MBA Africa

"Boa Noite" from Maputo, Mozambique--

The bar exam is over and the course I am teaching ("Entrepreneurship and Business Planning") is well under way, so I thought now would be a good time to share some of the experiences I have been having here in one of the world's poorest but fastest-growing economies.

I checked into the Hotel Terminus (pictured right) on my birthday and time has been flying ever since (special thanks to the Peace Corps volunteers who ensured that the birthday party for this perfect American stranger lasted well into the night). Getting off the plane in Maputo reminded me of what it felt like to arrive in Annapolis the night before my first day of "Plebe Summer" at the Naval Academy: I really wasn't sure what to expect. Thankfully, the decision to teach here has proved to be one I am very glad to have made.

The students are very good. Not only do they demonstrate intellectual curiosity and an eagerness to learn, but most of them also combine substantial business experience with a genuine desire to improve the quality of life of their fellow Mozambicans. In the executive MBA section (pictured left), two participants are using the material in this course to help create entrepreneurship centers for young Mozambicans. Another is using the material to create an entrepreneurship initiative for HIV/AIDS patients who cannot find work in traditional business organizations. One student started a bank two years ago that he is still running; another founded an internet company; and a third has decades of engineering, sales, and management experience with Johnson & Johnson and 3M. In short, we are all teaching one another.

It is fun to have the chance to interact with members of the first generation of "free-market" business leaders in a developing country. I am sure that some of those pictured in these photographs will one day help transform the lives (directly and indirectly) of a huge number of people.

My guide and host for most of this journey has been Dr. Cardoso Muendane, a larger-than-life
personality with a laugh even bigger than he is. Cardoso (pictured with his wife, Clara) is a well-educated member of the Mozambican upper class. After working in management at Mozambique's largest food-production concern, he turned his attention to teaching (he is on the economics faculty at UEM) and consulting. It is hard to travel anywhere in Maputo without meeting someone who knows Cardoso; Malcolm Gladwell (author of The Tipping Point) would likely describe him as a "maven." The MBA program in which I am now teaching is his creation. In the section below I hope to convey why I think his work in improving business education in Mozambique and other parts of Africa is important.

WHY AFRICA NEEDS BETTER BUSINESS TRAINING

The nighttime satellite photograph of Africa and Europe at right shows how much unrealized opportunity for development exists in Africa today. Africa accounts for over a sixth of the world's population, but generates only 4% of global electricity. As explained in a recent Economist article, the continent is mostly dark for at least two reasons:

1. Demand for electricity consistently outstrips supply (in Nigeria alone, demand for power is an estimated 7,600 megawatts, against an actual operating capacity of 3,500 MW; in Kenya 12,000 households per month are being added to the national grid) and
2. Many Africans cannot afford the energy that is available; the cost of lighting a shack takes 10% of income in the poorest households.
   

A central theme of any entrepreneurship course is that "within every problem is an opportunity," so we have used up hours of class time dreaming up business ideas that could evolve into business opportunities as Africa's energy crunch grows more severe. For example, Aggreko, a company based in Scotland, is the world's biggest supplier of temporary electricity in the form of back-up generators. It meets up to 50% of Uganda's power needs, and 10% of those of Kenya and Tanzania.

WHY ARE AGGREKO'S GENERATORS BEING MADE IN SCOTLAND AND NOT IN AFRICA?

A complete answer to this question would be too lengthy for this blog (Africa is an extremely diverse place that is hard to generalize), but a basic explanation for why Africa has not developed at the same pace as much of the rest of the world is worth keeping in mind. In short, economic, social, and political institutions imposed over more than a century of colonial rule caused resources to be allocated in a way that blocked the potential for economic integration and development. Africa's colonizers focused on developing export enclaves designed to feed Europe and America's growing appetite for minerals and other raw materials. Each enclave typically remained cut off from neighboring regions, blocking continent-wide integration.

Lacking access to the educational institutions available in Europe and the U.S., young male Africans usually joined the low-cost labor force and stayed there. The profits realized by the utilization of Africa’s labor force and natural resources were not internalized and re-invested within Africa to the same degree as margins in other parts of the world. Instead, profits disproportionately benefited colonial rulers. This situation impeded the development of institutions (such as schools and government) that typically foster economic growth.

A vicious cycle of poverty, lack of education, low productivity, and poor infrastructure has taken root in many parts of Africa, and a tremendous amount of work needs to be done to reverse the effects of years of colonial rule. This work has taken on a new urgency, however, as the effects of globalization are felt in more corners of the world, including Mozambique. For example, a view has emerged in Mozambique that protectionist trade policies may be the only way to give nascent industries (such as beer bottling) a chance to get started and grow. Some suspect (perhaps rightly) that South African beer producers produce and sell in Mozambique only to suppress future competition from local bottlers. Regardless of whether that suspicion is accurate, the fact remains that globalization rewards (and thus breeds) increasing levels of specialization. If African businesses want to one day compete in markets that require increasing levels of sophistication and specialization (ie the markets that will produce the bulk of per capita income and growth in the decades to come), the time to break the vicious circle and begin developing the relevant skills and necessary infrastructure is now. With each passing year, entry into those markets could become more difficult for newcomers. In a global markets regime, the inquiry is shifting: we no longer wonder whether Africa will be able to compete with producers in other countries. Rather we concern ourselves with whether Africa will ever be able to provide fully for itself in the face of competition from abroad, or instead will continue to be left "in the dark" for a long time to come.

