Harvard Blog: Obama’s Trip To Africa ‘Worth Every Penny’

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Written by Dana Sanchez

U.S. commercial interests make Africa an important destination for President Barack Obama with a lot at stake, according to Jonathan Berman, an adviser to Fortune 500 companies and investors operating in frontier markets.

Critics of the $60-$100 million estimated price tag of the trip might have a case if Africa only served as a place to spend U.S. aid money, Berman wrote in a blog in Harvard Business Review. But Africa today is a place U.S. companies can find growth, innovation and job opportunities at home, he said. “To the extent the president’s visit advances those goals by even a fraction, the commercial benefits alone well outweigh the cost.”

Why? Africa ranks second behind Asia as the world’s fastest growing region, with Sub-Saharan Africa forecast to grow at a rate of 5.4 percent this year (50 percent faster than Latin America, and way more than Europe, which is expected to contract,) the blog says.

Berman presents a snapshot of business in West, East and South Africa, the regions Obama plans to tour.

In West Africa, the regional dairy and frozen food manufacturer Fan Milk was just acquired by Dubai-based Abraaj capital for more than $300 million. Abraaj knows Africa well, Berman writes, as few others do, and is betting that even that level of capital investment in one company will yield the two-to-three times the return on investment private equity it must generate to attract investors to frontier markets like Africa.

In East Africa, Tanzania (where the President is stopping) and Mozambique (next door) have just had the most important natural gas finds of the new century, Berman says. About $30 billion will be spent developing those gas fields and building facilities. Natural resources are not the whole story of Africa’s growth — they account for about a quarter — but they drive many opportunities that U.S. firms should be capturing, Berman says.

In South Africa, the opportunity is longer term. The country is facing its most wrenching social and political challenges since the end of Apartheid, including slowed growth and social unrest. With the shortcomings of its post-liberation structure showing, South African businesses, government, and labor are forging a new social compact, Berman writes. The U.S. did the same about 12 years after its own independence, not without pain, and repeatedly thereafter. It is a wise investment for our president to show solidarity during this time and make clear that he and U.S. businesses see a bright future ahead in South Africa, Berman says.

What Africa means to U.S. companies, Berman writes, is growth, innovation and jobs.

General Electric CEO Jeff Immelt says he may sell more gas turbines in Africa than in the U.S. over the next three years. Eric Schmidt’s Google reports more click-throughs in Africa than Western Europe. Both traveled to Africa this year, Berman reports in Harvard Business Review.

Multiple U.S. tech companies are discovering and developing technologies in Africa to bring home and across the world, Berman writes. Intel Capital, the global investment arm of Santa Clara-based Intel, searches the world for technologies it can invest in. In the next six months, Intel aims at reaching more than 400 African developers and creating 100 new applications locally that will offer users different experiences across mobile phones and tablets running on Intel architecture.

In 2011, U.S. exports to Africa were $21.1 billion, up 23 percent in one year and up 350 percent since 2000. According to the U.S. Trade Representatives’s office, the top export categories were machinery ($4 billion, up 15 percent over the prior year), vehicles and parts ($3.5 billion, up 42 percent), non-crude oil ($1.8 billion, up 30 percent); cereals ($1.7 billion, up 31 percent); and aircraft and parts ($1.5 billion, up 32 percent). “Do you know someone working in one of those sectors? Are they finding growth like that elsewhere in the world?” Berman asks in the Harvard Business Review blog.

Berman is a senior fellow of Columbia University’s Vale Center and senior adviser at the consulting firm Dalberg.