mzukisi Qobo, Head: Wits School of Governance, University of the WitwatersrandMjumo Mzyece, Associate Professor of Technology and Operations Management, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1318622020-02-27T11:09:13Z2020-02-27T11:09:13ZSouth Africa’s mobile market: the bottlenecks blocking competition<figure><img src="https://images.theconversation.com/files/317299/original/file-20200226-24668-gi5tm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africans feel the duopoly effects of MTN and Vodacom on the market.</span> <span class="attribution"><span class="source">Photo by Per-Anders Pettersson/Getty Images</span></span></figcaption></figure><p>In the recent State of the Nation address President Cyril Ramaphosa hailed the South African Competition Commission’s <a href="https://cisp.cachefly.net/assets/articles/attachments/80825_data_market_inquiry_summary.pdf">ruling</a> to dramatically reduce data prices as</p>
<blockquote>
<p>an important step to improve lives, bring people into the digital economy and stimulate online businesses. </p>
</blockquote>
<p>Late last year the Commission told dominant operators to reduce their retail prices by between 30% and 50% within two months. But will the proposed interventions produce these outcomes?</p>
<p>South Africans do indeed pay some of the highest prices for data on the continent. The country is ranked 19 out of 46 countries on the <a href="https://researchictafrica.net/ramp_indices_portal/">RIA African Mobile Pricing (RAMP) Index</a>. The prices of the first-entrant operators – MTN and Vodacom – remain high relative to Cell C and Telkom Mobile, which dropped their prices in the first half of last year. </p>
<p>But the commission’s cuts in retail prices will not fix poor competitive outcomes in the market. That can only be resolved by regulating the underlying bottlenecks in the wholesale market. These include the costs of roaming and facilities leasing. </p>
<p>The bottlenecks are correctly identified in the commission’s <a href="https://cisp.cachefly.net/assets/articles/attachments/80825_data_market_inquiry_summary.pdf">summary report</a>. It urges the sector regulator – the Independent Communications Authority of South Africa – to remedy the situation urgently.</p>
<p>Telecommunications regulators around the world define markets and determine dominance to design the appropriate ex-ante regulation to promote competition. Ex-ante regulations are those designed to protect consumers in the retail market by safeguarding fair competition in wholesale markets where the bottlenecks occur. They design regulations in the interest of delivering affordable user prices and efficient investments. </p>
<p>It’s for this reason that South Africa’s 2005 Electronic Communications Act requires the communications regulator to undertake a market review to determine and remedy market dominance. But it has failed to conclude a review for over 10 years. This would have created a more level playing field for late entrants by reducing the negative duopoly effects of MTN and Vodacom on the market. One such effect is high prices.</p>
<p>Prices and profit levels of the incumbents are high, as the benchmarking by the commission correctly shows. This indicates that the operators could accommodate retail price reductions. But the right price for data ought to result from effective regulation and competition in the wholesale market.</p>
<h2>Regulator’s failures</h2>
<p>The regulator has failed for more than a decade to finalise this critical determination. It has undertaken the market review three times at enormous public expense, twice to completion. Last year it made an interim finding on markets but failed to propose remedies for dominance.</p>
<p>Operators should not be penalised for their business success in a fair competitive market. But the dominance of the incumbents, MTN and Vodacom, in the wholesale market prevents the late entrants, Cell C and Telkom Mobile, from competing fairly and being able to exert pricing pressure. </p>
<p>This is because data quality is as important as price. Probably more so. At the height of the <a href="https://awethu.amandla.mobi/petitions/bring-the-cost-of-data-down">#datamustfall campaign</a> South African’s continue to forgo the far lower prices offered by Cell C and Telkom Mobile for the more expensive, higher quality network of the dominant operators. This while the market share of the dominant players continued to increase <a href="https://researchictafrica.net/wp/wp-content/uploads/2018/09/Policy-brief-No.2_South-africa.pdf">at the expense of the late entrants</a>.</p>
<p>Vodacom and MTN’s dominance gives them the liquidity to reinvest in their network infrastructure, extending coverage and improving quality. Vodacom was swift off the mark a few years ago. It used the profits from its successful voice business to invest in its data network. It quickly became the most pervasive and best quality network.</p>
<p>This enabled Vodacom (and later MTN when it had woken up to the fact that it could not milk its voice services anylonger) to attract more customers, and become more profitable. This placed the operators in a better position to enhance the quality of their networks by re-engineering their existing networks to offer competitive 4G services. This was in the absence of the regulator releasing this high-demand spectrum allocated for 4G use for over six years. </p>
<p>Even in the absence of anti-competitive practices, this has created a virtuous business cycle for the dominant operators. And a vicious one for smaller operators. </p>
<h2>Unintended consequences</h2>
<p>As welcome – or as politically expedient – as the commission’s decision is for cash strapped consumers there are several possible unintended consequences of the retail price intervention.</p>
<p>If the communications authority doesn’t address the wholesale issues urgently, the outcome could be that Vodacom and MTN, with dramatically reduced prices, will attract price-sensitive users from the late entrant networks. This would leave Cell C and Telkom Mobile unable to compete on either price or quality. </p>
