The Official Site for the Book: In the River They Swim

There are probably more popular debates than the aid versus investment discussion raging in the media, but I can’t think of one at the moment. It has engulfed unlikely outlets from the Huffington Post to Foreign Policy. Both camps fire shots back and forth. The recent focus on this issue highlights the urgency facing developing nations in light of the current global economic crisis. Nowhere is this urgency clearer than Africa.

Recently, one of my clients looked me straight in the eyes and asked: “After oil, how will we survive?” Replacing oil with any other non-processed commodities shows us the predicament that most African nations face. In my experience working in over a dozen African countries from Angola to Rwanda to the Sudan, I have seen that many African nations specifically ignore the product[i] in productivity – at their own peril.

Harvard strategist Michael Porter suggests in his chapter in Culture Matters that a nation’s prosperity is determined by the efficiency with which it mobilizes its human, financial, and natural resources to drive productivity[ii]. However, most African countries have specialized in exporting the same undifferentiated commodities (e.g. iron ore, cocoa, cotton, wheat, etc.). This choice, conscious or not, has kept these nations poor.

The efforts of most African countries to escape their dependency on non-processed or low-value added commodities have been misdirected. Equating value addition to processing is not only simplistic but can also prove futile. Even with massive capital injections, notable attempts at processing have failed because countries ignored markets. Indiscriminate processing of commodities can actually destroy value.

Many African nations continue to export unsophisticated products, but not because they do not want to upgrade their products. Rather, these countries continue to take actions, hold beliefs, and operate in a context that undermines their stated objectives. What is clear is that African nations have not achieved the expected results when it comes to upgrading their product portfolios.

Why has this phenomenon persisted? The traditional way African nations approach their growth strategies is flawed. African leaders must fundamentally rethink their approaches to economic growth. But before Africa can embrace these new ways, African leaders must be ready to question the premises on which they have based their outlook, strategies, and actions to date.

While every African nation has faced unique challenges upgrading their product portfolios, similarities exist across countries. Several predominant barriers have emerged.  Below, I will consider three of these barriers:

1. 1. Failure to envision structural transformation and choose attractive products—this root cause is an omission. Very few countries proactively engage in strategic product selection. Even fewer seek to develop entirely new products. Instead, they focus on their natural or historical heritage, where it is thought comparative advantage lies, and assume that diversification into advanced products will happen spontaneously.

1. 2. Focus on making poverty history as opposed to making prosperity global—most interventions focus on poverty and its victim, the poor. Local entrepreneurs are often cast as “rich.” The poor are perceived to be unable to help themselves and requiring assistance through social programs. Yet, creating great products requires entrepreneurs to leverage skills and knowledge to transform natural resources The paradox lies in that helping entrepreneurs is often the best way to help the poor.

1. 3. Failed collaboration amongst private, public and development partners— Trust is often a scare resource in African nations. Yet, great products require strong collaboration between stakeholders, which is often lacking. Failed collaboration occurs between, across, and within stakeholder groups. For instance, there is frequently tension between competition and cooperation within the private sector.

Instead, African nations must adopt a “product paradigm”. This paradigm refers to a nation’s explicit choice to manage its product portfolio away from commodities towards high value exports. Evidence suggests a strong correlation between the sophistication of Africa’s exports and its prosperity level.

To adopt the product paradigm, African nations must empower their entrepreneurs to trade high value products that meet customer needs, while simultaneously creating prosperity for their citizens. In the global economy, resolving this tension requires a fundamental rethink of a nation’s export product portfolio.  As they consider the aid vs. investment debate, leaders of African nations must avoid losing sight of their product portfolios. Strategically cultivating a base of sophisticated products that respond to the market represent the only survival insurance beyond unprocessed commodities.