A Revolution in Governance

The end of the Cold War had a favorable impact that one doesn’t hear clearly enough sitting in Western capitals. Cold War politics was like oil or bad aid: an external force the governments of Africa could serve while delivering little for their citizens at home. That’s how Sam Jonah remembers it. Sam is the former CEO of AngloGold Ashanti, the first African company to be listed on the New York Stock Exchange. Today he serves on the boards of several public companies and is described by Forbes as one of the twenty most influential business figures in Africa.³ Sam grew up in a Ghanaian mining town and began work below ground, a laborer in the mines he would eventually command. Sam does not mince words about the Cold War and the kind of leader it produced: “Look at Angola. Look at the Congo. Mobutu^* was a son of a bitch, but the Americans could feel confident that he was their son of a bitch, so he stayed in power. That was going on, on both sides, all over the continent.”

With the collapse of the Soviet Union the power of socialism as a political force eroded worldwide. Throughout Africa, states adopted some version of market economics (though this ranges widely). As Sam put it, “At last we all began to speak the same language, and operate from the same assumptions.”

Phuthuma Nhleko likewise pointed to the Cold War’s end as a defining moment in Africa. In particular, he describes the decline and dismembering of the Soviet Union as having created room that ultimately proved helpful to Africa’s growth, in parallel to the rise of China and the consequential growth of Chinese demand:

There is no question in my mind that the first and main trigger leading to the turnaround and recent positive developments in Africa was the end of the Cold War. Once the Berlin Wall fell, there wasn’t a counterparty to bankroll governments that may have had a very strong socialist agenda. African governments realized they had only one port of call in a singular polar world, which was the U.S. and the West. The very strong left-leaning governments on the continent found themselves in an invidious position where the West could stipulate reform conditions for any aid and financial support. Out of pride, the unpalatable conditions thankfully forced African governments to pursue a path of self-reliance and more financial independence.

Vimal Shah is slightly younger than either Phuthuma or Sam. He built his company in the wake of the change they lived. He sees the path set when the “liberators” retired as inexorable. He discussed it over tea, looking out his office window toward Uganda, where he is creating a seventy-five-thousand-acre palm oil plantation:

Every country in Africa today is reforming, going up the ladder of growth. Those ladders are all looking towards capitalism. I don’t see ladders looking towards communism anymore. There are no differences in ideologies now. We all talk the same language, and our officials and business leaders are now educated in many of the same universities.

Bharat Thakrar also sees a steady march away from violence and militancy across Africa, driven by its youth culture. Bharat is the CEO of Scangroup, the largest communications firm in Africa, a partner of global communications leaders such as WPP, Ogilvy, Hill & Knowlton, and Millward Brown. Bharat’s historical narrative is informed by the time he spends in focus groups with young African consumers. He sees their aspirations as the ultimate weapon to defeat Mobutu-like leaders in Africa:

My perspective on Africa is that civilization has to go through some pretty tough turning points. If you look at the U.S. you had a civil war and then you had two world wars, and then recently had your huge terrorist attack. If you look at China and India they had socialist or communist revolutions. Russia the same thing. Europe? Two world wars. Human society has to go through those huge turning points and I think in Africa’s case it’s post-colonialism. Every country on the continent has been through a trauma, including military dictators and civil war.

So, what does it mean that “Africa is rising” today? I think the correct meaning is the literal one, that we have now awakened. We’ve been through the shit and can look at ourselves optimistically. If you talk to young consumers today in any country on the continent—Nigeria, Mozambique, Angola—there is a sense of pride, a commitment to leave behind all this nonsense of political and militant dictatorship. That’s why you have democratization and that is why the military separatist movements today have no room to survive. If you ask a young African about Al Shabaab or the Boko Haram, ^* “Do you think these guys have got any legs? ” they will tell you to forget it, it’s not going to happen. Younger people are fed up with it.

Bharat’s optimism is shared widely among CEOs. Not all the data support it, and the picture is a nuanced one. Instability and violence persist. The Global Peace Index (GPI), produced by the Institute for Economics and Peace, ranked the Democratic Republic of the Congo, Sudan, and Somalia among its five least peaceful countries.⁴ As this book was being drafted, Mali and the Central African Republic both experienced coups.

Having said that, Africa as a whole has experienced an increase in stability and a substantial decline in the number of major armed conflicts.⁵ As indicated in figure 2–3, conflict has dropped in waves. West Africa’s stabilization began in the early 1990s. In North Africa, that trend began around 2000, though there was a recent spike with the Arab Spring. East Africa has experienced steady stabilization since 2000. Southern Africa began the transition in the early 1980s and it accelerated in the early 2000s.⁶

While these nuances are significant, they should not obscure the fundamental insight that conflict is going down. It’s trend of which it is easy to lose sight in the wake of news. A leading Silicon Valley investor interested in Africa’s emerging technology sector recently sent me a graphic he found in a British newspaper showing all the secessionist movements in Africa and what the map would look like if they all succeeded. The paper did its readers a terrible disservice with that graphic, as it would if it sounded alarms about the secessionist movements in Texas, California, and New York City, all of which have threatened to leave the United States. While some coups succeed, they are few, and getting fewer, as figure 2–4 demonstrates.

Figure 2–3: Regional warfare trends in Africa

Source: The Center for Systemic Peace, Global Conflict Trends. October 2012. By permission.