<p>With dominant operators’ prices more attractive, and late entrants unable to address critical quality challenges, this will intensify the factors driving subscribers to the dominant operators networks. </p>
<p>The public focus has been on the mandatory retail price reductions for operators and the immediate relief it would provide to consumers - but policy makers and the regulators should consider possible unintended consequences of this intervention for the critical sector to the new economy. </p>
<p>Undoubtedly, one possible outcome is the inhibition of critical network investment. R70 billion of MTN and Vodacom’s significant surpluses have gone into network investment over the <a href="https://mybroadband.co.za/news/cellular/321658-the-r10-billion-network-game-winners-and-losers.html">past three years</a>. This is despite not receiving any new spectrum during this time. </p>
<p>Although prices are indeed too high – and the profitability of the dominant operators is excessive – their significant role in the economy has to be recognised and carefully managed. The lack of signalling by the commission of the nature and extent of the remedies imposed hit <a href="https://city-press.news24.com/Business/vodacom-mtn-shares-fall-following-data-price-report-20191203">the share prices of Vodacom and MTN</a>. </p>
<p>There is no benefit in this for anyone, least of all the country’s fragile, zero-growth economy. Of particular concern is that it may result in negative investor sentiment while still failing to address the underlying reasons for the high communication costs in the country.</p>
<p>The commission was at pains to point out that its intervention was a response to the absence of effective regulation by the communications authority in the wholesale market. This included the critical issues of releasing the high demand spectrum that has stifled cost-effective <a href="https://researchictafrica.net/wp/wp-content/uploads/2018/06/2018_Policy-brief-1_Data-prices-remain-static_South-Africa-.pdf">4G deployment in South Africa.</a>.</p><img src="https://counter.theconversation.com/content/131862/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span> Alison Gillwald (PhD) is the Executive Director of Research ICT Africa (RIA), a former regulator. She was appointed to the founding Council of the South African Telecommunications Regulatory Authority (SATRA).</span></em></p>The right price for data ought to result from effective regulation and competition in the wholesale market.Alison Gillwald, Adjunct Professor, Nelson Mandela School of Public Governance, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1076112018-12-04T12:47:11Z2018-12-04T12:47:11ZHow Nigeria can attract and keep the right kind of foreign direct investment<figure><img src="https://images.theconversation.com/files/247927/original/file-20181129-170238-v28vln.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Nigeria's President Muhammadu Buhari at the US-Africa Business Forum in New York in 2016. </span> <span class="attribution"><span class="source">EPA/Drew Angerer</span></span></figcaption></figure><p>Two of the largest banking and financial services institutions in the world, HSBC and UBS, have <a href="https://www.bloomberg.com/news/articles/2018-11-03/hsbc-ubs-shut-nigeria-offices-as-foreign-investment-declines">recently closed their local representative offices</a> in Nigeria. </p>
<p>There’s also trouble brewing elsewhere in Nigeria’s business world that’s prompted fears about the climate for foreign direct investment in the country. Foreign direct investment is an investment made by a firm or individual in one country into business interests located in another country.</p>
<p>For instance, Nigeria’s government in September <a href="https://www.bloomberg.com/news/articles/2018-09-17/nigeria-fires-back-at-hsbc-after-bank-criticizes-president">accused HSBC of money laundering</a> after an analyst working for the lender said a second term for President Muhammadu Buhari <a href="http://dailypost.ng/2018/09/11/2019-second-term-buhari-will-nigerias-economy-hsbc/">may stall economic recovery </a> in Africa’s biggest oil producer.</p>
<p>There are also tensions between Nigeria’s central bank and the South African telecom company MTN. In 2015, MTN was <a href="https://www.bbc.co.uk/news/world-africa-45424537">fined about $5bn</a> for failing to cut off unregistered SIM cards. This was later reduced to $1.7 billion after a long legal dispute and the intervention of South Africa’s then President Jacob Zuma.</p>
<p>Recently, the central bank has <a href="https://www.bloomberg.com/news/articles/2018-08-29/nigeria-orders-mtn-banks-to-refund-8-billion-exported-funds">ordered MTN to repatriate $8 billion</a> it said has been taken out of the country illegally. </p>
<p>Analysts are <a href="https://nextedition.com.ng/2018/11/09/analysis-hsbc-ubs-left-nigeria/">concerned</a> that the Nigerian government’s attitude towards MTN and the two banks may erode the confidence of foreign direct investors. Their fears seem to be well founded: foreign direct investment in Nigeria <a href="https://tradingeconomics.com/nigeria/foreign-direct-investment">fell to</a> <a href="https://www.ceicdata.com/en/indicator/nigeria/foreign-direct-investment">$1 billion in the first half of 2018, from $1.48 billion in the first half of 2017</a>. </p>
<p>Foreign direct investment is crucial for any economy. So how can Nigeria attract and keep the right kind of investment from global companies? Compromise will be key, both for the government and foreign firms.</p>
<h2>Why foreign direct investment?</h2>
<p>Foreign direct investment is often preferred to exporting. That’s because while exports merely involve moving goods from one country to another, foreign direct investment actually involves an investor establishing foreign business operations or acquiring foreign business assets. </p>
