CHAPTER 5

BUILD RESILIENCE FOR THE LONG TERM

In the first part of this book, we highlighted the extraordinary growth potential of Africa’s manufacturing sector, which could double in value to nearly $1 trillion by 2025, driven largely by meeting the continent’s own demand. But, as noted, industrialists will need to overcome many barriers if they are to realize that potential—getting access to suitable land and sufficient capital, ensuring sufficient power supply, and complying with local regulations that can often be complex and unpredictable.

Aliko Dangote, arguably Africa’s most successful industrialist, is acutely aware of these barriers—and has built workarounds into his strategy, even as he has watched competitors trip up and go out of business. Dangote started business as a trader of cement, rice, and sugar in 1978. In the 1990s, he spotted an opportunity to substitute some of the products he was importing by manufacturing them himself. “As a trading company, we had the infrastructure, the logistics, the warehouses, the customers,” he told us. “But we were importing the goods we sold; for example, pasta from Italy. So we decided the only way forward for us was industrialization.”

Dangote has since built thriving businesses producing not just pasta but also sugar, salt, flour, plastics, and cement. His cement company has grown to become West Africa’s largest listed company, with sixteen thousand employees and operations in Nigeria and nine other countries—Cameroon, Ghana, Ethiopia, Congo, Senegal, Sierra Leone, South Africa, Tanzania, and Zambia. He hasn’t stopped there: in 2015, his company began building a 650,000-barrel-a-day petroleum refinery near Lagos. In 2016, the company broke ground on a massive fertilizer plant next door, planned to be Africa’s largest. To supply these facilities, Dangote is also constructing an almost seven-hundred-mile gas pipeline from Nigeria’s oil region.

Yet the company’s decision to build manufacturing businesses was taken with full awareness of the risks. Dangote said, “We knew that everyone who had tried industrialization in Nigeria pre-1995 had gone out of business. So we took a deep look at the impediments, and we realized that there were two major problems that were making manufacturers fail. First, there was no reliable electric power. Second, there were major inconsistencies in government policies.” To mitigate these risks, the Dangote Group determined that it would generate its own power and build close relationships with government. “We would just keep making them understand that constant policy change does not work,” Dangote told us.

Because the barriers to business in Africa can be so daunting, even well-established local firms like Dangote have had to work hard to build resilience into their business models. As global multinationals and foreign investors grow their footprint in Africa, they need to do the same. When we examined the tactics of the Dangote Group and other companies that have successfully managed Africa’s risks and uncertainties, we identified four essential practices. If your business is going to be sturdy enough to withstand the sandstorms of the Sahara and the thunderstorms of Southern Africa, it will have to be built on these cornerstones:

1. Take a long-term view and ride out short-term volatility.

2. Diversify by building a balanced portfolio across countries or sectors.

3. Integrate up and down your value chain.

4. Understand local context and claim a place at the table with governments.

CORNERSTONE 1: TAKE A LONG-TERM VIEW—AND RIDE OUT SHORT-TERM VOLATILITY

Aliko Dangote thought long and hard before he took the plunge and invested his money in building factories in Africa. That process of investigation led him to spend several months in Brazil—another big emerging market where industrialists faced tough operating conditions. “I did a lot of research, spent time in factories, and really thought through the challenges,” he told us. “At the time, Brazilian manufacturers were dealing with hyperinflation and massive exchange-rate problems.”

Dangote returned to Nigeria with a clear insight: to succeed as an industrialist, he would need to take a bold, long-term approach: “I realized that if we were going to build industries in Africa, we would have to be the boldest people around. If we weren’t going to be bold, we could just forget it.” Just as important, he recognized that he would need to be ready to fight for his business if necessary. “I didn’t start my manufacturing businesses assuming I’d have zero problems. I’d said, ‘Even if there are problems, I’ll solve them.’” Dangote soon had opportunities to put these lessons into action. For example, he was offered a 30 percent stake in a new sugar-refinery project in Nigeria—only to see his partner pull out when costs began to mount. Dangote not only decided to go forward on his own, he increased the plant’s capacity by another 50 percent.

