African Exports and Economic Development

What does it take to develop Africa? To enable it to take its pride of place in the world, and reduce its dependence on foreign aid? Is such a thing possible in our lifetimes or merely a dream?

How does one create the mythical Wakanda? For what is this curse of underdevelopment that bedevils Africa, and how can it be broken?

Why do African governments make implementing solutions so difficult? And why does brute power (and by extension politics) appear to be the bane of Africa? There is a saying that the continent rarely experiences natural disasters. Instead, our leaders are our cataclysms.

Africa Still Rising

In an earlier article, I stated six prescriptions for Africa's resurgence, but a basic precondition was clear - Everything rises and falls on politics.

This is because, in Africa, the main currency of exchange is power, not money. African governments are in a constant state of negotiation with power blocks. And the people (and their votes) are rarely one of those blocks. So, African democracies evolve slowly. The people rarely have leverage and are too poor and hungry to fight for their rights. In many Sub-Saharan nations, literacy levels are such that the people do not even know those rights.

Better political minds than mine have proposed ways to overcome this power imbalance, in order to make the will of the people sovereign. They talk about how a free press can create a Fourth Estate, so the government does not hijack political narratives.

Hence, in this write-up, instead of dwelling on politics, I'd rather turn my attention to Africa's economic growth, which ironically depends on both politics and policy.

Venture Funding and Export

In 2023, about 11% of America's GDP comprised venture-backed businesses. Those businesses are some of the world's most successful brands, with America’s global exports bringing billions in revenue, taxes, and jobs to the US.

In fact, the market values of companies now exceed the GDPs of African nations. While market cap is an estimate of a company’s size and value, GDP reflects the economic health and size of an economy.

Government or Private Sector

You don’t always need private capital to kickstart national brands. South Korea and China have shown us that governments can initiate the process.

In 2020, the South Korean government launched a KRW 4 trillion (about USD 3.3 billion) fund aimed at supporting SMEs and large corporations alike, ensuring liquidity and operational stability across various sectors, including technology and manufacturing.

Also, in 2023, Korea Development Bank agreed to a share swap with Hyundai Heavy Industries (HHI), transferring its controlling stake in Daewoo Shipbuilding & Marine Engineering (DSME) in exchange for about KRW 1.5 trillion (about USD 1.4 billion) worth of new shares from HHI. This deal included an additional commitment from KDB to extend KRW 1 trillion in financing to support DSME.

In recent years, China has heavily subsidized companies in green technology. For instance, BYD, a leading electric vehicle manufacturer, received direct subsidies amounting to EUR 2.1 billion in 2022 alone, facilitating its growth in both domestic and international markets.

The China Development Bank has also been instrumental in financing projects for state-owned enterprises (SOEs). For example, it provided a USD 10 billion credit line to Huawei in 2004, allowing the company to offer competitive pricing and expand its market share significantly.

Companies like Huawei, Sinopec, and China National Petroleum Corporation exemplify how government backing has enabled Chinese firms to expand globally. These enterprises benefit from financial resources and favourable regulations that promote international operations and competitiveness.

What the data suggests is, there is no one way for developing exports. It can be market-driven or government-driven. African governments must take a deliberate approach to financing and supporting export businesses, and the ecosystems that underpin them.

This is particularly pertinent because export businesses provide the much-needed foreign exchange and balance of trade that are required to stabilize local currencies. Brands also house important intellectual property that maximizes a country's global dominance, recognition, and influence.

The Curious Case of Winston Leather

Winston Leather is a Nigerian manufacturer that has highlighted long standing issues with the misattribution of its high-quality leather as "Italian" by luxury fashion brands.

For over 30 years, Winston supplied leather to major fashion houses without receiving proper credit, leading to a perception that Italian leather is superior, when much of it actually originates from Nigeria.

The situation gained global attention when a TikTok user revealed that many luxury goods labelled as Italian are sourced from Nigeria, prompting a push for transparency about the true origins of materials. Despite this push, the Italian leather industry would rather label these products as "genuine leather" instead of acknowledging their Nigerian roots. This controversy underscores the broader challenges African manufacturers face in establishing their brands and gaining recognition globally.

In view of this recent case study, one should ask, “What should the Nigerian Government do by way of funding, tax incentives, export assistance, and global IP advocacy for other companies like Winston Leather?” When a nation finds a potential global brand, it should publicly support it.

Building Local Venture Funding Capacity

In Africa, it seems misplaced to use foreign-sourced and Dollar venture capital to fund local businesses that earn in local currency. This is a mismatch of funding sources.

Instead, Dollar venture funding should be used for export businesses that can earn forex. Then, we must encourage local VC firms and banks to provide the funding that's required for domestic businesses.

In 2022, African startups raised about $6.5 billion in venture capital (VC) funding across 853 deals. However, African-based investors represented only around 23% of the total investor base, meaning that about 77% of funding came from foreign investors.

To build Africa’s global brands, we need long-term domestic capital.

A Case for Venture Debt

African investors may explore long-term venture debt, instead of equity financing alone.

Venture debt is a form of private equity that allows an investor to form an SPV with a business, and to participate in profit sharing. The investor gains view-access to project bank accounts to ensure transparent use of funds. They can also inspect and verify projects.

This form of funding is useful in low-trust societies where contracts are rarely honored by counterparties, and are scarcely adjudicated or enforced on time.

Exits and Liquidity Matter

If you consider the value chain of venture funding, it culminates in IPOs with multiple liquidity events in between.

A question for African policymakers is how to build domestic capital markets with sufficient liquidity to reward those who bring in long-term funding.

