Enterprising ethnic minorities

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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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