African family business – future opportunity in global trade

Full script of talk given on 29.4.2021 by Sabila Din

Trade has always been a key part of Africa’s history. But on a global scale African trade in goods and services amounts to around 3% of global exports. African countries recorded exports of US$462bn and imports of US$569m.  (source: WTO)

Majority of Africa’s trade is raw material at the low end of the value chain – only 16% is finished product.  Africa has the opportunity to compete higher up the trade value chain.

Global trade growth in 2020 slowed down by 5.5% (source: WTO) as a result of both the pandemic and turf wars. However, Geopolitical tensions will remain and multilateral progress has yet to live up to expectations and this will have an impact on Africa’s role.

But the landscape of trade is changing – technology, trade in services, trade policy and infrastructure developments are driving the future.

Family businesses have the opportunity to leverage these changes and compete higher up in the global chain.  They can future proof their businesses transforming digitally and sustainably or alternatively diversify, start and build such businesses.

One of the reasons why family business growth slows down is the business they started was right for the times and perhaps has not pivoted or adapted to the changes taking place.

My talk today therefore covers:

1. Some of the trade agreements and opportunities they offer
2. The change drivers – technology, trade in services, sustainability and infrastructure
3. Opportunities for collaboration in finance

Trade agreement developments include bilateral, plurilateral and regional agreements.

In addition to the regional single market initiative AFCFTA discussed by an earlier speaker, there are also some developments in bilateral agreements.

For example, there is an understanding between the government of Ghana and Singapore for the two countries to work together and explore use of technology in improving their economies for global competitiveness.

The Bank of Ghana has signed a MOU with the Monetary Authority of Singapore to collaborate in promoting Small and Medium-sized Enterprises through use of technologies.  This partnership is expected to assist the seamless integration of each country into the global trade value chain, whilst introducing innovative Fin Tech solutions to improve SME’s access to financial and digital tools.

The BOG and MAS will also collaborate to develop a Financial Trust Corridor to engender trust at promoting trade between businesses and financial institutions in Ghana and Singapore.

Singapore imports a significant amount of food from Australia and given the position SG enjoys in the ASEAN region, African companies can use SG as a springboard for expansion into South East Asia.

Singapore’s BSB platform that creates market and finance access for SMEs across Asia could potentially provide foundations.

In the UK post Brexit, our government is keen to develop and reinvigorate trading relationship with Africa.

The UK government and partners have launched a package of new initiatives, funding commercial deals and partnerships to increase trade and investment links.

The key areas of focus for the UK include: enabling Africa’s clean energy potential, mobilising sustainable finance for Africa including a step change in the work on infrastructure funding and last but not least mobilising gender and youth contribution to economic growth.

There is the opportunity for African countries to agree bi-lateral policy agreements with other countries in South East Asia and Central Asia for example.  But these agreements need to be gender sensitive following for instance the Canadian and Chile FTA.

On the multi-lateral front – Ngozi Okonjo-Iweala the new Director General of WTO has stated her priority is to bring forward momentum to the multilateral trading system.

The WTO focus also includes using trade to support the efforts to deal with the health situation, climate change and smooth the way forward to growth of the digital economy through e-commerce negotiations.

Expectations from Ngozi Okonjo are high and she has made Africa a priority ready to assist in advancing through technical support and policy advice, as well as offering these kinds of support to helping make the AFCFTA a great success. The cotton sector for instance has benefited with the help of WTO developing by products which resulted in increased trade and improved sustainability.

These initiatives at a policy level offer family businesses the opportunity to access new markets and also pivot their business base focussing on the rising stars of the future helping build the next generation trade hubs.

The opportunity for the next generation trading hubs is to build competencies around key drivers of change.

Whilst innovation in policy agreements is key, it’s equally important for countries to strengthen their positions as the next generation trading hubs by building key competencies relevant for the future of trade revolving around some of the drivers mentioned earlier.  Here the private and public sector can combine efforts.

If we look around the world, countries have strengthened their position by leveraging -Finance, services, manufacturing and technology.

Take China as an example – China is shifting its economy from the worlds manufacturing centre to compete with leading finance and technology centres challenging global incumbents in Silicon Valley and the traditional New York- HK – London-Tokyo axis.