<p>This often includes establishing ownership or controlling interest in a foreign country (for instance an American business establishing a physical business presence in Nigeria). Many emerging economies like China, Brazil, Vietnam and India have <a href="https://www.industryweek.com/leadership/top-10-countries-receiving-foreign-direct-investment/gallery?slide=1">built their growth on FDI flows</a>.</p>
<p>The trick is to attract “quality foreign direct investment” that links foreign investors into the local host country economy. The International Growth Centre, a <a href="https://www.gov.uk/government/organisations/department-for-international-development">British-funded</a> research centre that aims to promote sustainable growth in developing countries, <a href="https://www.theigc.org/blog/attracting-quality-foreign-direct-investment-developing-countries/">characterises</a> “quality” here as contributing to:</p>
<ul>
<li><p>decent and value-adding jobs and enhancing the skill base of host economies;</p></li>
<li><p>transfer of technology, knowledge and know-how;</p></li>
<li><p>boosting competitiveness of domestic firms and enabling their access to markets.</p></li>
</ul>
<h2>What Nigeria can do</h2>
<p>There are a few things Nigeria can do to boost foreign direct investment. For starters, it must play fair. Foreign and domestic businesses should be treated equally. They should be open, transparent and dependable conditions for all kinds of firms. </p>
<p>Another area that needs attention is infrastructure. Businesses need easy access to ports, an adequate and reliable supply of energy and relative certainty that the country will be good to invest in. Good institutions <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1467-9701.2006.00758.x">also promote FDI</a>. </p>
<p>The government should encourage partnerships between foreign and local businesses. Foreign firms might be familiar with global good business practices, but local firms will be more familiar with the indigenous context. This synergy could be very beneficial.</p>
<p>It’s also critical that Nigeria gets its regional governments involved: there are many regions in Nigeria, and these regions all have unique opportunities and challenges. <a href="https://journals.aom.org/doi/abs/10.5465/AMBPP.2018.11006abstract">Our latest research</a> shows that when the central government of Nigeria ran out of ideas and foreigners wanted to exit the agricultural sector, the regional government of Kwara state stepped in to create a positive business climate based on the cooperation of local banks, community members, and the foreigners themselves culminating in the <a href="https://www.dailytrust.com.ng/learning-commercial-farming-through-shonga-farmss-approach.html">Shonga farms</a> public-private venture. </p>
<p>This has kept the firm in Nigeria. It’s also brought private investors to the table, bolstering the firm and the local economy.</p>
<p>Nigeria should also tap into its huge <a href="https://www.bbc.co.uk/news/av/business-37727761/how-can-investors-tap-in-to-nigeria-s-diaspora">diaspora</a>. There are many Nigerians living outside the country who understand its challenges. They should be encouraged to help, or asked to work with their networks to invest in the country.</p>
<h2>What foreign firms can do</h2>
<p>Foreign firms also have a role to play. They can enhance their success in Nigeria (and elsewhere on the African continent) in several ways.</p>
<p>First, they need a long term strategic plan. This means thinking carefully about what sectors or activities to target. Many foreign firms come to developing countries when things are rosy but leave when conditions change. They don’t properly consider that solving such problems will gain them a competitive advantage in the long run. </p>
<p>If they stay and follow a learning curve, foreign firms will better understand the local business context. They’ll also gain credibility among ordinary people and possibly get more customers and support that way.</p>
<p>In the same vein, foreign businesses should create local solutions that meet ordinary people’s needs. The banks leaving Nigeria have <a href="https://www.vanguardngr.com/2018/11/breaking-hsbc-ubs-close-their-offices-in-nigeria/">been accused</a> of only catering to the needs of wealthy Nigerians, who are <a href="https://www.aljazeera.com/business/2010/10/201010116251929702.html">perceived as corrupt</a>. A more diverse portfolio that catered to the needs of ordinary Nigerians would have nullified this claim.</p>
<p>Foreign firms must also work closely with credible and strategic local firms, and be willing to enter into dialogue with the Nigerian government where necessary. This is crucial especially as administrations may change or government policy may evolve. Dialogue could ensure that all parties are on the same page.</p>
<h2>Act local, think global</h2>
<p>It’s unfortunate that these banking institutions have decided to leave Nigeria. Hopefully both the Nigerian government and other foreign investors can learn from this. </p>
<p>The main takeaway for both foreign investors and governments involved in foreign direct investment is that it would be prudent for all parties to act locally but think globally.</p><img src="https://counter.theconversation.com/content/107611/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tolu Olarewaju does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>There is concern that Nigeria’s attitude towards foreign direct investors may erode inward capital flows.Tolu Olarewaju, Lecturer in Economics, Staffordshire UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/648462016-09-07T19:20:46Z2016-09-07T19:20:46ZThe do’s and don'ts of doing business in Nigeria<figure><img src="https://images.theconversation.com/files/136859/original/image-20160907-25249-688a95.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p><em>South African business investments in Nigeria are under the spotlight again after hotel and casino group, Sun International, announced it is <a href="http://af.reuters.com/article/investingNews/idAFKCN10X0KY">pulling out</a> of the country. The company cited poor economic conditions and regulatory challenges. It joins a growing list of high profile South African business failures in Africa’s second largest economy. The Conversation Africa business and economy editor Sibonelo Radebe asked Professor Mills Soko to unravel the complexities of the Nigerian market.</em></p>
