The Changing Dynamics of International Business in Africa

I. Adeleye, K. Ibeh, A. Kinoti, L. White, I. Adeleye, K. Ibeh, A. Kinoti, L. White

• Publisher: Palgrave Macmillan
• Year: 2015
• Print ISBN:
  9781349703708
  9781137516527
• eBook ISBN:
  9781137516541
• Topic: Business
• Subtopic: Business Strategy
• Index: Business

The research papers and cases in The Changing Dynamics of International Business in Africa provide multi-disciplinary insights on the opportunities and challenges of doing business in Africa, as well as on the changing competitive dynamics in the region, as Western, BRIC and African multinationals intensify their fight for market dominance.

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The Changing Dynamics of International Business in Africa: Emerging Trends and Key Issues

Ifedapo Adeleye, Lyal White, Kevin Ibeh and Abel Kinoti

Africa is rising. Dubbed “the hopeless continent” by The Economist at the turn of the millennium, it is now widely regarded as “the next growth frontier” for global capitalism. Foreign direct investment (FDI) has tripled, from $15 billion in 2002 to $46 billion in 2012; real income per person has increased by over 30 percent; and the number of countries that are democratic has nearly doubled. According to the Doing Business 2015 report of the World Bank (2014), more than 70 percent of the region’s economies have carried out at least one reform in the last couple of years. The region accounts for 75 of the 230 regulatory reforms carried out worldwide, and also for five of the ten most improved economies in the world in 2013–2014. Acknowledging the progress made, The Economist produced a special report, “A Hopeful Continent: Africa Rising”, in 2013. What a difference a decade makes.

Undoubtedly, Sub-Saharan Africa has benefitted immensely from an FDI surge, as its global FDI stock dramatically increased from $33.5 billion in 2000, to $246.4 billion in 2012; interestingly, but perhaps not surprisingly, this increase was largely driven by China, with a 53 percent annual growth rate (Japan was a distant second with a 29 percent increase, with the European Union having a 16 percent growth rate and the United States, 14 percent; Copley, Maret-Rakotondrazaka and Sy, 2014). The increase in the power and influence of Chinese and other emerging-market multinationals is considerably changing the business landscape in the region, and prompting discussions on the decline of the West in Africa.

But it is not only emerging-market multinationals that are rising in Africa, as many “homegrown” giants are expanding and successfully competing regionally. According to Ernst and Young, intra-African FDI is growing faster than FDI from any other region and has increased over 30 percent since 2007; in a similar vein, in the 2003–2013 period, there were more greenfield investments from African firms (994) than there were from Asian (including Chinese and Indian) firms (959), according to FDI Markets.

The contributions in The Changing Dynamics of International Business in Africa provide multidisciplinary insights on the opportunities and challenges of doing business in Africa, as well as on the changing competitive dynamics in the region – as Western, BRIC and African multinationals intensify their fight for market dominance. This book is the first in the Academy of International Business Sub-Saharan Africa Chapter Book Series, which aims to advance research on MNC behavior and international business (IB) in Africa, as well as the teaching and practice of IB. This volume offers a selection of research papers and teaching cases, most of which were presented at the 2014 inaugural conference of the chapter in Nairobi, Kenya. The contributions deliberately cover a wide range of topical issues and provide insights on the emerging trends, key issues, complexities and challenges of doing business in the African business environment.

The book is organized into three main sections. Part I, which comprises four chapters, focuses on the changing patterns of inward FDI into Africa; the three papers in Part II shed light on the recent marked increase in outward FDI from and intra-regional FDI in Africa. Part III presents six interesting cases on the dynamics of international business in Africa, covering two broad areas: prospects and challenges facing foreign multinationals in the region, and practical issues and challenges relating to the internationalization strategies of African firms.

Part I: Inward FDI to Africa: Emerging Patterns, Challenges and Research Agenda

There is no longer any serious debate about whether or not Africa should engage with the global economy, as public opinion and policy are largely in favor of engagement. The challenge that remains is how best to engage with the global economy, given the risks posed by globalization. For policy makers, the complexities and challenges of managing trade liberalization to achieve export and production diversification, attracting yet regulating FDI flow to generate local employment, and the critical task of managing the exchange rate to aid diversification, remain huge concerns (Aryeetey, Devarajan, Kanbur and Kasekende, 2012).

Making Foreign Direct Investment work for Africa

Whilst inward FDI, as noted earlier, has contributed to Africa’s recent growth, the question remains as to whether attracting FDI is a necessary and sufficient condition for accelerated economic growth and development for developing countries such as those in Sub-Saharan Africa?

