New Africa: From Growth to Jobs

New Africa A publication by Business Action for Africa

January 2013

From Growth to Jobs

Tony Elumelu’s vision of “Africapitalism” Africa’s economic growth in numbers The continent’s cities in 2020 How Africa is good for business Why business is good for Africa

New Africa | January 2013

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Contents 2. Tony Elumelu Try Africapitalism

4. Africa in Numbers Africa in 2020

Africa is Good for Business

Business is Good for Africa

8. Njeri Rionge

24. Bright Simons

The business of Africa

IFC

10. Elikem Kuenyehia

What is a social entrepreneur?

26. Andy Wales

Ghana’s business climate

Driving the age of opportunity

12. Michael Lalor

27. William Asiko

Getting down to business

A long-term partner in Africa

15. Eric Guichard

29. James Mwangi

18. Seni Adetu

30. Pat Devenish

Leveraging the Diaspora

The base of the pyramid

Leadership and action

Big potential in smallholders

20. Frank Braeken

32. Peter Maila

An African consumer revolution

The business of job creation

22. V. Shankar It’s Time for Africa

Cover Credit: Erichon / Shutterstock.com

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businesses and development partners, working together

(DFI). Wholly owned by the UK Government’s Department for

leaders to reduce poverty through strategic business growth and

in support of Africa’s future.

International Development, it is the world’s oldest DFI.

investment in the developing world, with a current focus on Africa.

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New Africa | January 2013

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Foreword

New Africa | January 2013

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Foreword

Try Africapitalism

by Tony O. Elumelu

Photo credit: Erichon / Shutterstock.com

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fricapitalism. As a philosophical concept, its principle is simple: catalysing economic growth in Africa by focusing on private sector development, knowing that this also creates social returns.

But this simplicity masks a more powerful implication: the potential to transform a continent and put Africa on an equal economic footing with the rest of the world.

Africa offers boundless economic opportunity for investors and entrepreneurs, but it is important to know that this economic growth can, and must be, channelled to solve many of the continent’s most pressing social challenges. We know, and this is increasingly being recognised by all the major actors—governments, the private sector at home and abroad, our international friends—that it is sustainable job creation that offers the road out of extreme poverty, not charitable assistance, no matter how well-intentioned. This belief is the heart of Africapitalism: long-term investment that creates economic prosperity as well as social wealth—a private sector approach to solving some of Africa’s most persistent development problems.

This is not corporate social responsibility, with capitalists and entrepreneurs acting as the economic equivalent of Father Christmas. On the contrary, we know that Africa offers compelling economic and business opportunities that, with the proper approach, can be harnessed to meet a range of social objectives. To repeat my previous assertion, it has become clear over the past decade that private sector development has a much greater potential to improve self-sufficiency and prosperity than charity and development assistance ever have, or ever could. What is needed, then, is a change of perspective.

Unfortunately, the African stories we hear most often centre more on charity, rather than the building of wealth. This is an attitude I and my team at Heirs Holdings hope to change, and I believe we are changing it. Our day-to-day experience shows that Africa’s burgeoning private sector and its growing domestic industries have already delivered significant returns to investors and entrepreneurs. Consider, for example, my own experience,

building what is now one of the largest banks in Africa, with 7 million customers, 25,000 employees and operations across Africa and the globe.

In 1997, I led a group of entrepreneurs in the acquisition of a distressed bank, which had shuttered its branches. We did what businesspeople and investors do all over the world: we sat together to craft the vision for the organisation—where we wanted to be, how we were going to get there, which kind of customers we wanted to serve, and what value propositions we would offer these customers. We also innovated, bringing global practices which were the first of their kind in Nigeria, such as a debt-for-equity swap with depositors to attract and grow our capital base. Finally, we rebranded to break with the past.

At the heart of our mission, however, was an important social vision: to democratise the banking sector in Nigeria. In a nation, which at the time had about 110 million people, fewer than 10 per cent had bank accounts. We knew we could do better. There was a huge potential market and untapped demand.

Within less than a decade, we had grown to become one of Nigeria’s top banks, with hundreds of branches, and we were the first Nigerian bank to build a branch network offering real-time,

online integration. However, this is not just a case study for corporate success. Structural problems facing consumers in Nigeria began to work themselves out. Parents with children in school in different parts of the country used to have to travel to give their children spending money, or to pay school fees. No longer. They could now manage their finances from the comfort of their homes and offices.

Having an account with us became a status symbol, a badge of progress that you were part of the cutting-edge, new Nigeria. This was especially true among younger customers. Critically, not only were we growing and earning substantial returns for our investors, we were also transforming society by solving people’s problems and improving their productivity, and eliminating the stubborn inefficiencies in what had been a very undemocratic banking sector.

Having achieved much at home, we set our sights on becoming a pan-African financial institution; today the institution that is now called the United Bank for Africa (UBA) operates in more than 20 countries, meeting increasing demand for trade finance, cross-border finance, and overall regional business growth.

Through private sector development, the Nige-

rian banking sector has become a force for greater entrepreneurship in the economy; human capital development for skilled workers; providing business solutions for consumers and businesses; jobs and wealth creation for tens of thousands of employees and client businesses; and the reduction of trade and business barriers among African nations.

Ultimately, it has become a source of financial return for the shrewd investors who stood with us in pursuing our vision of a powerful, vibrant, modern African banking sector.

This type of story is being repeated every day, in all kinds of industries, all over Africa—East to West, and North to South. This tells us at least one thing: Africapitalism works. Yet misconceptions and misunderstanding persist, not just by outsiders, but by Africans as well.

There is an awesome economic force gaining steam in Africa today. Long-term investments in Africa are delivering tremendous commercial and social returns. In doing so they offer a model for a bright future for Africa, and a transformation of the global economy.

Tony Elumelu is an entrepreneur, investor and philanthropist. He is chairman of Heirs Holdings and founder of the Tony Elumelu Foundation.

New Africa | January 2013

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Africa In Numbers

T

he numbers, in a sense, speak for themselves—a decade of high growth, several of the fastest-growing economies in the world over the next few years will be on the continent.

Africa is taking off. Africa is climbing towards the investment mainstream on the back of strong economic performance almost across the board. Demographic growth and buoyant commodity prices have played their role, underpinned by sound macroeconomic management and a consistent improvement in peace and security, despite some

Doing Business in Africa

10

Kenya (121)

Egypt 290

8

Libya 110

African GDP growth, 2000-2015

5.5%

Brazil

2500

5.3%

Africa’s share of global FDI

Sub-Saharan African GDP growth, 2013

India

8

Algeria 226

ASEAN-5

7

Morocco 119

2400

6

Angola 139

Africa

5

$2

trillion Africa’s collective GDP

2900

9

4

GDP / $bn / 2015 (est.)

2700

Nigeria 335

3

costly to access.

Looking at the World Bank’s Doing Business rankings is sobering. The continent’s emerging economic powerhouse Nigeria is out of the African top 10, and 131st in the world. Côte d’Ivoire, whose recovery from a decade of civil war has begun, languishes in 177th. Kenya, which scrapes in at number 10 on the continent, is still 121st in the world. It still beats other emerging locations, like Indonesia (128) and the Philippines (138), but is well below countries such as Vietnam (99) and Malaysia (12).

That is not to say there have been no improvements—some countries are gradually climbing the rankings—but competitiveness remains a problem for many.

South Africa 445

Mauritius (19) South Africa (39) Rwanda (52) Botswana (59) Ghana (64) Seychelles (74) Namibia (87) Zambia (94) Uganda (120)

2

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improving the environment for those that follow.

The African business narrative has turned around, and investors and businesspeople are waking up to the reality that African economies are bursting with potential. As Ernst & Young’s analysis notes, the contrast in opinions between those who are already on the ground and optimistic, and those who are yet to go, is stark.

However there remains a long way to go, despite the large mobilisation of capital and resources. The type of political risk that used to dominate discussions of Africa is not the biggest concern for many investors. Instead, they are preoccupied by more mundane issues of contract enforcement and the predictability of regulation. African economies may be safer, but they are still often difficult and

serious blips in the past 12 months. Investors have woken up.

As Ernst & Young’s Africa Attractiveness Report for this year shows, foreign direct investment (FDI) continues to grow, increasing at a compound rate of around 20 per cent since 2007, with the increase in investment between African countries a clear sign of an important shift towards regionalisation.

Nearly $700 million of private equity deals have been announced in sub-Saharan Africa last year, according to the Emerging Markets Private Equity Association.

