The Nongovernment Economy Is Growing

Centum’s Two Rivers development displays another change underway throughout Africa: the growth of formal economic activity outside of government. According to the African Development Bank’s 2012 African Development Report, from 1996 to 2008, the private sector represented more than 80 percent of total production, two-thirds of total investment, and three-fourths of total credit in Africa. Government is still important to business, but its dominance of production and consumption is going down.

The diffusion of economic activity away from the state has a profound effect on the relationship of businesses with government. James Mworia explains its effect on his business:

If you look prior to 2000, the government was the largest customer. In the absence of a middle class, you only became rich by doing business with government. You had multinationals who were doing okay, and they mostly enjoyed quite sizable monopolies. The breweries, the sugar companies, the consumer goods; those were also quasi-monopolies and to enjoy those, you went through government. Access to capital was very difficult for a lot of people. Outside of the very informal sectors of trade, for you to do any significant business, you needed to interact with government for that as well.

The game changes when you look at the numbers I showed you. In the narrow radius of our retail catchment area, there’s a market spending three billion shillings^* a month. That customer base has nothing to do with government. That mind shift may not have taken place in an older generation of Kenyans, to realize that government is less and less relevant in enterprise, that it’s probably a better opportunity serving the ordinary person. That’s the beauty of an economic democracy.

This evolution of government’s relationship with business carries risk of a backlash. As Magatte Diop mentioned, governments in Africa have often seen themselves in a power dynamic with business where one’s gain is the other’s loss.

Private equity leader Tom Gibian recognizes that historical phenomenon. In his view, it’s being slowly displaced, driven by a profound demonstration effect from other emerging markets. Tom participated in those markets before coming to Africa, and describes trends there that are now emulated in Africa:

A deep, influential driver of growth is simply the example that other emerging markets established, and that has inspired improved governance in Africa. It started with cell phones and has gone on to other allocations of spectrum and licenses as the right for private businesses to participate has expanded. It’s been really important that the government has viewed their role following these privatizations as primarily collecting a royalty, and not a party to the business. Because they watched what happened in India and China and Latin America, they understood there was a powerful incentive for the government not to demand total control and not to intermediate the transaction between the customer and the service provider. Because mobile telephony was initially seen as a toy, a fad, or a rich man’s indulgence, the rationale to intermediate every transaction was removed. Recall that in 2000, the experts were projecting 5 percent or so penetration for most African countries. The stunning success of mobile phones has had a very positive demonstration effect of allowing the private sector to be the engine of growth in at least certain areas.

Perhaps most importantly, it actually stabilized the political structure rather than disrupting it. It is the grinding poverty, pervasive corruption, and the lack of opportunity or hope associated with a ruling group’s insistence on total control that creates true weakness. This idea that the loss of control of any important element of the economy weakens the hold of the ruling party, I think is turned on its head by the examples in Asia, and in Latin America.

Changing expectations, improved systems, and a fundamental realignment of the state’s role in the economy are all shifts that take place slowly and unevenly, and countercurrents to these trends persist throughout the continent. Taken as a whole, however, they widen the path in which good (and clean) governance arises. Today, that path is wide enough in Africa for any company to walk in it.

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