IN 2016 DANIEL KINUTHIA He set up a small business in Kenya to manufacture shoe uppers for a local subsidiary of the multinational shoe company Bata. He lacked money and equipment, and his contract with Bata ended when covid-19 hit. But he says he learned “what happens, how to sell shoes, what kind of shoes can be sold” by feeding Bata and visiting the factory. Now he dreams of using those skills to build his own factory.
Many African governments are keen to attract foreign investment. But its influence depends on what postwar economist Albert Hirschman called “linkage.” By supplying or purchasing from multinational companies, local companies like Mr. Kinusia can learn about markets and technologies. However, such connections are very rare in Africa. Many multinational companies ship their inputs and export what they produce. It brings work and money, but it doesn’t spur development.
A recent study by John Rand and colleagues at the University of Copenhagen found that Africa has fewer connections than developing Asia. For example, a multinational company surveyed in Kenya imported two-thirds of its intermediate inputs, while a Vietnamese multinational company imported only a quarter. And local linkage has transferred less technology than expected. Companies have learned as much by trading across the ocean as they have learned from foreign companies in their backyards.
The mining industry in particular tends to function as an excursion. Mining rights often come with import tariff exemptions, said Lukas Bekker, a supply chain expert who helped set up mines in three African countries. Therefore, it is cheaper to import equipment than to use a local contractor. And it is dangerous to buy locally. A finance manager with 20 years of experience in African mining says he prefers to keep procurement offshore by discovering “fraud and rebates” between staff and local suppliers in the past.
Building capacity takes time. In Uganda, which has been preparing to pump oil for a long time, a 2012 survey found that only 200 trucks were scratched in a 2,500 local fleet. “We had to transform our business,” says Jeff Baitwa, who spent $ 20 million to buy equipment to upgrade carriers for oil contracts. The technical gap may be too wide. “It is said that there is something called a’seamless pipe’in the pipeline,” says Stuart Mwesigwa, manager of Uganda’s largest steel company. “No one makes it in East Africa!”
Mining is not the only problem. International supermarkets often truck goods from distribution hubs such as South Africa, rather than procuring them where they operate. Many African coffees, cashew nuts and cocoa leave the continent in packages made abroad. Garment makers sew imported fabrics with imported zippers and buttons.
Government attempts to grow linkage show how difficult it is. Some are trying to build a knowledge cluster in an industrial park. Raghav Pattar, an Indian, came to the Hawaiian industrial park in Ethiopia as the manager of an apparel factory in China. From there, it was a short step towards his current job as CEO of Nasa Garment, the first company owned in Ethiopia. Such movements help disseminate skills and know-how. But most Ethiopian companies “haven’t come to industrial parks,” says Putter. They are struggling to get loans and expertise that foreign companies can get abroad. In many countries, the entrepreneurs who most benefit from foreign investment are often those with existing ties, such as European and Asian entrepreneurs.
The government is also trying to promote links through “local content” rules that require multinational companies to procure locally to obtain licenses. Judith Fessehaier of the International Trade Center, a development agency that studied such policies in South Africa’s mining sector, said the need to focus on the suppliers that provide value. Briefcase and desk “. But the risk is that strict restrictions completely prevent foreign companies from being established in the country.
Some expect that as consumers become more interested in the origin of the products they buy, the market may create incentives to procure locally. “Our aim is to grow the Ghanaian ecosystem,” said Keren Pybus of Ethical Apparel Africa, a British garment sourcing company that invested in a factory in Ghana. Ms Pybus imports fabrics but would like to buy them locally someday. Foreign brewers are switching from imported barley to homemade grains and touting beer as a patriotic act. But unless the supplier has the money, ability, and expertise to leverage its foreign ties, such efforts will be a small beer. ■■
This article was published in the printed Finance & Economics section under the heading “Links in the chain”.
In Africa, foreign firms are often disconnected from local ones Source link In Africa, foreign firms are often disconnected from local ones