With a reduction in coups has come government that is perceived by many business leaders to be more responsive and more democratic. That perception requires some nuance, and not everyone would agree. Many see freedom in Africa moving too slowly, and even backward in countries like Nigeria, Ethiopia, and Rwanda, which have experienced consolidation of power in the hands of long-ruling parties and presidents. Progress toward responsive government in Africa has been uneven. However, the direction over time is clear, and its impact on business is clearer still.

Figure 2–4: The declining number of successful coups in Africa

Source: Data from The Economist, Africa’s year of elections: The democracy bug is fitfully catching. Jul 22, 2010.

Today, all countries in Africa, with the exception of Eritrea, hold elections. Elections are where the story of freedom and responsive government starts, not where it ends. The Polity IV Project measures political regime traits to assess the extent of a government’s democratic nature.^*The score represents a spectrum of governing authority from fully institutionalized autocracies (low scores) through mixed authority regimes to fully institutionalized democracies (high scores). Figure 2–5 shows the trend across Africa since 1990.

Freedom is not just measured by sound elections, but a liberal environment before and after elections. The non-governmental organization Freedom House assesses that environment using a broad set of indicators including political rights and civil liberties. Freedom House standards are high, classifying countries such as Turkey and Colombia as “partially free.” Figure 2–6 shows Africa’s performance on the Freedom House index over time.

Figure 2–5: Evolution of African governance

Source: Data from Polity IV, as reported in Ernst & Young, 2012 Attractiveness Survey – Africa. By permission.

Figure 2–6: Ratings of 54 African countries by Freedom House

Source: Freedom House: Freedom in the World, 2012. By permission.

It should be noted that the past several years are not as heartening as the longer-term trend. The same Freedom House measure that shows longer-term progress indicates that the number of sub-Saharan full “electoral democracies” fell from twenty-four in 2005 to nineteen in 2012.⁷ The Ibrahim Index, a benchmark governance measure specifically for Africa, indicates a 5 percent decline in African political participation since 2007.

Acknowledging that democracy is far from being fully evolved in Africa, Phuthuma Nhleko has seen the impact of the existing level of democratization on business. Before joining the BP and Anglo American corporate boards, Phuthuma earned his credibility by building MTN, Africa’s largest mobile operator, with $14 billion in annual revenue and a market capitalization of over $30 billion from operations in more than twenty-one countries in Africa and the Middle East. Across Africa’s markets, he describes more responsive governance and a direct relationship between that responsiveness and success for his business:

From a business perspective, Africa is on a recognizable, discernible evolution from military-style governments, where we experienced frequent coups in some parts of the continent, to some form of democracy no matter how imperfect it may be. Imperfect democracies come with a much higher degree of transparency and accountability than any military junta or dictatorship. That accountability helps to usher in and underpin the entire market economy. We experienced this during MTN’s entrance into Nigeria amongst a number of other countries.

Nigeria is a useful example because it has all the elements of what I’m trying to convey. Before privatization of the telecoms sector in Nigeria, the country had six hundred thousand fixed lines for a population of over 120 million people. You often had to wait several months for your new line to be connected. You had to spend thousands of dollars to get on the waiting list. The elections in Nigeria, even if imperfect, resulted in a civilian government and the commencement of a privatization process. Fast-forward to today, what was once six hundred thousand lines is now over 70 million lines. To say that the Nigerian telecom sector has undergone evolution is an understatement.

The reduction in coups and the transition (albeit uneven) to democracy contribute to broader business confidence in Africa. Polling of business leaders by the global professional services firm PricewaterhouseCoopers shows CEOs in African markets more confident about growth than their global counterparts.⁸

On a more granular level, the African business community’s confidence in governance is seen in the way companies approach long-term planning. In Kenya, for example, every election used to mean a complete rearrangement of the economy. Each new officeholder doled out portions of the economy to his patronage network. Regular reshuffling of the economic deck scrambled business confidence. You could see it in the cyclical shrinkage of the want ads before each election.

Figure 2–7: Confidence in Africa’s growth potential

Source: PricewaterhouseCoopers, The Africa Business Agenda, July 2011. By permission.

Patronage is not gone from Kenya, but its impact is much diminished. Today, the country’s economic development is guided by Vision 2030, a strategy with broad support from business, government, and civil society, articulated in specific projects and actions that are not expected to change with each election. The effect is palpable for men like James Mworia, CEO of Centum Investments, the largest quoted investment company in East Africa listed on the Nairobi Stock Exchange. Compact and athletic, Mworia moves about his Nairobi office with energy, as if he might burst forth from his tailored shirt. He is specific and sharp. “I’ll give you a practical example of the effect 2030 has, ” he said, pulling out documents from both Vision 2030 and the specifications for Two Rivers, a planned mixed-use commercial development being developed by Centum. “Vision 2030 calls for certain key infrastructure projects. The projects they said they would build, they have built. When we wanted to build Two Rivers, we looked at the map of the new infrastructure. Because the plan is now credible, we were able to raise financing. Earlier today, I was having a discussion with one of the hotel operators we want to attract. I was able to show him a presentation from the permanent secretary^* in the Ministry of Roads, on the new road network in Nairobi. First of all, that document exists—people know what the plan is. Then, you can see this is what has happened already, this is what is in progress, this is what is planned for. It enables me to have that conversation in confidence.”

That kind of confidence in government is a revolution. The $150 million committed to date to Two Rivers exemplifies what such confidence can create.

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