Dangote has no doubt that foreign-owned businesses can do well in Africa—but only if they are willing to make equally bold commitments and view the continent as a long-term play. “You don’t have to be African to succeed in Africa,” he says. “But if you really want to do business here, you have to think long-term. Africa is not a place where you can come and invest for two or three years, milk the business, and run away. You have to build a business that can succeed in the good times, the okay times, and the bad times.”

His views are echoed by several of the African leaders we spoke to when writing this book. Ngozi Okonjo-Iweala, former minister of finance of Nigeria, said: “The most successful businesses are ones that take the long view. There are real risks, although I think they’re exaggerated. But long-term opportunities are abundant, and the returns are significant. So businesses must come in willing to be in it for the long term—and be willing to take the risk and look at the real fundamentals.”

Ashish J. Thakkar is a British-Ugandan entrepreneur who founded Mara Corporation, which has technology, real estate, and financial services businesses spanning twenty-five African countries. He also cofounded the Atlas Mara financial services group with former Barclays CEO Bob Diamond. Thakkar told us: “I don’t think you should come to our continent unless you have a long-term lens.” Companies that take the long view realize that, even if Africa’s economic volatility can make operating conditions tough, it also presents “phenomenal opportunities.”

Thakkar draws an analogy between Africa today and the United States at the turn of the twentieth century. “Think about how the United States was built by the big investors in the late 1800s and early 1900s. None of them were short term—they stayed and reinvested in their country. We need to look at Africa in a similar fashion and mobilize long-term, scalable, sustainable capital that is going to really stay with us.” That, he said, will be a win-win for businesses and the economies they invest in.

The high-performing companies in our executive survey agree: fully half of them say that a long-term view is one of their most important strategies for managing the economic and political risks of operating in Africa. Average performers are much less likely to adopt this posture. The survey findings also contain a warning that some Western businesses may be taking a short-term approach that will do them no favors in Africa. Just 31 percent of North American respondents, for example, said their companies viewed Africa as a long-term investment. African-based respondents were twice as likely to focus on the long term. The danger for those taking a next-quarter view of Africa is that the bumps along the road might knock them out of the game altogether—leaving the continent’s growth opportunities to others, like Dangote, that have a longer horizon.

Western firms that balk at making a long-term commitment in Africa could also put themselves at a disadvantage against another key competitor: Chinese industrialists. Foreign direct investment from China increased at a breakneck annual growth rate of 40 percent between 2005 and 2015.¹ In a McKinsey survey of over one thousand Chinese-owned companies operating in Africa’s major economies, nearly half of them reported that they had made capital-intensive investments—for example, building factories or purchasing manufacturing equipment. Given that most Chinese firms are relatively new entrants in Africa, that signals a strong long-term commitment.

Our own analysis bears out the importance of taking a long view. Companies that have made long-term investments and shaped strategies with a decades-long outlook have generally outperformed their competitors. That holds true globally: for example, McKinsey research found that US companies that adopted a long-term approach earned revenues 47 percent higher than their short-term-focused peers between 2001 and 2014. They invested more, and more consistently, than other companies; they were more interested in sustainable revenue and earnings growth than in meeting short-term targets; and they created thousands more jobs.² We believe that these practices are even more important in Africa, where a longer-term commitment can enable companies to see past near-term volatility to build robust brands, supply chains, distribution networks, and relationships with governments and other stakeholders.

A short-term approach, on the other hand, can do real damage to your brand and reputation. One global technology firm, for example, pulled out of Nigeria when that country was undergoing a bout of macroeconomic volatility. The problem was, the company left its clients high and dry; for example, a bank that had bought expensive equipment from the tech firm was unable to get it serviced. Years later, the company returned to Nigeria to find its reputation still damaged—its business customers had long memories. In a volatile environment, customers value brands that give them certainty and reliability.

