Africa Risk Dashboard

Praise for Africa Risk Dashboard

“I have known Professor Issa Baluch since 1992. I commend this primer for investors, students, and other decision-makers.”

—HH Sheikh Ahmed Bin Saeed Al Maktoum, Chairman & CEO, Emirates Airlines & Group; Chairman Dubai Airports

“This field report offers investors and other decision-makers a useful framework to plan their engagement in Africa.”

—Former U.S. Congressman J.C. Watts, Jr. “The book is a valuable guide for investors in Africa wishing to create an environment for exponential growth.”

—Elizabeth Uwaifo, Attorney, London, United Kingdom

—Dr. Wesley Harris, Professor, Massachusetts Institute of Technology

“In this book, Issa Baluch, and my former chief of staff, Jon Vandenheuvel, offer a smart framework to evaluate and mitigate risks, a useful tool for decision-makers.”

—Former U.S. Congressman and House Intelligence Committee Chairman, Pete Hoekstra

“Africa Risk Dashboard outlines how to de-risk investments to help African entrepreneurs, including women, compete in a global market.”

—Katrin Kuhlmann, Founder and CEO, New Markets Lab; Lecturer, Harvard Law School

“No one has so thoroughly understood what it takes to invest in Africa than the authors.

Their report is based in reality and not in theory. It is a must read.”

Africa Risk Dashboard

“I must commend this book to all academic colleagues researching, teaching, and studying African development, along with institutional investors and policymakers.”

Africa

RISK DASHBOARD Mitigation Architecture for Investors from Lessons Learned the Hard Way

—Stephen Hayes, President Emeritus, Corporate Council on Africa

—Anil Wats, Group Chief Operating Officer and Executive Vice President, Dubai Ports World

The Authors

In 1989, Issa S. Baluch founded Swift Freight International, one of the top freight and logistics providers in the Middle East & Africa. He was president of the National Association of Freight Logistics of the UAE; and president of the Zurich-based International Federation of Freight Forwarders Associations (FIATA). Mr. Baluch has authored two previous books, Transport Logistics: Past, Present and Predictions, and Transport Logistics, the Wheel of Commerce. He has been a Senior Fellow of the Advanced Leadership Initiative of Harvard University and currently serves on the Dean’s Council at Harvard Kennedy School. He is Chairman of First Hectares Capital, AKILI, and the FIATA Logistics Academy.

Jon Vandenheuvel is CEO of First Hectares Capital. He is the founding Director of the Free Zone Investment Authority of the South West State of Somalia, developing infrastructure for post-conflict Somalia. He is co-founder of AKILI, served as Visiting Scholar for African Urbanism at MIT, and is also co-founder of Africa Atlantic Farms in Ghana. Mr. Vandenheuvel started his career on Capitol Hill in Washington, D.C.

Issa Baluch & Jon Vandenheuvel

“Issa Baluch has been my mentor. What they teach us is how to provide peace-of-mind to business entrepreneurs on the African continent.”

Issa Baluch

Jon Vandenheuvel Forewords by H.H. Sheikh Ahmed Bin Saeed Al Maktoum, Former US Congressman J.C. Watts Jr. and Professor Wesley Harris, MIT

AF R ICA R I SK DASH B OARD Mit igat ion Arch ite c tu re for Investors From L e ss ons L e ar ne d t he Hard Way

Iss a B a lu ch Jon Vanden heuvel

Forewords by H.H. Sheikh Ahmed Bin Saeed Al Maktoum, Former US Congressman J.C. Watts Jr. and Professor Wesley L. Harris PhD

Headline Books, Inc. Terra Alta, WV

Africa Risk Dashboard: Mitigation Architecture for Investors From Lessons Learned the Hard Way

by Issa Baluch and Jon Vandenheuvel copyright Š2017 Issa Baluch and Jon Vandenheuvel All rights reserved. No part of this publication may be reproduced or transmitted in any other form or for any means, electronic or mechanical, including photocopy, recording or any information storage system, without written permission from Headline Books, Inc. To order additional copies of this book or for book publishing information, or to contact the author: Headline Books, Inc. P. O. Box 52 Terra Alta, WV 26764 www.headlinebooks.com Tel: 304-789-3001 Email: mybook@headlinebooks.com ISBN: 978-1-94-666412-9

Library of Congress Control Number: 2017951894

PR I N T E D I N T H E U N I T E D STAT E S OF A M E R IC A

If you want to go quickly, go alone.

If you want to go far, go together. —African Proverb

CONTENTS Special Thanks..................................................................................5 Foreword by H.H. Sheikh Ahmed Bin Saeed Al Maktoum, Emirates Airlines............................................................................7 Foreword by Former US Congressman J.C. Watts Jr...................8 Foreword by MIT Professor Wesley L. Harris, PhD..................10 Part I: How We Started.......................................................13 Introduction.............................................................................15 Chapter 1: Issa’s Story..............................................................21 Chapter 2: Jon’s Story...............................................................37 Chapter 3: Africa Atlantic Holdings and Lessons Learned the Hard Way...................................63 Part II: The Africa Risk Dashboard: A Diagnostic Tool for Investors........................................75 Chapter 4: Risk Dashboard.....................................................77 Chapter 5: Legal and Policy Risk...........................................83 Chapter 6: Financial Risk........................................................97 Chapter 7: Operational Risk.................................................109 Chapter 8: Social and Environmental Risk.........................119 Chapter 9: Security Risk........................................................129 Part III: Risk Mitigation Architecture: Creating a Safe Place to Invest........................................135 Chapter 10: Transition from Fragile Area to Stable Area................................................137 Chapter 11: Smart Municipal Infrastructure Blocks.........................................................157 Chapter 12: Fragile Zone Infrastructure.............................181 Chapter 13: The Future.........................................................193

SP E C IA L T HA N K S A special thanks to some of the finest people in the world who made this project possible.

John Dragonetti Board Member, Deputy Chairman

Jack Greenwald Board Member, General Counsel

Kristopher Klokkenga

Co-Founder, Board Member

Natasha Rodriguez

Emily Daher

Kojo Prosper Dzanado

Drew Chandler

Andrew Thompson

Peter Mueller

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Justin Bruch

Lenny Polzin

Zein Baluch

Amber Hop

Eben Amankwah

Dr. Nathan Heston

Craig Nelson

Charles Edwards

David Dyer

Samantha Van Gilder

George Akpolu

Trevin Hoekzema

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F O R EWO R D I have known Professor Issa S. Baluch since 1992, the year NAFL was launched, and, without a doubt, he is one of the UAE’s pioneers. Issa has helped many companies in the UAE— and throughout the world—navigate the challenging waters of global freight and logistics, with a particular expertise in Africa.

Together, we have seen many changes in African industry— many positive changes—and yet some challenges still remain.

Among the greatest challenges facing Africa is infrastructure development. This is a complex and expensive challenge that demands careful thinking, experience, and a passion to help others.

Customer service was Issa’s focus for many years as a leader in the freight forwarding industry, and this spirit of service to customers is now directed toward service to humanity. The Africa Risk Dashboard is a smart primer for African investors, exposing not just the risks, but offering solutions. I understand that Issa has teamed-up with an American entrepreneur, Jon Vandenheuvel, and together with many friends and colleagues, including those from notable institutions such as Harvard and MIT, they have set forth a framework to consider risks and frame decisions.

First with his Transport Logistics book series, and now adding African agribusiness and infrastructure through the African Risk Dashboard, Professor Issa S. Baluch takes students of African development to new and important fields of learning.

I commend this primer for investors, students, and other decision-makers.

Ahmed Bin Saeed Al Maktoum Chairman Dubai Airports Chairman & Chief Executive - Emirates Airlines & Group President Dubai Civil Aviation Authority 7

F O R EWO R D It was my privilege as an elected leader in the US House of Representatives to lead the Congressional Delegation to Africa in April 2001 that introduced my friend and colleague, Jon Vandenheuvel, to the continent.

Our first stop was the slave trading post at Goree Island in Senegal. At the “Door of No Return,” we were reminded of a dark chapter in Africa’s history. Yet here we were, a son of Africa and a son of the Netherlands, standing in Africa representing the United States of America, on a mission to consider what we could do to bring peace, investment, and prosperity to the people of Africa.

As a Congressman and later as a businessman, my love and passion for the African people and their homeland was always guarded by a sober recognition of the complexity of these problems. However, even in the United States, many of our fellow citizens face similar challenges of deep poverty and socio-economic isolation, lack of education, and even hunger in a land of opportunity. What is common in these situations? The lack of private investment and access to capital by entrepreneurs due to a maze of bureaucratic roadblocks and unmitigated risks.