Infrastructure investment, from transport to power, has been an important component of this, backed by the local and international public sector, providing direct investment opportunities but also GDP / $bn / 2015 (est.)

(Global Rank) Source: World Bank

1

New Africa | January 2013

(Source: IMF)

6 Africa 4

World Developed Economies

2

0 2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

-2

-4

*Source: Ernst & Young; IMF

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Africa in 2020

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s Africa’s economies grow and evolve, the data points towards the fact that the continent’s future is increasingly urban. The concentration of consumers and the increase in spending power of urban populations is undoubtedly attractive to investors, who are flocking to the burgeoning metropolises of Lagos and Nairobi. By 2020, Africa is set to have nine megacities with populations of above five million people, and many more

128 million consumer households (up from 90 million in 2011)

of over a million. There is a boom in construction, in retail and across the consumer goods sector, which is bringing in new investors and strengthening the position of existing ones.

However, as the creaking infrastructure of these urban centres and the persistence of slum settlements shows, there are going to be many challenges in providing services and ensuring that countries are fully able to meet the needs of the

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growing population.

Africa’s cities will be brimming with a young and increasingly educated workforce—one of the largest in the world by 2020. But that, too, brings with it enormous challenges for both the public and the private sector. A workforce without jobs is not a workforce, and creating the right opportunities for that population bulge will be critical to the social and long-term economic development of every country on the continent.

Africa’s traditional GDP drivers in primary commodity production are not huge providers of high quality jobs, which means that moving up the value chain is a necessity. This can only be done as a partnership between government—which needs to create the environment for investment—and the private sector, which needs to think about how best to orient its investments in both its primary operations and its supply chains to make sure that its impact is broadly spread and positive.

Alexandria Egypt 5.2 million

Africa’s Megacities

In 2020, nine African cities will have a population of more than five million people

$1.4 trillion in African consumer spending

Cairo Egypt 12.5 million

Lagos

Khartoum

Nigeria

14.1 million

Sudan

7 million

Abidjan 5.5 million

504 million people in the workforce (up from 382 million in 2011)

Nairobi Kenya 5.1 million

Cote d’Ivoire

Kinshasa,

Democratic republic of the Congo

Dar es Salaam Tanzania

12.8 million

48% of Africans with secondary or tertiary education

5.1 million

Luanda Angola 7.1 million

*Source: McKinsey Global Institute

Urban Population (thousand people) Sub-Saharan Africa

1990

1995

2000

2005

2010

2015

2020

2025

146673

181582

220606

266935

321400

384696

456580

537128

Africa

205225

248074

294602

349145

412990

486525

569117

660589

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Good for Business

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Good for Business

The Business of Africa

by Njeri Rionge

Photo Photo credit: credit: Shutterstock.com Shutterstock

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ultinationals, investors and donors looking at African economic development need to start seeing Africa as a business.

When we talk about economic development, Africa does not need charity; it needs responsible investment as well as strong partnerships. Making a profit is certainly the goal for any business, but hindsight shows us that businesses also need to be run responsibly in order to be sustainable in the long run.

The fact that current growth rates in sub-Saharan Africa outperform the Middle East, North Africa, Latin America and Europe is well documented, and although there are risks, the opportunities for investment in African businesses are attracting more private equity and donor money every year, with more and more stories of innovation and entrepreneurial success adding to the positive buzz.

In addition, it is worth noting that according to a recent report by the Mo Ibrahim Foundation, by 2035 Africa’s labour force could be larger than China’s and over a quarter of the world’s labour force is predicted to be African by 2050. If 90 per cent of jobs in developing countries are to be provided by the private sector, policies and investment that support a dynamic business environment, as well as local job creation, become essential.

Kenya is amongst the top 10 largest economies in Africa in terms of GDP, and East Africa has become one of the more attractive regions in Africa both for foreign investment and as a source of entrepreneurial success and business growth. Political stability plays a big part in this success story, and democratic elections accompanied by stable governments have been key to the success of countries like Kenya and Rwanda.

In Kenya, although there is still too much red tape, bureaucratic procedures are improving consistently. Of the 15 countries in the world with the most delays in registering a company, six are reported to be African, but those that have most improved are in Africa as well. This is the interesting trend. General inefficiency might still be an issue, but a recent IFC country report indicated vast improvements year on year.

Kenya’s bright future has a lot to do with where the wealth is being grown. Nowadays, a large portion of wealth in Kenya is independent from any-

thing governmental, which is important as it is private business people who now have the power to demand from the government the services they are supposed to provide. If you have a chain of cafés or a vegetable packing facility, you don’t care who is in power, as long as you are able to reach your customers and grow your business. Your vote can’t be bought.

Maturing banking products have also played a big role in establishing East Africa as a good investment destination and have helped local entrepreneurs to develop their businesses. At 68 per cent of the population, Kenya is ranked the first in the world for use of mobile banking, and the uptake of mobile banking in East Africa has transformed the way we can do business. Simply having a savings account or business account or having access to loans against receivables or overdrafts has been hugely important.

However, the phase that most Africans are in now is the transformation from ‘trader’ to ‘businessman’, and an assembly of services needs to be

available to assist them in this change in status. Incubators provide a positive environment for growing businesses, but are still in their infancy, focusing predominantly on IT and not business models.

You need to have administrative structures in place such as accounting, good governance providing stability and transparency, a succession plan, IT systems, marketing and the ability to attract and retain talent—38 per cent of the tertiary educated population leave Kenya.

Access to professional finance is regularly cited as one of the main obstacles to becoming a young entrepreneur, and Africa is no exception, but it also needs to be affordable finance. The cost of capital is far too high for those that qualify for credit, and this is one of the biggest bottlenecks. There are many examples of profitable small- and mediumsized enterprises that are not expanding because they would rather grow organically due to the high cost of borrowing. This means that there is a hidden well of growth in Africa that is being held back. Profitability in Kenyan banks is significant,

and well above returns in Europe, but the average consumer does not yet comprehend the products that are available to them, nor the true cost of borrowing. Competition will arise as the consumer becomes savvier, and successful entrepreneurs are setting the example, but this is not happening quickly enough.

We should see Africa as a business that needs to attract and retain talent, that needs affordable finance to grow and that needs a host of services to support it. We should invest in ICT, in private business, in agri-business—which is still the largest employer in Africa—and support the private sector in establishing links with multilateral institutions, private equity funds, and development banks in order to focus on making the right connections to regional and global markets. Perhaps then Africa can grow to become the sustainable business that it has the potential to be.

Njeri Rionge is a serial entrepreneur and business mentor.

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Improving Ghana’s Business Climate

I

nternational press coverage tends to overemphasize the positives and downplay the real challenges Ghanaian entrepreneurs face.

When I moved back home to Ghana from New York in 2004, less than 5 per cent of Ghanaians had bank accounts; banking was a cosy club of 18 actors with little incentive or appetite for the private sector. This was unsurprising with a Government Treasury Bill rate as high as 42 per cent.

Entrepreneurs lucky to be advanced credit could expect business-crippling interest rates—as high as 50 per cent at one point. Add to that an inflation rate of almost 24 per cent and you get a picture of how difficult it was to operate as a small- or medium-sized enterprise (SME) or entrepreneur— especially if you required credit.

Under the circumstances, only certain kinds of entrepreneur could thrive—service-oriented entrepreneurs or entrepreneurs with access to private finance.

The Ghanaian business landscape has changed tremendously since 2004. With a fall in the Treasury Bill rate to 23.02 per cent, the 26 banks have been forced to diversify, growing their balance sheets by other methods including private sector lending, even if at an average rate of 27 per cent.

However, the challenges, though diminished, remain —within them opportunities exist for government, development agencies and private equity firms to really help transform Ghana into a thriving environment for small business and entrepreneurship. I see four key areas that need attention: Access to credit, policy enforcement, infrastructure and the development of human capital.

Access to credit is still the toughest barrier to business operations and growth. Without a proper credit referencing system and adequate information about companies, industries and opportunities, banks find it difficult to make credit evaluations.

As a result banks treat entrepreneurs as an amorphous set and demand the same collateral package regardless of business sector or industry, instead of evaluating each proposal separately. It is near

impossible for most SMEs to obtain credit from banks in Ghana without collateral.

As financing from development finance institutions (DFIs), and other commercial international sources, are a key part of financing for Ghanaian banks, given particularly low bank deposit levels as a percentage of GDP, these institutions could perhaps tie credit and debt investments in Ghanaian banks to a requirement to provide minimum levels of support to local entrepreneurs.

In addition, both domestic and international players should support the nascent credit referencing system and invest in systems to generate and disseminate useful data.