<p><strong>What are the conditions of doing business in Nigeria?</strong></p>
<p>Nigeria has the largest <a href="https://www.theguardian.com/global-development/2013/jun/13/nigeria-larger-population-us-2050">population</a> in Africa and one of the biggest in the world. It boasts dynamic, entrepreneurial, ambitious and well educated people. The country was, until recently, one of the fastest growing economies in the world, prompting investment bank Goldman Sachs to include it in a group of countries called <a href="http://www.bloomberg.com/news/articles/2015-09-11/goldman-s-next-11-markets-are-sinking-even-faster-than-the-brics">The Next Eleven</a>. These are countries with a potential to be among the biggest economies in the 21st century.</p>
<p>Nigeria’s economy has traditionally been dominated by the oil sector. But it has become more <a href="http://www.cnbcafrica.com/news/western-africa/2014/04/11/a-closer-look-a-nigerias-gdp-rebasing/">diversified</a>, with sectors such as telecommunications, real estate and financial services experiencing fast growth. </p>
<p>The country has become one of Africa’s major banking markets. Ten of its banks made the <a href="http://www.thebanker.com/Top-1000/20142/Top-1000-World-Banks-AF">Top 1000 World Banks</a> ranking by Financial Times. These factors, coupled with the promise of higher returns, make the country attractive to potential investors.</p>
<p>Although Nigeria has a history of economic mismanagement, successive governments have in recent years introduced reforms. These are aimed at improving the macroeconomic environment and business climate to attract foreign investment. The reforms have also laid the foundation for further diversification of the economy. They have created new investment <a href="http://www.nigerianstat.gov.ng/resource/Opening%20Address%20stanbic%20investment%20conference%202016_ko%20-clean-.pdf">opportunities</a> in other sectors including manufacturing, mining, agriculture, engineering, retail, construction and hospitality.</p>
<p>But the business environment in Nigeria continues to be <a href="http://www.thisdaylive.com/index.php/2016/04/24/nigeria-taking-economic-challenges-in-its-stride/">hobbled by many challenges</a>. These include deficient infrastructure, erratic power supply, foreign exchange shortages, high inflation, currency volatility, <a href="http://www.economist.com/blogs/economist-explains/2016/07/economist-explains-13">corruption</a>, high capital cost, red tape, high rentals, as well as excessive and unpredictable regulations. </p>
<p>In a nutshell, Nigeria embodies the economic promise of the African continent as well as its challenges and problems.</p>
<p><strong>Are Nigeria’s challenges exceptional?</strong></p>
<p>Nigeria shares many of the business risks and challenges that plague African countries. But what <a href="http://www.academia.edu/11418004/THE_NIGERIAN_SOCIAL_STRUCTURE_AND_CAUSES_OF_BOKO_HARAM_MENACE_SUGGESTIONS_FOR_CURE">distinguishes</a> the country from other African countries is its population size and its complex social structure straddling divergent social, political, economic, religious, ethnic and family dynamics. </p>
<p>There is a sense that the size of the country’s market and its enormous economic potential make it a testing ground for companies that want to expand into African markets. Running a business successfully in Nigeria is seen as a guarantee of success elsewhere on the continent.</p>
<p><strong>Are South African companies doing something wrong?</strong></p>
<p>There are over 100 <a href="http://www.news24.com/Archives/City-Press/Over-100-SA-companies-doing-business-in-Nigeria-Zuma-20150429">South African companies</a> operating in Nigeria and only a handful are commercial failures. The list of well known failures includes Telkom, Woolworths and Tiger Brands. But they aren’t representative of the wider experiences of South African firms.</p>
<p>It is in the nature of doing business that some companies succeed and others fail. There are many reasons why some have not done as well in Nigeria. These include not conducting proper due diligence before entering the market, selecting the wrong acquisition target, inappropriate market strategies, choosing the wrong partner and mismanaging stakeholder relations.</p>
<p>These are mistakes that firms can avoid or mitigate. But there are also factors beyond a firm’s control that can have a negative impact on business, such as the fall in oil prices. Nigeria, an import-dependent country, is heavily reliant on oil for foreign exchange earnings. The <a href="http://www.bbc.com/news/world-35345874">recent fall in oil</a> led to a sharp currency devaluation. This made it more expensive for the country to pay for imports. </p>
<p><strong>Which South African businesses are getting it right in Nigeria? How are they doing it?</strong></p>
<p>MTN, Standard Bank, Shoprite, Pepkor and Multichoice are among the South African companies that have <a href="http://www.bdlive.co.za/business/retail/2015/08/18/shoprite-plans-to-open-another-35-stores-in-africa-this-year">thrived</a> in Nigeria. Although there is no one specific blueprint for business success in the country, or any other African market for that matter, there are several lessons that can serve as a guide to success.</p>