Jon has been a fellow warrior with me in this journey for nearly twenty years, a passion for those hurting and suffering in the United States and in Africa due to similar challenges. What unites Jon and I is faith in a loving God, a commitment to seeking holistic system solutions to system problems, and the power of entrepreneurship to unlock human innovation and potential.

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In the Africa Risk Dashboard, Jon and his colleague, Issa Baluch, have conducted a deep dive into the complexity of investing in Africa. Issa has been investing in Africa for more than forty years and has navigated some of the most difficult economies in Africa in the field of transport and logistics. As a team, Jon and Issa are tackling issues related to investments in agribusiness, infrastructure, and finance, and the role of public policy to advance private sector development and entrepreneurship in Africa.

Their journey is far from over, but this field report offers investors and other decision-makers, along with all students of Africa, a useful framework to plan their engagement in Africa.

There is an expression in carpentry, “measure twice; cut once.”

The Africa Risk Dashboard helps builders in Africa “measure twice” and carefully examine the critical issues as they consider committing capital.

I commend Jon and Issa for this contribution to knowledge and innovation. May it advance the cause of private investment and sustainable entrepreneurship in Africa.

J.C. Watts. Jr. Norman, Oklahoma

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F O R EWO R D Several years ago, I encouraged my friends Issa Baluch and Jon Vandenheuvel to view their investment activities in African agribusiness as a laboratory for innovation and best practices, and to record lessons learned and harness them in a framework to share openly with the rest of us for the benefit of Africa and humanity.

It is a pleasure to report that with the Africa Risk Dashboard, Issa and Jon have succeeded in delivering to humanity an original and systematic framework of practical insights concerning the risks of investing in Africa. And they go even further by offering a package of important planning tools to mitigate these risks, highlighting public policy, infrastructure, systems thinking, and public-private collaboration.

Issa and Jon are true pioneers and innovators in this critical arena. Our friend and colleague, Professor Calestous Juma of Harvard University, in his award-winning book The New Harvest, defines an “innovation system” as a “network of organizations, enterprises, and individuals focused on bringing new products, new processes, and new forms of organization into economic use, together with institutions and policies that affect their behavior and performance.”

The Africa Risk Dashboard is, in this context, a field manual for innovation systems in African agribusiness derived from the first-hand experience of private investors. For this reason, I must commend this book to all academic colleagues researching, teaching, and studying African development, along with professionals in developmental agencies, institutional investors, and policymakers. It is an honest treatise on contemporary 10

practice, addressing “the system” as it is experienced in real time. It records inconvenient, previously uncharted steps to create paths for future investors, delivering raw data and perspectives, seeking sustainable solutions to problems, and enduring through the hard times.

Most encouraging about the Africa Risk Dashboard, it makes a compelling case for a new paradigm for the African small farmer, a system built upon a globally competitive platform of soft and hard infrastructure. It identifies fully with the small African farmer (to quote the book, “if we need it, they need it”) and respects them as entrepreneurs and professionals capable of full participation in the global marketplace.

Agriculture is central to Africa’s economic future, and private investment is central to African agriculture. The Africa Risk Dashboard offers a navigational tool for stakeholders with the innovative systems thinking needed to reduce the risk of failure. It is an important contribution.

Professor Wesley L. Harris, PhD Massachusetts Institute of Technology

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PA RT I HOW W E S TA RT E D

I N T R O D U C T IO N When people ask us what we are doing in Africa, our fun and light-hearted answer usually surprises them. “We are African farmers!”

They usually laugh, regroup, and then ask the obvious question of a white American dude in his early forties and an Emirati in his sixties. “Are you joking? Why? How? Do you work for the United Nations? Is this deep cover for the CIA?” We say, “No, none of that. But it’s a long story.”

Well, this is our long story.

This book describes a work in progress. We remain cautiously optimistic of the outcome of the work we’re doing in Africa. We remain excited by the opportunities, and we have seen tangible progress. And we remain inspired by the wonderful people we meet every day.

How did we get to this point, and what have we learned along the way that may be of some use to those engaged in African investments, or considering it?

This book is an unlikely tale of an unusual alliance, an Emirati who was born in East Africa, became a refugee in Europe, and later became an international industrial leader based in Dubai and a senior fellow at Harvard University; a Dutch American preacher’s son and former congressional staffer; and a growing number of incredible friends and allies who have encouraged and supported this journey, past, present, and future.

Issa Baluch spent his entire career in global business and engaged with Africa while based in Dubai. After growing up in East Africa, and then becoming a refugee in Europe, his perspective has been influenced by his navigation of Dubai’s trans15

formation, modernization, and expansion. He worked his way through various levels of management in shipping and freight forwarding early in his career. In the late 1980s, he launched his own successful global freight forwarding company connecting many countries in Africa with markets in Asia and Europe through the multi-model systems he helped pioneer in Dubai.

Throughout his career, Issa served in the presidency of major international trade associations, further shaping his perspective on African investment, its challenges, and opportunities.

Jon Vandenheuvel spent his early career on Capitol Hill in Washington, DC, so his perspective has been heavily influenced by his early engagement in US policymaking. His experiences running congressional campaigns, working for members of Congress and the congressional leadership, and later as a corporate lobbyist on K Street have further shaped his perspective on Africa and poverty, and in many ways have made this tale of investment in Africa even more unlikely.

We met in 2008 and developed our business strategy together in 2009 and 2010. We did not know the steps required, as there was no blueprint or template for us to set up a commercial farm in Ghana, but thankfully we were cognizant that we didn’t know these steps, and therefore we entered the project with a mindset open to learning and systems thinking. In 2011, Issa was invited to serve as a Senior Fellow at the Harvard University Advanced Leadership Initiative. This has proven to be fortunate for us, as it has led to a relationship of friendship and shared learning with Professor Calestous Juma, and later with Massachusetts Institute of Technology (MIT) Professor Wesley Harris.

This connection remains an oasis of encouragement and faith, as well as a quest for knowledge that has shaped and influenced every step of this journey. Based on this relationship with Harvard and MIT, we created a nonprofit organization, AKILI (a Swahili word for wisdom), the Agribusiness Knowledge and Innovation Leadership Initiative, to harness these lessons learned. We are now also supporting the development of the MIT Fragile World Resilience Labs under Professor Harris’s leadership in order to build the base of knowledge and share it with all stakeholders 16

who seek to improve the lives of those suffering in fragile situations, whether in Africa, the Middle East, or across the globe.

The pages of this book offer a perspective on African investment that is personal, yet reflects the experience of others who have walked this path of entrepreneurship, and it offers an architecture to mitigate risks in a systematic way. The book challenges the outcomes of current policy on matters of poverty, infrastructure, and investment, with an emphasis on Africa, and creates a practical framework to tackle many of the risks and threats that we believe have caused many disappointing outcomes throughout the continent. We seek to help planners design and execute smart and viable projects to create a sustainable economic future for Africa generally, with a special focus on systems that can lift those suffering in poverty or displacement, starting with agriculture but inclusive of manufacturing and all industries.

The African Risk Dashboard presents a framework to help cut through the fog of information across many disciplines and make sense of complex situations in order to support better decision-making by investors, governments, and all stakeholders.

We have developed this resource through our shared experiences in Africa, and we believe it can be a useful tool for policymakers, investors, and all other stakeholders who seek to design and execute projects in Africa.

Why a “Dashboard”?

A dashboard is a single unit (or system) of connected monitors and controls. You see dashboards in cars, airplanes, even power plants. A simple dashboard has two essential features: data and dials. The data informs the pilot; the dials (or levers) control specific functions. Together, the data and dials allow the pilot to control the system. The “system” might be a vehicle.

The “system” might be one thousand road vehicles, along with planes and trains. The “system” might be an airport, or a farm, or twenty farms, or five hundred taxis. A “system” might be a project to build a new aircraft carrier, or the framework and methods to operate the carrier once deployed.

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The Africa “risk” dashboard is, therefore, a monitor-andcontrol system for the risks associated with projects in Africa.

We define a project as a series of activities directed toward a strategic objective. The “risk” dashboard is a tool we have developed to make decisions. The input is data; the output is a decision or action.

If the project is a farm in Africa, are there just a couple of monitors and dials? Soil quality? Temperature? Rainfall? Seed?

Or are there other monitors and dials that impact the project, such as public policy, legal agreements, land title, access to finance, insurance, transportation, environmental protection, marketing, and security? Are these same “risks” part of the equation for building a factory, building a port, defeating terrorism, fighting hunger, or containing health pandemics?