There is a gap between policies and laws on paper and what happens in practice. A review of government policies and laws reveal an impressive set of initiatives aimed at promoting private sector development but it is rare to see them in practice.

Linked to this is an unfriendly government machinery. The departments of government which entrepreneurs rely on to establish and operate their enterprises are perceived to be ‘entrepreneurunfriendly’ and ‘anti-private sector’. Officers who populate these institutions appear more concerned with unnecessary bureaucracy than facilitating the launching of new businesses. Many officers are also ill-prepared to provide the level of support that entrepreneurs require.

Despite significant investment in infrastructure, a lot more remains to be done to provide better quality roads, water and electricity to support businesses. For example, there are nascent initiatives in contract manufacturing and outsourced customer services,that require greater reliability from basic utility providers.

Given the lack of breadth in private enterprise, many of the best graduates of our universities and polytechnics leave the country to seek experience and opportunity. Also, there is a growing number mid-level of graduates who are not necessarily ‘fit for purpose’. After access to capital, entrepreneurs cite human capital as the biggest barrier to opera-

Photo credit: Shutterstock.com Photo credit: Scoundrel Media

by Elikem Kuenyehia

tions and growth. Many entrepreneurs find the talent pool so poor that they essentially train recruits from scratch.

While all the four areas I have outlined remain challenging for SMEs and entrepreneurs, they have all shown improvement over the years and – in my opinion – offer further opportunities for investors. Prospects exist in skills training, public/ private infrastructure such as toll roads, private equity, and lobby organisations. Without changes, the

breadth of entrepreneurial endeavour in Ghana will continue to suffer and some of the most dynamic young graduates will be lost, further slowing development. It is only by tackling these challenges will Ghana be able to give meaning to its stated objective of private sector led growth.

Elikem Kuenyehia is a founding partner in Oxford and Beaumont solicitors in Accra and author of Kuenyehia On Entrepreneurship.

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Getting Down to Business

By Michael Lalor

A

frica’s rise over the past decade has been very real. While skeptics still abound, and there are people who still seek to debate the point, the evidence of the continent’s clear progress over the past decade is irrefutable. The reality is that a diverse range of African countries have now experienced consistent and robust growth for over a decade – certainly the longest period of sustained growth since most countries attained independence in the early 1960s. In the period since 2002, the size of the overall African economy has more than trebled, and grown at twice the population growth rate – over this period, the size of the Sub-Saharan African economy has grown well over 3.5 times.

What makes this economic performance all the more remarkable is that half of that decade has been marked by a deeply troubled global economy. Although many African economies have been negatively impacted by the situation in key trading partners in Europe and North America, most have remained remarkably resilient.

The immediate outlook also appears positive, with many parts of the region forecast to continue experiencing relatively high growth rates and a number of African economies predicted to remain among the fastest growing in the world for the foreseeable future.

There is therefore good reason to pause and celebrate the progress that Africa has made. At the same time, though, individual countries and the region as a whole still need to address significant challenges in order to sustain this progress, and to emulate the kind of developmental path we have seen in places like south east Asia over the past 30-40 years.

We believe that foreign direct investment (FDI) can play a critical role in supporting the sustainability and even acceleration of the growth and development we have seen across Africa over the past decade. As we look ahead to the ongoing challenges of job creation, skills development and, ultimately significant reduction in poverty and inequality, foreign investment can play a critical direct and indirect role. Besides being a source of longer term capital, as well as tax revenues, arguably more important is the broader impact of

these investments across African economies. The specific category of FDI that we analyze – new greenfield investments and significant expansions of existing projects, all of which must create direct jobs – is particularly relevant in the context of Africa: • Greenfield FDI has created almost 1.5 million new direct jobs in Africa over the past decade; this does not count the many indirect jobs that would be created as a result of this employment.

• Foreign multi-nationals are increasingly playing a proactive role in the development of local suppliers, with local sourcing policies helping to create extended supply chains of domestic providers.

• Systematic local skills development and transfer are integral to the longer term approach of an increasing number of multinationals doing the business on the continent.

Besides being a responsible approach to doing business, local skills development is actually a business imperative for these companies, because the cost of staffing with expatriates is simply unsustainable.

• Over the longer term, it is not only the skills but also the technologies and innovations that foreign companies introduce into local economies that act as catalysts for development of local capabilities in transformative sectors such as manufacturing and value-adding services.

A key point is that FDI is not only an important contributor to growth and development in and of itself, but that it will continue to be a driver of broader private sector development across the continent. This is critical, because it is the private sector, including foreign and — increasingly — domestic enterprises, that will ultimately lead the structural transformation required to sustain and accelerate Africa’s growth. It is the private sector that will invest in transformative sectors like

agri-processing, manufacturing, ICT and tradable services, such as tourism, business process outsourcing and off-shoring of certain business functions. It is ultimately the private sector that will drive accelerated economic expansion and sustainable job creation.

Our 2013 Africa attractiveness survey shows some progress in terms of investor perceptions since our inaugural survey in 2011. The majority of respondents are positive about the progress made in and the outlook for Africa. Africa has also gained ground relative to other global

regions: whereas in 2011 it was only ranked ahead of two other regions, this year it was ranked ahead of five other regions: the former Soviet states, Eastern Europe, Western Europe, the Middle East and Central America.

However, the big take away for us from this year’s survey is the stark and enduring perception gap between those respondents who are already doing business in Africa versus those that have not yet invested in the continent. Those with an established business, who understand the real rather than perceived risks of operating in Africa,

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Photo credit: Scoundrel Media

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who have experienced the progress made and see the opportunities for growth, are overwhelmingly positive. Some 86 per cent of these business leaders believe that Africa’s attractiveness as a place to do business will continue to improve, and they rank Africa as the second most attractive regional investment destination in the world after Asia.

In contrast, those with no business presence

in Africa are far more negative about Africa’s progress and prospects. Only 47 per cent of these respondents believe Africa’s attractiveness will improve over the next three years, and they rank Africa as the least attractiveness investment destination in the world – many of these potential investors continue to base their perceptions on an image of Africa fixed in a time and space 20 or 30 years ago.

The fact that there are a number of companies with an already established presence in Africa that are very positive about the continent’s growth prospects and are getting down to business is crucial. These are believers in the Africa growth story, who do not need convincing; they are growing their investments, creating new jobs and focusing on long term, sustainable growth opportunities across the continent.

The numbers also indicate that these companies, many of which have been doing business on the continent for decades, are expanding their operations in Africa, increasing their investments in greenfield projects, reinvesting their local earnings, strengthening local supply chains and enterprise, developing local skills, and generally focusing on long term growth in Africa. These are the believers in the African growth story, who do not need convincing and are already deeply committed to the future of the continent both financially and emotionally.

We believe it is therefore time for a shift of emphasis and mindset away from trying to persuade the skeptics toward promoting the believers; from trying to sell the “why” of investing in Africa toward the “how” of driving successful growth of private enterprise across the continent; from debating the merits of the African growth story toward simply getting down to business.

African governments should engage in more collaborative and productive partnerships with these companies already doing business across the continent. There also needs to be greater focus on creating an enabling environment for doing business by more actively addressing the priorities highlighted in our research this year, namely, implementing anti-bribery and corruption initiatives, accelerating the execution of critical infrastructure projects, addressing customs and border management inefficiencies, and driving the regional trade and integration agenda.

With a critical mass of us pulling in the same direction, and with committed leadership from government, business and civil society, Africa will continue its rise in the decades to come.

Michael Lalor is the Director of Ernst & Young’s Africa Business Center

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Leveraging the Diaspora

By Eric V. Guichard

W

ith $40 billion in annual remittances into Africa, the African Diaspora has become the subject of much public policy discussion as a potential source of sustainable supplemental development finance. In recognition of the power of the Diaspora, President Kagame of Rwanda recently announced the launch of a Rwanda Diaspora Mutual Fund whose objective is to tap into the offshore savings of Rwandans, and other East African Diaspora, to finance key public sector projects in Rwanda.1 Similarly, in 2011, The Central Bank of Kenya redirected a segment of its regularly scheduled domestic currency infrastructure bond to target investors from the Kenyan Diaspora. Other countries have plans to follow similar paths. According to the World Bank, aggregate African Diaspora savings amount to about $35 billion.2 These sums are deposited in Western banks earning negative interest rates, when adjusted for inflation.