Excellent management or "MBA" training can help break the vicious circle and have a "ripple effect" in a society by teaching managers (and those they influence) how to make better, more rational decisions, how to think creatively when solving problems, how to define objectives and sub-objectives clearly, how to plan projects in detail and work well in teams to see those plans through, and how to think strategically about long-term goals. These are exactly the skills that are most desperately needed in Africa. Much attention is paid to mismanagement of the public sector in African countries (rightfully so). But in most democratic countries (including Mozambique), a large number of leaders in the public sector are drawn from the private sector. So improving the management training of those who will initially work in the for-profit economy cannot help but evenutally make African governments more reliable, transparent, productive and service-oriented.

More to the point, two other things that hold back economic development in Africa are illiquid capital markets and lack of foreign investment. Other than the political risk investors see in the unstable (and often corrupt) regimes found in many African countries, they are also wary of accounting standards that are not in line with those found in more developed countries. Mozambique is working on legislation to mandate the use of international accounting standards (one of the students in my course is involved with that lobbying effort), but the problem is that not enough people actually know what these standards are for the law to have much of an effect. If nothing else, better business training would at least give more African business leaders the financial expertise they need to make their operations compatible with the global economy.

WHY BETTER TRAINING IN ENTREPRENEURSHIP IS ESPECIALLY NEEDED

The wonderful thing about a course in entrepreneurship is that it encompasses all major subjects taught in business school--strategy, finance, accounting, management, and communication, then adds to them by initially creating a frame of reference in which anything is possible. This "possibility" frame of reference is created by using a series of exercises to get the class to a place of "knowing unknowingness" or "beginner's mind." In the first week of the course, the goal is essentially to get all of us to remember what it was like to think like a 4-year-old: to first notice and then question all those little things that have been right there in front us, yet get taken for granted. Our natural curiosity tends to get smothered as we go through life. Rediscovering the "why?" instinct is essential to identifying underlying trends and generating great business ideas. But to get to that point we have to empty our minds of all preconceptions of what we think we know to be true or false, real or unreal, possible or impossible. We have to get back to a place of discovering the world for the first time--because it is only from that empty of space of "nothing" that anything truly original can be created or innovated. So before we can get to thinking about what the MySpace or WeddingChannel.com of Mozambique might look like or what new entrepreneurial opportunities might arise from global warming, we first have to arrive in a space where a chair becomes a lawn mower, an apple becomes a horseshoe, and a bed becomes a zebra. We have to realize that a "chair," an "apple," and a "bed" exist as "chair," "apple," and "bed" only in language, and if we created those things as we know them to be only through our use of words, we can use the same technique to re-create them into whatever we want (the same can be said of our relationships with other humans, btw, but that is the subject of a different course). And if we can use our words to re-create a "bed" into a "zebra," we can suddenly use them to imagine a world in which we are no longer confined to paradigms like "Mozambicans just aren't that entrepreneurial" (as was argued by one student in my class).



This sort of shift in thinking is especially needed in Mozambique, where socialist thought paradigms present an additional challenge. As I mentioned in my previous post, Mozambique was devastated by a civil war that began when the country's Portuguese colonizers were removed from power in 1975 and didn't end until South Africa's apartheid regime (which had supported the armed rebel movement in Mozambique) was displaced by the ANC in 1995. When the Portuguese left, they took with them just about all of the human capital that would be needed to build a society that could keep pace with Mozambique's neighbor to the southwest. Only 10 doctors were left in the entire country after the Portuguese withdrew. Even today 80% of Mozambique's population works on a farm of some sort--despite the fact that agriculture makes up only 20% of Mozambique's economy.

The combination of Mozambican resentment toward the country's Portuguese colonizers and the (relative) acceptance of Marxism in the 1970's led to the development of a socialist system in which no private citizen could own land. To this day, no Mozambican can own the land on which his home is situated. This constraint is particularly relevant to a course in entrepreneurship, because no Mozambican can borrow against the value of his land to start a business either. Mozambican "property rights" consist of a 50 or 100-year non-transferable permit from the government to use the land for a specific purpose. If the land is no longer used for that purpose or if the government identifies a better purpose, the government can reclaim the land and give it to someone else.