A set of Chinese economic hubs are emerging as key finance centres.  Guangzhou, the largest is a key centre for innovation with a focus on fintech, p2p finance and green finance.  Qingdao is positioning itself as the international wealth management centre and Chengdu as a key centre for financing China’s ‘Go West’ strategy.  The Dalian Commodities exchange aims to make NE China a global agricultural commodities hub.  A combination of these initiatives helps shift the economy to a value-add service and knowledge economy.

UAE too shifted its role from trading in raw materials to a largest re-exporting centre.  DMCC for instance is the largest re-exporter of tea and diamonds.  The raw materials come in from Africa and UAE has created an ecosystem of providers to develop finished products thus moving higher up the food chains.  This concept can be replicated in Africa developing more of the finished product.

Mexico and Vietnam are inheriting China’s position as the world’s leading manufacturing centre. Mexico is the near shoring hub for the US and a 2020 survey found that companies in manufacturing, automative and technology sectors plan to move business to Mexico from elsewhere in the next 1-5 years.  Vietnam is also a strong contender for inheriting some of China’s manufacturing business.

Africa too has the opportunity to strengthen its position in trade and develop as the next generation trading hub.  But a country or a cluster of countries have to define where they wish to compete and set the vision for businesses to support.

Family businesses can lead the way innovating and driving public/private partnerships.  To innovate and compete higher up the food chain internationally, means having to think about the key trends shaping the trade landscape and what it means for how to compete and what to offer

Technologies can assist in the digitisation of existing businesses or help businesses develop propositions to sustainably future proof their businesses building the next generation trading hub.

Technology & Digitisation can shape how family businesses compete – reduce costs, improve productivity, transparency and become opportunity centres.

Family business in logistics and supply chains can digitally transform, leveraging AI and blockchain technologies to further increase speed and reduce costs.

Distribution centres, warehouses and port authorities can use AI and robots to improve efficiency, decrease costs and fraud.

Drone delivery, autonomous vehicles can reach rural and remote parts.

Blockchain based solutions can revolutionise cross border trade processing cutting back on red tape – these technologies also help in driving authenticity and transparency which increasingly consumers are demanding.

Ultimately AI, IoT and big data can shift supply chains from being cost centres to opportunity centres by gathering and analysing data, making better use of space and reduce overheads such as power and labour.

Technological developments can also enable family businesses to redefine what they offer. 3D printing can accelerate increasing finished goods for domestic consumption or export

Some of the industries where it’s being implemented include aerospace, automotive, medical/dental devises and consumer products.

Additive manufacturing can be used to create smaller components for assembly at a factory on-site, or spare parts for industrial or consumer use can be printed locally on-demand from an online inventory.

So, a dealer in cars for instance may consider diversifying by building an additive manufacturing plant for components both for domestic use and export.

Once again, technology offers a range of opportunities to shift manufacturing locally and increase share of finished products.  Many pharma companies are looking to manufacture locally.

Market access to a global customer base can be improved through e-commerce platform and payment. Platforms as described earlier can be a combination of private/public sector partnership.

Emerging sectors such as the media and the creative sector offer an untapped potential. Again, from the pandemic we learnt the power of digital safari’s where the viewer could actually see and learn a lot more than if on a physical safari.

In summary, these technologies can assist in the digitisation of existing businesses or help businesses develop propositions to sustainably future proof their businesses building the next generation trading hub.

In addition to solutions that improve efficiency and develop local manufacturing – services, in particular ‘impact sourcing’ is one of the fastest growing area in the trade landscape.

Africa with its large population of educated unemployed and underemployed individuals, can boost its share in trade in services and impact sourcing.

‘Impact sourcing’ involves international companies recruiting individuals from lower-income communities and emerging markets and intentionally providing them with sustainable jobs and professional training that can ultimately lead to a lifetime of full employment. By engaging in impact sourcing in Africa, companies can find dedicated, reliable, and cost-effective labor whilst creating positive impact.  Here family businesses can develop businesses focussed on providing talent and work with partners.

Africa is the world’s fastest-growing continent for software development, and major tech giants such as Microsoft and Google offer programming courses and mentorship programs that will further expand the tech talent pool in Africa.

Tech jobs on the continent are not reserved only for those with advanced programming skills. As IT infrastructure continues to improve across the continent, Africa is becoming an ideal destination for AI-supporting services that require human perception.

Many tech hubs are popping up across the continent from Ethiopia’s Silicon Valley Sheba Valley to Kenya’s Silicon Savannah.