Dr. Dilip Ratha, Lead Economist at the World Bank Migration and Remittances Unit narrows it down to two key factors: (1) patient capital and (2) counter-cyclicality. Diaspora remittance flows are linked to families in the home country. What’s more, the character of these flows is unique in its counter-cyclicality. Dr. Ratha’s findings suggest that in periods of economic stress in the home country remittance flows tend to increase, unlike foreign direct investments and development aid which tend to flee in periods of duress in either home or source country. This factor tends to suggest a more patient, long-term character to Diaspora flows. This is especially important when considering Africa’s infrastructure needs. Infrastructure investments typically require long term commitments. The same commitment is also required for financing small- and medium-sized enterprises (SMEs).

Until recently, conventional wisdom suggested that all Diaspora flows were consumed by recipients for subsistence. However, according to a recent World Bank study, conducted in the case of Kenya, the breakdown of remittance receipts can be roughly classified in the following manner: 50 per cent for family support, 15 per cent medical, 10 per cent education related and an amazing 25

per cent of remittances are directed at some sort of investment (SMEs, real estate, services…).3 In 2011, according to the Central Bank of Kenya, the country received $891 million in Diaspora remittances. Based on the CBK’s own figures, this would mean that $222 million, or close to a quarter of a billion dollars, is available capital to be directed into the productive sector. This number rivals $180 million in total foreign direct investment received by Kenya in 2011, as reported by the World Bank in 2012.

The above assumptions about size of Diaspora savings pool are supported by academic research conducted by George Washington University’s Center for International Business Education and Research, in conjunction with Western Union and USAID. GWU conducted an investment interest survey targeted at US-based African professionals and entrepreneurs who participated in a 2010 venture financing competition.4 The results show an overwhelming interest in investing “back home”.

However, the study also reveals a dramatic gap between the “desire to invest” in a range of opportunities from real estate to manufacturing and services, and the “ability to invest” in those same opportunities, as members of the Diaspora. This suggests the existence of structural impediments preventing the Diaspora from accessing opportunities with ease. A closer examination reveals that these structural blocs fall into three key categories: transparency, regulatory and administration.

Transparency: most opportunities sought by the Diaspora are not structured for ease of access by them. In part this is due to the fact that amounts required may be too large relative to what the Diaspora can afford to invest, or that the opportunities are not transparent enough to enable them to judge inherent risks on their own as remote investors.

Host Country Regulations: both the United Kingdom’s Financial Services Authority and the United States’ Security and Exchange Commission have household earnings tests that limit access to private deals that are not listed on an exchange. Only those with financial sophistication as defined by the regulators—with private net worth exceeding $1 million—can invest in opportunities that are not listed on a public exchange. Listing on an exchange can

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be an expensive proposition even for sovereigns, much less for an entrepreneur in the home country seeking to tap into Diaspora capital.

Small Transfers: Diaspora transfers on average are small and most investment opportunities are seeking aggregates that are larger than what one individual remitter can afford. Therefore the need to administrate these small amounts into larger pools that can command institution-like influence is critical.

The combination of these factors make it difficult for the Diaspora to participate in a meaningful way in the development of critical sectors such as infrastructure, key SME industries and large scale real estate projects.

To capitalize on the transformational nature of Diaspora flows one has to simultaneously engage key constituencies: Domestic banks: domestic commercial banks play a key role in providing financial services to the Diaspora. Recently, Kenyan and Ghanaian banks have designed new financial products directed at the Diaspora to facilitate savings, and investment including financing of the purchase of land and building a home. Banks need to do more by offering more targeted private banking services to the Diaspora. This entails offering a wider choice of investment opportunities that Diaspora seek back home, and partnering with other players to broaden their offerings; Aggregating platforms: new aggregating platforms have emerged, including one that the author has initiated—Homestrings.com. These platforms take advantage of a new web-based phenomenon called Crowd-Funding. This method has also found success in the political arena with the Obama campaign innovating fundraising via the web. Crowdfunding platforms, such as Homestrings, have the advantage of being omnipresent, being on the internet, and of being responsive to the needs to the Diaspora, in real time; Government (IPAs): Investment Promotion Agencies have a key role to play in attracting Diaspora capital. As a facilitating agent they should be engaged in selling the investment program to their respective Diaspora and, more impor-

tantly, working with financial players to structure these opportunities in such as way that it facilitates access to them by the Diaspora. IPAs are also critical in the education of investors – which in turn requires them to have a good grasp of financial presentation practices; Domestic Private Sector: As targets of Diaspora investments, the domestic private sector, in conjunction with the IPAs, should create avenues of investment that facilitate access by the Diaspora. Whether it’s listing in the host country’s stock exchange (AIM) or providing much needed due diligence transparency and education. These efforts, combined with the sustained and targeted marketing efforts of IPAs, form a powerful galvanizing mix that could only be beneficial to the home country.

Once the impediments removed it comes down to constant marketing to the Diaspora. The Israel Bond Agency is the global benchmark in Diaspora engagement. Its organizational approach to raising funds from its global Diaspora is testament to what can be accomplished. Israel raises between $1 billion to $5 billion annually from the Jewish Diaspora and Diaspora related institutional investors.

Its offices span the globe and they are constantly informing the Diaspora of various developments and investment opportunities. They work collaboratively with various public and private players in order to leverage the existing financial infrastructure to their advantage.

The Diaspora presents a significant opportunity to introduce a paradigm shift in how development is financed. However, attracting the Diaspora to invest in the productive sector is a combination of education, effective structuring, transparency and active promotion and engagement. All vested parties much work together to facilitate Diaspora investments. Each party has leverage that the other doesn’t. By working together, Diaspora investment capital can be a sustainable, effective and efficient source of development finance for Africa.

Eric V. Guichard is the Founder and Chief Executive Officer of Homestrings.com.

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Photo credit: Scoundrel Media

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1 The Guardian: “Rwanda Seeks Investment from the Diaspora to Cut Reliance on Foreign Aid” October 2012. Http://www.rwandadiaspora.gov 2 Preliminary Estimates of Diaspora Savings – Migration and Development Brief 14 – February 2011. World Bank.

3 Central Bank of Kenya.

4 USAID African Diaspora Marketplace 2010.

Photo credit: Diageo

Good for Business

Defining Reputation Through Leadership and Action

by Seni Adetu

N

igeria is a nation in transition. It is clear that while there have been instances recently which have unsettled Nigeria’s growth trajectory, there is no doubt of the long term economic potential of the country, the momentum it has gained by adopting a market-oriented approach and the reforms it is enacting through policy development and efforts to increase transparency. In a number of areas, the opportunity in Nigeria has come to symbolise a new economic era in Africa and is the focus of increased foreign investment and greater commercial competition.

Nigeria is also a nation of great diversity, embracing a wide span of religions, cultures, languages and traditions, and a people that are collectively defined by their optimism and energy. This entrepreneurial spirit embodies the pride, the hard work and the resilience of Nigerians and, together with better access to capital, has led to the emergence of some amazing success stories, particularly in private sector development where home-grown businesses have become pan regional, even global, in their ambitions. Nigeria’s reputation for being serious about business is enhanced by the success of these organisations. It is also strengthened by government taking a harder line on corruption and by more businesses adopting and demanding high standards of governance and corporate integrity.

This in turn engenders trust among institutions, stakeholders and civil society.

People often talk of Nigeria’s vast deposits of fossil fuels as its greatest export potential, but in many respects, its dynamic and entrepreneurial people are its most enabling natural resource. Human capital is after all the one common factor that drives development and associated growth no matter what sector, no matter what economy.

At Guinness Nigeria, our people are our difference. They are the game changers in a new reality which sees both challenges and opportunities getting bigger for our business, and they are a source of competitive advantage in our industry. So how do we inspire them to rise to the challenges and seize the opportunities?

We have a clear vision that I regularly share with my 1,500 colleagues in Guinness Nigeria - to be the most celebrated and respected business in Nigeria and earn iconic status among investors, employees and stakeholders. It is also a powerful source of an aspiration that is translatable into everybody’s job and a collective catalyst for our people to achieve greatness in everything we do. It creates a culture in which people can take accountability of others success and where teams can align and accelerate performance.

But what does it mean to be iconic? It may mean to many to be the biggest, the highest performing, most profitable, the market leader.

Clearly as a businessman, those measures are non-negotiable for me, and ones by which our company will assessed both internally and externally. But as the chief executive of a Nigerian business in a Nigeria that is transforming to become a global power, a leading nation with greater visibility on the world’s stage, I envisage our business to stand and define its success beyond this. Iconic stands for greater accountability and responsibility, and generating shared prosperity. But crucially it

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stands for leadership.