<p>These lessons are informed by the experiences of several companies that have done business in the country. They include the importance of carrying out detailed market research, undertaking thorough due diligence, executing the right market strategy, choosing the correct acquisition target and finding a suitable local partner.</p>
<p>The list of critical things to focus on to mitigate risk also includes building relations and managing stakeholder relations, learning from peers’ coping strategies, being flexible and open-minded, investing in hard and soft infrastructure such as mortar and skills, staying focused and taking the long-term view.</p>
<p>The case of MTN shows that even if a firm has cracked the Nigerian market, it must never become complacent. When it ventured into Nigeria in 2001 MTN had to overcome formidable technical, operational, political and legal challenges. It did so impressively. Given the challenges it faced it could have opted to quit the market. But MTN decided to stay the course because it was confident in the Nigerian market and was determined to succeed.</p>
<p>Yet last year the telecommunications giant took its eyes off the ball. MTN failed to obey an order from the Nigerian authorities to disconnect 5.1 million unregistered subscribers. This resulted in the authorities imposing a <a href="http://ewn.co.za/2016/06/10/Nigeria-agreed-to-cut-MTN-fine-after-firm-said-it-might-pull-out-official">fine</a> of US $5.2 billion, later reduced to US $1.67 billion. The lesson here is that companies must always respect the sovereignty of a host country. This includes complying with the laws and regulations governing business.</p><img src="https://counter.theconversation.com/content/64846/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mills Soko does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A decision by South African hotel and casino group, Sun International to pull out of Nigeria raises many questions about the conditions of doing business in the second largest economy in Africa.Mills Soko, Associate Professor, Graduate School of Business, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/603422016-06-19T14:54:44Z2016-06-19T14:54:44ZSouth Africans pay the price for a poorly regulated telecoms sector<figure><img src="https://images.theconversation.com/files/126545/original/image-20160614-22377-1s7g1t4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"></span> <span class="attribution"><span class="source">Reuters/Siphiwe Sibeko</span></span></figcaption></figure><p>Telecommunications clearly <a href="http://regulationbodyofknowledge.org/wp-content/uploads/2013/03/Jamison_Analyzing_Telecommunications_Market.pdf">facilitate economic growth</a> and participation. As such, countries should care about competitive outcomes in this sector. When competition works it can result in expanded services and lower prices, and it can stimulate innovation. </p>
<p>The South African record of telecommunications policy and regulation has been poor. Regulations that would allow competitors to access essential infrastructure have been part of government policy since 2007. But they have not yet been implemented. Lengthy delays in digital migration have also prevented telecommunications service providers from rolling out faster broadband. These regulations have disadvantaged competitors and benefited larger incumbents. </p>
<p>Semi-private telecoms company Telkom was entrusted to invest in the country’s telecoms sector and ensure expanded access. Instead, it undermined entrepreneurial activity across a range of services.</p>
<p>South Africa has made some headway in improving competition, but there is still a long way to go. While the prices for both voice and broadband have come down, the “cost to communicate” is still high relative to other African countries. </p>
<p>For example, in 2015, South Africa’s lowest “off-net” (calls between networks) and “on-net” (calls on the same network) mobile voice prices were still <a href="http://static1.squarespace.com/static/52246331e4b0a46e5f1b8ce5/t/575fbb7d40261df38922ece1/1465891718488/Barriers+to+entry_Telecommunication+Sector+Study.pdf">700% and 300% more expensive</a> than Kenya’s. </p>
<h2>A de facto fixed-line monopoly</h2>
<p>Telkom was the fixed-line monopolist in South Africa until managed liberalisation took place from the mid-1990s. As part of this Telkom was partially privatised and Neotel was licensed as the second network operator in 2005. </p>
<p>Neotel was initially supposed to acquire state-owned network infrastructure belonging to Transnet and national power utility Eskom. This would give the company a critical backbone on which to roll out fixed-line broadband. Instead, government belatedly decided to create a state-owned entity, Broadband Infraco, to own and operate the assets. This meant Neotel had to set up a network from scratch. In 2013, it had just <a href="http://static1.squarespace.com/static/52246331e4b0a46e5f1b8ce5/t/575fbb7d40261df38922ece1/1465891718488/Barriers+to+entry_Telecommunication+Sector+Study.pdf">6,500km of fibre</a> to Telkom’s 105,000km.</p>
<p>Downstream competition to Telkom was enabled by the licensing of value-added network services providers. But they were reliant on Telkom’s fixed-line infrastructure to provide services – and Telkom was also competing downstream. </p>
<p>Anticipating the end of its upstream monopoly once Neotel was licensed, Telkom used its control of essential upstream input to exclude downstream competition. It did this through a “margin squeeze”, charging high prices for the essential inputs the value-added network services providers required. </p>
<p>This was the basis for two findings of <a href="http://www.comptrib.co.za/cases/complaint/retrieve_case/1448">anticompetitive</a> conduct against Telkom by the competition authorities, resulting in two large fines and behavioural remedies.</p>
<h2>The mobile market</h2>
<p>The first movers in mobile telecommunications, Vodacom and MTN, were allowed to establish a strong duopoly. The companies were licensed in 1993 and followed, much later, by challenger firms Cell C in 2001 and Telkom Mobile in 2010. </p>