Our hope is that this Africa Risk Dashboard is helpful to decision makers, otherwise known as “stakeholders,” in matters of economic and social development in Africa. There are many stakeholders cutting across many disciplines. Our priority for this book, and our bias, is the interest of the private sector. However, all stakeholders are needed to overcome risks and achieve great outcomes, and therefore all stakeholders are needed in this dialogue. Entire systems must function properly, not just one element, to create conditions that can allow people to prosper, especially those who are poor and displaced or in other ways disadvantaged by situations that are fragile and the risk of failure and suffering is elevated.

Concerning the risks, we fully acknowledge that Africa is a continent of fifty-four countries, not a single country. The authors have traveled, done business, and/or set up companies in forty-five African countries, so we are fully aware of this point.

We use the term “Africa” to frame a broad discussion, and we do so respectfully. We will, in the course of this essay, bring perspectives in consideration of the most peaceful and stable countries as well as the most fragile countries, and many in between.

The “risk dashboard” settings can vary greatly depending on the individual factors applicable to a given country.

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However, we craft this book also with a mind to the African Union vision of a single economic community of nations, and the regional economic bodies that work hard every day to harmonize the policies of nations within regions to ease friction and unlock commercial and social interaction. And so we generalize for the sake of discussion, not to show ignorance of unique distinctions and characteristics of each nation. We could, and in fact we might, one day provide a “Risk Dashboard” edition of this essay on a country-specific basis. If there is interest in this, we can certainly consider it.

The book is not intended to provoke or offend, but if we’re doing our job, it might provoke and/or offend some. To those provoked or offended, we extend the right hand of good will in the shared spirit of wanting what is best for those who are poor, weak, and economically isolated. Improvement will only come from learning, and learning will only come as iron sharpens iron—and in the process, transforms risks into opportunities.

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C HA P T E R 1

I S S A’ S S T O RY The Last King of Scotland is the title of a popular Hollywood movie starring Forrest Whitaker and the nickname of Idi Amin, one of the most infamous African presidents in history. Due to his policies, thousands of people met their fate at the end of a pistol. I was one of the fortunate ones who had twenty-fourhour advance notice and a seat on an emergency evacuation flight to Europe, thus avoiding that fate.

I was born in East Africa to loving parents. With my six brothers and five sisters, we were part of a tight community of Arabic and Asian East Africans that included my grandparents and other relatives who The dirty dozen—Issa with five sisters traced their roots to the Arabiand six brothers. an Peninsula, and many friends who traced their roots to India and other part of South Asia.

Our community was involved in various trades and small enterprises.

When the expulsion took place in 1972, I was doing my “O” levels at Jinja Secondary School on the shores of Lake Victoria, a source of the Nile River. Prior to that, I was fortunate to have many formative moments growing up and influences that shaped my tastes and priorities in life.

My paternal grandfather was born in the port city of Mombasa in 1902. At age twelve, he lost both his parents to yellow fever and decided to leave the family property located close to 21

Baluch Street in Mombasa, a street that still exists today. From there, he traveled to Tanganyika (Tanzania) and lived there for a while before moving to Uganda. We found out much later that his wanderlust was because he was running away from the rest of the family, i.e., uncles, cousins, brothers, and sisters, due to a family feud that had developed following the loss of his parents.

My grandmother was of mixed stock—Baluhya/Samia tribes from Kenya.

My dad was employed by the British African tobacco industry, and due to his work, we moved to Kenya, Tanzania, Northern Rhodesia (which became the Republic of Zambia in 1964), and finally Uganda. In those days, traveling between the British protectorate countries was not a big issue, as usually a simple identification document sufficed. Of my eleven siblings, all were born in Kajiado, Kenya, except two, who were born in Kamuli, Uganda. My parents frequented Kajiado and Kamuli more than any other towns. As a boy, I had the opportunity to meet the Last King of Scotland on one of his famous “drop-in” visits while playing football (soccer) at the school in Jinja. His helicopter landed in the middle of the field, and before we knew what was going on, he disembarked and ran straight for the ball, dribbling, and, of course, scoring a goal.

At my age, I was aware of the tension, but it was only toward the end, when I first learned of the policy to expel all “nonnative” Africans from the country, that I had any clue it would change me and my family’s lives forever. It affected Grandfather first. His farms were confiscated and he had to leave because he was born outside of Uganda. Being the oldest grandson, I was asked to accompany him to some unknown destination.

The last twenty-four hours before evacuation were a shock to the community, and to me personally.

I boarded the Sabena Airlines (Belgian national airline) evacuation flight at Entebbe Airport with my grandfather, leaving behind family, friends, and the only world I had known during my nineteen years. My dream of becoming an attorney or a judge flew away with that airplane.

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This was the darkest time in my life—I didn’t know where I was going or what was to become of me. And I mostly left behind my family, friends, and what I assumed to be my own set dream of my future.

I had some feeling of having made the right decision when later on I found out that none of my classmates who stayed behind ever made anything of their lives in Uganda. During this time, Idi Amin’s killer squad and the AIDS epidemic helped wipe out the young generation of Uganda.

A Refugee in Europe Looking at today’s refugee crisis unfold in Europe as a result of wars and terrorism in Syria and the Middle East, and seeing boats crossing the Mediterranean from North Africa with migrants from sub-Saharan Africa, I have tremendous sympathy for their predicament.

I arrived in Belgium in November 1972 with 480 other refugees without a country.

The term used at the time was “stateless,” and we were without money and completely unaware of what was in store for us.

Issa (left) with fellow refugees in Belgium, 1972 The first few months of my time in Westende, Belgium, was not easy—we were surrounded

by Flemish speakers and a totally different culture. Our hosts, the Belgians, were exceptionally welcoming and showed us all the courtesies one could ever imagine.

I was exceptionally fortunate that my heavy burden was lifted when I met a wonderful and loving Belgian family that literally adopted me into their life.

The Legein Family, from the nearby town of Oostende, became my family. August, the father (now deceased), wife Pepita Cabanilles Ripoll, son Alexandro, son Patrick (now deceased), son Christian and daughter Christel showed me the love I will never forget.

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I spent the countless memorable weekends with them in Oostende. This was an important time of my life, and despite all the desperate uncertainties, I encountered love, hope and a desire to pursue life.

The interaction with my Belgian family was very special and, until this day, after some forty-five years, remains very special.

Regardless of my background, creed or religious belief, they accepted me as a member of the family for who I was. That was an extremely humbling and compassionate experience.

The advice I would give others is to never fail to embrace love, hope and friendship when the opportunity comes your way. The Belgians were great hosts to the Refugees—the Legein’s were exceptional. We developed a close relationship because I reciprocated as a good, loving and receptive guest. Life is about mutual respect. The term, “you sow what you reap,” is found in the teachings of Christianity, Islam, Judaism, and probably many other religions. I hope my fellow refugees, especially those that find themselves in alien countries, and those citizens of the country that takes in these refugees, will heed this advice.

We considered our options to resettle in Belgium, Australia, New Zealand, Canada, or the United States. However, it soon became clear that I would be easily accepted, but not my grandfather. That meant I would have to leave Granddad in the refugee camp until I was able to apply for a reunion with him. That was unacceptable to both of us.

Eventually, we were both presented with an option of settling in Dubai in the newly formed United Arab Emirates, and we accepted that offer. The United Nations High Commissioner for Refugees (UNHCR) and the International Red Cross organized arrangements for us to travel to Dubai.

Our relocation and settlement in Dubai was under a special agreement between UNHCR and the late ruler, Sheikh Rashid Bin Saeed Al-Maktoum, who was gracious to accept us. He appointed his Financial Advisor and Head of Central Accounts Section at the Ruler’s Court, the late Mr. W.R. Duff, who took charge of assisting us to secure jobs, obtain ID documents and integrate.

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The late Sheikh Rashed Bin Saeed Al Maktoum

The late William Duff, Financial Advisor to the late Sheikh Rashid Bin Saeed al Maktoum

My grandfather was my best friend and my mentor. Listening to his advice and his wisdom was most gratifying and a source of hope to me. He reminded me every day that I would succeed in life. I am certain my later success was due to the fact I didn’t abandon my grandfather and stayed with him, even though there were temptations to resettle somewhere and leave him in the refugee camp. At the end, I refused all such offers and

Issa and his grandfather in Dubai in 1973

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teamed up with him for good or bad, and off to Dubai we went.

I was extremely sad when I lost him at age eighty-four, but happy that I was able to fulfill the wishes of my role model and mentor to be buried in Mombasa where his parents were laid to rest.

Life in Dubai When we arrived in Dubai in the middle of summer of 1973, we were received and accommodated at the police camp. A very harsh climate and a life very different than in Africa made it a dark period in my life.