Nigerians make for good leaders. In fact Nigeria is a net exporter of talent within Diageo with many Nigerians holding senior positions within the wider company. I myself have benefitted from developing my leadership and experience in other countries. We invest significantly in our leadership programmes at graduate, mid career and senior level to develop the skills of our future directors and managers and ensure that we have a strong pipeline of talented people that will continue to grow our brands and our company. We also strive to create the best possible conditions and freedom for people to succeed by optimising our systems and processes, developing career development paths attuned to strengths and ambitions, and providing a safe, world -class working environment for our employees and those that work with us.

Indeed essential to the engagement of our people around our vision is through the clear articulation of our corporate values and our broader reputation as a responsible corporate citizen and a contributor to society as a whole. Pride within Guinness Nigeria comes not only from the delivery of great performance and business outcomes, but from the as-

sociation with an organisation that truly represents people’s values and integrity. It is why we place so much emphasis on our leadership standards in a broader sense, and why we go to great lengths in communicating and engaging around it internally.

Our reputation is also defined by being a force for good, making significant contributions to the communities in which we live and work. In partnership with other like-minded corporate organisations, we want to set the right standards for ethical behaviour and good governance in our operations and relationships.

The private sector in Nigeria has a significant and important role to play in establishing benchmarks and ways of working that encourages enterprise development, upholds good governance and accountability, attracts quality investors and positively impacts our communities. We will play our role, but we will also play it collectively as 1,500 people.

This is what we certainly hope defines our legacy as an iconic business and a contributor to sustained growth in Nigeria today.

Seni Adetu is Chief Executive and Managing Director of Guinness Nigeria plc

Photo credit: Diageo

New Africa | January 2013

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An African Consumer Revolution Needs African Leaders

A

dous growth and build whole new economies and I want to repeat this experience in Africa.

But when I took over the helm at our Africa operations a few years ago, I found a different story.

Black hair care products were more easily available in London or New York than in Abidjan or Nairobi and the concept was of “black” hair as though Africans were all physically and culturally identical.

The list could go on from food to washing and personal care, with few companies bothering to tailor brands to different African tastes or develop better, safer or more nutritious products.

This is now changing and I’m particularly proud to be part of the team at Unilever that is playing its part in this revolution—not just in hair care but across the range of brands we make, from soaps and shampoos to soups and stock cubes.

But there is much more to do, we want to double our business sustainably, increase local sourcing and production, and accelerate the development of products tailored to different African markets and aspirations.

I would also go further and say the time has come to challenge the thinking, particularly prevalent in Africa, that the key to poverty reduction lies more in the business of development than in the development of business. I sometimes get the impression people feel that discussing sophisticated brands, products and markets is inappropriate in a continent where poverty is pervasive.

I can accept that many Africans don’t have much money. I can’t accept they are any less intelligent or sophisticated consumers than the rest of us. I do believe that by changing our perceptions we can engage with them to build sustainable and equitable new economies.

The best known example is mobile phones. Fifteen years ago, anyone suggesting an African villager could afford a mobile phone would have been considered crazy. These were not low tech products designed for rural Africa. In the end it didn’t matter, they might be high tech but they created a whole

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new economy because they met people’s needs. I want to drive the same kind of revolution in retail trade. Modern business thinking can drive economies of scale, consumer understanding and product development to provide what poor people want and, by so doing, create new markets.

I see Africa as the new generations of Africans see it—a growing, thriving and vibrant market with a population soon to rise to over 1 billion people. If we limit our ambition to the status quo then we’ll miss this demographic dividend. Business thrives by creating new markets. In turn this builds economies, employs young people, generates money and stimulates entrepreneurs. What can do more to re-

by Frank Braeken

ny business that is in Africa for the long term needs to become part of efforts to drive equitable and sustainable growth.

Doing this at the same time as developing new products to meet the rapidly changing needs of a growing, urbanising, and better connected population poses a unique business challenge. It also means the resulting pace of change in African markets is faster than at any time since Unilever first began producing its iconic African brands like Blueband and Omo over a century ago.

We need a new generation of visionary African business talent who can be the innovators and drivers of new business practice and help us meet this challenge. To train and inspire that new generation we also need new thinking about Africa in universities, politics and business circles. As business, we need to be driving the debate about improving that educational infrastructure. Unless we create more problem solvers, managers and thought leaders, Africa will remain dependant on outside help and the latent energy of markets will go untapped.

We also need to break the perception of Africa as a single, unsophisticated, market best served by basic products. I believe the African consumer has been underestimated and under-served for far too long.

This makes no business sense. It is the soft tyranny of low expectations—on a continental scale. My work across Africa has underscored to me time and again the enormous energy that can be released by sustainable business models. Too much business has been based on blunt assumptions about what people need and well meaning but unsustainable business models which simply do not take the African people seriously as consumers.

Let me give you the concrete example of hair care products, where the manufacturing world woke up some 20 years ago to the differences between Caucasian and Asian hair. The resulting brand differentiation and product development created a multibillion dollar business category. During my career, I’ve seen this kind of shift in thinking create tremen-

New Africa | January 2013

duce poverty and build self esteem?

Let me return to the people we need to do this. The key to realising our vision is clever people not clever technology. At Unilever we see Africa as a place of inspiration and opportunity, a place for people with a passion for business and a springboard for exiting careers. This means applying the highest standards of management, ensuring talent based recruitment and promotion. This means getting the message out and inspiring people to see the Africa of the future not the stereotypes of the past.

Frank Braeken is executive vice president of Unilever Africa

Photo credit: Scoundrel Media

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It’s Time for Africa

by V. Shankar

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was recently at the Milken Institute Global Conference 2013 in Los Angeles and, for the first time in its 16-year existence, four panels were devoted to discuss African opportunities and challenges. A decade ago, perceptions of Africa were extremely negative. The May 2000 cover of a major international publication portrayed Africa as ‘The hopeless continent’. Fast forward to 2011, and the same magazine’s headline was ‘Africa Rising’. There is a buzz about Africa today and the gains are tangible.

The continent has managed compound real GDP growth of 5.1 per cent in the last decade, second only to Emerging Asia. More than half the world’s fastest growing countries are here. Trade and investment links between Africa and the rest of the world are clearly on the uptrend. South-South trade now comprises more than half of Sub-Saharan Africa’s total trade. Generally, inflation has been tamed.

External indebtedness and budgetary deficits are at manageable levels and exchange rates are stable.

Governance has also improved significantly over the past two decades as evidenced by the many peaceful transitions of government through electoral processes most recently in Kenya, but also in Ghana, Nigeria and Zambia to name a few. With significant improvements in macroeconomic and political stability, the time for Africa is now.

Demographics will continue to underpin and determine Africa’s destiny. The African consumer in 2012, across 54 countries, collectively spent more than consumers in India – more than a trillion dollars. In the mobile space, subscribers have doubled every 30 months since 2000. Africa’s leading telecommunications provider, MTN, is one of many local companies that have ridden the consumer wave. It has been in existence for less than 20 years and yet now boasts a market capitalisation of $36 billion, making it one of the largest global players.

Is there more to come? By 2035, it is estimated that Africa will have more people of working age than either India or China. Given the right skills, training and jobs, they can produce a fertile consumer market. Absent the right jobs, we could see a replay of the Arab Spring. African governments can borrow a lesson from Singapore on making citizens employable through developing a good ecosystem of technical education. Education must focus on employability, not on rote learning of Shakespeare! Corporations also have a role to play

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in developing local talent. At Standard Chartered we have, over 150 years, learnt the importance of this. Barring one, all our CEOs in Sub-Saharan Africa are Africans. Some 80 per cent of our business leaders in Consumer and Wholesale Banking belong to the continent. We continue to tap on the huge domestic talent pool to drive our Africa business forward.

Of course, the opportunities in Africa are not without challenges. Parts of Africa are becoming costly before they have become rich. Rents in certain cities can match or exceed Manhattan. Productivity, especially in agriculture, is low. It is difficult to achieve scale in single country markets and yet too many barriers exist to intra-continental trade. Unsurprisingly, intra-African trade accounts for less than a sixth of total trade. The increasing emergence of regional trading blocs such as the Economic Community of West African States (ECOWAS) should help address this issue in the future. Capital markets are neither deep nor liquid and there is probably a need for regional consolidation.

However, the biggest challenge of all is the infrastructure deficit. Nigeria has 30 times more people than Singapore, but lesser power generation capacity. It is cheaper and faster to ship a car from Paris to Lagos, than from Accra. Simply put, there is a huge amount of investment that needs to go into infrastructure, estimated at somewhere around $100

billion a year, for the next 20 to 30 years. Home grown, mega-successful entrepreneurs like Aliko Dangote are addressing the gap by building huge, world class facilities to manufacture cement, the mainstay of any infrastructure development.