These trends again offer the opportunity for family businesses to innovate and develop propositions to capture a greater share of the impact sourcing market.

With trade growth come increase in urbanisation, industrialisation and connecting rural demand to supply.  This will involve demand for real estate logistics, warehousing, industrial park and affordable parks.  Demand for electricity, waste management and clean water will increase.

Climate change and a green recovery are on top of world leader’s agenda.

Family businesses have the opportunity to lead the way in sustainability and whilst many give back to communities, other considerations include their own carbon footprint and gender mobilisation.

On the one hand Family businesses can embrace sustainable practices and on the other seek to develop new growth opportunities offered by the green recovery. 

Let’s take Agriculture as an example. Currently Agriculture produces 22% of total greenhouse gas emissions, and irrigation claims 70% of all freshwater supplies.

Wastage from food – be it consumers, or lack of last mile distribution – results in 1.3bn tonnes of food wastage. This is equivalent to 87% of emissions from global road emissions.

Those businesses in agriculture have the opportunity to embrace Sustainable farming solutions and develop propositions for businesses that increase efficiency in use of water such as drip irrigation.

They can optimise crop productivity by leveraging satellite imagery, smartphone GPS, big data, and internet of things, sensors for shipment tracking and facility management.

We cannot talk about ESG without addressing Gender which is represented by the ‘S’. The UN puts achieving gender equality at no 5 of it’s 17 SDG’s not just for the sake of individual women but prospects for the global economy. We know that the pandemic has disproportionately impacted women – with the world economic forum forecasting that achieving gender equality will increase from 100 years to 136 years. 

So, to ensure that we build back inclusively, family businesses need to think about improving gender diversity and inclusion across the workforce and on boards.  Getting to 50:50 inclusively is a good benchmark.

Beyond this family businesses also need to reflect diversity amongst stakeholder to include communities and female sme’s.  For instance, in the US, it’s law that 5% of procurement from MNO’ should be awarded to female sme’s – this is a practice that family businesses can embrace as their ESG policies.

In addition to steps that businesses can take to improve sustainability, the green economy also offers opportunity for future businesses.  Capital is chasing renewable energy and sustainable infrastructure solutions.

Renewable energy is the backbone of a Co2 free energy sector and thus a key technology for achieving decarbonisation.

Businesses that offer off-grid solar solutions, produce off shore wind-power using the untapped coastline all solve the green problem.

Affordable housing is a growing area and here to materials can be developed locally that are eco-friendly.

Green hydrogen is the fuel of the future and one of the most important future technologies to reduce greenhouse emissions and costs less than natural gas.    It has the potential to provide clean power for manufacturing transportation and more – its only by product is water.

Again, all these technologies offer the opportunity for family businesses to reduce their footprint but also to develop sustainable infrastructure for the future.

Access to finance is vital to finance trade and some of these initiatives.

On the one hand family businesses need finance on the other hand they can mobilise their capital to increase liquidity pools. 

Cross collaborations between the family business and the institutional sector and within the institutional sector can increase liquidity. 

Philanthropic capital/Family office wealth combined with development finance institute capital can increase capital pools to support infrastructure and sustainable solutions. Likewise, the family office capital can invest in other businesses develop gender development platforms and funds to invest in female led businesses and support them with access to market. 

At an institutional level, Green Bonds can be issued by commercial banks, development finance institutes or governments.  These bonds have typically gravitated towards clean energy, but sustainable farming and gender also offer potential.  It may be that a family business is a cornerstone investor. 

DFIs in partnership with private banks can develop a range of innovative fixed income and equity solutions focused on some of the areas mentioned.  These investment solutions can be offered to their private client base. 

In conclusion, the talk today gives a sense of how  the future of trade is evolving and opportunities offered that enable countries and businesses to compete in the premier league.  Family businesses can lead this development – focussing on finance, manufacturing, trade in service and technology.

For this the businesses need to think about digitisation, sustainability and what role do they want to play in their communities and the world. What’s their purpose and what’s their 2-to-5-yr road map.

Undertaking this strategic planning process offers a good platform to engage the next generation bringing into fold their view of the world and way of thinking.  In turn they can understand how the family businesses have pivoted at various times.

The fusion of knowledge orchestrated with empathy, can provide a foundation for pivoting the family business to take their place on the global stage and survive into future generations.