Because of my English and writing skills, I was offered a job with the Dubai Police as storekeeper in the automobile spare parts section. This was my first job, and I loved it. Wearing a police uniform was glamorous. After four months on this job, my boss suggested that I consider joining the private sector before becoming a full corporal with the police. This confused me, so I requested Grandfather’s advice. He advised that if the boss suggested this move, it meant that he saw some other quality in me and I should take his advice.

And so, with my boss’s help, I got a job as a tally clerk at Gulf Agency, a large ship-handling agency in the Gulf countries.

Looking back, I see now that this was the best education I could have received. I learned about the shipping and logistics sector from the bottom up.

Issa and his assistant at Gulf Agency I also learned conversational Arabic, Hindu, and Farsi, as well as the culture of the people who spoke these languages, making some long-lasting international friendships during my time in Dubai’s Port Rashid. During my seventeen years at the Gulf Agency, I worked my way up from tally clerk to general manager of the freight division.

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My experience in Africa gave me a unique skill and perspective that became valuable to customers and to the port officials.

I was a relentless problem solver, and I become the “go-to” guy for assignments that others did not want or could not tackle.

My first big solution was about crew mail. Long before faxes or e-mails, families and friends would send their loved ones letters, which they addressed to the person c/o the vessel owner c/o the vessel name. The letters would end up at the headquarters of the vessel’s principals. From here, it was hit or miss; the crew mail would be consolidated by vessel and dispatched to a port of arrival for a certain period of time. This was based on cargo discharge rate, weather, and port congestion. Because of the uncertainty, employees would have to choose which port, such as Bombay, Dubai, or Kuwait, to send the mail. If the estimates were accurate and the pouch went to Dubai and arrived when the ship was in port, the crew would receive their mail. Even if everything went right, it could be roughly six months after dispatch from family or friends before the addressee received the mail. However, if the mail missed the vessel, then the agents in Dubai would have to repackage it, make more assumptions, and then re-dispatch to another port of call. I did some calculating and tweaked the system so that at a vessel’s hour of berthing, I had the pouch (usually a bag weighing no less than twenty pounds) in my hands and could hand it over to the crew master. With this innovation, I won the friendship and hearts of the crew and officers, and before long, due to their recommendation, I was made deputy manager of the section. This was an experience that I will never forget, as my previous bosses in the company now reported to me. I learned earlier on in my professional journey the fruits of making the client happy by being observant and looking for potential operational areas where one could improve the system for the benefit of the client, and of course, the company.

Swift Group and Africa In 1989, I had two large clients who encouraged me to start my own company. Both were multinational companies that 27

promised their support and felt their own businesses would do much better under my control than my previous employer.

Over the years, I had personally been party to resolving many of their marketing and operational issues within the region, so I felt this was an opportunity not to be missed, and Swift Freight was born.

This was at a time when the Soviet Union was collapsing.

Many business people in the UAE thought that future opportunity was to the north, in Eastern Europe’s newly opened markets. However, I took the contrarian view and went south, to Africa, which was a relatively untapped market: new, risky, yet untouched and brimming with potential.

Sharing this interest in Africa was the newly formed Emirates Airlines and the ambitious Emirates Sky Cargo. They quickly became invaluable partners in the development of our African markets.

My first African customer was the trading “mamas� from Rwanda, Uganda, and the Democratic Republic of the Congo.

In a matriarchal society such as Africa, these hardworking ladies were not just customers, but became friends as we supported them in their procurements in Dubai. As their business grew, they wanted us to also serve them in India, Thailand, Vietnam, and later China and other Asian markets. At the same time, we also grew into other African countries.

As we expanded into Asia, we quickly realized their growing interest in African markets and recognized the strategic value of Dubai as a coordinator of this great potential.

From humble beginnings, Swift Freight grew to Issa celebrating success of Swift Group International with employees in Dubai over nine hundred employees and a network of offices reached in twenty-five countries, and from these company-owned offices, we were able to serve other alternate markets through agents and representatives.

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Global freight and logistics is customer driven, and African customers present a variety of requirements. In order to support their needs, we developed what is now called the Sea-Air MultiModal system. This is a multi-modal solution, which takes advantage of imbalances/efficiencies in transportation, almost daily departures of ocean vessels from the Far East into Dubai, quick turnaround, and re-forwarding on aircraft into African destinations. This combination of Sea-Air Multi-Modal via Dubai saved costs and time and became very popular in Dubai, resulting in thousands of kilos of freight. At our peak, Swift operated almost a full 747 freighter per day into Africa, giving my company the top rank in the Middle East and Africa, according to the IATA ranking table.

When we initially considered establishing a location in the new Jebel Ali Free Zone (JAFZA), it was thought to be a bad idea, located forty kilometers from the Dubai Creek and the main trading activity of Dubai. However, I recognized that JAFZA’s location was strategically important, as it sat right next to the world’s largest man-made port, which promised international maritime connectivity, including a “single window” policy and infrastructure (soft and hard infrastructure) that made investment feasible, understandable, and locally inclusive. This empowered local Emirati business, yet with limited entanglement and fear of hijacking. It was nearly perfect in that region of the world, and it served as an easy and effective place to do business and hire or fire staff.

Equally important was the Dubai Airport, and the growing interest by Emirates Airlines to reach and service points in Africa. But over and beyond this, Dubai had always promoted the “open-sky” policy, which to me had tremendous value as it meant that Swift could bring in any charter airlines and fly to any destination. Easily obtainable landing rights combined with efficiency at the port, customs transit process and the acquisition of air-cargo space, either through scheduled or charter airline capacity, gave a multi-modal sea-air product better than anywhere in the world.

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Throughout the 1990s, these systems advanced, and the company developed relationships and refined new logistical products so the Swift Jebel Ali distribution center became a global epicenter for European, Asian, and North American products.

The Swift network of offices reached twenty-five countries, and from these company-owned offices, we were also able to serve alternate markets through agents and representatives.

Wars and Fragile Situations in the Middle East, Africa, and Asia Whether it was the Rwandan genocide in the early 1990s, or earthquakes, tsunamis, and other natural or man-made catastrophes in other countries, Swift got involved, organizing relief efforts and rapid response logistics. Some of our clientele included the Samaritan Purse for rapid distribution of water filters in the affected northern frontiers of Pakistan or the Andaman Islands in the Bay of Bengal between India and Myanmar. Swift organized the procurement and logistics of a myriad of goods, including distribution of four thousand Raleigh bicycles from India to Nigeria during the cholera outbreak.

The terror attacks in the United States on September 11, 2001, changed the world from top to bottom. It heavily affected Swift, along with the entire logistics world. Keeping on top of new security regulations was not an easy task.

A crisis can create new problems, but more often a crisis reveals problems that already exist. Africa’s fragile economies and lack of infrastructure could not absorb or bounce back from a crisis, especially political upheaval.

Our presence in Africa meant we had to work with everyone.

Of course, we faced corruption, lack of rules, demands, wastages of time and resources, incompetence, lack of training, and other issues with infrastructure, power, robberies, security, etc.

One of the formulas we applied was to centralize all legal matters, taking them away from local offices. This left our people on the ground to deal with solutions to problems of moving freight.

Issues connected to any local politics, such as funding, corrup30

tion, etc., were taken out of the hands of the local staff and dealt with on a corporate level only. The moment local stakeholders became aware the local staff could not help and they needed to deal with corporate headquarters, ninety percent of the time they dropped their claims. In countries where utility services were unreliable such as power or water, we devised out own supply line, running our own back-up diesel generators and bottled water supplies to support out offices in every location.

Servicing Africa’s Economic Engine – Setting New Standards in Professionalism In spite of many challenges throughout the 1990s and into the 2000s, Swift not only weathered many storms, we successfully identified and expanded our service platform to build a seamless multi-national, multi-continental network to allow efficient movement of goods across vast areas of land and sea.

A people-powered organization, Swift Freight’s success was built on its workforce. The organization comprised qualified specialists with decades of combined experience in the freight, shipping, transport and distribution business. Ever responsive to customer needs, this team developed dependable, cost-effective solutions that met every stringent global standard.

Swift had an expert team of systems analysts and communications professionals supporting its logistics operations. The dedicated staff ensured smooth and efficient operations through the use of the latest IT and communication technologies.

Behind the group’s success lay its revered goals: creating value and consistently surpassing client expectations. Every year, Swift Freight reached a higher platform of expertise and customer satisfaction by offering multi-modal transport system in: • Air Freight • Sea Freight • Logistics & Distribution • Overland Transportation • Project Cargo • Sea-Air Operations • Perishable Transport 31

• Groupage • Swift Removal Services All these service products were developed as the backbone with eyes set on innovation, technology and relationships.

