Mixing politics with business slows down growth

I just finished reading an interesting book titled “Rich People, Poor Countries” by Caroline Freund. The book documents achievements of business people from the developing world that have built multi-billion shilling commercial empires. Among those covered in the book are billionaires like Jack Ma and Zhou Qunfei of China, Mukesh Ambani of India, Aliko Dangote of Nigeria, and German Mota-Velasco of Mexico. These individuals have managed to not only succeed at home, but have also built truly global companies that can compete with international industry leaders.

Unfortunately, the African representation on the list of such individuals is thin. And the reason is that most wealthy people in Africa are wealthy not because of the value they create, but because of political connections. They are not creators of value; they are peddlers of influence and patronage. The beauty of the wealth created through innovation and value creation is that it not only benefits the owner of the business, but also creates jobs that have a positive impact on countless numbers of families. Jack Ma’s Alibaba, for example, has created more than 35,000 jobs. His raw ambition and desire to accumulate wealth has therefore generated positive externalities for the wider Chinese economy. Not only is Alibaba now recognised as a brand that can compete with other online stores like Amazon, but it also has raised the image of China as a favourable investment destination.

It is the same process that led to the emergence of truly global brands like Toyota, Mitsubishi and Samsung.

Can Kenya and the continent do the same? Can we produce global companies? Or better yet, what is stopping us from producing global companies that compete with the best in the world? The simple answer is misallocation of human capital.

Throughout the world, countries that have produced global business leaders have tended to be those that have managed to decouple the roles of business people and politicians. In other words, these countries have achieved specialisation whereby different people are engaged either in business or in politics.

But in Kenya, and much of Africa, we tend to fuse the role of business people and politicians. And in so doing, we produce people who are good at neither politics nor business. In politics they produce bad policies because they never have time to do their homework (their drive is to make money, not policies); and in business they fail because they never created value but thrive on connections and patronage.

Consider for a second how Aliko Dangote’s business empire would look if he were also a politician in Nigeria. My hunch is that he would have needed to hide his wealth in a manner that would have made it very difficult for him to build a truly global brand and business. Notice that this is not to say that Dangote does not dabble in politics. He most certainly does. His cement company benefited from government policies against foreign competition.

Business leaders everywhere have to make sure that the politicians are happy. The difference with more successful countries is that each set of actors – politicians and businesspeople – specialise in their line of work. Specialisation encourages the right people to sort into different lines of work and results in efficiency.

But when you fuse the roles of business person and politician what you get is a lot of wealth accumulation without innovation and mass job creation. Such people become rich without creating competitive companies. They focus on hiding their wealth in offshore accounts rather than growing big businesses that create jobs. Let us endeavour to efficiently allocate human capital in business and politics. It is the only proven way for a country to experience growth in wealth and jobs.