CORNERSTONE 2: DIVERSIFY YOUR AFRICAN PORTFOLIO

To build resilience to the operational challenges of manufacturing in Africa, the Dangote Group deliberately diversified across industries and geographies. “There’s no sector that’s permanently healthy,” Aliko Dangote says. “If today cement is excellent in Nigeria, it might not be in the next five years. So we’re fully diversified across different products, as well as downstream, midstream, and upstream.”

Brewer SABMiller also adopted a strategy of geographic diversification as a deliberate move to build long-term resilience into its billion-dollar African business. “We ended up with a portfolio of medium-sized businesses in forty-four countries,” said Mark Bowman, the company’s former Africa head. “None of our bets was very big. And our portfolio would self-compensate. So if something went wrong in Angola with the currency, for example, it would be offset by an overperformance in Nigeria and Tanzania. The overall construction of the portfolio was a very smart tool in ensuring that our business in Africa did well. There were too many variables to get everything working perfectly every time. We knew that on balance, though, the portfolio would perform.”

If you are a large business in Africa, like Dangote, it also makes sense to add non-African countries to your portfolio: the company’s diversification across multiple African countries could soon be followed by diversification into other regions. Dangote has announced plans to invest $20 billion–$50 billion in the United States and Europe between 2020 and 2025, in industries including renewable energy and petrochemicals.

Again, the findings of our executive survey support such diversification strategies. Nearly half of high-performing companies in the survey reported that they were diversified across countries, sectors or both. Only around a third of lower-performing companies reported the same.

To delve deeper into the benefits of diversification, we analyzed several consumer goods companies in Africa. Our aim was to understand how the volatility of their profits over a five-year period correlated with the number of countries they operate in. The findings were unequivocal: the returns of companies operating in only one country were more than twice as volatile as those of firms exposed to multiple markets. We conducted the same exercise for banks, and found that those with branches in two to five countries experienced much lower volatility in their 2012–2015 profits than those operating in a single country.

However, there are also risks in expanding into too many countries too fast. Our analysis found that banks operating in six or more African countries actually experienced greater volatility in profits than their midsized peers. Indeed, several firms operating in the financial services sector told us they were being cautious about expanding their geographic portfolios too fast, to avoid taking on too much complexity. M-Kopa, the Kenya-based solar power and financing startup, has already expanded into Ghana, Tanzania, and Uganda—but its CEO, Jesse Moore, told us the company was being careful in expanding further. “We’ll be in a dozen countries in due course,” he said, “but I really believe some startups are expanding across borders too quickly. When you enter a new market, perhaps particularly so in Africa, you take on a lot of complexity and must navigate different legal frameworks, tax laws, and cultures.” For M-Kopa, like Paga (see chapter 4), the focus is on growing the number of customers it serves—not the number of countries it operates in. “We’re only at 10 percent penetration in Kenya,” said Moore. “We have much more growth ahead of us in the markets we’re already in.”

Our executive survey confirms the importance of constructing your geographic portfolio to achieve the twin goals of increasing diversification and limiting complexity. Around a third of all respondents said that operating only in African markets they know well was a key strategy for avoiding undue complexity and managing political and economic risk. African-based companies were even more likely to adopt this approach. International firms can take a leaf out of their book: don’t underestimate the risks involved in entering a new market, and plan your geographic expansion step by step.

One tool designed to help investors balance their portfolios is McKinsey’s African Stability Index, which we designed to support businesses and investors to balance their portfolios—and help policymakers to understand and then address their country’s vulnerabilities. The index measures three stability factors that have equal weighting. The first is the country’s macroeconomic stability, which reflects its gross debt-to-GDP ratio and its external balances measured by reserves in months of imports. The second is its economic diversification measured by resources as a share of exports. The third is social and political stability, which includes unemployment levels, the Ibrahim Index of African Governance, and the number of incidents of violence as measured by the Uppsala Conflict Data Program. Each country’s stability ranking is then plotted against its compound annual GDP growth rate between 2012 and 2017 (figure 5-1).³ We regularly update the analysis and have observed significant shifts in the positions of some countries since we first published the African Stability Index in 2016.