Continuous Learning and Training My interest in continuous learning became obvious due to periodic professional courses I attended. At age forty-five, while busy in the company and raising a family, I pursued and completed my MBA at Hull University, UK. This reinforced the company’s will that learning and training be pursued. Hence, my strong belief in the company’s Vision Points: • Service Quality: Our number one responsibility • Work Environment: Safe, clean, free of politics, challenging and fun • Incentive: Linking remuneration with outstanding performance in achieving corporate goals and providing real opportunities for our people • Fitness: Of mind, body and soul • Total Commitment: Excellence in all we do • Profitability: An essential measure of success to provide all of the above and increase opportunities for incentives to staff • Global Leadership By 2003, I could look back over thirty years in the industry and believe that I could contribute to shaping the legacy for future generations. I had been involved in many professional associations, and in that year, I had the good fortune of being selected President of the International Federation of Freight Forwarders Association (FIATA), the first person from any of the Gulf countries to have the honor of being recognized as a global leader. It was a special honor because my peers recognized that I had the potential to lead this international association. Many in Dubai, including the ruling family, were delighted at this nomination, and it increased my status in the region.

This position and the launching of my first book, Transport Logistics, Past/Present/Prediction, in 2006 catapulted my status 32

internationally as one of the foremost experts and leaders in the sector.

Launch of Transport Logistics at the FIATA conference in 2006

In 1992, under the auspices of the Dubai Chamber, I helped set up the first Freight & Logistics Association in the Gulf countries – Dubai, and became its first president. The National Committee of Freight Forwarders (NCFF) was incorporated in 1992, and I served as president until 2002. The name was later changed to National Association of Freight Logistics (NAFL).

This appointment paved the way for me to be selected as advisory member in various projects in Dubai, such as the expansion of Dubai International Airport, the Dubai Logistics City, Al-Maktoum International Airport, promotion of the JAFZA, the study and development of the Dubai Flower Center, and the UN Relief Center, all directly under the direction of His Highness Sheikh Ahmed Bin Saeed Al Maktoum.

Transition and “Retirement” By 2008, approaching my fifty-sixth birthday, I thought the Swift Group was a sound business and in good hands, so I decided it was time to make a transition and start enjoying my family and leisure time.

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Issa’s first passion—his wife and children in Dubai.

On the right, his second passion.

Swift had accomplished its undisputed standing as leading logistics company in the Middle East and Africa. We had a solid structure and world-class quality covenants in the following areas: • Legal (sound governance, no outstanding issues, offices in twenty-five countries with solid legal and contractual relationships with governments and customers); • Financial (audited financials across the entire network of offices; tracking of customer accounts; electronic billing/receiving; solid banking relationships; great credit ratings); • Operational (advanced systems in both technology and human resources; nine hundred smart and professional employees; strong proven performance track record, all relevant quality certificates, licenses, etc.); • Social (strong personal and professional alliances across the world including local, regional, national, and international; great reputation for service to all clients from small “mom and pop” customers in remote African villages to major multinational corporations, multilateral governmental institutions and emergency response organizations; no scandals or ethical clouds);

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• Environmental (commitment to efficiency, best practices, compliance, and sensitivity to global standards); and • Safety and Security (proven record of handling sensitive cargo; advancement and compliance with global counter-terrorism measures in highly fragile environments [air, land, and sea]; professionalism and safety of employees, contractors and cargo).

In recognition of the value created by the Swift Group, I was privileged to attract strong interest from prospective buyers of the company.

The Circle of Life

This “circle of life” for entrepreneurs is important for risk takers, job creators, and the engine of economies all across the world, as the abilities to create value and scale up value, repeat valuable processes and systems, hire and train employees, and ultimately serve employThe Circle of Issa’s ees and customers alike, and then pass along Life the valuable asset to a new owner, are critical to the formation, mobilization, and sustainability of an investment culture.

In agriculture, farm assets are passed from one generation to the next. Small businesses, buildings, service enterprises, and real estate are valuable and can be bought and sold because of legal rights and financial capacity. Sadly, Africa today lacks the power of “exit” situations, a topic we will explore in the coming pages. It is often impossible to find companies to buy, which means companies are not being built to last, and they are only sustaining a temporary value. Thankfully, I found a motivated buyer for the Swift Group, which allowed me to consider the future, a season that I assumed would include plenty of golf and leisure travels.

But then I had two distinct incidents, planets crossing paths, which guided my destiny for the future. First, I met a young American entrepreneur from Washington, DC, Jon Vanden35

heuvel. At almost the same time, I was invited to participate in Harvard University’s Advanced Leadership Initiative, a program founded by Professor Rosabeth Kanter, and I eventually became a Senior Fellow.

Jon’s interest in the business and logistics of African agriculture and my work with him merged with the projects I pursued at Harvard. This led to collaboration with Jon and, with the support of Professor Calestous Juma of Harvard Kennedy School and Professor Wes Harris of MIT, we developed the AKILI Initiative (www.akili-initiative.org).

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C HA P T E R 2

J O N ’ S S T O RY From Jon’s personal journal, April 2, 2008: “Met with a really close friend last night. Disappointing.

We’re just not on the same page. It affirmed my decision to start Africa Atlantic. He said that focusing on Africa was a ‘big mistake.’ He said that for someone with my talent to invest my time in Africa was, in his words, ‘not worth it.’ He encouraged me to work on Capitol Hill or do just about anything other than work on Africa.”

I have always looked up to my oldest brother, Geoff. One thing he said often when we were kids was “patience is a virtue, but sometimes impatience is also a virtue.”

Impatience can be a bad thing. But in the case of Africa, it is a good and necessary thing. For too long, the images of starving children and violent coups and general chaos have dominated the headlines, squeezing out all other positive consideration of the African people and their potential to participate as full and equal partners in the global community. I guess I grew impatient with these images and decided to do something about it.

I am the son and grandson of pastors, and the grandson and great-grandson of Dutch immigrants.

I grew up in a pastor’s home, and not just any pastor, but the home of Tom Vandenheuvel. My dad was and remains the real deal, the same man at home as the man at the pulpit. My mom, Laurie, is equally passionate and loving. The daughter of a carpenter, she is a gifted musician and educator, a perfectionist, and a loving, kind, and compassionate friend.

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I’m the youngest of five kids, with three older brothers (Geoff, Joel, and Jim) and one older sister (Jane). My childhood was a good one; I was raised in Holland, Michigan; Chino, California; Orange City, Iowa; and Byron Center, Vandenheuvels 1973, Michigan. All these communiHolland, Michigan ties were Dutch and Christian.

But because my parents made the effort, I was exposed to many different cultures in the midst of my close-knit community.

This exposure came mostly in California, where we were very close to a Nigerian missionary family, and I played Little League Baseball with almost all Mexican kids.

In 1980, at age eleven, I got my first paid political job, a day of campaigning for then-Congressman Charles Grassley, who was running for the US Senate. I made ten dollars. Chuck Grassley still “Works for Iowa” and has now served for thirty-seven years in the US Senate.

My political views were basic Republican conservative throughout my childhood, and these views were never seriously challenged. The world of politics to me was fighting communism, cutting taxes, and keeping liberals from destroying our society. My heroes were Oliver North, Charlie Wilson, and Alex P. Keaton. I read The Wall Street Journal editorial page every day and took my arguments to our football team athletic trainer, the only liberal I knew.

Things started to evolve, though, in 1988, when Congressman Jack Kemp decided to run for president. Kemp captured my imagination. My brother Geoff gave me Kemp’s book, An American Renaissance, when I was in high school, and Kemp’s brand of conservative thinking really appealed to me. When he decided to run for president in ‘88, I was ready to go. Unfortunately, the primaries made quick work of Kemp, and Bush ran away with the nomination after Super Tuesday in early March.

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In spring 1989, I saw a flyer for a spring break mission to a homeless shelter on South Division in Grand Rapids called Heartside Ministries. For whatever reason, I signed up. It rocked my world as I witnessed firsthand the crisis of American poverty, homelessness, drug violence, and hopelessness, just around the corner. In the fall of that year at what is now Wheaton College, I took a course on urban history taught by Dr. Lyle Dorsett.

The way Dr. Dorsett framed the history of cities in the United States reshaped my thinking and helped nurture an awareness and concern for the African American experience in America.

That fall, I participated in a juvenile prison ministry near Chicago, which exposed me further to the challenges of so many of America’s young people caught up in gangs and deprived of opportunities I had taken for granted.

In 1992, a family friend named Pete Hoekstra decided to challenge twenty-six-year incumbent Republican Congressman Guy Vander Jagt in the GOP primary, and he asked me, fresh out of college, to run his congressional campaign. Pete was a businessman from Holland, Michigan, working for a then-Fortune 500 office furniture manufacturer, Herman Miller, and he had no political experience.

