Singapore Must Embrace Asia Africa Growth Corridor

It has been almost a year since the joint declaration by Prime Minister Narendra Modi of India and Prime Minister Shinzo Abe of Japan of the Asia Africa Growth Corridor (AAGC) initiative.  The AAGC is still only a concept and the vision statement underpinning the initiative advises that it will evolve in time as various stakeholders in Asia and Africa are consulted.  But does that mean that Singapore businesses should wait to be consulted on opportunities in Africa?  Clearly not, unless they want to be left behind.

The AAGC will be based on the four pillars of:

1.    Development and Cooperation Projects

2.    Quality Infrastructure and Institutional Connectivity

3.    Enhancing Capacities and Skills

4.    People-to-People partnership, with this pillar being unique amongst the others.

In each of these categories Singapore could be a significant contributing player and a substantial benefactor from two-way trade between the city state and African countries.

Areas where Singapore enjoys a global competitive advantage include health and medical, logistics and transport management and infrastructure development; air and sea transport, manufacturing, electronics, banking and finance, commodity trading and education.  Yet during my travels in parts of Africa, I have struggled to find a solitary footprint of Singapore’s presence on the continent.  And question is why is that the case?

Research by Malkara Consulting Singapore has revealed a reluctance by Singapore business to invest in Africa, or even consider undertaking an investment mission to any part of the continent.  Common grounds expressed by Singapore businesses surveyed include high levels of corruption, poor governance and the weak rule of law.  And while many countries in Africa have some if not all those issues to tackle, it would be wrong to conclude that they are all the same or that they are insurmountable.  And it would be equally incorrect to assume that investment opportunities in some industries cannot be found.

The performance of African countries varies significantly.  They can range from low corruption and well governed small Botswana located in Southern Africa to Nigeria, the largest economy in Africa, which has governance issues at a Federal and State level and weak infrastructure.  Both countries despite the variance in governance and economic size offer investment opportunities.  Botswana is land locked and is positioning itself as a southern transport and logistics hub.  While Nigeria derives substantial wealth from international trade and has a requirement for new and improved ports. Both have a legal system similar to Singapore, which is grounded on English common law.  Botswana’s story is almost the same as Singapore’s.  It has had a stable democratically elected government since becoming independent in 1966.  At that time, the country had only one sealed road and was not expected to survive economically.  But its leaders and people proved the critics wrong.  Now it is thriving with evidence of sound economic management being found in the new CBD and nearby major shopping centres. Both Nigeria and Botswana would benefit from greater engagement with Singapore and the island state would benefit from trade with them.

African countries have a growing middle class, low by Asian standards, and a very young tech savvy population.  While some international companies have not performed well in Africa, this has primarily been due to an overestimation of the size and spending habits of the consumer class and a poor understanding of local markets.    Poor results obtained by some international companies in boutique market segments should not deter investors in others.  

There is money in Africa.  African pension funds alone have over $700 billion invested in Western banks, while African central governments have invested over $600 billion in foreign reserves offshore.  To tap those markets, Singapore banks, insurance firms and investment and advisory companies need a presence on the continent. And the physical evidence of wealth is not hard to find either.  Earlier this year, I was driving from Francistown to Gaborone, the Capital of Botswana.  On the way, I was overtaken by one hundred plus white colour top of the range Mercedes, Audi’s and BMWs.

Large Singapore companies with an international focus, that are competing in saturated markets with reducing margins, perhaps should consider newer markets in emerging economies. Land travel within Africa is difficult and in places dangerous and consequently most people and freight move by air.  Singapore Airlines and its low-cost airline Scoot should explore the development of a hub in Africa that mirror its successful operations in Singapore.

But it is in shipping, transport and logistics where Singapore enjoys a significant advantage. Other foreign competitors are considering developing ports on the East coast of Africa.  Unless Singapore port operators move quickly they could be locked out.  Nigeria like many African countries needs new ports not just to move oil, but also general cargo. Singapore technology, management skill and development expertise would give it a competitive edge over other countries seeking to invest in Nigeria and other emerging markets such as Kenya and Ghana. While Nigeria has the largest economy in Africa now, it has not yet even started to reach its potential.  There is significant room for growth.  And Singapore companies would be unwise to ignore it.

But the AAGC initiative is not just available for large international companies.  Malkara Consulting encourages small to medium companies to consider exploring opportunities in Africa.  Young Singapore entrepreneurs building a new start up could test and hone their business skills by being in Africa.  Whether successful or not, young business people learn and develop more quickly operating in challenging multi-cultural markets that are different to where they were schooled and trained.

Business risk in Africa is higher than in Singapore but risks can be mitigated.  Malkara Consulting advises clients to start small and undertake appropriate due diligence.  In other words, do your homework.  But doing nothing is not a business strategy.  If Singapore businesses want to be part of the AAGC initiative then they need to start planning now.  And that starts with finding appropriate local and international partners who can assist in the business transition to the growing opportunities that await them on the African continent.

More information 

  • 2017 Japan commited USD$200 billion to the proposed growth corridor
  • 2017 Africa Economic Outlook, China consumed 27% of Africa total global export USD$327.7 billion
  • 2016 Africa export, contributed only 2.1% (USD$ 327.7 billion) of world export of USD$ 15.862 trillion
  • 2016 Africa GDP USD$ 6.027 trillion, at 1.138 billion population, export consist of 5.4% of total economic output at USD$288 per capita. 
  • 2014-2015, Africa contributed USD$71.65 billion (9.4%) of India's total trade USD$758 billion