Three distinct groups of countries emerge from this analysis, each accounting for around a third of Africa’s GDP:

• STABLE GROWERS: The many countries in this group include Côte d’Ivoire, Ethiopia, Kenya, Morocco, Rwanda, Senegal, and Tanzania. These economies are relatively less dependent on resources for growth and are progressing with economic reforms and increasing their competitiveness.

• VULNERABLE GROWERS: These countries each have at least one of three types of vulnerability. Some, such as Angola, Nigeria, and Zambia, are heavily dependent on resource exports. For example, the 2014 fall in the oil price prompted a major growth slowdown in Angola and Nigeria from which they are only now recovering. Other countries, such as the DRC, face security or governance challenges. Finally, countries such as Mozambique are vulnerable to macroeconomic difficulties. For investors, vulnerable growers still offer promising growth potential, but they also pose risks that need to be properly assessed and understood.

• SLOW GROWERS: This group includes Libya and Tunisia, countries affected by the Arab Spring (although Egypt’s economic recovery has lifted it out of the slow-grower group). Perhaps surprisingly to non-African investors, this group also includes Africa’s second-largest economy, South Africa. Given that country’s scale, investors will need to assess growth opportunities at the sector level or use their activities in this slow grower as a base from which to expand into other parts of the region.

As this analysis suggests, your Africa strategy should be built on a close understanding of the distinct risk profiles and growth trajectories of the continent’s fifty-four economies. A one-size-fits-all approach is no more likely to succeed in Africa than it is in Asia or Europe. As Tidjane Thiam, CEO of Credit Suisse, says: “In any continent, different countries present different risks.” In Thiam’s view, many global investors miss that point and regard Africa as an exotic place where volatility and instability are constant and systemic. “I often wish people were more rational about Africa,” he told us. “Its diversity and its challenges have much in common with other emerging markets. Africa is not a special continent on another planet.”

CORNERSTONE 3: INTEGRATE UP AND DOWN YOUR VALUE CHAIN

In addition to diversifying across sectors and countries, the Dangote Group has also diversified up and down the supply chain, and in the process has built a highly integrated business that is resilient to shocks in its supply chain. The company’s push for backward integration involves producing its own raw materials on a massive scale: in 2017 the group announced that it would invest $4.6 billion over the next three years in sugar, rice, and dairy production alone. That will eliminate the company’s reliance on imported materials and the foreign exchange headaches that come with it. Aliko Dangote’s vision extends beyond his own company, though: his aim is to help make Nigeria self-sufficient in food production. “When you look at it—not just in Nigeria but in the rest of Africa—the majority of countries here depend on imported food,” he says. “Nigeria alone imports 4.8 million tons of wheat a year. We have land, we have water, we have the climate. We shouldn’t be a massive importer of food.”

Our executive survey suggests that high-performing companies in Africa are twice as likely as other firms to integrate their supply chains. Among the fast-growing, highly profitable companies in our sample, 31 percent said they had vertically integrated their supply chains to ensure reliable access to inputs. Only 16 percent of lower-performing companies had done the same (figure 5-2). That suggests that building a robust ecosystem of partners, as discussed in chapter 3, is a necessary step to succeed in Africa, but not the whole answer. Companies should also be ready to integrate what would usually be outsourced; otherwise, insufficiently developed supply chains or incomplete distribution networks could hamper your growth.

One such vertically integrated business is Zambeef, the Zambian meat supplier featured in chapter 2. It owns every step of the supply chain, from pasture to supermarket meat counter. Another is Tanzania-based MeTL, a conglomerate making everything from bicycles to soft drinks to textiles. MeTL operates across the agricultural value chain; it has sisal farms, tea estates, and cashew farms and a warehousing and distribution operation. The company’s vertical integration is most visible in its textile business, which starts with cotton farms and continues through manufacturing finished garments. In effect, MeTL has become its own supplier of everything from raw inputs to power and water. It has also expanded into financial services, real estate, energy, and petroleum and has announced goals of reaching $5 billion in revenues by 2020, mostly by expanding into Mozambique, Malawi, Uganda, Burundi, Zambia, and Rwanda.⁴ (As we discuss below, MeTL’s growth has also been underpinned by its close understanding of the local regulatory context and its ability to turn that into a strategic advantage.)