Neither Pete nor I had any business in this position—Pete had no business running for Congress, and I had no business running his campaign. However, sometimes things click, and by working closely with my sister Jane Jelgerhuis, we put together a winning team at just the right time. We were a most unlikely team achieving a most unlikely objective: defeating a twentysix-year sitting US Congressman in a Republican primary.

In a heavily Republican district, Pete easily defeated the Democrat in November, and we all migrated to Washington, DC. There were more than fifty new Republican CongressWith US Congressman Pete Hoekstra, men elected in 1992. This was and Jon’s sister, Jane Jelgerhuis.

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the precursor to the 1994 Republican Revolution that swept in the first GOP majority in forty years. Pete was the only Fortune 500 executive in the Republican conference, and then-Minority Whip Newt Gingrich took notice. Gingrich selected Pete to be one of his key lieutenants, and Pete embraced the role with great energy, creating an important learning opportunity for a twenty-three-year-old kid.

Gingrich is brilliant, even while controversial; he is a man of big-picture vision, yet he remains a systems thinker. His policy and development-planning doctrine was well understood and methodically presented: “Vision-Strategy-Projects-Tactics.”

In 1993, shortly after the new Congress was sworn in, Gingrich consolidated his power base and displaced then-Minority Leader Bob Michel. He then gathered a group of young members and formed a task force to develop a road map for winning a majority in 1994. Then-Conference Chairman Dick Armey’s staff, including executive director Kerry Knott and communications director Ed Gillespie, led the “Contract with America” strategy group, which also included member leaders Congressmen John Boehner of Ohio, Jim Nussle of Iowa, and Pete Hoekstra of Michigan. I had the privilege of serving as Pete’s staff for this project, so I participated in all the meetings, which took place on a weekly and sometimes daily basis.

The ride was intense, but the learning experience could not be matched. This was my introduction to Peter Senge’s landmark management book, The Fifth Discipline, and to the discipline of systems thinking. Congressman Hoekstra had utilized Senge’s book as a Fortune 500 executive, and he brought this book to my attention as a twenty-five-year-old congressional staffer. For me, this was the first exposure to “systems thinking,” “alignment,” and “mental models” that would later influence the formation of the Africa Risk Dashboard.

The Gingrich strategy group took a big picture, “transformational,” and systematic view of the major issues facing the country, then carefully considered core Republican issues and values, measured the mood of the American people, and defined the best roadmap for matching great issues with a ma40

jority consensus of the electorate. The Contract with America was born out of this process. Pollster Frank Luntz contributed to the polling and focus group research that essentially laid the groundwork for the Contract, while member groups organized

by Armey formed a consensus around the ten bills that constituted the Contract with America.

By 1998, the Republican majority was hurting. President Clinton was easily reelected in 1996, and Republicans in Congress were struggling politically. Republicans lost seats during the 1998 midterm elections, and a growing movement within the Republican ranks came to a head when a sizable group agreed they would not support Congressman Gingrich for Speaker, which forced him to stand down. Congressman Tom DeLay quickly filled the leadership vacuum by hand-selecting then-Chief Deputy Majority Whip Dennis Hastert of Illinois to become the consensus candidate for Speaker.

In addition to Speaker Gingrich going down after the 1998 elections, there was a growing mood in the Republican Conference that the conference chairman, Congressman Boehner, was not doing an effective job leading Republican communications.

Congressman J.C. Watts of Oklahoma, a former football star and dynamic leader, became a candidate to challenge Congressman Boehner for the conference chairmanship. Congressman Watts defeated Congressman Boehner and became the fourthranking leader in the Republican majority.

When Congressman Watts’s peers elected him to the Republican leadership, I was presented with an opportunity to work with him.

My experience with Congressman Watts allowed me to engage with issues of importance to the African American community, such as minority health disparities, urban economics and tax policy, historically black colleges and universities, minority businesses, affirmative action, crack and powder cocaine sentencing disparities, and trade with Africa. These topics were not on my radar screen and certainly not in the mainstream of Republican policy nor politics.

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This also marked the beginning of my own “minority� experience. I worked for a black American. I lived in his world, even while he wrestled with being the lone black Republican in a white legislative caucus. Not only was Congressman Watts the only black Republican in Congress, he was the highest ranking African American in the United States at this time, since Republicans held the majority in the US House of Representatives.

With the distinction of being the most important African American elected official in America came the burden of leadership. For a true conservative like Congressman Watts, who rejects racial politics and big government, what was his response to this new responsibility? Embrace it or ignore it?

Congressman Watts did the only thing he could do. He embraced the responsibility of leadership and poured himself into it with all his skill. He was determined to demonstrate to his white, conservative Republican friends that African Americans share their fiscally and socially conservative values, and he was determined to show his black Democratic friends that a Republican leader with fiscally and socially conservative values shared their concerns for poverty and inequality.

Congressman Watts did his part to elevate the issues and concerns of African Americans, and he built close, personal relationships and friendships Vandenheuvel with Congressmen J.C. Watts and Jack Kemp, 2004, with key African American Washington, DC Congressmen. He coauthored American Community Renewal and New Markets Tax Credits Act with Chicago Congressman Danny Davis, which President Clinton signed into law, to stimulate investment in inner cities. He coauthored legislation to highlight minority health disparities with Congressman John Lewis. He worked with various African American and Republican legislators to promote improvements in historically black colleges and universities. And he reached across the aisle to 42

work with the Congressional Black Caucus on enhancing trade and investment in sub-Saharan Africa. In April 2001, Congressman Watts led his first Congressional trade mission to sub-Saharan Africa. This was my first trip to Africa, and we traveled to the countries of Nigeria, Ghana, Senegal, and Morocco. He then formed a bipartisan Congressional Trade-Aid Caucus to bring together business and humanitarian interests in Africa.

These efforts did not go unnoticed. Congressman Watts did his part to embrace and champion the causes near and dear to African Americans while working tirelessly to build a brand of conservative Republican politics to promote fiscal responsibility, lower taxes, education reform, and free trade. He did both with class and passion, and built a reservoir of good will that extends to this day, even eight years after retiring from Congress.

Many Republicans and not a few Democrats had high hopes that Congressman Watts would take his political leadership skills to the next level, but the pace of his life took its toll on his family and his finances. By 2002, he decided the time had come for him to enter the private sector. That July, he announced his retirement from Congress.

Congressman Watts was the protégé of Jack Kemp. A football quarterback, a visionary, and an idealist, he was the natural heir to Kemp’s powerful legacy of inclusive capitalism and of free enterprise with a conscience. Congressmen Kemp and J.C. Watts have built a legacy that will not be forgotten.

My career from 1992 to 2002 was consumed with public policy and politics in Washington, DC. I rarely left Capitol Hill.

In fact, I seldom left the Longworth House Office Building. I worked in Longworth rooms 1319, 1122, and 1010, and for ten years, I hardly ventured off the Hill, so I had no idea how downtown or K Street worked, and I had even less of an idea how business actually worked. I knew policy after working in Congress for ten years—I knew how to recruit; organize and manage teams; design and implement projects—and I had a pretty strong background in marketing from managing campaigns and directing communications initiatives. I also had dealt with 43

a wide range of personnel management issues, having hired and fired dozens of staff over the years.

I was also blessed with a network of friends, a firsthand view of political leadership in action from the grassroots level all the way to the attic of the Speaker’s office in the Capitol of the United States. I was a young apprentice during most of this time, in my twenties, enjoying more and more responsibility as I hit thirty and began working in the Congressional leadership, and all this time, my values and principles from childhood and growing up did not change, but were deepened and broadened beyond anything I could have imagined.

In January, 2003, when Congressman Watts’s retirement took effect, we opened the doors of the J.C. Watts Companies LLC, and I entered the new world of the government lobbying business.

What converged, or collided, in “Watts’ World” was the world of white and the world of black. The experience is hard to explain if you’ve never functioned as a white man in a black organization. But I will try to explain it the best I can: race matters.

The division between white and black cultures has been the topic of countless books, essays, speeches, legislation, conferences, even beer summits at the White House. It has vexed scholars and pastors and politicians and business leaders and moms and dads and kids from Europe, North America, the Caribbean, and Africa. For many whites and many blacks, keeping the cultures separate is the answer to a more peaceful coexistence. For others, forced integration is the only path to justice and equality.