One of the key concerns about inward FDI is that it might crowd out domestic investment, and scholars are increasingly paying attention to this issue. In Chapter 2, Onaji-Benson’s study, “An Empirical Analysis of the Effects of FDI on Domestic Investment in Sub-Saharan Africa: Pre- and Post-Global Financial Crises”, investigates the effect of FDI on domestic investment in 34 Sub-Saharan African countries, as well as how variables such as infrastructure and political constraint affect domestic investment. Using the Arellano-Bond estimation of the generalized method of moments (GMM), her study finds that FDI in the period during and after the global meltdown led to a reduction in local and domestic investment in the region.

Another important yet unresolved issue in Sub-Saharan Africa is how to realize the elusive productivity-enhancing benefits of knowledge and technology spillovers from FDI. The inability of many countries to manage the complex interplay of factors needed for local spillovers to emerge has resulted in little or no benefits from foreign investors (Farole and Winkler, 2014). The reality in many African countries has been disappointing, as knowledge spillovers have not taken place, and transfer of knowledge has been hampered by an overreliance on expatriates. The issue of knowledge transfer has come to the fore in several countries, as governments increasingly impose workforce localization mandates and tighten expatriate visa rules. Furthermore, many multinational companies have realized that extensive reliance on expatriates is an expensive and unsustainable way to staff a large operation.

Anibaba’s exploratory case study, “Knowledge Transfer through Expatriation – How Do Subsidiary Employees Count?” (Chapter 3), investigates knowledge transfer, focusing on the knowledge recipients, as opposed to the usual focus on expatriates in the literature. Specifically, the single case study of the Nigerian subsidiary of a Western telecommunications multinational explores how the motivation and ability of subsidiary employees as knowledge recipients impact on the transfer process, as well as the effect of their relationship with the knowledge source and the interaction of these factors on the eventual outcome of knowledge transfer efforts. This focus on knowledge recipients is interesting, given that knowledge recipients are the barometer for measuring whether indeed knowledge has been successfully transferred. The study thereby provides a fresh perspective of the knowledge-transfer process, contributing to research on the microfoundations of knowledge transfer in organizations, and offering an integrative explanation for successful knowledge transfer in the MNC context.

The rise of the rest and the decline of the West in Sub-Saharan Africa

Much has been written about the loss of the preeminence of Western countries and the increasing power and influence of the “rest”, especially the so-called BRIC countries (see Cox, 2012). Nowhere, perhaps, is this more clearly demonstrated than in Africa, where the surge in FDI from BRIC countries has significantly changed the economic and political dynamics. Regardless of the sheer scale and intensity of BRIC multinationals’ operations in Africa, discourse about the decline of the West in Africa appears exaggerated as the West’s strong historical – and continuing – connections with Africa cannot be overestimated.

China, in particular, has received a lot of attention for its engagement with Africa, and rightly so. The country’s FDI stock in Africa has drastically increased from $56 million in 1996, to $15 billion in 2012 (Cisse, 2015). This dramatic surge in FDI is not without controversy, and international business and management scholars have started to critically examine China’s real motives in Africa. Some of the key themes that characterize China’s engagement with African countries include: the unique yet diverse motivations of investors, the challenge of reconciling cross-cultural differences, the impact of low-cost strategies on the management of human resources and the boundary-spanning role of local managers (Kamoche and Siebers, 2014).

Nartey and Mezias, in their study, “Chinese Investment in Africa: Avenues for Academic Scholarship” (Chapter 4), offer insights into the geographic and economic breadth of Chinese FDI on the continent. Their contribution identifies areas in need of research to help better understand and appreciate China-Africa economic relations. These include the role of the Chinese government in facilitating the expansion of the interests of Chinese firms on the continent financially as well as politically. The authors suggest that Chinese firms are able to mitigate political risks (e.g., the risk of nationalization of their interests) by forging strong political ties through such arrangements as the China-Africa Forum. They also note that Chinese investment in Africa has apparently not been hampered by the cultural dissimilarities, first between Africa and China and then amongst African countries, considering the breadth and diversity of their investment destinations across the African continent; this is in contrast to their Western counterparts who have developed economic and political ties largely on the basis of colonial ties. The chapter makes a unique contribution to the China-Africa IB discourse as it outlines possible theoretical and methodological research avenues.

While the focus on BRIC investment in Africa has been on China and (to a lesser extent) India, the magnitude of Brazil’s engagements with Africa has been nothing but phenomenal. Trade flows between Brazil and Africa grew at 14.41 percent annually between 1997 and 2012, far exceeding the growth rate of Brazil’s trade with the rest of the world, 9.92 percent, over the same 15-year period. Brazilian investment in Africa has been encouraged by government efforts and the strengthening of Brazil’s political ties with Africa. Like their Western and BRIC counterparts, one key question that has shadowed Brazil’s increasing engagement with Africa is that the engagement is mainly driven by the extraction of Africa’s natural resources, leaving poverty, human rights abuses and underdevelopment in its wake.

