Enterprising ethnic minorities
My Africa-based colleague Nigel Twose shared an illuminating story with me. His words follow:
Last Wednesday, I was sitting in the lobby of my hotel in Monrovia, waiting for my flight to Dakar and back to Jo'burg. Across from me were three men of Lebanese origin: the manager of the hotel, a 20-something, and an older man who had just left Lebanon to escape the war. The three of them were huddled over a laptop. One suddenly asked me: "Do you think Kentucky Fried Chicken would work in Monrovia?"
Their rationale was: chicken is the most popular meat; Lebanese fast-food joints (falafel sandwiches) are full to bursting at lunchtime; there are 15,000 UN troops in Liberia now, with assorted hangers-on like the World Bank, who would be the customers; in five years time when we all leave, the purchasing power of the local population will have increased to the point where they will be able to afford a few dollars for lunch. Here were the entrepreneurs at work, barely out of war in Liberia and Lebanon and spending their time looking at fast food franchise websites that will generate jobs and economic growth. The relative inactivity of Liberian banks was not going to be a hindrance to them because of the additional financial networks they could access.
This came after many meetings all week where we were told the Lebanese are dominating the economy and need to be penalized with a “Liberianization of the economy”, also known as formal discrimination against non-black, Liberian-born peoples who may have lived in Liberia for generations. This includes land ownership and the formal reservation of 26 industry sectors. Some Ministries now wish to move ahead with more rigorous enforcement of these policies. It will help their discussion if we can all provide them with hard evidence of the likely economic consequences.
My colleague Jim Emery reminded me that Vijaya Ramachandran has done quite a bit of research on the whole issue of ethnic minorities in the African private sector, and the difference between their performance/characteristics and those of foreign or other nationals. A recent paper of hers addressed these issues directly.
- The great anomaly is that in most cases African governments have, however inadvertently, created conditions under which ethnic minorities do better than African groups, who would otherwise appear to be in a favored position.
- It seems that network benefits from within ethnic communities substitute for a lot of the dysfunctional elements of regulation or poor government services, and other obstacles such as limited access to external finance, poor avenues for dispute resolution, etc.
- There is probably some degree of correlation with levels of corruption in general and the relative prominence of ethnic minorities in business, although I don't recall this being empirically demonstrated. This is not to say that they are more corrupt, but that in poor governance environments "outsiders" actually end up being able to deal more effectively in business over the long term. This may be partly because patronage networks change over time, or that ethnic minorities and foreign companies are not perceived as political threats, so their emergence as economic powers is less contentious.
- Ethnic minority-owned companies have tended to start larger, and grow faster, partly because they may possess some of the general characteristics associated with higher growth to a greater degree than other companies.
I think we can all agree that it's not a desirable policy to choke off what is probably the greatest short-run source of growth. But if we could get them to think in terms of understanding the differences between the two groups, and what it is specifically that hold African companies back, then a suitable policy objective would be to focus on those constraints instead of shackling the Lebanese and Indians out of spite. For example, if of the major differentiators of growth among African-owned companies is the level of education of CEO's, then focus more on providing some management education programs.
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This made me think of Robert Kaplan's book "The Ends of the Earth," where he tackles the issue of the Lebanese being somewhat of the middle man minority in West Africa. He goes on to say that the presence of the Lebanese almost always guarantees the presence of the Israeli secret service.
Posted by: Ksenija Vidulic | Aug 22, 2006 12:06:40 PM
In one sense it is not correct to talk about the Lebanese (in West Africa) or Indians (in Southern/Eastern Africa) as minorities viz-a-viz the Africans. Most African countries are split into a large number of distinct ethnic groups. And in many countries these divisions are very real, not just when it comes to marriage, farming and family, but also to business and entrepreneurship. In Kenya the Kikuyus are also widely admired (and hated) for being adept at business. But of course there is a difference to the 'Asians', if only since people perceive it so.
There was a major row in Kenya in the 1990s, when David Himbara wrote a book saying that the only real capitalists were the Asians, and that the African-controlled state had only engendered a crony capitalist class. The Himbara-thesis says that the rise of the 'foreign minorities' to economic power, has been a deliberate strategy of many African states, who would not like to see other Africans get rich, because this could possibly endanger their own political power. There are a number of interesting articles about this (on number of African countries) most of building more or less directly on the infamous "Kenya debate" on whether or not there had emerged an indigenous capitalist class in Africa. I can't say if they are right or not, but I do think that some of the studies suffer from a sort of journalist type (lack of) method: citing a few remarkable cases in their defence, but in which it is difficult to see how it generalizes.