For me, I do not have a simple answer to what is best. All I can say is that the experience of functioning in a black organization, first in politics, and then in business, for a full decade of my life, was an eye-opening and life-changing experience. I learned a lot about what is bad and what is good in human nature. I have a far deeper understanding of why race matters economically, politically, spiritually, and culturally, and I have a strong opinion about what I can do about it. Maybe this will give others an idea of what they can do about it in their own sphere of influence.

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Intro to Africa In 2001, I had the privilege of participating in a Congressional Delegation (CODEL) to Africa. We went to Senegal, Nigeria, Ghana, and Morocco. It was a very exciting opportunity for me, one that set the stage for where I am today. Had it not been for this trip, I’m not sure I would have considered Africa as a realistic opportunity for me. Why would I? Africa is so remote, so chaotic, so dangerous—it is a place for safaris, but not much else.

The trip was so fast, you could say I really didn’t go to Africa. We were gone a total of six days and visited four countries. We rode in a US government airplane, painted just like Air Force One, only it was a Douglass Nine. My passport was proCongressional delegation to Ghana, cessed by the US Marine Senegal, and Morocco, April 2001.

Corps. My visas were fast- Nigeria, Vandenheuvel with Elroy Sailor. tracked through the US State Department. I got my inoculation shots at the US House Medical Clinic in the Capitol. Our itinerary was choreographed like a Disney dance routine. Armed security met us at the airport and rushed us through African cities with sirens blazing and cops on motorcycles ripping through traffic at fifty miles per hour, making hand signals with no hands on the handlebars.

The members of Congress rode in armored cars, and the rest of us in minibuses. It was quite an experience.

But did I see Africa? Well, sort of. I saw it through the windows. I smelled it at the polio vaccination clinic in Lagos. I took a few walks when our military guards weren’t watching—or maybe they were and I just didn’t notice. Nonetheless, I did see Africa. We went to Sunday services at the Presidential Estate of President Obasanjo of Nigeria. We attended a conference in Abuja, visited an eye clinic in Ghana, and visited the slave castle at Goree Island in Senegal, which was an incredible experience, 45

particularly with my African American friends and colleagues.

So yes, we were in Africa, and we captured a glimpse of life in Africa, but that is all. It was just a start, but it was a really important start.

Sometimes one moment can capture an entire experience, and that moment came one night after a day of events and activities in Lagos, Nigeria. We were at the hotel, exhausted, and Congressman Watts and I sat on the balcony of the hotel and talked about Africa, its meaning and its potential. We concluded that the only way Africa would achieve its potential is if it becomes relevant, or at least perceived to be relevant, to America’s key decision makers in politics and business. As long as it could be ignored and neglected, or viewed simply as a charity case, it would not command the respect and attention of the Western world.

Were we right? No. What we did not fully appreciate in 2001 was China’s growing interest in Africa. We knew Africa was critical for oil production, and we knew there was terrorist interest in Africa, but this was more national security-related. In April 2001, we thought Africa was quite irrelevant to US industry.

This is one of those facts that most Americans do not realize but some are now waking up to: whether a market is relevant to America no longer means it is irrelevant to the world economy.

South-to-south trade and economics, meaning commerce between players in the Southern Hemisphere with other players in the Southern Hemisphere, is now globally relevant. And it is not as though this, in return, makes Western or “Northern” economies irrelevant. It just means that the game has expanded and reliance on the West is no longer the dominant factor, perceived or real. Plans can now be made for major projects without Western involvement. The financing, the management expertise, the equipment, and so forth, do not need to come from the West.

Project originators do not need permission from the West, or a blessing from the West, or frankly anything at all from the West to execute a project.

For this reason, my orientation in Africa from the CODEL in 2001 until 2007 was complicated. I started with the assump46

tion that Africa’s prosperity was dependent on Western engagement. My personal study and reflection was driven by this paradigm, very paternalistic, almost patronizing. I correctly viewed the private sector as the catalyst of Africa’s future growth, but I incorrectly viewed the United States as the essential player in this equation. US engagement was not vital to Africa’s development. We were wrong to assume it on that last night of the CODEL in Lagos.

If Africa’s development is not dependent on US involvement, then why should the United States be involved? This is the crossroads question. The reason the United States should be involved is no longer exclusively for Africa’s social benefit.

Rather, the United States should be involved for its own national interests. And when all is said and done, this shift in emphasis will do more for Africa’s development than any charitable or humanitarian initiative.

Therefore, Africa no longer needs the United States, but the United States needs Africa. And because the United States needs Africa, it will invest in Africa instead of donating to Africa. When it invests in Africa, it will be acting rationally and in its self-interest, which means it will do so more carefully and more efficiently and be more firmly committed to a positive and sustainable outcome.

This will be an informed change in focus, a welcome departure from the uninformed US policy toward Africa of the past.

Until 2008, I was firmly in the uninformed camp. My exposure to African business revolved around Africans I met in the United States. These Africans fell into two categories. They were either first generation African immigrants who were professionals in the United States, educated in the United States or Europe, and successfully pursuing careers in the United States, or they were African government officials visiting Washington, DC, on official business or engaged in nonprofit activities. Missing was any exposure to African businesspersons, African entrepreneurs, African bankers, African management executives.

I simply had no idea such ranks existed. I did not know, per47

sonally, an African involved in commercial development. I did not know, personally, an African earning private money doing private work.

Surveying American political, business, or academic literature concerning Africa, it is easy to see why my views were what they were. Inasmuch as Africa is a topic at all, it involves political or social challenges or national security concerns. Almost completely absent is any Western literature on Africa as a marketplace or Africa as an economic player—an economic driver of any kind.

Meantime, while Americans were ramping up economic ties to China, India, and the Middle East, these same countries were ramping up their own ties to sub-Saharan Africa. China, as already mentioned, key Middle East economies, and Southeast Asian players like Singapore were strengthening their investments. European and global telecommunications companies saw the vast market potential in Africa and began making key positioning investments to capture market share.

Americans were missing in action during the preteen decade of the twenty-first century. Other than oil and mining companies, cellular companies, and Coca-Cola, American engagement could be viewed as timid at best and negligent at worst.

Instead of viewing Africa as a charity case in need of Western aid, American industry might have viewed Africa as a business opportunity deserving research and development. But this was not the case then, and is often not the case now.

Do we blame business for this? Or government? Or academia? Or the United Nations and World Bank? How about all of the above?

The collective failure to see African nations as equals, deserving respect as partners rather than charity, has cost America billions in missed opportunities. Instead of leveraging the good will of humanitarian relief investments throughout the years to alleviate poverty and poor health, America has squandered its leverage and left the economic development landscape wide open for more interested and motivated investors, like the Chinese. While America has poured aid money into Africa, China 48

enjoys the best of both worlds. They benefit from healthier Africans helped by Western food aid and HIV/AIDS money who are therefore living in more stable countries with fewer nagging social problems. And so the investment climate within Africa for China and other emerging economies is more favorable, and they now invest like Africa matters, because it does. The result: China now has new markets for Chinese products and is positioned in dozens of African countries to take full advantage of rising middle-class incomes, while US companies are only now waking up to these shifting dynamics and reading about it in The Wall Street Journal and Bloomberg.

My introduction to Africa occurred because Congressman Watts saw the opportunity in Africa and used his position as an elected official to concentrate some focus and attention on it.

For this, I will be forever grateful to him for the courage of his convictions. While Africa was, in 2001, viewed by most Americans as little more than a chaotic charity case with lots of oil but corrupt, manipulative governments, and a nonstarter in the category of serious investment, Congressman Watts and Elroy Sailor recruited a small group of Congressmen and invited me along for the ride. By 2007, six years after that lightning-quick trip, I was convinced of the opportunity in Africa, better educated on how to pursue it, much more aware of the risks, and ready to put all my savings and everything I owned on the line to make it happen.

Taking the Risk, Committing to Africa I don’t know who said it first, but I’m reminded daily: you can’t be half-pregnant in Africa. It’s all or nothing.

This is probably the most important lesson I learned in the period between the CODEL in 2001 and my ultimate decision in 2008 to invest in Africa, to leave the semi-comfortable life of a former Capitol Hill staffer and Washington, DC, lobbyist in his late thirties with a quarter-million-dollar income.

I agonized long and hard over this decision. I lost nights of sleep. I went through almost every emotion imaginable in the journey toward starting a company in Africa. My poor wife. A 49

guy like me, three small kids, a wife, and a mortgage, had no business even considering the idea of starting a company focused on Africa. But there was a moment of decision when I decided it would be better to fail than not try. We’ve been blessed.

We can make a positive impact on people’s lives. We are young enough to rebuild if it doesn’t work out. This is where we found ourselves in the summer and fall of 2007.

Unfortunately, the Africa Risk Dashboard was not yet published to offer valuable insights to this decision. We had to learn our lessons the hard way, and we would end up writing this book.