<p>Vodacom and MTN constructed extensive networks and set prices in a relatively weak regulatory environment. They continue to reap the benefits of this, and challenger firms have struggled to grow their market share. The challenger firms – including Neotel, Cell C and Telkom Mobile – were expected to compete with the incumbents while the playing field was far from level. </p>
<p>On the other hand, interventions to introduce competition have yielded positive outcomes. After the decision by the Independent Communications Authority of South Africa (ICASA) to cut mobile termination rates in 2011, the challenger operators (Cell C and Telkom Mobile) were better able to compete with incumbent operators. </p>
<p>The decision led to a R1.09 reduction of the termination rate. Vodacom passed 81% of this reduction to its consumers, while MTN passed on 91%. The price cuts were driven by the challenger operators and the incumbents lowered prices to meet challengers’ offerings. </p>
<p>The total consumer savings generated for MTN and Vodacom’s customers as a result of the decision amounted to R47.2 billion between 2010 and 2015. The two companies’ call volumes also increased at a compound annual growth rate of 18% over the same period. This shows what was gained through intervention and, conversely, the cost of not having facilitated effective competition sooner. </p>
<h2>Regulating for competition</h2>
<p>The decision by ICASA to introduce asymmetry and reduce the termination rates can be described as regulating “for competition” by creating a more level playing field. This is important, as the telecommunications industry has inherent characteristics that raise barriers to entry, such as network effects, which make it difficult for entrants to reach scale. </p>
<p>Incumbent firms can pursue strategies to take advantage of scale effects. For example, they provide substantial discounts for “on-net” calls and charge high premiums for “off-net” calls. From the customer’s perspective it is rational to belong to the larger network to receive more discounted calls. This makes it difficult for challenger networks to attract new customers. </p>
<p>These discounts are particularly problematic for challenger firms if the effective prices charged by larger networks are lower than mobile termination rates. Customers on the smaller, challenger networks are more likely to call to larger networks than the other way around. So challenger networks will always incur greater termination costs. </p>
<h2>Internet service providers</h2>
<p>The positive impact of competition has not been limited to the mobile sector. When Seacom entered the market for undersea cables in 2009 the cost of bandwidth for typical internet service providers <a href="http://www.wapa.org.za/wp-content/uploads/bigfiles/FWTFIII/4_FWTF%20III%20-%20Building%20a%20Business%20Case%20for%20Rural%20Broadband%20WFS%2020150714.pdf">fell by 35%</a>. Prior to Seacom’s entry the only cable available was Telkom’s SAT-3 cable. </p>
<p>Another example is the <a href="http://static1.squarespace.com/static/52246331e4b0a46e5f1b8ce5/t/575fbb7d40261df38922ece1/1465891718488/Barriers+to+entry_Telecommunication+Sector+Study.pdf">87% reduction in the price</a> of transmission over long-distance fibre between Bloemfontein and Johannesburg between 2013 and 2014. This was due to the construction of two open-access fibre links by Fibre Co and the NLD Consortium. </p>
<p>The recent entry of a number of fibre-optic broadband providers offering open-access networks has also stimulated competition and resulted in significant price reductions. </p>
<p>In response, Telkom’s wholesale network, OpenServe, recently announced price reductions for wholesale fixed-line access of up to 57% through its IP Connect product. </p>
<p>The impact of entry in these examples gives an indication of what is at stake if entrants are blocked or undermined. The price of voice communication has come down, but the next challenge for South Africa will be meeting <a href="http://www.gov.za/documents/electronic-communications-act-south-africa-connect-creating-opportunity-ensuring-inclusion">SA Connect</a> targets by ensuring universal access to broadband at affordable prices. </p>
<h2>What can be done to facilitate competition?</h2>
<p><strong>Regulating for competition</strong></p>
<ul>
<li><p>There is a need to change the balance of regulation to favour rivals. This includes balancing effective services competition by mobile virtual network operators with a fair return on infrastructure for mobile network operators.</p></li>
<li><p>The “on-net”/“off-net” price discrimination case requires swift and thorough investigation by the competition authorities.</p></li>
<li><p>Spectrum should be assigned in a timely manner through transparent auction processes that don’t disadvantage new entrants.</p></li>
<li><p>Value-added network services companies should be given access to Telkom’s “last-mile” infrastructure (the most expensive network layer). This will remove their reliance on their main rival. Access should also be granted to Telkom’s poles and ducts on reasonable terms.</p></li>
<li><p>Infrastructure sharing should be regulated more effectively. TV white spaces spectrum can be allocated to fixed-wireless providers to allow for more reliable services and better competition.</p></li>
</ul>
<p><strong>Facilitating broadband rollout</strong></p>
<ul>
<li><p>Support competition rather than a national champion for broadband roll-out.</p></li>
<li><p>Finalise the rapid deployment guidelines to facilitate “rights of way” applications for roll-out.</p></li>
<li><p>Aggregate demand from government offices, clinics and police stations so government can be an anchor tenant in rural areas and procure services through a competitive tender process.</p></li>
</ul>