Personally I think that access to capital is the only real difference. With regards to the Indians in East Africa, they were indeed the first real capitalists venturing into the country beyond the coast, willing to go where no Englishman would. A governor of British East Africa once even suggested that Africa could be the "America of the Hindu"! (But the British settlers definitely disagreed on that.) So the tightly knit Asian families had been saving and investing for a long time before African capitalists made their head start.
Sometimes we forget that only a hundred years ago, something like selling your labor to an 'employer' for money was not considered right in many African tribes, proud like ancient Greek citizens. There was also no written language. Most goods transport was by head. Etc, etc..
In short, the catching-up that has happened in Africa over the past 100 years has been remarkable, and I'm confident that Africans will make their way into formal sector business soon enough, and without any goverment support.
Best wishes
Lars
Posted by: Lars Uldall-Jessen | Aug 22, 2006 3:24:39 PM
Yes, it is in fact the case that certain indigenous African tribes are also regarded to be more business-oriented than others, both in East and West Africa. But the pheonemon of minority ethnicity domination of the private sector is particularly obvious and has led to disastrous efforts to "Africanize" the private sector. My opinion is that the policy focus needs to shift away from ethnicity, toward creating a better investment climate via sound domestic policies that will facilitate the growth and profitability of the entire private sector. Governments do not need to subsidize any subset of the private sector per se but they must step up to provide an adequate supply of electricity, water, telecommunications and property rights. The chairman of India's top high tech company, InfoSys, recently stated that India's growth will slow substantially if the government does not do its part to increase the supply of infrastructure. No matter how entrepreneurial its citizens are, no country can grow its private sector without the essential inputs of infrastructure and good governance.
Posted by: Vijaya Ramachandran | Aug 22, 2006 4:12:02 PM
I agree completely with your points, Vijaya. I was a bit unclear.
It is certainly true that attempts to "Africanize" by intervention that goes further than rhetoric would stunt growth, and only result in closed factories and shops. But how much Africanization is actually actively pursued by African governments nowadays?
I am not familiar with Liberia and the rest of West Africa, but it's a long time since Idi Amin, who expropriated and kicked out Asians from Uganda, was kicked out himself. And as far as I know Africanization by legal discrimination against ethnic minorities has been abandoned in East Africa!? Some populist politicians might voice ambitions towards the old kind of Africanization now and then, but I think East African governments have realized that it is not in their own interest to alienate enterprising minorities. Informally it is probably another story though: I'm sure Asian Africans might suffer more illegal harassment because of their lack of political connections.
Best wishes
Lars
Posted by: Lars Uldall-Jessen | Aug 22, 2006 8:03:08 PM
How strongly is ethnicity linked to entrepreneurial talent ?
At first glance, a lot (see postings about Syrian/Lebanese minorities in West Africa, Indian in East Africa). Yet Vijaya Ramachandran, one of the most thorough researchers of entrepreneurship in Africa, asked a basic question in her investment climate assessment of East Africa: what makes fast-growing small enterprises different from the vast majority, which never grow ?
Vijaya and her colleagues checked every available firm-level statistic and came to the (strong) conclusion that only one factor made a difference, namely education. Small firms whose owners-managers had gone beyond secondary school grow much faster.
This conclusion is all the more interesting because it is true for ALL ethnic groups.
In China, the vast majority of small enterprise owners have had some post-secondary education. Not so in Africa.
By the way, Indians and Lebano-Syrians were active business people long before modern African governments came into existence. One should not attribute their economic status to poor policies by contemporary African governments. Read Graham Greene's profoundly moving "The Heart of the Matter", which describes Sierra Leone in the 1940s. The presence of Lebano-Syrians in West Africa is due in large part to US sanitary regulations. When in the late 19 th. century lots of people left the Levant for the United States, but were screened by US health authorities in Marseilles. Many of those who failed this triage ended up to West Africa.
Posted by: Guy Pfeffermann (aka Mutu wa Pilipili | Dec 16, 2006 8:05:37 AM