01 Dec 1998

Africa's Way

by Susan Young and Garry Emmons


Each day the global economy becomes more and more like an African weaving - dozens of different, colorful, and previously isolated threads woven together, gradually becoming more tightly intertwined. Africa, newly rising from years of economic and political turmoil, is eager to make its own vibrant contribution to this emerging tapestry.

Globalization is increasingly tying the fortunes of national economies to one another,"observes South African manufacturing executive Ewald J.H. Wessels (MBA '71), one of the key organizers of the School's 1999 Global Alumni Conference on "Managing Development: The African Renaissance." The conference, to be held in Cape Town in March, will be a two-day intensive seminar on the economics, politics, and investment opportunities of southern Africa. It will also provide a chance to meet and network with African business and government leaders as well as with fellow alumni from around the world.

While sub-Saharan Africa - consisting of the 48 countries south of the Sahara desert -is underdeveloped and faces staggering challenges, experts agree that the region, with its vast natural resources and 600 million inhabitants, has no shortage of potential. In recent years, trends toward economic growth, decreased financial regulation, and broad political change have led to more democratic societies, creating conditions for what some have called an African renaissance.

"The driving force behind the region's growth is South Africa," says HBS professor Richard H.K. Vietor, the faculty chairman of the conference and the author of a 1997 comprehensive case study that looks at the country's recent development policies. Vietor notes that South Africa produces 20 percent of Africa's GNP, an astounding figure considering its population of 41 million represents less than 6 percent of the continent. "South Africa is a regional superpower," echoes HBS associate professor Robert J. Robinson of his native country. "For those who can access it, the country has a First World infrastructure - financial institutions, health care, and transportation, for instance - and it is rich in natural resources."

South Africa is indeed the linchpin of the region, but it also faces unique challenges that many of its neighboring countries do not. During four decades of minority rule under apartheid, the government shaped a protected economy that virtually ignored the well-being of the country's black majority and left the country ill-prepared to compete in today's vigorous global marketplace. Since the dismantling of apartheid in 1991, South African leaders have worked to create a democratic society and revamp the economy, improve education, and create jobs. As the country's first democratically elected president, Nelson Mandela has inspired the nation and emerged as an international hero who has led the country through a peaceful political transition. [Mandela awarded honorary degree from Harvard.]

Mandela and his colleagues have emphasized deficit reduction, privatization, and fiscal conservatism, and the results of their policies are now beginning to bear fruit. Since 1993, for example, GDP has grown steadily, inflation has decreased, exports to the rest of the continent are up, and foreign investment has increased. Although progress is sometimes disappointing and many challenges are still ahead, South Africa is nonetheless seen by investors from all over the globe as one of the world's top emerging markets. As some international corporations - Dow Chemical, for instance - are putting down important roots in South Africa, others such as Hilton Hotels, Coca-Cola, and McDonald's are boosting their presence throughout the sub-Saharan area.

As noted, South Africa's infrastructure is also a source of strength for the region. "ESKOM, the state-owned power company, is one of the best electric companies in the world," says Vietor, adding that South Africa is the continent's primary provider of electricity. In a recent Cape Times article describing ESKOM's importance in the region, the company's chairman Reuel J. Khoza (47th PMD) noted that electricity in South Africa is the cheapest in the world and that ESKOM is able to provide support to neighboring countries.

Where infrastructure is lacking, entrepreneurial opportunities abound. In recent years, for example, the Cambridge, Massachusetts-based firm Adesemi (formerly African Communications Group) has secured $37 million in financing to support wireless communication programs in underdeveloped regions, including sub-Saharan Africa. "We are currently setting up voicemail through wireless public pay phones at over one thousand locations throughout Tanzania and plan to expand the concept to other parts of the developing world," says company CEO Monique Maddy (MBA '93). Maddy, who will be a panelist at the Cape Town conference, plans to bring voicemail to 25 developing countries within the next five years.

Other countries in Africa are making significant strides as well: the small, dynamic, stable economies of Mauritius, Tunisia, and Botswana were recently lauded in the Africa Competitiveness Report compiled by the World Economic Forum and the Harvard Institute for International Development. The leading countries in Africa now have a combined growth rate of over 6 percent, and the continent as a whole is growing just a point below that, compared with an average rate of 4 percent for the world's industrialized countries. The challenges are numerous, but as Nelson Mandela puts it: "There is no obstacle big enough to stop us from bringing about a new African renaissance."

The Role of Alumni Leadership

The African continent is home to some five hundred HBS alumni; more than three hundred reside in South Africa, occupying senior positions in virtually every industry in the country and particularly in banking, mining, and retailing. G.S. ("Andy") Andrews (VIS '79), director of the Graduate Institute of Management and Technology in Johannesburg and longtime president of the HBS Club of South Africa, recalls how during the apartheid era, HBS alumni helped the country's business community to understand the necessity and propriety of reform.

"In the 1970s," says Andrews, "a number of firms, many headed by HBS alumni, set an example for other companies by eliminating racial discrimination and, in certain cases, by deliberately ignoring discriminatory laws." Andrews notes that several HBS alumni - including Peter L. Campbell (77th AMP), Michael R. Hofmeyr (43rd PMD), and Peter G. Wrighton (64th AMP) - were key members of the Consultative Business Movement, formed by the business community in the 1980s to facilitate the transition process. "Those individuals were instrumental in mediation and trust-building efforts among opposing business and political interests," says Andrews. "Without their efforts, the country's peaceful transition to democracy would not have occurred."