Standard Chartered is putting its money where its mouth is. A year ago, we committed to invest about $100 million in opening over 100 new branches over the next three years. Over the last five years, our top line in Africa has grown at 15 per cent CAGR and the bottom line at 21 per cent. Our Africa business contributes about 9 per cent of overall Group profits. Given our strategic footprint, we are actively connecting Africa to the rest of the world through a strong trade network.

In conversations addressing the growth of emerging market champions, it will be increasingly difficult to discount Africa as a key player. Global business and government leaders meet in Cape Town this month at the 23rd World Economic Forum on Africa. I expect many insightful and indeed balanced discussions from these interactions, but I am confident that the primary takeaway will echo the words of singer Shakira’s 2010 FIFA World Cup theme song – it’s time for Africa!

V. Shankar is the Group Executive Director and CEO, Europe, Middle East, Africa and the Americas at Standard Chartered

What is a Social Entrepreneur?

by Bright Simons

S

ocial entrepreneurs differ from commercial entrepreneurs in that they seek to fundamentally and permanently alter the context which gives rise to the opportunities and challenges for which their solutions are designed.

Unlike commercial entrepreneurs, when social entrepreneurs say that they want to “work themselves out of a job” they are not making a glib statement to sound cool, they are merely stating the obvious.

All this presuppose that social entrepreneurs will be more interested in understanding the social, socio-economic, political and cultural context of the problems they are trying to solve more than the traditional entrepreneurs.

It is unthinkable for instance to imagine a social entrepreneur treating the research conducted into the effects on the human body of tobacco use in the way it was by the tobacco industry, market analysts and public investors of the 1960s and 70s. It is the business of a social entrepreneur to stay ahead of the curve when it comes to the social impact of various phenomena, and if that means greater deference to academic research, then so be it.

That is why social entrepreneurs were among the most enthusiastic popularisers of concepts like C.K. Prahalad’s ‘bottom of the pyramid’, that began life as research output from Academia. Social entrepreneurs have also been some of the most attentive followers of the academic debate between the likes of Mark Pitt and Jonathan Murdoch about whether microfinance really helps reduce poverty.

The most intrigued have even gone back to the original writings of Lysander Spooner on the subject two centuries ago.

The reason is perhaps straightforward, the stakes are higher for social entrepreneurs. If Jonathan Murdoch and his collaborators are right in their calculations, then microfinance—in particular, microcredit—does not benefit the poor in the way it should, and a social entrepreneur working in the area of poverty-reduction cannot view the tool as a handy ally in her toolbox.

When I decided to get involved in helping find solutions to the problem of counterfeit medicines, I couldn’t simply confine myself to investigating

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Good for Africa

whether there would be a market for the solution.

I had to assure myself that counterfeit medicines are indeed the primary bad stuff to go after in the complex socio-economic mix of patient abuse and supply chain crime. I read, among many others, the writings of researchers such as Roger Bate and Paul Newton. I and the social enterprise community had to assure ourselves that we had a sufficiently robust analytical basis in which to ground the search for solutions.

True, a commercial/traditional entrepreneur invests substantially in research too. But only to assure herself that someone will pay a decent price over a period of time to make the development of the solution worthwhile. That the person paying the price sufficiently benefits is actually secondary.

What matters is that he should be willing to pay.

Of course, in a reasonable number of cases the benefits are real, and this leads to sustainable traditional enterprises. Which is why some have argued that ultimately all enterprises shall be ‘social enterprises’. Also, in many instances, social enterprises fertilise the way for commercial enterprises to follow. They till the ground when it is still not clear whether a viable commercial model exists. When social enterprises finally make headway, commercial enterprises jump into the newly created industry and seek to standardise returns from the new ‘value class’. Social entrepreneurs are seen

as ‘leaving value on the table’ when the evidence shows that over time they generate completely new value classes.

Today micro-packaging, for instance, is finally being taken seriously by giant, multi-national, fast-moving consumer goods companies. A few decades ago, only social enterprises saw anything in this approach of retailing items in small enough consignments affordable to the poor.

But these examples should not confuse us of the essential difference in focus between social and traditional entrepreneurs: one’s goal is to fix the social problem by experimenting with commercial model after commercial model until a sustainable way to fix the problem at its very root is found.

The other’s goal is to standardise the commercial model and to fix the problem only to the level that allows that model to be standardised.

Thus intensive knowledge about the social problem is a bigger burden for the social entrepreneur than it is for the commercial entrepreneur. Whilst living in the community and partaking of its most organic activities usually suffices for some problem-solving, it is not sufficient for technically complex and/or diffuse challenges like fighting supply chain crimes.

In these circumstances the social entrepreneur has no choice than to become an Analytical Social Entrepreneur. She may even have to develop

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sufficient expertise to sift through academic research in order to harvest knowledge by weeding out ideas sown through vested interests and ideological dogmatism.

We can generalise this finding in another direction. When you take a continent like Africa where the value chain of most existing industries are fragmented, entrepreneurs often struggle to standardise commercial models simply by ignoring the bulk of the problem and focussing on a smaller, repeatable, bit.

They must often enter partnerships that are more organic than transactional in order to build the value chain into which their problem shall be plugged.

They also need to embed themselves much deeper into the cultural and social matrix as transactional rule of law, contractual, and regulatory systems are often rudimentary and have often been more personalised and socialised than elsewhere. This can make distinguishing between social and commercial entrepreneurship in Africa a tad more difficult.

But the point remains that social entrepreneurship is a vital foundation block for any system that seek to uproot social problems anywhere, and in places like Africa it is not only essential, it is indispensable.

Bright Simons is the founder of mPedigree, an award-winning social enterprise

Photo credit: Scoundrel Media

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Driving the Age of Opportunity

by Andy Wales

D

espite gloomy predictions a decade ago, no one would now deny that sub-Saharan Africa is thriving. Economic growth has been strong, sustained and higher than the global average. Strong demand for Africa’s rich mineral wealth has, of course, helped fuel this performance. But the best performing regional economy has been East Africa which has relatively little natural wealth. Our continent’s richest resource is turning out not to be gold or oil but the energy, talents and resilience of its people.

This is not to say, of course, that everything is rosy. There are still many challenges to overcome.

But we are seeing progress in areas such as poverty reduction and improvements in life expectancy; and perhaps the most striking characteristic of the continent today is a new mood of optimism. It is a confidence which perhaps those who have lived outside Africa and returned notice even more.

There is a widespread belief right across the board that this not any more about possibilities, as in the past, but solid achievement and progress.

It is a new era which is being noticed well beyond the continent. Foreign investment into Africa is now five times what it was a decade ago and now stands at twice the level of official development aid. Businesses and countries across the world are keen to have a stake in Africa’s future. There is, in turn, an increased recognition of the importance of business investment and the private sector in driving prosperity.

At SABMiller, we have watched this discovery

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Good for Africa

of Africa’s rich potential with pleasure but no surprise. We began brewing beer on the continent well over 100 years ago and have operations in 16 African countries. We may now be a global player but our roots and heart remain very much here.

And we have been anticipating and responding to Africa’s new confidence and growing prosperity. In the last five years, our investments on the continent have totalled over $1.75 billion and we have said that we anticipate a further $400-$500 per year over the next few years. We believe this has an impact beyond our business and we wanted to see how and where this impact is manifested, in order to help us maximise the wider benefits.

So we commissioned an independent academic report by Professor Ethan Kapstein of INSEAD to look at the role that a business like SABMiller is playing in Africa. That study confirms the importance of the private sector in driving this new African age of opportunity.

The study was based on detailed research into our operations in Ghana, Mozambique and Uganda and used this as a basis for understanding our impact across the whole of sub-Saharan Africa, excluding South Africa.

We directly employ around 13,500 people across the continent. But it surprised even us to learn that each of these jobs supports another 56 in the broader economy, adding up to a total of 765,000 jobs across the continent. Every one of our jobs supports another elsewhere in manufacturing, five in trade, five in transport and communications, 21 in services and 24 in agriculture.

It is true, of course, that the way we operate as a business maximises our employment impact.

Wherever we can, we source, brew and sell our drinks locally. By working with local enterprises and using local expertise and knowledge, we can cut costs, lower prices and increase demand. We believe that everyone gains from our business model.