Shoprite, the South Africa–based supermarket chain that now operates more than two thousand stores across the continent, solved distribution challenges by adapting its own centralized distribution model, making it better able to work with both small farmers and international suppliers. By operating its own warehouses, Shoprite stocks up on supplies when prices dip and also keeps enough on hand to avoid stockouts when a disruption occurs upstream in its supply chain. It also makes it easier for its suppliers to deliver their goods, since they don’t have to go to each store. Shoprite operates its own fleet for store deliveries, employing sophisticated route-planning technology for maximum efficiency.⁵

As we have noted, many of Africa’s successful businesses supply their own electric power and water. Dangote has gone further, partnering with Black Rhino, a subsidiary of the US-based asset manager Blackstone, to develop power-generation projects to feed into Nigeria’s grid.⁶ Tolaram, the maker of Indomie noodles, has not only developed its own infrastructure but also taken the lead in creating a $1.6 billion public–private partnership to build a new deepwater port near Lagos. SABMiller, too, built its own power grids, waste-treatment plants, and roads. Mark Bowman, the company’s former Africa head, says that while that investment pushed up the cost of production, it also created a higher barrier to competitors.

CORNERSTONE 4: UNDERSTAND LOCAL CONTEXT AND CLAIM A PLACE AT THE TABLE WITH GOVERNMENTS

In chapter 1, we celebrated the progress that African governments have made in recent years to improve the ease of doing business in their countries. But there is still a long way to go. Africa’s patchwork of regulatory regimes and the gaps that remain in government effectiveness in many parts of the continent present a real challenge to business. As Donald Kaberuka, former president of the African Development Bank, remarked: “Africa’s regulatory environment has improved greatly since the 1970s and 1980s, but it is still one of the big risks which every businessman faces.”

Companies investing in Africa can’t wait until “all the conditions are right for them to do business,” in Kaberuka’s words. Rather, they need to invest time and effort in understanding the policy and regulatory environment in each country they operate in, building relationships with governments and making sure their voice is heard. The price of failure can be high. Even MTN, Africa’s largest mobile phone group, has tripped up: in 2016 it had to pay a $1.7 billion fine in Nigeria after failing to disconnect unregistered SIM cards, as required by that country’s regulations. The fine wiped a third off MTN’s earnings and caused it to post its first-ever annual loss.

STAYING AHEAD OF AFRICA’S SHIFTING REGULATIONS

Mitchell Elegbe, CEO of Nigeria-based digital-payments company Interswitch, says, “The regulator—not competition—is what keeps me awake at night.” He adds: “Regulation, if not properly crafted, can undermine the long-term growth and survival of your business.”⁷ In fifteen years of successful business in Nigeria, Elegbe has learned some valuable lessons on how to stay ahead of shifting regulation in the financial services and technology sectors. He told us, “You have to find a systematic way of dealing with regulators—although I’d be telling you a lie if I told you I had it all figured out.” He explained his tactics: “In Nigeria, I try to have regular quarterly meetings with the regulators to share our view of the payments industry and where we should be going with it in the country. We also try to be as involved as possible in everything the regulators are doing. If they’re speaking at a conference, we go and listen. It all takes a long time, but if you get it right it pays off.”

How can international companies build the kind of local knowledge such African firms have developed over decades? Our executive survey provides a clue: high-performing companies are twice as likely as lower performers to have local shareholders or board members who help them understand the local context. They are also twice as likely to invest actively in the local communities where they operate, thus improving their chances of being recognized as a good corporate citizen—and so securing a place at the table with government.