There's a reason why Jumia is listed on the New York Stock Exchange, rather than the Nigerian Stock Exchange. First, the initial VC funding was Dollar-based, so the investors’ exits had to be in Dollars. In addition, our Nigerian capital markets do not yet have the liquidity or trading volume to support large exits.

The Manufacturing Path to Prosperity

Currently, African labour is relatively cheap relative to the West. So, should we put that labour to work on Services or Products?

While we need both, there are limitations to African manufacturing.

First, it will take decades to build the infrastructure required to power manufacturing. And with Development Finance's obsession with clean energy, Africa will be hard-pressed to raise cheap financing for gas-powered plants. Meanwhile, some African countries have an abundance of gas like Nigeria. The expectation that Africa will make the immediate leap to clean energy, without first tapping into readily available sources is unrealistic. Africa cannot bear the burden of reducing climate change alone, after western societies have developed with the aid of fossil fuels.

To maintain independence and to fund projects, African countries must build their own sovereign wealth funds and development banks to underwrite big infrastructure projects without needing permission from the west.

Second, we need to build Africa's education and innovation infrastructure, so our IP remains in Africa, and we can compete at the same level of quality and design as global brands.

However, even if we were to improve the educational system of a country like Nigeria, to produce world-class engineers like India or Korea, it will take at least one generation for the first products to emerge from schools. Meantime, competing nations won’t slow down on their innovation, to enable us to catch up.

Deploying a poorly educated workforce to manufacturing is to compete at the production level alone. We will have no competitive advantage in the processing, finishing, and export of higher-value products.

Thirdly, we need to build a culture around honest labour; promoting blue-collar jobs as a route to prosperity. This was what Nigeria tried to do by reviving the concept of vocational schools as an alternative to Universities.

All of these things will take time and Asia is not waiting for Africa to get its act together. We are decades behind.

Finally, if we choose to go the knowledge transfer route by importing foreign labour to upskill us in the short term, policymakers must be very stringent about job quotas, especially at management levels. We also need to scrutinize contracts when countries offer development assistance for infrastructure, lest we mortgage our children’s futures through debt.

For instance, Nigeria has significant infrastructure contracts with China. But while Chinese people learn Hausa (a major language in Northern Nigeria), we do not have a similar policy where our people learn Chinese so we can better promote knowledge and IP transfer.

Nigeria is rich in the mineral resource, Lithium. We must insist that companies who need it for battery manufacturing must build plants in-country, with a clear program for knowledge transfer. Unfortunately, there may be more illegal mining outfits in Nigeria than registered ones. The insecurity and corruption in our borders also means we can’t even assess and measure the scale of the loss.

The Case for Services

Yes, we are decades behind in manufacturing, but we excel in services, especially in the creative sector. As we are slowly ramping up Africa’s industrial capacity, we should fast-track what we already have in the service sector.

Nigeria’s movie and music scenes (Nollywood and Afrobeats) were created with virtually no infrastructure or government support. It's now time to build the necessary frameworks and financial rails to develop a home-grown economy that does not disproportionately rely on foreign exits.

The potential of the creative economy is massive. In 2023, the Nigerian entertainment sector, which includes Nollywood and music, contributed about $1.4 billion to Nigeria's GDP, marking a 27.46% increase from previous years. Nollywood accounted for 39% of Nigeria's total box office revenue in 2024, amounting to $1.9 million out of the 2023 total box office revenue of $5 million. In 2023, Afrobeats reached over 7.1 billion streams on Spotify alone, marking a 550% increase since 2017, when it had around 2 billion streams.

The biggest stars in the world including Beyoncé and Justin Bieber have collaborated with Afrobeats artistes. The movie rights to a Nigerian classic novel, Things Fall Apart, have just been acquired by a UK based production studio.

Africa’s Export Infrastructure Challenges

In this last section of my article, I’ll close by highlighting some of the limitations to building Africa’s export infrastructure, using Nigeria as a case study. I'll also suggest how to solve them. This is because we must fix our export value chain in order to derive full financial value from services or manufacturing.

1. IP Protection: Entrepreneurs need to know that their original scientific or business patents and trademarks will be protected. In view of Nigeria’s limited law enforcement and legal systems; in the short term, those IP assets may still need to reside in other jurisdictions.

In the medium term, Nigeria can set up a special adjudication system for IP matters, especially with regard to priority export products. Doing so creates a clear time frame for resolving IP disputes and is similar to how the Securities & Exchange Commission has a fast-track court for capital market matters.

1. Payments and KYC: It must become easy, seamless even, for entrepreneurs to receive and make global payments from Nigeria. And this includes fixing dependencies such as the postal system.

Local post is an integral way in which global platforms verify identities and addresses. It’s interwoven into standard KYC processes. It’s also the cheapest logistics network.

1. Ports Infrastructure: An average entrepreneur tends to give up on export when they consider the number of agencies they need to interact with to export a single item from Nigeria. And then, there are the prohibitive fees vis-a-vis other African countries.

Key players involved in exports in Nigeria are:

• Nigerian Export Promotion Council (NEPC)
• Nigeria Customs Service (NCS)
• Standards Organisation of Nigeria (SON)
• National Agency for Food and Drug Administration and Control (NAFDAC)
• Federal Ministry of Agriculture and Rural Development (FMARD)
• Shipping Companies and Freight Forwarders

Export costs in Nigeria are notably high due to several factors, including bureaucratic delays and fees associated with the various agencies involved.

Conclusion

In brief, Africa needs to transform from an import and consumption driven economy into an export and value-adding one. This will position the continent as a crucial partner in global trade and help is generate the resources that are required to develop on our own terms.

Thank you for reading.

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