The figures are equally striking when you consider the broader impact of our businesses on the economy. The study found that the direct value of SABMiller’s African operations outside South Africa are worth over $500 million but the overall value added injection of extra revenue into the economy from taxes, incomes and contracts is more than $2 billion.

So what are the lessons to be learnt from a report like this? First, it underlines the role of the private sector in driving employment and prosperity in Africa. One of the reasons for continued confidence in the future is the widespread recognition by Governments that they have to work with business to create the conditions where companies can thrive, whether that’s through improved infrastructure or

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a stable economic environment.

Second, it shows the power of supporting domestic businesses. The report found that substituting imports for our locally-produced drinks would cost nearly 300,000 jobs. So countries are right to put the focus, where they can, on how they can develop local operations.

Finally, it shows that having a local business model as we do pays dividends not just for the countries in which we operate but for the companies ourselves. By supporting jobs and increasing incomes, we are increasing consumer spending and demand for our drinks which, in turn, creates new employment opportunities. It is, in the end, this increased consumer power which is one of the greatest forces for good within Africa.

Photo credit: Scoundrel Media

Photo credit: Scoundrel Media

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Andy Wales is SABMiller’s Senior Vice President of Sustainable Development

Coca-Cola: A Long Term Partner in Africa

by William Asiko

T

he Coca-Cola Company (TCCC) has a presence in every one of the 54 countries in Africa, reflecting the company’s long-term commitment to Africa.

During the 84 years that Coca-Cola has operated on the continent, the company has followed its global practice of operating as a global brand with local roots – the company sources ingredients regionally, employs local people and is part of local communities through consumer marketing activities, social partnership, and micro-enterprises. Local manufacturing and distribution are hallmarks of the Coca-Cola business in Africa, the Company’s impacts are realised through the core business activities key to inclusive business models.

Employing some 68,000 people in Africa the Coca-Cola system - comprising the company and its 46 local bottling partners who operate 160 plants on the continent - contributes widely to economic and development impacts. The company shares some 80 brands with 925 million Africans through a network of 900,000 retailers across the formal and informal sectors.

We are optimistic and committed to Africa as

an increasingly important growth market. Studies suggest that soft drink sales volumes will continue to grow.

We see Africa much more in terms of opportunities than risks. In fact, the risk is not having a presence here, Africa is an opportunity whose time has truly arrived.

Illustrating the centrality of Africa to the company’s global objective (2020 Vision) of doubling the number of ‘servings’ per day from 1.5 billion in 2010 to three billion by 2020, the company is committed to increasing its investment in Africa over the decade to 2020 from $5.6-billion in the previous decade to invest an additional $12 billion by 2020.

Getting its product to every corner of the continent is not a secret according to the company, the success of its supply chain is the result of the systems’ ability to reach into communities and leverage local partnerships. By partnering with local entrepreneurs product can reach remote and hard to access communities, such as through the innovative Micro Distribution Centre (MDC) model.

This UN awarded model empowers small scale

Photo credit: Coca–Cola

entrepreneurs to operate product distribution centres that supply outlets across the continent. There are more than 3,200 of these businesses employing more than 19,000 entrepreneurs.

The framework for Coca-Cola’s commitment to sustainability is called Live For A Difference.

This includes goals, metrics and principles for work in developing benefits, supporting healthy living programmes, building communities, improving environmental programmes for its operations and creating a safe, inclusive work environment for associates.

As part of this is its commitment to ensuring that the communities in which it operates are sustainable. This philosophy calls for hiring local work-

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Good for Africa

Good for Africa

ers, supporting local businesses and suppliers, and partnering with distributors and retailers. Every direct job created generally generates between 10 and 16 indirect employment opportunities. Ultimately, every player in the Coca-Cola supply chain makes money through the production, distribution, and sales of the brands boosting community economic value and promoting sustainable development.

We recognise that many of the world’s most pressing sustainability challenges can be best addressed when diverse actors in society come together to collaborate. For this reason, we partner with and engage governments and non-profit organisations worldwide to help advance our shared sustainability goals.

It is through this commitment to partnerships and sustainable development that TCCC is making significant progress in such areas as women’s empowerment and entrepreneurial employment creation.

To this end, TCCC launched the global ‘5 BY 20’ initiative in 2010. This has been designed to empower five million businesswomen in 206 countries within the Coca-Cola system by 2020. It focuses on women who own or operate small businesses.

Through this, it addresses four key business needs – business skills training, financial services, mentoring and networks, and access to technology.

In essence, it will connect women entrepreneurs with what they require in order to succeed.

Women are critical to our success. As we grow our business we will need to rely on them even more. We are uniquely positioned to reach out to the businesswomen in our system to help them overcome the barriers they face, enabling them to reinvest in themselves, their families, and their communities, and contribute to economic development.

Another of its programmes is the Project Nurture initiative launched in 2010 in conjunction with TechnoServe and the Bill & Melinda Gates Foundation. This four-year, $11.5 million programme is designed to enable more than 50,000 smallholder fruit farmers in Kenya and Uganda to double their income by 2014.

The programme works with mango and passion fruit farmers in selected areas to improve the productivity and competitiveness of their fruit. It also links them to new markets such as those provided

by TCCC’s locally-produced juices as well as fresh domestic and fresh export markets.

I would recommend that when doing business in Africa, be local and involve local communities in your work.

William Asiko is the President of The Coca Cola Africa Foundation

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Photo credit: Scoundrel Media

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The Base of the Pyramid

by James Mwangi

E

ntrepreneurs play a vital role on the front lines of Africa’s economic growth and development. In Kenya, small and medium enterprises (SMEs) employ almost 80 per cent of the workforce and contribute less than 20 per cent of gross domestic product (GDP). Supporting these businesses so that they can increase employment and economic growth in their communities is one of our bank’s primary goals. As a result, SME financing is a significant segment of our operations, with entrepreneurs making up over 40 per cent of our customer base.

Last year, Equity Bank made 166,000 SME loans

valued at over $680 million. Recently, we completed a $100 million funding agreement with the International Finance Corporation to provide a facility to extend our SME lending portfolio with a special focus on women entrepreneurs. These loans offer fair pricing and terms and are coupled with the provision of advisory services, which provide African entrepreneurs with the capital they need to expand their businesses, and create local employment opportunities, wealth and contribute to the growth of the region.

The vast majority of Kenya’s entrepreneurs are in the informal sector. Tailoring financial products for the millions of unbanked and poorly banked customers in Kenya and throughout East Africa requires new approaches and innovative solutions.

Using non-traditional credit and risk management methodologies, repayment schemes, loan amounts, and guarantor and collateral terms, we have designed creative, low-cost solutions for five distinct segments of the base of the pyramid (BOP) market: consumer, agriculture, micro-enterprises, and SME. In 2011, these segments accounted for more than $1.08 billion in financing through 745,000

loans. These included over $370 million in consumer loans, enabling 570,000 individuals and households to pay for life improvement goods and services, such as school fees, medical expenses, and repairs.

Our work with farmers is illustrative. Agriculture is a key component of the African economy; in Kenya, farming accounts for 25 per cent of GDP. The capital we provide to smallholder farmers enables them to purchase high-quality inputs that improve their productivity and efficiency. Last year, we invested over $39 million in 88,000 agriculture loans to smallholders, processors, manufacturers, distributors, and retailers. By lending to multiple stakeholders across the agricultural value chain, we reduce our risk exposure while also deepening our financial support of the sector.

In addition to our lending activities, we provide financial literacy training to smallholder farmers and other BOP customers. At present, youth—who account for over 60 per cent of the population – constitute 70 per cent of Kenya’s unemployed—a staggering figure. In partnership with The MasterCard Foundation, we created the Financial Knowledge for Africa (FiKA) initiative to educate youth and women entrepreneurs. The free 12-week training program provides grounding in basic financial concepts as well as advice on starting and growing a business, and has successfully trained over 380,000 Kenyans to date, with the goal of one million by 2014.

In another innovative partnership, we collaborated with Brookside Dairy Limited to provide loan facilities and financial literacy programs to 100,000 smallholder dairy farmers in six regions across Kenya. One beneficiary, the Lukuma Dairy Commercial Village, increased its average daily milk sales from 186 litres to 600 litres, translating to an increase in income of $4,500 per month for the cooperative.

From our earliest days as a microfinance institution, Equity Bank has grown into a major commercial provider of diversified financial products and services, with nearly 8 million customers in five East African countries. Using innovative financial products and services supported by social impact programs like financial literacy training for youth and women, we have enabled growing numbers of previously unbanked customers—from smallholder farmers to women entrepreneurs— to access the capital needed for a better life and future, driving business expansion at home and helping spark broader economic growth throughout the region.

