By Rafiq Raji
I present a cultural framework for investing in Sub-Saharan Africa. If you are looking to invest in Africa, it is important to be aware of the cultural characteristics of the various countries and how they affect the likelihood of success. In general, most African countries have collectivist cultures. Still, there are differences. South Africa ranks relatively high for individualism, for instance.
I rely on the 2019 soft power rankings by the Nanyang Centre for Emerging Markets (CEM), Singapore for a quantifiable proxy for culture. Thereafter, I juxtapose this culture proxy with the 2019 World Bank Doing Business rankings to identify countries with cultural characteristics and business environments likely to make investing in them worthwhile endeavours. And for the selected countries, I identify the sectors that are best suited to these characteristics.
The framework differentiates between investments aimed at production, consumption or both. Because even when the production of a good or service may not be ideally suited for some countries, consumption via importation may be viable. So, for instance, high-end goods, which may not be ideally suited for production in many African countries, ex-South Africa, in light of the individualism-innovation nexus, may still do very well if imported, since collectivist face-saving cultures make even those not well-to-do aspire to the consumption of high-end goods.
Based on CEM's 2019 Emerging Market Rankings, I identify the following top two-three countries for each region as ideal investment destinations. Botswana is the only African country in the rankings' second-level "accelerating" emerging market (EM) countries. South Africa and Namibia are the only sub-Saharan African (SSA) countries in the third-level "intermediate" EM countries category, while the remainder Ghana, Senegal, Rwanda, Uganda, and Kenya form part of the penultimate fourth level "early" EM countries category of the rankings.
The CEM 2019 Soft Power Ranking similarly identifies South Africa, Namibia, Ghana, Senegal, Kenya, Rwanda as the top five SSA countries with soft power. I recommend the top two countries in each region based on these indices. They are thus Botswana and South Africa (Southern Africa), Ghana and Senegal (West Africa), and Rwanda and Kenya (East Africa).
These choices correlate with the cultural thesis of my prior "culture and development" article, which put Southern African countries on top. The CEM 2019 Soft Power Ranking similarly identifies South Africa, Namibia, Ghana, Senegal, Kenya, Rwanda as the top five SSA countries with soft power. I recommend the top two countries in each region based on these indices. They are thus Botswana and South Africa (Southern Africa), Ghana and Senegal (West Africa), and Rwanda and Kenya (East Africa).
Thus, my framework relies on these factors - culture, doing business ranking, EM status, and soft power ranking - to recommend sectors in Africa that are likely to be successfully tapped by foreign investors. I rely on the Global Industry Classification Standard (GICS) in this regard. The sectors considered are as follows: energy, materials, industrials, consumer discretionary, consumer staples, healthcare, financials, information technology, communication services, utilities and real estate.
Energy - Oil and Gas Exploration Decisions Are Not Primarily Culture-based
If there is no prospect of finding oil and gas resources in a jurisdiction, it does not matter what cultural variables there are. But in areas where exploration does take place, culture does matter. The pervasive and entrenched corruption in the Nigerian oil and gas industry has cultural underpinnings, for instance. There is also a cultural element to why a robust indigenous value chain around oil and gas exploration has been elusive in Nigeria, the continent's top oil producer. Government-owned refineries, the only ones in any case, are moribund or underperforming. Instead, fuel is largely imported.
Would it be profitable for a foreign investor to invest in a refinery in Nigeria, say? It is highly unlikely without local support. But a local investor like Aliko Dangote, Africa's richest man, who is currently building a refinery in Lagos, Nigeria's commercial capital, is incidentally likely to be successful, however. This is because in addition to his having access to foreign capital, he is also fully enmeshed in the political, social and cultural fabric of Nigerian society. A foreign investor looking to invest in the sector would thus be well-advised to invest through such an influential local investor; if at all.