Africa – Still the Forgotten Continent?

5/10/19

When we talk about Africa as business leaders and employers, we always talk about continent with huge potential.  It is true that there are countries with high rates of growth, but with the exception of South Africa, that growth is off a pretty low base.  Still the major areas of investment for U.S. and European multinationals are natural resource-based, with the added value work taking place elsewhere, and food and drink companies serving local markets.  That said, China has been making inroads into the country 

I spoke with Auret van Heerden, our advisor on supply chain issues and NGO activity.  Auret runs his own consulting operation—Equiception—and prior to that set up and led the Fair Labor Association for many years.  

Here’s a summary of our conversation: 

Africa’s potential is based largely on population size and growth—it is where all the demographic action will take place for the next century.  Africa’s 1.2 billion population will double by 2050, and 80% of that growth will occur in cities.  By 2100, the three largest cities on earth will be African.  The median age of the African population is 19.5 years of age.  In theory at least, this makes Africa the go-to place for its consumer market and labor availability at competitive costs.

Despite the demographics, Africa is de-industrializing and not adding manufacturing jobs at the rate it should, which is a huge problem for local economies, provides a fertile ground for extremism, and is a major driver of migration.

Statistically speaking, the African labor market is attractive.  The potential employee numbers are there and nominal wage rates are comparatively low.  In Ethiopia at present, base wages for production line workers are $26 per month.  But that is not the whole story.  Labor is cheap in nominal terms but expensive in unit cost terms because of low levels of education and training, productivity and quality issues, high rates of absenteeism and turnover, and frequent power outages.  If companies calculated the total cost, they would find that most African countries are not as cheap to operate in as they seem.

Most of the foreign investment into Africa falls into three broad categories: large infrastructure and extractive projects, manufacturing (international food and drink companies and some apparel), and small enterprises (SMEs).  Infrastructure growth comes through big deals signed with government backing (a perfect example is the China-led Belt and Road Initiative) and the large numbers of SMEs fly below the radar.  While many SMEs are small family businesses in the service sector, McKinsey found over 10,000 Chinese SMEs in Africa that few realized were there.

China is leading the charge on foreign-fueled growth, but both big and small Chinese investors struggle with people management.  This is partly because HR is not well developed in their businesses at home, and partly because Africa is different.

So how is Africa different?  African workers are not responding to the usual labor market dynamics that suggest poor rural dwellers should flock to industrial jobs.  Family, culture, and religion may keep people at home when current economic models suggests they should be out looking for jobs, and the public and private employment services are not matching job seekers with industrial jobs.  When job seekers do make it to the factory gate, they are generally poorly educated, poorly trained, and unprepared for the discipline and intensity of industrial production.  They lack the soft skills of time management and punctuality and have cultural reference points that outsiders don’t readily understand.  For example, the extended family system means that employees frequently have to take time off for births, deaths, and marriages—events that can take a week.  Managers who don’t share those cultural priorities struggle to understand what’s going on and invariably doubt the authenticity of requests for compassionate leave.  Workers, on the other hand, will not hesitate to take unauthorized leave, or simply walk away from their jobs if management refuse to accommodate their requests.

Hours of work is another point of friction.  Weak logistics and unhelpful customs services are common in Africa, resulting in frequent delays of imported materials.  Managers trying to make up lost time will struggle to get workers to work overtime in many African countries, even with the offer of premium overtime rates.  Why?  The reasons range from family to security to culture and religion and may defy economic logic, much to the exasperation of management, especially ex-pats.  

Compensation and benefits can be a real puzzle.  The legal minimum wage may be years out of date and totally inadequate, so that is not a valid reference point.  At the same time, some components of the cost of living index may affect labor more than management.  Housing shortages, for example, often mean that slum lords can charge exorbitant rents for unserviced shacks, which means that workers have to pay relatively more for space, water and power than their managers.  In addition, workers may not have access to efficient supermarkets, buying essentials from more expensive local stalls instead.  This adds a whole new meaning to the concept of a basic needs wage, and often means that non-wage benefits might be more relevant to meeting basic needs.  Any increase in the cash wage will be followed by immediate increases in rent and consumer goods as news of the increase spreads through the local trading community.  For managers, non-salary benefits are extremely important for self image.  For example, employers often offer managers a company car.  The U.S. company tendency to offer salary and allow the person to choose their own level of transport will typically be met by a refusal to spend a large amount of money on a new car and vociferous complaints that they do not have one.

Discrimination and sexual harassment are two particularly complicated issues that require detailed consideration, but suffice it to say that these issues are more widespread than most managers would like to think.  They may be woven into the social fabric and very difficult for outsiders to even perceive, but they are likely to emerge as major points of contention as ethnic tensions increase and social media gives victims new voice.  Overcoming them will take more than just good policy and some mandatory training.  When global companies look at their harassment hot spots in a #MeToo world, Africa often gets overlooked. 

Labor-management relations are further complicated by the fact that the governments in many African states are non-functioning.  Civil servants, including the police and the army, are not paid for months on end, forcing them to engage in rent-seeking behavior, and both employer and worker associations are running on empty.  This may change on the labor side as the Solidarity Centre has recently started to run workshops for affiliates in Africa after a long period of inactivity.  Perhaps they see Africa as the next destination for offshoring and outsourcing and want to get ahead of the curve?  As anyone involved in collective bargaining negotiations will know, the level of discussion is often immature and based on excessive demands backed up by immediate and sometimes violent protest actions.

Worker voice does not operate in the same way in Africa, and it is very specific.  Some countries (such as Kenya and South Africa) are wired and workers will be communicating via messaging apps.  Others are mostly offline and voice flows through traditional channels of which management have no idea.  Chinese and other foreign investors can’t read the cultural cues and invariably turn up the volume when faced with unenthusiastic workers.  That is considered highly offensive.  Worse, it shows a fundamental lack of insight as to why the workers may be behind the curve.  Understanding the informal leadership structure is important in any workplace, and even more so in Africa where traditional and tribal society is more present in daily life and the factors of age, gender, ethnicity, tribe and religion trump any policy of equal employment and non-discrimination.

Outside of the workplace there are a host of human rights issues in Africa that can catch investors out.  Land grabbing is one of them.  The land for investment projects is normally procured by government agencies that may not be aware of the need to ensure free, prior, and informed consent.  They may under compensate the landowners and promise them jobs in return.  The investor is then unknowingly on the hook to provide economic benefits to the dispossessed community, and if those expectations are not met a backlash is inevitable.

Community conflict is often over scarce resources, and foreign investors may be seen as having unfair access to some of those.  Utilities such as power and water may be provided to industrial parks and investment projects while locals live without.  This sets up conflict with local communities who see those resources as a zero-sum game.  Those tensions soon become workplace issues.  Parents discourage their children from working in the industrial park, young men invade the park, and even the workplace, and stop or hijack trucks, etc.  Investors therefore need to have good stakeholder engagement programs based on current stakeholder mapping and risk assessment to inform their engagement strategies.  This goes well beyond CSR and should be considered an integral component of employee relations.

The issues described above make Africa a tough place to work.  That said, some major companies like Guinness, Heineken, SAB Miller, Unilever, IBM, Shell, BP, and others have placed big bets on the continent.  Where China goes today, others will follow tomorrow … and the market and labor opportunities are getting impossible to ignore.