So if a developer wanted to build a vacation resort or an office park or a residential community over a given tract of land, he or she would have to negotiate with the local community to reach some sort of agreement as to how the people will be compensated. The trick is that the people cannot be compensated with money, because land cannot be bought or sold. Instead, the people in the community have to be compensated with some sort of in-kind payment, such as building a house for them in a different area. Because this negotiation process is so unpredictable (there isn't any way to know in advance what the community's members will want in return for moving off their land, because there is no relevant price of the land to provide an estimate of that cost), land doesn't change hands as easily or often in Mozambique as in other parts of the world. And because land transfers are more rare and difficult to accomplish, would-be developers have little chance of realizing a profit on improvements to the land they might otherwise consider.

To see a dramatic illustration of the impact of this policy, all one needs to do is drive across the border from Mozambique into South Africa. The Mozambican side (top picture) is mostly barren; once one enters the RSA (bottom) they are greeted by a green golf course on the immediate right followed by fields of sugar cane and bananas. One might theorize that this is so because the South African land is more suitable for farming. They would be wrong. In reality, Mozambican bananas are sweeter than those in other parts of the world, and South African farms are situated near the border in order to get access to soil that is more like that of Mozambique. But people generally don't invest themselves in developing that which they cannot own for themselves, and travelling the N4 from Maputo toward Johannesburg gives an excellent (albeit anecdotal) demonstration of that point.

Cardoso gave another interesting example of the need to help reshape old ways of thinking in Mozambique. There is a big difference between the culture of large cities like Maputo and the surrounding hinterlands. In the country, the collectivist culture combined with poor educational standards has created an environment in which it is very difficult to teach people about the benefits of competition. Many people view their fellow Mozambicans as their "brother" to whom they owe (and are owed) a duty of care. The notion that they should try to beat out their brother at anything is completely foreign. In the country, the idea of “homelessness” is a completely foreign concept. People don’t even know what it is, because they have never seen it. Everyone has a home because everyone just provides a home for their “Mozambican brother” in need. This is viewed as a cultural obligation that is shameful to ignore. Unlike in the United States, where people who excel and set themselves apart in one way or another are often rewarded socially, Mozambicans who exhibit the same competitiveness are shunned. In fact, a belief is held among some that if one farm produces 10 units while the surrounding farms only produce 7, the only conceivable explanation is that the farmer must have employed "witchcraft," not that the additional production was because of his or her own skill and ingenuity. The belief that someone has employed "witchcraft" can lead to ostracization or even excommunication from the community. This belief system makes it very difficult to foster a competitive, free-market economy in Mozambique.

I had the chance to speak with Dr. Joaquim Carvalho, President of TDM (Mozambique's largest telecommunications service provider), about the challenges old thought paradigms and ways of doing business presented at his formerly state-run firm. He described to me how difficult it was to get the newly privatized company to begin to orient itself around things like customer service, competition, and doing complete work in a timely manner. Through leadership and persistence, however, eventually his company did turn around and adjust to the demands of the free-market economy. For me, this conversation underscored that people and organizations not only can change over time, but that they are likely to change whether we want them to or not. The only question is whether management is going to be a proactive cause or a reactive recipient of that change.

Besides helping students achieve the paradigm shift that entrepreneurial thinking requires, courses in entrepreneurship (and the businesses that often result from them) have much more practical benefits. About 75% of new jobs in the U.S. are created by entrepreneurial firms. According Jeffry Timmons and Stephen Spinelli (authors of New Venture Creation: Entrepreneurship for the 21st Century), America has created 34 million new jobs since 1980, but Fortune 500 companies have lost 5 million jobs. In the late 1960's about 1 in 4 persons in the U.S. worked for a Fortune 500 company. By the late 1990's, that number was down to 1 in 14. Carl J. Schramm, President of the Kauffman foundation, has called Entrepreneurship "the only uniquely American resource" and "the force most likely to provide true freedom for individuals across the globe and here at home by giving everyone the opporutnity to fulfill their potential."

I do love teaching. The interaction with the students, the unexpected laughs, and the potential that this area of knowledge has to both inspire people and teach them how to really improve their lives makes this experience incredibly exciting. But UEM and schools like it need more faculty. If you or anyone you know has substantial business and teaching experience (at the graduate or undergraduate level) and would like to apply to serve as a Visiting Professor, please contact me at JIM.DAY@1998.USNA.COM. Courses are typically held for four weeks. I know that there are a number of professionals who would like to make a difference by helping to facilitate a freer exchange of business ideas between North America and Africa, because this would improve the quality of life of people in both areas of the world. If you are one of those people, I hope to hear from you soon.

The only thing we know for sure is that one, five, and ten years from now the world will look different (for better and for worse) than it does today. It is unlikely, for instance, that five years from now Mozambique will still only have 2% of its population online. The percentage might not be as high as in the U.S. or Europe, but it will be different. My hope is that some more of the participants in this and other classes in Africa will take on that if the world is going to change anyway, they might as well be one of the people who helps make that change happen.