Some executives have turned their ability to navigate the intricacies of regulation and government policy into strategic advantage. When Mohammed Dewji joined MeTL, the family business in Tanzania, it was a $30 million trading firm. Since then, it has grown into a $1.5 billion company and the country’s largest private-sector employer, with twenty-eight thousand employees. Like so many other small enterprises throughout Africa, MeTL started off by importing finished goods from other markets and selling them locally at a markup. Then, in 1999, in a bid to spur local manufacturing, the Tanzanian government imposed a new set of import taxes ranging from zero percent on raw materials to 10 percent on semiprocessed materials and 25 percent on finished goods—precisely the kinds of goods MeTL traded in.

For many trading companies, this would have been a tremendous setback. Dewji saw it a different way. “It was a huge opportunity,” he says. “At that time, everything was imported in this country. And then the government came up with policies that encouraged investment in value addition and job creation.”⁸ Rather than just pay the new taxes and settle for lower profit margins, Dewji shifted the mix of imports to commodities. And instead of trading these inputs to someone else to use as building blocks for more valuable products, he took MeTL in a whole new direction, building factories to produce his own products. Instead of importing cooking oil, for example, he imported crude palm oil and had MeTL refine its own branded cooking oil. Instead of importing soap, he imported the raw ingredients, and built a factory to make his own.⁹

Similarly, when the Tanzanian government sought to create jobs in the textile industry, it gave preferential tax treatment to local producers while imposing import tariffs of 25 percent on finished goods, along with a value-added tax of 17 percent. MeTL seized the chance to move into textile manufacturing and is now sub-Saharan Africa’s largest player operating across the entire value chain. The company has operations in ginning, spinning, weaving, printing, dying, knitting, garmenting, and retailing. The bulk of the goods it produces are for domestic consumption. Says Dewji: “This positions MeTL as the market leader in the textile industry. They (the Chinese) cannot compete with me in my market.”¹⁰

BE A TRUE CORPORATE CITIZEN

Ngozi Okonjo-Iweala told us that she sees community investment as a critical success factor for businesses in Africa. “You need to build trust with whichever community you’re in,” she said. That starts with being aware of your surroundings, identifying the community’s true needs, and thinking big about how to solve them. Said Okonjo-Iweala, “If the community lacks transport and there’s a way you can help build a railroad where you are, why not? Because in the end, the community will surround you, protect you, and love you.” That, she said, will also help companies build trust with governments.

Just as important, successful global firms have leadership teams that are visibly local and closely connected to the government leaders and business communities in the countries they operate in. As we discuss in chapter 6, that makes the development of local managers and leaders a key priority for business. Expatriates, too, need to make a real effort to integrate into their local communities.

Mark Bowman of SABMiller says it is essential that host countries view your company as a good corporate citizen and a constructive partner to government: “You have to spend more time than you would in other markets explaining the jobs you’re creating, your contribution to the tax base, and the steps you are taking to empower locals. In Africa, you shouldn’t be seen as someone who’s just coming in to assemble your widgets, stretch your profit, and disappear. There are lots of ways you can fail, and that might be one of them.” Because duties on beer make up a large proportion of government revenues in many African countries, SABMiller positioned itself as a “co-collector of tax.” That gave it a place at the table with senior government leaders and a voice on critical business issues.

GE’s company-to-country agreements with the governments of Kenya and Nigeria, discussed in chapter 2, have also given it a place at the table in national discussions on key topics such as infrastructure development. The government leaders we spoke to while writing this book appreciate such approaches. “It’s helpful when businesses are honest with government about what’s working and what’s not,” Ngozi Okonjo-Iweala commented. Her advice: if your company is coming up against obstacles to growth, communicate plainly—via your industry association if need be. “Come to government as a group and say, ‘Look, we are creating jobs, but you need to give us the space to work effectively.’” Those discussions are not always gentle: successful companies sometimes need to show “tough love” in their relationships with governments. Aliko Dangote provides a vivid example. After his company bought the Benue cement plant from Nigeria’s government in 2002, the government tried to go back on the deal. Dangote stuck it out: “I refused. If I’d allowed somebody else to buy Benue, they would have used it to kill me in the market.” After forty-two months of delay, the government finally transferred the plant to Dangote Cement. Later, he sought to break into the cement market in Cameroon, where a government minister was the chairman of his main competitor. The government stopped construction of the Dangote cement plant, in the port of Douala, on the grounds that the land had religious significance for the local community. “They said they used the land to talk to their gods in the water,” said Dangote. Again, he did not back down, and succeeded in building a $150 million plant with annual capacity of 1.5 million tons. Years later, when Dangote met Cameroon’s president, Paul Biya, at an event in Washington, DC, Biya told him: “I’ve never seen a fighter like you.” Yet Dangote had won the president’s respect.