<p><em>The article draws on <a href="http://static1.squarespace.com/static/52246331e4b0a46e5f1b8ce5/t/575fbb7d40261df38922ece1/1465891718488/Barriers+to+entry_Telecommunication+Sector+Study.pdf">CCRED research</a> on barriers to entry in the telecommunications sector, funded by the National Treasury.</em></p><img src="https://counter.theconversation.com/content/60342/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The research on which this article is based was funded by National Treasury</span></em></p>The price of voice communication has come down in South Africa. But poor regulation and a lack of competition means that the country still has some way to go to reduce the cost of communication.Pamela Mondliwa, Researcher, Centre for Competition, Regulation and Economic Development, University of JohannesburgTamara Paremoer, Senior Researcher, Centre for Competition, Regulation, and Economic Development, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/595632016-06-07T10:56:22Z2016-06-07T10:56:22ZTo transform Africa’s economies, African companies matter too<p>A consistent feature of global analyses of Africa’s economic prospects is their fickleness. In the years since the global financial crisis in 2008, forecasts about Africa have swerved from <a href="http://www.afdb.org/en/knowledge/publications/african-economic-outlook/african-economic-outlook-2009/">deep pessimism</a> to <a href="http://www.economist.com/news/special-report/21572377-african-lives-have-already-greatly-improved-over-past-decade-says-oliver-august">heady optimism</a>, and back to a bearish outlook of <a href="http://www.imf.org/external/pubs/ft/reo/2015/afr/eng/sreo1015.htm">slow growth and fragility</a>. </p>
<p>The vacillation in perceptions of African economies closely mirrors both the boom and bust cycle of global commodity prices, and the sentiments of Western and Chinese investors. But as global attention shifts yet again to the <a href="https://theconversation.com/time-for-africa-to-transition-from-extractive-to-learning-economies-59089">urgency of diversifying</a> Africa’s economies from unprocessed commodities, the role of the domestic African private sector remains poorly understood by outsiders, especially academics. </p>
<p>The media has fared slightly better in <a href="http://www.theafricareport.com/East-Horn-Africa/africans-investing-in-africa.html">spotlighting</a> the exploits of tycoons such as Sudanese telecoms giant <a href="http://mo.ibrahim.foundation/">Mo Ibrahim</a>, Nigerian cement magnate <a href="http://www.forbes.com/profile/aliko-dangote/">Aliko Dangote</a>, Zimbabwean telecoms entrepreneur <a href="http://www.forbes.com/sites/mfonobongnsehe/2013/02/24/five-lessons-from-zimbabwes-richest-man-strive-masiyiwa/#63655a10cfc2">Strive Masiyiwa</a> and others. But although African business owners have been powerful forces in African economies since the colonial period, they are often ignored in research and analysis. </p>
<h2>Bust and boom</h2>
<p>There’s history to this. From Nigeria, to Ivory Coast, Kenya and Zambia, the economic crises of the 1980s preceded the decline of agro-industry, manufacturing and other productive sectors which were dominated by thriving, domestic private and state-owned enterprises. The “<a href="http://journals.cambridge.org/action/displayFulltext?type=1&fid=2559428&jid=MOA&volumeId=21&issueId=01&aid=2559420">Ivorian Miracle</a>” or Ivory Coast’s golden age of economic prosperity between 1960 and the 1990s was built on cocoa exports and smallholder farming. The post-Cold War civil conflicts which ravaged countries such as Angola, Sierra Leone and Liberia, snuffed their nascent domestic private sectors. </p>
<p>Multinational corporations, development agencies and non-governmental organisations all stepped in, filling the investment gap that was left in the extraction industries and social services such as health and education. This economic decline was closely followed by a waning media and academic interest in African enterprises. The <a href="http://www.tandfonline.com/loi/wjab20#.V0_DlpErJhE">Journal of African Business</a> only started publication in the year 2000.</p>
<p>At the turn of the 21st century, privatisation and economic liberalisation brought a new wave of empowerment to African firms in industry, often with executives transitioning into business from careers in politics or the military. </p>
<p>As my new <a href="http://www.globaleconomicgovernance.org/sites/geg/files/GEG%20WP_115%20The%20Successes%20and%20Failures%20of%20Economic%20Reform%20in%20Nigeria%E2%80%99s%20Post-Military%20Political%20Settlement%20-%20Zainab%20Usman.pdf">research on Nigeria</a> points out, the country’s telecommunications revolution was powered by the African multinational telecoms firms, MTN and Econet, which had Nigerian shareholders. Some, such as MTN shareholder <a href="http://www.forbes.com/profile/sani-bello/">Colonel Sani Bello (rtd)</a> were in the military. The telecoms industry in Nigeria grew by 1,000% in the first year after liberalisation in 2001. </p>
<p>In the oil industry, local content laws empowered credible indigenous Nigerian oil companies firms such as Oando and Seplat, but also enabled <a href="http://uk.reuters.com/article/nigeria-oil-idUKL8N1261PW20151006">rapacious newcomers</a> such as Seven Energy and Atlantic Energy to enter the fray. </p>
<h2>Dynamic and experienced</h2>
<p>The academia and the media are, for the most part, stuck in a rut with reporting on the African private sector: focused on foreign investment, particularly <a href="https://theconversation.com/what-does-chinas-role-in-africa-say-about-its-growing-global-footprint-49474">China’s presence in Africa</a>, but missing out a dynamic element of Africa’s ongoing economic transformation. This is not to say that there are no publications whatsoever on African enterprises, but they are very few and far between for the continent’s size.</p>
