China Meets Africa: Designing 21st Century Business Models in Nigeria and Beyond

Perspectives is a monthly column featuring guest posts from non-Nigerians who follow political and cultural happenings in Nigeria.

This month, Jim de Wilde puts forth a model for how Nigeria can make the most out of its relationship with China.

Imagine a Nigeria in 2016 where a Nigerian Sovereign Wealth Fund has created a Global Tropical Agriculture Fund in partnership with a Brazilian biofuels company.

Imagine that it has also created 40 local entrepreneurship funds around Nigeria that collaborate on a Digital Education ECOWAS project designing mobile video curriculums for West Africa.

Imagine that there is a joint Nigeria fund coinvesting with Chinese venture capitalists to back Chinese entrepreneurs using Nigerian creative talent like designers and musicians.

Imagine a Nigeria-Brazil sovereign wealth fund ensuring that the resources from the Gulf of Guinea are transformed into social assistance and pension instruments for the citizens of the entire region.

Imagine an ECOWAS investment fund commercializing the idea of African technologies of the type profiled in Timbuktu Chronicles and capitalized by Chinese investment in African intellectual infrastructure.

Imagine a Nigeria in 2016 where the China-Nigeria relationship has created the new business models of South-South trade and investment that we know are going to be a defining part of the global economic realignment and economic growth in the 21^st century.

None of this can happen without the rule of law and the alchemy of a capital market that turns oil revenue into productive patient long-term investment linking capital to entrepreneurs. But all of this could happen if the oil wealth of Nigeria and Chinese foreign investment into Nigeria is converted into patient productive capital, linking Nigerian entrepreneurial and financial talent to new pools of capital.

South-South trade creates is a new phenomenon of wealth creation in the global economy. The countries with the most transparent and innovative capital markets, with the least corrupt management of resource wealth will become the most successful economies of the 21^st Century.

Turning Chinese Investment and Engagement Into Nigeria’s Longterm Gain

I want to look at the management of national economies in the period after the 2008 global economic realignment:  designing new strategies and economic innovations to successfully create win-win economic arrangements with China.

African entrepreneurship and Chinese capital could have a synthesis and create some of the most influential business models in an expanding global economy.

China is on a learning curve in terms of its relationship with Africa. Canadians know these issues from both sides.  Their mining companies have invested heavily in countries like Madagascar and Peru. Meanwhile, much of the resource rich mining base of northern Ontario is owned by Brazilian mining companies.

There are important lessons to be learned from the Canadian experience of managing foreign investment:

(i) A country is only as rich if it can be technologically innovative, ensuring that resource wealth is turned into shared prosperity (pension funds) and longterm investments (venture capital);

(ii) Strong national players ensure that there is the capacity to do new things in the way the country being invested in wants it to happen.  Designing the investment instrument to manage resource wealth is the first task of government in a resource-rich economy;

(iii) It is essential to have a completely transparent process in all resource relationships to ensure that the wealth produced goes into pension funds of investment funds that become Nigerian or Madagascan sovereign wealth funds capable of securing a place in the global economy for the suddenly wealthy economies.

The asymmetrical relationship between China and the countries in which it invests creates a number of challenges going forward from here.  From a Canadian perspective, we have to emphasize reciprocity of relations. For Nigeria, the issues are (a) to design investment strategies for Nigerians to coinvest with Chinese actors or invest in China and (b) to ensure that the revenues generated by foreign investment in Nigeria’s extractive industries are translated into productive and patient investment capital in a disciplined and efficient Nigerian capital market.

African nations have to manage Chinese investment and involvement.  Foreign investment is in itself beneficial. Ports and infrastructure can be financed, but the deal making between African institutions  (SWFs, pension plans, venture capital funds, African-formed multinational corporation, multi-nation economic entities like airlines) has to channel Chinese involvement and investments into directions that are made by African institutions.

There are many aspects of the China-Africa relationship about which we can only speculate in 2011. These trends will start to develop form in the next decade:

(a)  What kind of new business models will grow out of the China-Africa collaboration?

(b)  How will Africa affect China as China is forced to be more self-examining in its foreign policy and in the maintenance of its supply line?

(c)   How will Chinese business models affect Africa as Africans attempt to build scalable companies, which are capable of being so-called Second World multinationals?

(d)   How is the valuation of African assets, particularly non-mining resources like agricultural products and arable land affected by the Chinese pattern of investment?

(e)   How can African democratic leadership use the Chinese presence to create different capital market structures that work to the advantage of African economic development as opposed to the short term orientation of the Globalization 1.0 and Globalization 2.0 models?

Chinese foreign policy is evolving rapidly and remains a combination of many agendas:  the agendas of western-educated entrepreneurs seeking global markets, the agendas of state-owned firms seeking security of commodity supply, the agendas of regional groups and their military mirrors concerned with either Uighur nationalism, the Russian role in east Asia, the Vietnamese role in the south China Sea or the potential for a China India rivalry over Burma and Sri Lanka.   From this will come another of the most significant trends of the 21^st Century, a statement of China’s vision of a new international system in which Chinese values and aspirations are of increasing significance.

For Nigeria, the opportunities presented by China relationships are particularly significant. Because Nigeria brings to the table the mix of an entrepreneurial diaspora and petrocapital, it is possible to imagine a number of business models that are innovations in global commerce.

It is possible to imagine new fund structure that financed Nigerian-Chinese collaborations in designing new funds with targeted purposes:  mobile telephony for banking services, increase protein yield per acre agriculture funds.    It is also possible to finance Nigerian entrepreneurs in designing business models for export specifically to the Chinese marketplace.    At the core of any African strategy for managing China is the necessity of creating vehicles for ensuring that all foreign investment, including Chinese is turned into instruments of patient capital.

There is no limit to the creative imagination of such a Nigeria, beyond the oil curse and beyond the corruption that ensures there will be low productivity and little economic growth. Nigerian capital could create a Nigerian Tropical Africa Innovation Fund, a Nigerian Water Purification Technology Fund, a Nigerian Biomaterials from forestry products fund, a Nigerian China Creative Industries fund invest in Chinese entrepreneurs using African design. The Nigerian diaspora could be attracted back to manage dozens of smaller south-to-south-funds and local incubators. Nigerian investors could become agents of productive economic growth in other African and southern zone economies. There is no limit to the concept:  Malaysia-Nigerian investment instruments, Qatar-Nigerian investment instruments targeting growth in other parts of the global economy.

Jim de Wilde is a PhD holder in political science from McGill University who has taught at a number of Canadian Business Schools including McGill, Rotman (University of Toronto) and Ivey (University of Western Ontario).  He is an Executive in Residence at the Ted Rogers School of Management at Ryerson University in Toronto, and can be reached via www.jimdewilde.net and followed at www.twitter.com/jimdewilde.