Author: Jonathan Berman

Earlier this year, I received some lessons on what wins in frontier markets from former Coca Cola CEO Neville Isdell. “Young markets need a long investment horizon,” Neville told me. “U.S. companies, in general, don’t have the long-term view that they need. If a U.S. CEO says he or she’s building something for twenty-five years from now, an investor is likely to say ‘Oh, come on. I’m not going to invest in that. You’re wasting my money’”

I interviewed Neville for a forthcoming book on success in Africa. He’s a firm believer that many US firms struggle in frontier markets because they’re compelled to a short term view. And Neville knows frontier markets. Raised in Zambia since the age of ten, he attended the University of Cape Town in South Africa, then returned to Zambia and joined the local Coke bottler at age twenty-three. He assumed leadership of Coca-Cola’s large South Africa operation eight years later, before taking on leadership positions worldwide and the CEO job in in 2004. In 2008 he was named by Beverage Industry magazine as the sector’s CEO of the year. Under Neville’s successor Muhtar Kent, Coke today generates 47% of volume and 33% of income from three emerging and frontier regions: Latin America, Eurasia and Africa.

I asked Neville how he convinced shareholders to take those long term bets at Coca-Cola. “Well, having shareholders like Warren Buffet helps,” he said. “Warren looks for long-term value, so he shared this view. Also as a company we have seen this everywhere, so we expect it.”

Not every company enjoys that long-term commitment, even in sectors where it’s most necessary to success. In the mining sector this year, multiple boards have pulled back from long term capital investment plans. They’ve often done so under pressure from investors. In describing why the $10 billion Blackrock World Mining Fund was reducing by up to a third its stake in mining industry leader BHP Billiton, one of the fund’s managers put the challenge quite plainly: “Some of their decisions are very good in terms of long-term strategy, but are you going to make money from it in the next three years, which is our investment horizon?” It’s a reasonable position, but one that compels hard discussions.

Across sectors, shareholder investment horizons preclude some frontier market investments and require other investments to be staggered so the company can continue to return cash to investors even as it pursues those opportunities. Companies that succeed, like Coke, have the experience to make a realistic assessment of the constraints of frontier markets and the anticipated timing of returns. That’s a conversation they have with shareholders and with stakeholders in their operating countries on a continuous basis.

Any comparison across sectors has to carry a caveat, and the distance from commodity production to beverages is about as wide as it gets. Yet, there’s irony and learning in seeing how Coke, a leader in fast moving consumer goods, socializes its shareholders and key stakeholders to success over the long term. It’s a posture reflected in the recent election to the Coke board of Helene Gayle, CEO of the non-governmental organization CARE. Ms. Gayle is a non-traditional choice, but she is widely respected among her peers for vision on challenges which can take a generation to address and which undergird growth in the frontier markets of Latin America, Asia and Africa.

Frontier markets experience fast growth, but they’re no fast buck. As corporate boards turn to frontier markets for more growth, they will be well advised to follow Coke’s lead. From silver miners to soda bottlers, it is those companies that will prevail in young markets.

The recent political instability in Mali has cast a cloud of poor publicity over the economic and commercial rise of Africa, one of the few bright spots in the global economy. Press analysis has speculated whether political instability is endemic to Africa and likely to expand in the future. It’s an important point for the many companies, from GE to Unilever, that are turning to Africa for their next wave of growth.

Across Africa, successful coups are rare and getting rarer. This Economist Intelligence Unit has tracked the trend since 1960, shortly after colonial withdrawal began. Given the preconceived impression of Africa as coup crazy, many lose sight of the decline of coups. While working in Kenya recently, I called a leading investor in Silicon Valley to discuss Africa’s emerging technology sector. He sent me a graphic he found in the British newspaper mapping all the secessionist movements in Africa, and what the map would look like if they all succeeded. That speculative, uninformed graphic did its readers a terrible disservice, as it would if it sounded alarms about the secessionist movements in Texas, California and New York City, all of which have threatened to leave the US.

There are many drivers for why coups are playing a diminishing role in Africa. Prominent among them is that governments are getting more capable at governing. The generation that liberated Africa has been replaced by one that is better educated, more widely traveled, and with access to better technology and information. Deep governance challenges remain, but Idi Amin and his ilk are no longer running the continent.

Africa’s governments aren’t just becoming more stable. They’re becoming more representative, albeit in an irregular pattern, as befits a continent with 54 countries. The Polity IV Project measures political regimes on a spectrum from fully institutionalized autocracies (low scores) to fully institutionalized democracies (high scores). As can be seen below, the trend since 1990, across all of Africa, has been towards more democracy.

Whether representative government is good for business is a matter of long debate, and in any event depends on how much a business benefits from privileged access. Most of the CEOs I know leading competitive, productive businesses in Africa consider a more representative government good for Africa and good for them. Particularly in the wake of the Arab Spring and with social media spreading across Africa, a more responsive government is seen as assuring continuity of both policy and regimes.

For CEOs in Africa and many frontier markets, more responsive government means better opportunities for them to engage meaningfully in the policy-making process. “Blue ribbon commissions” and the like may be a source of skepticism in the US, but bodies like the newly formed competitiveness council in Nigeria are the first real opportunity for businesses to improve how African governments manage the economy.
Bad government and even failed governments will continue to appear in Africa. If history is a guide, their appearance will be magnified by the press. Don’t be fooled by that magnifying glass. Keep your eye on the long-term trend.

Many thanks to Jonathan Kirschner (Stanford MBA ’12) for his help researching this post.