Thirty years ago, it was clear that companies wanting to have real staying power in a global marketplace needed to have a presence in China and India. Companies that took the chance to invest in these “emerging” markets have since reaped tremendous rewards, not only with impressive financial returns, but in knowing that their investments created economic opportunity.
Within 20 years of opening its doors to encourage private investment, the proportion of Chinese people living in poverty fell from 53 to 8 percent. India’s economic reforms were once called “the most effective antipoverty programs in history,” credited with pulling more than 400 million people out of poverty.
Today, Africa is the new frontier, ripe for foreign investment.
Africa is booming – in part because African governments are heeding the call to action, removing barriers to trade, lowering taxes and improving the physical and social infrastructure that had impeded business growth. Africa’s collective GDP, at $1.6 trillion in 2008, is roughly equal to that of Brazil or Russia, and the rate of return on foreign investment in Africa now is higher than in any other developing region. Despite all of these changes, and a proven ROI, most American investors are still missing out on a major opportunity for growth that would in turn create jobs and opportunity for millions of Africans.
Cummins has had a presence in Africa for more than 30 years and views the continent as having long-term growth potential for American business. Cummins has seen this potential first hand during several visits to Africa over the past two years, during which the company has devoted significant time to gaining a better understanding of the business and cultural climate in Africa.
Local knowledge has been critical to Cummins new approach for investing in Africa, allowing the company to expand in a way that supports the communities in which it does business. This is the aim of the Initiative for Global Development’s Frontier 100 group, of which we are both members, which connects CEOs like us from the United States and Africa to learn how best to maximize Africa’s potential.
To be sure, Africa is a continent, not a country, and there are hurdles to overcome in certain countries before sustainable business development and poverty reduction can happen. But the tremendous growth in foreign direct investment and track record of robust economic growth is clear evidence that the continent’s leaders are making progress – and shows investors looking for the next emerging market what could be possible.
What made enterprise growth in China and India work then – the only way to make it work in Africa now – is a long term view, and a plan to nurture not only the business, but the communities in which business is being done. A corporation and its employees are only as healthy as the communities in which they operate.
The long-term solution to business growth has often been an emerging market. This time, the emerging markets are in Africa. American businesses should explore this new frontier, or miss out on a chance to do well, and to do good.
Tim M. Solso is Chairman & CEO of Cummins Inc . and serves on the Board of Directors of the Initiative for Global Development (IGD). N. Justin Chinyanta is CEO of Loita Group, an investment banking firm focused on Africa, is a member of the IGD Frontier 100 network, and serves as the Executive Vice President for the Southern Africa Chapter of the Africa Business Roundtable.