For its part, the HBS Club of South Africa, by virtue of its members and its stature, has been an organization whose actions exercise influence throughout the business community. The club often used its Business Statesman Award, a high-profile honor, to recognize individuals playing leading roles in the change process. And, notes Andrews, for nearly twenty years, a club scholarship program has enabled black South Africans to attend Executive Education courses at HBS.

Research for the Future

In recent years, South Africa's positive socioeconomic changes have spurred new HBS research, case writing, and faculty involvement in the country. Richard Vietor explains: "With the advent of democracy in South Africa, and with the country peacefully taking charge of its own affairs and showing its determination to do things right, there is a tremendous opportunity for learning."

For his 1992 book, South Africa: Prospects for Successful Transition, which he coedited, HBS professor Bruce R. Scott spent seven months in the country. Scott, who is teaching material on South Africa in the MBA Program, draws a distinction between the country's transition from apartheid to democratic rule and the transformation of its economic and social systems. "The South Africans have navigated the political transition about as well as any society possibly could have, and better than most observers expected," he notes. "However, much work remains in the struggle to transform the country's economy and its social structure. Its leaders' principal challenge now is to try to boost job opportunities and personal income for all." Scott believes that the corporate sector, with its managerial know-how and resources, "needs to shift its focus from macroeconomics and finance to sustaining and enhancing the capabilities of key organizations, from bureaucracies to schools and firms."

Other faculty members who have recently researched and written about South Africa include Vietor and HBS professor David B. Yoffie. Vietor's case study on GEAR - the Mandela government's Growth, Employment, and Redistribution strategy - covers the major issues the country faces as it attempts to join the global economy and shake off the deep societal trauma of apartheid. In writing the case, Vietor received assistance and encouragement from several South African AMP alumni. "They helped arrange access to key GEAR players during my several weeks in the country," says Vietor, who describes his research experience as exciting, rewarding, and rich with data.

Yoffie's case, taught in both the MBA and AMP programs, details the challenges faced by Woolworths (unrelated to Woolworth, the U.S. company), a major South African retailer poised to test its mettle as an international competitor. "The case is about building a unique competitive position in an industry and how the sustainability of that position is threatened by an evolving business environment," explains Yoffie, who notes that AMP participants also facilitated his in-country research.

Vietor, who spent a week in South Africa last June, returns in December to teach in the Senior Executive Programme. "I hope the upcoming conference will result in more faculty engagement and research in Africa," he says.

Continuing Education in Cape Town

While managing development in sub-Saharan Africa will be the primary focus of the March gathering, the conference has a broad economic and business theory framework. More than a dozen HBS faculty members will lead sessions at the conference, with about forty distinguished panelists. These experts, many of whom wield international influence on topics such as exchange rate policies, controls on capital movements, and the impact of information technology, will look at key issues affecting the global marketplace. As the Bulletin went to press, conference organizers were hopeful that Thabo Mbeki, Mandela's deputy president and designated successor, would give the keynote address. Jeffrey D. Sachs, director of the Harvard Institute for International Development, is a confirmed speaker.

"The conference is the best, easiest, two-day opportunity to get a sense of how sub-Saharan Africa works," says Vietor. Through sessions on mining, infrastructure, the macroeconomy, manufacturing, and strategy, participants will learn how large businesses and the broader economy work in southern Africa. They will also gain insights into entreprenuership and finance, both for foreign and for local investment. Presented in the context of a global economy, lessons learned "will be applicable not only to Africa and the developing world but also to business strategists in general," notes Ewald Wessels.

Wide-ranging sessions will address issues relevant to development in Africa as well as to the broader international economy. Professor André F. Perold, a native of South Africa who chairs the School's Finance unit, will lead a discussion on "Competitive Financial Markets." Perold's session will look at how South Africa's financial institutions, long shielded from outside competition, are quickly adjusting to gain a competitive global advantage. Panelists will highlight problems and opportunities inherent in this metamorphosis.

Associate Professor Debora L. Spar, an expert on foreign trade and investment, will lead two sessions. "Minerals Management in Africa" will look at the rich natural resources found on the continent and how they can be used to ensure long-term growth. Another session - "Industrial Policy" - will examine the importance of trust-based partnerships between government and industry. Participants will discuss programs that the government could employ to help guide industry toward international competitiveness.

A session titled "South Africa's Labor Relations" will be presided over by the School's Robert Robinson. A graduate of the University of Cape Town and an expert in negotiation, Robinson will lead a panel that will address the role that improving labor relations will play in the country's recovery and future growth. "The country has inherited a legacy with especially thorny issues to manage," notes Robinson, who has worked as a consultant to ESKOM.

In addition, Vietor will lead two sessions: one about GEAR and the other on natural resources management. David Yoffie will discuss his case study on Woolworths as well as other issues in a session titled "South African Competitiveness Strategies." Other noteworthy conference participants include Chris F. Liebenberg (100th AMP), chairman of Nedcor, a major South African banking group, and Michael Levett, chairman of Old Mutual, an insurance firm. Nedcor and Old Mutual are both diamond sponsors of the conference.

Finally, an extensive, parallel program will be offered for accompanying persons in Cape Town. With the theme of "Understanding South Africa's Diversity," the program is designed to give insights into the region. Speakers will include Graca Machel, President Mandela's wife, who will discuss "Women in Power."

"The gathering will introduce alumni to the many opportunities for developing their business interests in sub-Saharan Africa and alert them to the critical issues that have to be confronted when doing business in southern Africa," says Wessels, who has worked closely with conference cochair Michael A. Thompson (85th AMP) to iron out every detail and ensure that the event will be both a relaxing and enriching experience for all participants. "It will provide a forum on strategic planning, which is more important now than it ever has been. It is an event that should not be missed."


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