<p>Yet African entrepreneurs are crucial to the growth of Africa’s economies. Many entrepreneurs currently operating across the continent have significant experience and are intrinsic to the complex process of economic diversification. Reforms in a number of countries at the turn of the century energised existing companies to expand their interests across industries and borders, becoming big multinationals in financial services, telecommunications, entertainment, retail and hospitality. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/125008/original/image-20160602-23288-1uvws43.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/125008/original/image-20160602-23288-1uvws43.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=376&fit=crop&dpr=1 600w, https://images.theconversation.com/files/125008/original/image-20160602-23288-1uvws43.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=376&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/125008/original/image-20160602-23288-1uvws43.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=376&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/125008/original/image-20160602-23288-1uvws43.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=472&fit=crop&dpr=1 754w, https://images.theconversation.com/files/125008/original/image-20160602-23288-1uvws43.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=472&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/125008/original/image-20160602-23288-1uvws43.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=472&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A Shoprite store in Luanda, Zambia.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/colalife/23891805375/sizes/l">ColaLife/flickr.com</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>For example, DSTV, MTN and Shoprite are now South African multinationals ubiquitous across Africa – unleashed by the end of apartheid rule. In financial services, some successful African firms cut their teeth through decades of trial and error, bankruptcies and mergers, and are now competing with foreign firms. UBA, Access Bank and other Nigerian banks used the springboard of reforms in the mid-2000s to recapitalise and expand across the continent alongside Ecobank and other big <a href="http://www.economist.com/news/finance-and-economics/21572768-across-africa-banks-are-expanding-their-returns-arent-continent-dreams">pan-African banks</a>.</p>
<p>The entrepreneurs running these firms tend to have a longer planning horizon necessary for kick-starting industries that are not reliant on extractives. This is pivotal to economic diversification in Africa. Because they are often indigenous and so physically and psychologically invested in their operating environments, they have risk mitigation strategies which often elude their foreign counterparts.</p>
<p>Of course, indigenous companies can often descend into cronyism, rent-seeking and abuse of proximity to political power. The 1980s and 1990s in Africa were a wasteland of collapsing firms kept on life support with costly subsidies by cash-strapped governments. And <a href="http://news.bbc.co.uk/1/hi/business/8205731.stm">Nigeria’s banks</a> suffered their own major crisis in 2009.</p>
<p>Certain entrepreneurs have leveraged their proximity to power to lobby for favourable policies, tax breaks and gain dominant market share, but also to expand across industries and countries. With 95% market share, Safaricom, the force behind Kenya and East Africa’s mobile banking revolution is accused of <a href="http://www.economist.com/news/business/21657378-two-african-business-giants-go-head-head-over-mobile-telecoms-and-payments-new-east-africa">monopolising the mobile money market</a>. So has Dangote, whose companies are often accused of <a href="http://www.forbes.com/sites/abrambrown/2015/03/04/the-little-known-15-billion-empire-of-africas-richest-man/#4b7b80ae61e0">undercutting local and foreign competitors</a> in cement production. </p>
<h2>Small firms, big weight</h2>
<p>Development agencies from UN agencies to the African Development Bank have focused on improving the productivity of micro and small enterprises, which provide <a href="http://www.afdb.org/en/news-and-events/article/the-afdb-sme-program-approval-boosting-inclusive-growth-in-africa-12135/">more than 45% of employment</a> in sub-Saharan Africa. And Africa’s “tech start-ups” are <a href="http://thenextweb.com/africa/2016/04/19/banks-woo-african-startups-keep-innovation-trend/#gref">never far</a> from the headlines. </p>
<p>Yet, recognising the relationship between influential African conglomerates and the ubiquitous small companies in trade, cottage-industry manufacturing and agriculture is vital to understanding Africa’s ongoing economic transformation. For example, tax breaks and other business incentives in <a href="http://www.worldbank.org/afr/wps/wp17.htm">Export Processing Zones</a> that are popping up across the continent are more beneficial to large-scale firms than smaller ones, according to a <a href="https://openknowledge.worldbank.org/bitstream/handle/10986/2268/600590PUB0ID181onomic09780821386385.pdf?sequence=1">World Bank study</a>. At the same time, they also provide an opening for understanding how linkages with powerful big businesses could enable smaller businesses to break into national and global markets. </p>
<p>The agenda to diversify Africa’s economies from dependence on resources and an informal sector is accelerating. But poverty reduction and economic diversification cannot be achieved unless more research and investigations are made to develop a deeper understanding of the dynamic landscape of African enterprise, including both big and small businesses.</p><img src="https://counter.theconversation.com/content/59563/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Zainab Usman does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The dynamism of domestic businesses are too often overlooked by researchers and analysts.Zainab Usman, Doctoral Candidate in International Development, University of OxfordLicensed as Creative Commons – attribution, no derivatives.