Nonetheless, in “Brazilian Firms in Africa: What Makes Them Different?” (Chapter 5), Freitas and White argue that it is possible to identify some fundamental differences in the way Brazil, or more precisely, Brazilian companies have been operating in Africa, integrating all stakeholders in their investment drive. According to them, Brazilian firms appear to grasp Africa’s development imperative differently and perhaps better than others because of their own country’s recent economic and social developments, hence their commitment to education and human capital development in host countries. The authors suggest that this orientation might be the most evident difference that defines the “Brazilian Way”. They, however, conclude that it is too early to tell whether and how this approach will ensure the sustainability of Brazilian (commercial) interests in the region.

Part II: Outward FDI from and Intra-regional FDI in Africa: Emerging Trends, Prospects and Challenges

While much attention in the international business literature has focused on the rise of FDI from BRIC countries into Africa, the literature on intra-African and outward FDI from the region is scant. This is surprising given the marked increase in the internationalization activities of African firms in the last decade or so (see Ibeh, Wilson and Chizema, 2012). South African firms’ investment in countries such as Mauritius, Mozambique, Swaziland and Zimbabwe, for instance, is over 10 percent of the host country GDP; South African multinationals such as MTN, SABMiller, Standard Bank, Telkom, Dimensions Data, Massmart, Nampak and Shoprite now have a presence in at least a dozen African countries, as do Nigerian firms such as Dangote and UBA; Mali‐based Bank of Africa has operations in 14 countries; and Togo-based Ecobank has established a significant footprint across the region, with operations in 33 countries. Many of these emerging multinationals, particularly the South Africa-based ones, now have operations outside Africa and have become credible global contenders (see Makura, 2012). This phenomenal increase in the internationalization activities of African enterprises provides an interesting opportunity to explore the patterns, strategies, barriers and outcomes of the “Africa‐to‐Africa Internationalization” (Ngwu, Adeleye and Ogbechie, 2015).

Rolfe, Perri and Woodward’s empirical study, “Patterns and Determinants of Intra-African Foreign Direct Investment” (Chapter 6), provides an in-depth look at the patterns and determinants of intra-regional FDI in Africa. Their results show that African multinational enterprises are influenced by different factors in their investment decisions compared to non-African investors, irrespective of market size and weak governance in least developed African countries. African firms appear to have a competitive advantage in entering into these markets and are taking dominant positions in certain sectors. Finally, new investors in emerging powers such as Kenya and Nigeria are positively influenced by shared free-trade area membership, while more experienced South African multinationals have spread their investments throughout the continent.

The rise of African multinationals

Although South African firms account for a significant proportion of Africa’s outward FDI flows (nearly 70 percent of the total outward FDI stock in 2010), it is interesting to see that new multinational enterprises are emerging from an increasing number of African countries. In “Rising Africa and Its Nascent Multinational Corporations” (Chapter 7), Ibeh presents preliminary evidence on the internationalization activities and motivations of emerging multinationals from countries outside of the regional economic powerhouse, South Africa. The exploratory study covers 12 countries – Algeria, Angola, Botswana, Cote d’Ivoire, Egypt, Gabon, Kenya, Mauritius, Morocco, Nigeria, Togo and Uganda – and provides insights on outward FDI source countries and sectors, scale and pace of investment. The multinationals examined in this study represent a wide range of sectors: extractive, construction, manufacturing and financial services, and averaged over 14,000 employees and $4 billion revenue in 2011–2012. These emerging multinationals have cumulatively invested in over 400 country markets or an average of 13 countries each. While most of the international expansion has been Africa to Africa (nearly 70 percent of outward FDI), the rest of the FDI has been further afield to other Southern economies and the advanced markets of Europe and North America. Evidence further suggests a strong prevalence of market-seeking motivations among the firms, expressed not only in their committed push to geographically close and demand-similar African markets, but also their forays to key global markets. Relationship-seeking motives were also observed, notably in the expansion into the latter global markets, with brand building, strategic presence or prestige-seeking motivations further emerging as subthemes.

Internationalization constraints, liabilities and failures of African multinationals

While the burgeoning literature on the internationalization of African firms has focused on “success stories” of emerging regional and global contenders, it is pertinent to also examine unsuccessful attempts (“failure”), exit factors and strategies, as well as internationalization constraints and liabilities. For many African firms, one of the major constraints to international expansion is the scarcity of firm-level resources (Ibeh, Wilson and Chizema, 2012), which explains why firms from Africa’s larg...

Table of contents

• Cover
• Title
• 1 The Changing Dynamics of International Business in Africa: Emerging Trends and Key Issues
• Part I Inward FDI to Africa: Emerging Patterns, Challenges and Research Agenda
• Part II Outward FDI from and Intra-Regional FDI in Africa: Emerging Trends, Prospects and Challenges
• Part III Cases on the Dynamics of International Business in Africa
• Index