African governments have the same need as others to respond to short-term political deadlines. What distinguishes governments in frontier markets is that they place much more value on long-term commitment from companies.

A non-African example can help better understand this point. One of my friends worked in the early 1990s at one of the world’s three largest investment banks. It was expanding into Mexico when the country experienced a financial crisis in 1994 due to a steep devaluation of the peso. The bank abruptly withdrew to reduce its exposure to all Mexican organizations, including the government.

The federal government of Mexico calmly sent the following message to the bank: “We have the liquidity to pay you today, but if we do, we will never work with you again.” The bank took the money. The government, backed by the U.S. Treasury, proved solvent, and the peso quickly recovered. Despite its unparalleled expertise, network, and reputation, the bank still hasn’t regained the position it had in the Mexican market, 19 years and $738 billion in growth later.

Jay Ireland of General Electric, on the other hand, is betting that African governments will reward long-term commitment. “The focus is increasingly on the African market,” he explains. “Governments are used to seeing companies come and go. So, what are we bringing that’s different? If we can appear as a company committed to the long-term development of the country, and explain what we bring with our team to encourage this development, it’s evidence of real commitment. And most importantly, it shows that we’re here for good.”

Thus, General Electric has developed “company-country” discussions in two of its major African markets, Nigeria and Kenya. These discussions focus on the country’s long-term development needs and assume that General Electric will maintain its presence regardless of any contract.

The company reinforces this message of long-term commitment by directing the discussion not only towards its products but also towards training, employment, and local businesses, well beyond just labor. This discussion results in equipment sales and revenue, but not only that. In Nigeria, General Electric also invests in an industrial facility, in developing a supplier network, and in extensive technical training projects.

Olam pursues equivalent long-term strategies in major African markets, with new investments in plantations, processing factories, and brands. Sunny Verghese reflected that he needed to be clear with investors about the inherent compromises in his company’s commitments in Africa and elsewhere:

“When we launched our strategy in 2009, I told institutional investors: ‘Our cash flow will be negative until 2015. Not many of you will want a long-term return on investment, so if your investment horizon is five or six months, don’t invest with us because you’ll be greatly disappointed.'”


This text is an extract from the book “These Businesses that Succeed in Africa” written by Jonathan Berman.

We invite you to read the following article “MORE AND MORE GOOD GOVERNANCE“.

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