Africa Needs Market-Creating Innovation
Africa’s economic growth over the last 25 years has been accompanied by soaring inequality, which the COVID-19 pandemic threatens to worsen. Developing innovative products for the continent's poorer "nonconsumers" will provide a more predictable, inclusive, and sustainable path to prosperity for hundreds of millions of people.
LOMÉ/BOSTON – Eradicating poverty and boosting prosperity in Africa starts in the boardroom. And it requires African business leaders to use their positions to foster more inclusive economic growth that benefits all stakeholders – customers, employees, suppliers, and communities – rather than focusing on short-term profits that fail to lift up vulnerable communities.
But expanding the economic pie will require the continent’s business leaders to take a fundamentally different approach to innovation and growth. To generate shared prosperity, African corporate boards must focus on building new markets in Africa, for Africans. That means prioritizing market-creating innovations.
As many observers have pointed out, the Nobel laureate economist Milton Friedman’s famous dictum that a firm’s only social purpose is to maximize shareholder value is no longer tenable, given soaring levels of inequality. In Sub-Saharan Africa, for example, more than 230 million people suffer from chronic undernutrition.
But market-creating innovations can begin to improve the precarious situation of these and other vulnerable groups. Such innovations transform complicated and expensive products into simple and affordable ones, making them accessible to many more so-called “nonconsumers” who previously could not afford existing products on the market. If more African businesses develop strategies to serve the continent’s hundreds of millions of nonconsumers, the vision of shared prosperity can be realized.
Creating new markets may seem daunting, if not impossible, because it often requires significant investments to attract customers deemed too poor to consume. But this is precisely how Africa can start to become more prosperous.
A little over 20 years ago, for example, Mo Ibrahim founded the African mobile telecommunications operator Celtel with the aim of making inexpensive mobile phones and communications technology available to the average African. Although many experts predicted that the venture would fail because Africa was too poor and corrupt, Celtel thrived. Today, thanks to the power of Ibrahim’s market-creating innovation, Africa has nearly one billion mobile-phone subscriptions. The continent’s telecommunications sector currently supports about four million jobs, and each year generates billions of dollars in much-needed tax revenues.
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African company boards must now address the many challenges faced by the continent’s nonconsumers. For example, how might most Africans gain access to better health care? Most governments have underfunded health budgets, while non-governmental organizations typically lack the sustainable business models needed to scale up accessibility initiatives. But new markets can solve this problem.
For example, the Ghanaian health-care company mPharma is expanding rapidly across the continent by offering affordable quality medications. The firm has served over one million Africans, created hundreds of jobs, and raised more than $50 million of venture-capital funding to expand its operations. mPharma is following the market-creation playbook, and winning.
At their core, market-creating innovations focus on the needs of the majority. When Singapore’s Tolaram Group sought to create a new market for instant noodles in Nigeria in the late 1980s, its board wisely leveraged existing informal distribution and retail networks in the country and built up local expertise in order to make a product the average consumer could afford. By subsequently manufacturing the noodles in Nigeria, the firm ensured that local skills and context would enable it to meet customers’ demands. Such decisions highlight the role boards can play in creating new growth engines for their organizations and society.
Such engines are urgently needed. The COVID-19 pandemic threatens to worsen the widening inequality that has accompanied Africa’s economic growth over the last 25 years. The coronavirus has disrupted the livelihoods of the 85% of Africa’s informal workers who lack access to social services and are being plunged deeper into poverty. These people are most likely to be nonconsumers of many products and services that would vastly improve their lives. Inclusive growth in Africa will come from targeting innovations at them.
African business leaders thus have a unique opportunity to chart a new growth course for the continent. But embarking on it first requires Africans to appreciate the extraordinary potential for growth within Africa.
To play a critical role in enabling broader-based prosperity, senior African executives must understand that market-creating innovations are the missing piece in the puzzle. One way to encourage such initiatives is for firms to devote a percentage of their profits to developing innovations that target nonconsumption. With the pandemic sure to exacerbate the nonconsumption problem, now is the ideal time to act.
Furthermore, African firms can support governments by establishing public-private partnerships with the aim of democratizing innovation. For example, Wecyclers, a company that collects and processes recyclable waste, and the Nigerian government have formed a partnership to improve waste collection efforts. With median annual per capita expenditure of around $300 per person, African governments need partnerships such as these in order to fulfill their development potential.
To be sustainable, economic growth in Africa can no longer benefit the few without benefiting the many. And development strategies must not be limited to weathering economic storms of the sort brought on by COVID-19. Developing innovative products for African nonconsumers will provide a more predictable, inclusive, and sustainable path to prosperity for hundreds of millions of people. As the coronavirus has reminded us, targeting anything less than prosperity for all will put the entire continent at risk.