Infrastructure

For IBM, Africa Is Risky and Rife With Opportunity


For IBM, Africa Is Risky and Rife With Opportunity

Photograph by Graeme Williams for Bloomberg Businessweek

Tony Mwai moved back to his homeland of Kenya in 2009 to run IBM’s (IBM) East Africa operations, about 20 years after joining the company in New York. The country was still recovering from a political crisis that erupted following the disputed election of President Mwai Kibaki, leaving thousands dead or homeless. The IBM executive encountered a Kenya unrecognizable from his childhood, a growing economy with great potential but also constrained by every infrastructure challenge imaginable. Some Kenyan government departments still used paper to store data, and traffic jams were epic.

For IBM and its new chief executive officer, Virginia “Ginni” Rometty, the problems of Kenya and elsewhere in Africa add up to a tantalizing opportunity. As IBM’s ubiquitous Smarter Planet ads never tire of mentioning, the company has consulting expertise in hardware, software, and data management systems it claims can improve agricultural productivity, government efficiency, and the performance of power grids and transportation networks. Much of Africa needs help in all of the above.

So just as former CEO Samuel Palmisano championed India and Louis Gerstner took on China before him, Rometty views the continent as a can’t-miss growth opportunity. In August she flew to Nairobi to promote the opening of a new research lab and spent time with President Kibaki. Rometty, who declined to be interviewed for this article, was back again in early February to visit customers. “We’re in countries we never would have thought we’d be going to,” IBM’s Mwai says.

Africa may have huge potential for IBM, but it likely won’t be a revenue bonanza right away. IBM’s global revenue dipped 2.3 percent, to $104.5 billion, in 2012, about the same level it was in 2008. Of that, sales out of Africa kicked in about $400 million and are forecast to more than double and surpass $1 billion in 2015, according to an industry consultant who declined to be named because the information is private. That’s faster growth than IBM saw in India, where it started a push in 1992 and surpassed $1 billion in revenue in 2007, the person said. IBM declined to comment.

The continent is also a maddeningly complex and risky place to work. Richard Soultanian, an IBM shareholder who has done business there for 15 years through NUS Consulting Group, says Africa, with more than 50 countries, lacks the centralized structure and rules of China and India. “In Africa, there are smaller, newer governments, and some of them are going to go off a cliff,” he says. “Africa is an idea, not a market.” And IBM’s brand sometimes gets lost in translation: In Senegal, where IBM opened an office in 2011, country general manager Mamadou Ndiaye says he recently fielded a call to fix a printer—a business IBM divested back in 1991.

IBMers aren’t put off. “It’s nascent, it’s unstable, but it has a huge potential,” says Bruno Di Leo, head of global sales for IBM. The company’s African operations are also profitable, he says. “We will see Africa 10 years from now as China [was] 10 years ago.” IBM hired 1,000 new employees in Africa in 2011, and another 1,000 during the first eight months of 2012.

There’s no shortage of business to chase. On the outskirts of the South African city of Tshwane, in one of its fenced shantytowns, 32,000 people live in shacks of corrugated iron, plastic tarps, and old billboards. The residents rely on less than a liter of water a day drawn from enormous green tanks. Making matters worse, the tanks leak, creating a trail of brown mud in the sunbaked earth. About one-fourth of Tshwane’s total water supply is unaccounted for or wasted. IBM flew in a team in October to do an analysis of the city’s water system for free in the hope of building a business relationship with the local government. At Cameroon’s ministry of finance, IBM worked to computerize government payroll systems.

IBM is also using global partnerships to open more doors in Africa. In 2010 the company won a 10-year contract to manage the computer servers for Bharti Airtel (BHARTI:IN), India’s largest wireless provider and the second-biggest in Africa. The joint revenue-sharing deal gave IBM 450 new African employees and took the company into 16 regional markets, from Malawi to Burkina Faso, many of which IBM would not have entered on its own.

One IBM executive, Steve Martin, who manages outsourcing at the Bharti tie-up from Nairobi, says a big part of his job is prepping his superiors for the rigors of doing business in African countries such as Kenya, where it recently took him an hour to move 2 miles in Nairobi traffic, or Democratic Republic of the Congo, where he had to move employees from the eastern part of the country when violence erupted. In Sierra Leone, he once had to take a ferry to leave the airport, and when the boat couldn’t quite reach the dock in low tide, someone carried him with his luggage through shallow water. “I’m the explorer,” Martin says.

The company, known by investors for its predictability, is also not shying from countries such as Angola, where a brutal civil war raged from 1975 to 2002, or Chad, one of Africa’s most unstable nations, which hosts tens of thousands of refugees from Darfur. Abraham Thomas took charge of IBM’s South African operations in 2012. Stationed at the company’s office outside Johannesburg, part of his focus is on getting business from mining companies. On his desk was a newspaper article chronicling the aftermath of an August police massacre of 34 platinum miners after an illegal strike turned violent. “My actions cannot be dictated by what is going on in the country or the marketplace,” he says. That kind of stoicism comes in handy.

The bottom line: IBM hopes to more than double its revenue in Africa to $1 billion by 2015, winning contracts for its software and data products.

Frier is a reporter for Bloomberg News in San Francisco.

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Companies Mentioned

  • IBM
    (International Business Machines Corp)
    • $191.77 USD
    • -1.34
    • -0.7%
  • BHARTI:IN
    (Bharti Airtel Ltd)
    • $406.5 INR
    • -8.65
    • -2.13%
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