Our focus on the business-government relationship would not be complete without a frank discussion about corruption. The Ibrahim Index shows that while most indicators of good governance have improved over the past decade, corruption measures have deteriorated.¹¹ Almost half of Africa’s countries posted their worst-ever score in this category over the past three years. The consequences go beyond simply the cost of paying a bribe: the direct costs of corruption in Africa are widely estimated at $150 billion per year. To put that in perspective, the cost of providing electricity to all who need it in Africa is estimated at $55 billion per year. Speaking at an anti-corruption meeting in 2015, Akinwumi Adesina, president of the African Development Bank, drew a direct connection between those two facts: “The cost of corruption is massive; it turns the whole continent into darkness.”¹²

Our executive survey confirms the seriousness of the problem: one in two respondents cited corruption as a major barrier to business in Africa. Other studies underline how widespread corruption is. In a survey by Afrobarometer, for example, one-third of respondents from thirty-five African countries reported paying a bribe in the previous year to obtain a government service or to pay off the police.¹³ Transparency International estimates that 75 million people in Africa have paid a bribe in the past year.¹⁴

How can companies avoid getting entangled in corruption and play their part in reducing the prevalence of this scourge? Our own approach, and our advice to clients, has been to stick to your values no matter what. For example, when we first set up the McKinsey office in Nigeria, we experienced long delays in securing work permits for expatriate staff. A government official approached us, saying: “If you need to accelerate the process, I can help you.” It was a clear solicitation of a bribe. Our response was: “Absolutely not.” After that, the permits came through very easily. The would-be bribe takers had evidently come to the conclusion that we would never pay; instead, they decided to focus their time and effort on other companies.

In 2016–2017, we faced a much more painful test of our values—this time in South Africa. The country was rocked by allegations of corruption in government and state-owned enterprises such as Eskom, the national electricity utility. We had served Eskom for years—including helping to end a period of power outages in 2014–2016. We did briefly explore a partnership with a local firm, which we later found to be owned by a questionable character. Though we terminated those discussions, we learned hard lessons from this experience, including the critical need to have the deepest possible understanding of the context of any potential engagement, as well as of the actors involved.

The policy and regulatory playing field in Africa is far from perfect, and there is much that governments need to do to improve the operating environment for business. Yet companies have more room than is often assumed to help improve that environment—and they also have a responsibility to do so. The African Development Bank’s Adesina likens the private and public sector to the two wings of a bird: “I’ve never seen a bird that flies with only one wing. You need both the public sector and the private sector. They are complementary agents of transformation.” Although governments have a responsibility to enable business growth—including through providing adequate infrastructure, simplifying regulations, and building a robust legal framework—companies must step up too. Adesina advocates a stronger role for chambers of commerce and other business associations in engaging with governments, communicating businesses’ needs, and collaborating to help solve national challenges.

When we interviewed Deepak Singhal, CEO of Tolaram’s Dufil Prima Foods, he told us that it takes a “lionheart” to succeed in Africa. Singhal was referring to the courage of the lion, and that is indeed needed, but we would add wisdom, fortitude, and a sense of belonging to a larger community. We’ve been able to observe many of the most successful businesses on the continent. The one thing they all share is a sober view of Africa’s challenges and a mindset that allows them to work around them—and see the business opportunities buried in them.