Why Brazilian corporations should invest in Africa
Last month I held a small mentoring session between MIT MBA students and an advisor to a large Brazilian corporation that is going global. One of the questions asked, by an African MBA student, was about why the company was investing in the US market instead of in Africa.
The advisor was speechless for a moment and said that they have never thought about investing in Africa. This generated an internal discussion at the Legatum Center at MIT Sloan on why that was the case.
In this article, I want to share the main reasons why Brazilian multinationals should focus their expansion and investment in some of the 54 countries in the African continent.
- The American market is too competitive
At first glance, The United States might seem more rewarding and friendlier to business but in practice, it is actually orders of magnitude more competitive than the Brazilian market. Competition becomes much more ruthless and building a brand and distribution channels require a long term commitment and resources that only a handful companies might have.
In my assessment, Brazilian companies don't have the scale, technology, products or the financial muscle to be competitive in the American market, long term. There is a false belief in the minds of most Brazilian C-level executives that, if something is successful locally, it will translate well into the American market due to the similar culture and business practices. This couldn't be farthest from the truth.
That is why you don't see Brazilian brands being successful in the USA with the exception of Embraer and, perhaps, Havaianas sandals. Brazilian brands should stop trying to crack the US and focus their resources in markets with similar characteristics, per point number two.
2. Culture
More than half of Brazilians have declared to be either black or of mixed color in 2016. Most of them are direct descendents of African slaves brought to the country by the Portuguese colonizes from 1501 to 1866. Actually, only Nigeria has more Afro-descendents than Brazil.
Although only 4 African countries speak Portuguese, because of the common heritage, both cultures share many similarities in the arts, the kindness of the people, cuisine, (bad) politics and passion for soccer.
Brazil business culture, like Africa’s, is heavily focused on relationships and connections whereas, in most developed countries, business is done in a transactional way and is much closer to a meritocracy.
Also similar to Africa, the largest Brazilian companies are mostly owned by families which were heavily favored or subsidized by local or federal governments at some point in the last 70 years. It is rare to see private entrepreneurs with no relationship with the government to thrive.
This is actually an advantage for Brazilians when doing business in any country in Africa, as businessmen and entrepreneurs have learned how to be empathetic and friendly in order to get stuff done. Also, Brazilians are more resilient to deal with bureaucracy, corruption and general inefficiencies, which make them more adapted to the reality of the majority of African countries. Doing business in these places are more an art than a craft.
3. Infrastructure is ready
Brazil has industrialized and built infrastructure much earlier than the majority of countries in Africa, starting in the 1950s. That is one of the reasons it fares better in most socio-economic and political indicators. It has built powerful industries and companies that could be extremely welcomed in the African continent.
However, the vast majority of Brazilians executives don't see Africa as an immediate business opportunity because they are still stuck to the hunger, violence and war stereotypes of the 1980s. Brazilians love Africa but they continue to patronize the continent development.
What most don't realize yet is how fast some African countries have been developing in the last decade due to better sanitation, better governance, young demographics, the tech revoltution and an influx of Chinese money to build infrastructure, as per the pictures below.
By the end of 2016, there were 731 million mobile subscribers in Africa, and by 2020, the continent is expected to have a billion subscribers. Most of them, even in poor rural areas, will own Android smartphones.
Some countries, like Kenya, developed sophisticated mobile payment systems such as M-Pesa and, with the Chinese influence growing day by day, it is very likely some African countries will leapfrog Brazil in terms of mobile connectivity and payment infrastructure in a decade.
The clock is ticking
China has seen what Brazil hasn't and now is actively helping African countries to develop faster. This new overture from China might be seen as a new form of colonialism but actually most Africans in the ground seem to welcome the Chinese infusion of capital, technology and infrastructure in their countries. The next step will be an invasion of Chinese services, factories and sophisticated products such as payment gateways, apps and bullet trains.
There is still time to revert the Chinese domination of Africa but it seems most executives in Brazil don't really see the opportunities looming in the fastest growing continent. Their prefer to look cool by trying to enter the most competitive market in the world, even though their chances of success are slim to none. Vanity is, pehaps, the greatest enemy of reason.