James Mwangi is the CEO of Equity Bank

New Africa | January 2013

New Africa | January 2013

Good for Africa

Good for Africa

The Big Potential in Smallholders

by Pat Devenish

A

griculture plays a central role in the African economy, accounting for 15 per cent of total gross domestic product, or more than $100 billion annually. The reality is that 70 per cent of the continent’s poor live in rural areas and the overwhelming majority rely on smallholder agriculture for their livelihoods. The potential for helping these smallholder farmers boost production by increasing access to improved inputs and linking them to markets holds enormous promise for Africa’s development.

As Africa’s largest seed production company, Seed Co has been at the forefront of improving agricultural yields across the continent. In our business, there is a clear connection between our success as a company and broader development impacts such as improved farmer incomes and enhanced food security.

A strong relationship with smallholder farmers is central to Seed Co’s approach. In a very real sense, their success is our success. Last year alone, we invested $4 million in research and development and sold over 67,000 tons of seed, resulting in enhanced crop yields for 3.7 million smallholder farmers. We supplement the marketing of our disease- and drought-resistant seeds with a range of value-added products and services designed to enhance farmers’ productivity and reduce their vulnerability to shocks. For example, we partnered with Kilimo Salama and the Syngenta Foundation in Kenya to provide cost-effective farming insurance to 11,000 smallholders through a matching scheme in which Seed Co contributed to the cost of the coverage. It is a virtuous cycle—our products help increase their yields and their incomes, enabling them to purchase more of our products, which further enhances their productivity.

Investments in improving yields also generate macro-level impacts: as countries transition from being net grain importers to becoming net grain exporters the improved agricultural output contrib-

utes to increased GDP and food security as well.

Increases in productivity of up to 300 per cent have resulted when farmers are trained in best practices and appropriate usage of improved seeds and fertilizers. In Malawi, for example, we distributed seed developed through the Drought Tolerant Maize for Africa project, which contributed to a bumper harvest of 3.6 million metric tons of maize in 2010, twice the country’s domestic requirement.

Africa has a quarter of the world’s arable land, but only generates 10 per cent of global agricultural output. This represents an enormous potential for Africa to not only feed itself, but also to help feed the rest of the world. To do so, the continent needs to address a number of significant challenges, including inadequate infrastructure, limited access to credit, a huge and largely unmet need for farmer training and high-quality inputs, and poor linkages to regional and global markets.

Given the many challenges facing African agriculture, finding collective ways to move forward is essential. In Tanzania, Seed Co is leading an effort to work with other companies active

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in the agriculture sector, as well as development organizations and NGOs, to establish simple, modular centres that will provide rural farmers with a one-stop source for training, inputs, equipment, financial services, and insurance. These centres will also include a weather station and a demonstration plot. Our goal is to increase per hectare yields from 1.1 to 4 tons for farmers participating in the project. Current financial commitments from public and private sector sources will enable 10 such centres to be built by spring of 2013, with the potential to scale up to 30 centres within a two-tothree-year timeframe.

Should the Tanzania collaboration be successful, we are optimistic about the potential to replicate the approach in other African regions and countries. Ultimately we aim to demonstrate the immense, untapped potential in helping smallholders across the continent achieve crop yields that secure their own food needs and build the foundation for growing their economies as well.

Pat Devenish is CEO of AICO Africa Limited

Photo credit: Scoundrel Media

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The Business of Job Creation

by Peter Maila

T

imes are changing. In September 2012, the Financial Times reported that the Republic of Zambia had sold its maiden 10-year dollar-denominated bond, raising $750m from international investors. The bond was over-subscribed by 16 times, allowing the country to price the bond at a yield of just 5.625 per cent. Spain’s 10-year bond at that time was 5.78 per cent.

CDC has been investing in Africa since 1948 and has a strong reputation for growing businesses that have made a strong contribution to local economies. During this period our landmark investments have included the Kenyan Tea Development Authority in 1959, which went on to become the largest single tea-growing organisation in the world; Celtel in 1995, which became one of Africa’s largest phone networks; and the Globeleq portfolio of 19 power stations, including the Songas facility in Tanzania.

Today demographics alone tell a story of opportunity. With 200m people between 15 and 24, Africa has the youngest population in the world—and this is fuelling the fastest growth in any working age population in the world. Almost 1 billion people in Africa are predicted to be of working age by 2040 – larger than both China and India—creating a need for goods, services and above all, jobs.

Job creation is at the intersection of good business and good development policy. Globally, almost 90 per cent of jobs are created by the private sector (World Development Report 2013, World Bank). Jobs increase living standards and provide the taxes for better health, housing and education.

New Africa | January 2013

New Africa | January 2013

Good for Africa

Good for Africa

That’s why supporting job creation, both directly and indirectly, is the focus of CDC’s new strategy.

CDC’s experience since 2004 has primarily been as a leading investor in private equity funds.

Why private equity? Away from the multinationals, the most well-established route into Africa for capital is through this type of fund and we believe that private equity for growth or expansion can be transformative. As well as providing muchneeded capital, fund managers create value by introducing technical expertise, better management systems and improvements to environmental, social and governance standards. These are the ingredients of a sustainable business that creates longterm employment.

Since 2004 CDC has evolved from working with just two managers—Actis and Aureos—to develop a portfolio of over 1,100 underlying investments, made through over 80 funds. This growth has seen CDC at the forefront of developing private equity in Africa, backing numerous first time teams in emerging markets.

When we started this investing through funds there was just a handful of good fund managers active in Africa. Today there are over 100 fund managers of institutional quality investing on the continent, many of whom were first backed by CDC. So that’s the good news. Responsible investors recognise that there are reasonable returns to be made in Africa and capital is starting to flow. Unfortunately most of the private equity investment in Africa is concentrated on the better established economies. In 2011, South Africa, Egypt, Nigeria and Kenya attracted 73 per cent of private equity investment, yet their economies represent 48 per cent of the continent’s GDP. Challenging markets require innovative and patient approaches to investment, so we are broadening our range of financial instruments. From 2012, CDC will once again provide capital directly, often as a complimentary co-investment alongside partners such as fund managers. We will also provide debt—directly, through funds and to financial institutions. These new instruments will enable CDC to reach more countries and fulfil a wider range of financing needs.

Our ambition is to invest our capital in geographies that are less covered by private equity funds in sectors that create jobs and have an impact in the community. We recognise that such investments require a longer investment horizon than the usual 3 to 5 years. We are willing to co-invest along with similar minded investors in building regional or pan-African companies, as we did with Celtel and Globeleq. Alongside these new instruments, fund investing will remain central to CDC’s strategy.

In May 2012, for example, we committed $15

million to the Schulze Global Ethiopia Growth and Transformation Fund, the first to focus exclusively on Ethiopia. With approximately 85 million people, Ethiopia has the second largest population in Africa and average annual real GDP growth of over 10 per cent during the past 6 years. But the country has GDP per capita of just $358, compared to a sub-Saharan Africa average of $1,316.

CDC was the first investor to commit capital to the fund and spent over a year in discussions with the Schulze Global team to help them shape the proposal, team and strategy. Other investors are now coming on board.Investing successfully in Africa requires the same skills, processes, rigour and judgment as elsewhere. In Africa, however, investors also need to overcome preconceptions and focus on the real risks, not the perceived.

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Private Equity Fundraising, 2011

Total PE Capital Invested (US$m) SSA total 1,059 North Africa 125 Africa total 1,184 South Africa 523 Nigeria 121 Egypt 125 Kenya 99 Total 869

GDP (US$m) 1,265,576 620,555 1,886,131 408,237 235,923 229,531 33,621 907,311

Proportion Proportion of total of Africa PE Africa GDP investment

22% 13% 12% 2% 48%

44% 10% 11% 8% 73% 2011 – Source EMPEA, World Bank

Peter Maila is CDC’s Investment Director, Direct Investments

Photo credit: Scoundrel Media

Photo credit: Scoundrel Media

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New Africa | January 2013

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New Africa Report January 2013

Business Action for Africa is the international network of businesses and development partners, working together in support of Africa’s future.

www.businessactionforafrica.org

The Initiative for Global Development (IGD) engages corporate leaders to reduce poverty through strategic business growth and investment in the developing world, with a current focus on Africa.

www.igdleaders.org

Founded in 1948, CDC is the UK’s Development Finance Institution (DFI). Wholly owned by the UK Government’s Department for International Development, it is the world’s oldest DFI.

www.cdcgroup.com

New Africa | January 2013

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