As a consulting company, we had the occasion to do a little advisory work for some clients involving Africa. It was a small part of our business. We had a contract with the Government of Senegal and we worked hard to sell the idea that we had the experience and expertise to help American clients seeking to develop in Africa and African clients seeking to develop in the United States. In early 2007, I had the opportunity to travel to Senegal, primarily to pursue payment from the Government of Senegal for our services in Washington, DC, and also to assist a US company desiring to develop a market in Africa for their services. I traveled to Senegal three times that winter and spring, each time gaining a stronger sense of what the business opportunities were and how inadequate and ill-prepared we were to pursue them.

It was then I first seriously considered a full-time focus on Africa. First, I was becoming convinced that anything less than this would be insufficient to succeed there. And second, I was becoming convinced that this was what I wanted to do full time.

But it was only the beginning. Many months of refinement and fine-tuning were required, with many false starts along the way.

False start number one was a relationship forming with a US company wanting to win construction contracts in Africa.

The principals of this company traveled on several occasions to Africa and had invested thousands of dollars in time and travel to consider these markets, and they needed to decide if they wanted to take it to the next level. They approached us to make 50

it happen. We had no business even suggesting that we could help in this endeavor, and it was an important reality check on what is required to win business in Africa.

The second false start involved personnel. There are many wonderful men and women striving each day to make things work between the United States and Africa. But unfortunately, very few really make it. The ones who succeed can make a lot of money and enjoy very lucrative relationships that can last for decades. Some industries are more mature for Americans in Africa, like petroleum and mining, or secondhand trading or crafts. People do make money, and they should be commended.

But most people who work on African trade do not succeed, and those who do must be very careful to avoid wasting a lot of time talking to people who just cannot get things done. Some people can talk a potential investor’s ear off, but in the end, much of it is hot air, and the prospect of wasting time and money and failing to make any meaningful difference is very high.

Another false start involved efforts to engage Non-Governmental Organizations (NGOs), otherwise known as the nonprofit sector. There are many NGOs working on and in Africa.

Most serious NGOs have offices in Washington, DC, so it was natural to pursue these groups for opportunities to be involved in African development. Unfortunately, this world, like every other subculture, has its rules and precedents, and you must pay your dues to be taken seriously. Furthermore, there is a tight connection between NGOs and the government agencies that spend humanitarian and development dollars. NGOs commonly receive government grant money with former government employees taking key positions in these organizations. If you are not in this loop, you will not succeed. And you can’t be halfpregnant in this loop either. There is a culture, and your heart may be bleeding for Africa, but if you are a new kid on the block, you’d better bring your own meal ticket.

These were difficult early experiences for me, but necessary.

If I was going to succeed in Africa, I needed to work with proven performers. My weaknesses needed to be compensated by those 51

who, in turn, would benefit from my strengths. These personnel matters were, and remain, critical to success in Africa.

These lessons became the foundation of my emerging resolve to succeed in Africa. Respect for the unknown, respect for the complexity of creating “win-win” relationships, the need to be engaged consistently and be in the real game and not just as a hit-and-run artist, the need to work with proven performers who have shown through their actions and experiences that they are qualified to make decisions and invest capital in African commerce. These are just a few of the guiding values that started to take shape in late 2007. The picture was becoming clearer, and my inadequacies and weaknesses concerning Africa required major upgrading.

African Business School In the spring of 2008, I had many key decisions to make. Understanding what I knew about Africa, and more importantly, recognizing what I did not know about Africa, motivated me to apply myself to learning. I started looking at formal educational opportunities in Africa and came across the Association of African Business Schools. Since I do not speak French, I decided to concentrate on English-speaking schools. I finally decided to apply for an executive business program from the Ghana Institute of Management and Public Administration.

In late July 2008, we had a Vandenheuvel family reunion near Colorado Springs, Colorado, to celebrate my parents’ fiftieth wedding anniversary. My wife Vicki and I and our three girls flew Southwest from Baltimore to Denver, toured the Rockies for a few days, and then went to a mountain retreat center for the family reunion.

I was scheduled to leave about midweek for Ghana for this program. I will never forget how I felt that week leading up to the date of departure. My heart was heavy. I was with my family and my extended family in the Rockies, and I had to leave them in Colorado to travel to Ghana. As I tucked my kids in bed the night before, I remember sitting with my daughter Sydney on my lap, both of us sobbing, and I felt like I would never see my 52

family again. It was a powerful reality check. Was I really going to Africa to start a new company? Was I insane?

On the plane from Denver to JFK, I remember sitting there looking at pictures of my family on my iPhone, feeling sick. My chest was tight. I just couldn’t believe I was doing this.

Because of bad weather, we were diverted to Albany and didn’t make it to JFK until late in the evening. I missed the flight to Ghana, and the next available flight was in two days. So, I found a corner to camp near Gate 11 in Terminal Three and lived in the airport for a couple days. This was truly a surreal experience. How many times during those moments was I tempted to say “just forget it”? What was I trying to prove?

When I landed in Accra, Ghana, I cleared customs and collected my bags. Taxi drivers mobbed me as I left the airport, and I picked one and asked him to take me to the Ghana Institute of Management. We walked to his beat-up taxi and away we went.

The last time I had been in Accra was in 2001 with an armed military escort and a congressional motorcade. Now I was going through Accra in a beat-up taxi, luggage in the backseat, off to business school in Africa to start to figure out how Africans actually think and operate.

It was the best three weeks I could have spent as a new foreign investor entering the African marketplace.

In three short weeks, I studied alongside African professionals from Ghana Institute of Management and Public banks, energy compaAdministration Executive Program Cohort, nies, ports, retailers, August 2008 and government ministries. One course, Human Resource Management, taught by a Ghanaian-British professor on loan from the Ashton Business School in the United Kingdom, was especially useful. We would break into small groups and evaluate case studies addressing many day-to-day workplace situations. Other classes covered 53

business law, information technology, and regional economics. I was the only white person in the program, and the only American.

The insights gleaned from this three-week emersion program continue to play a role in the development of our business and organization in Africa. The first thing I realized is that there are many talented, honest, ethical African professionals living and working every day in places like Ghana and Nigeria and other countries. These individuals are to be commended for serving as key managers for financial institutions and other entities that make Ghana an attractive, emerging market.

The second thing I realized is that Western business, and Western government and NGOs, do not know anything about African business schools. In the weeks before and after I attended the program, I introduced myself to numerous American leaders in African business and policy-making and described my participation in this program, and none of them had ever heard of the Association of African Business Schools. They were all shocked that credible business schools exist in Ghana as well as other credible schools throughout Africa.

Number three, I now understood why I never met a real African businessperson until I attended executive business school in Ghana. The business professionals who attended my program rarely travel to the United States. They went to school in Ghana and stayed and worked in Ghana. They are well paid, upper middle class in Ghana, but that means they earn maybe fifteento-thirty thousand US dollars per year. This is extraordinary income in Ghana, but it is not the budget that would allow one to travel to America. Subsequently, Americans do not realize they are there. A talented, successful African entrepreneur earning twenty thousand dollars a year could do great work as a local executive for a US company. But how will they ever meet?

Number four, there is very little academic research support for African business education. I asked my HR professor why all the case studies were from the United States or Europe. I asked why we didn’t study African cases. He said they haven’t been written up or been researched. There is no academic funding for 54

business educational research in Africa. He said the academic research he and other researchers have conducted and paid for with grants have concentrated on situations in Asia or the West.

So, there I was, in small-group discussions at a business school in Ghana, with Ghanaian bankers and lawyers, reviewing human resource management cases involving Southwest Airlines and General Motors. It was fascinating, for sure, especially for me, as I was there to study African business perspectives in contrast to my own views coming from the West. But wouldn’t it be more useful and relevant for African professionals, who hire Africans coming from rural villages, deal with supply chains with terrible roads and infrastructure, and work with eighteenth century immigration and customs rules and practices, to review situations researched and written up in a local or regional context? And wouldn’t I, as a foreigner studying business in Africa, learn more by studying behavioral issues documented in real-life African workplaces? Different assumptions, different expectations, different surroundings. All these things are unique to a culture.

No “risk dashboard” for African investors was presented in these courses. This was a tremendous eye-opener for me.

Focus on Agribusiness A friend of mine from my early Pete Hoekstra days, one of our first employees, was six-foot-eight David Woodruff. David managed government relations for Volkswagen and later Archer Daniels Midland (ADM), the “Supermarket to the World.”

Woodruff and I would kick around ideas on Africa, but one day we got together for lunch and I told him I was going to dive in, head first, and that my first step was to attend business courses in Ghana. David, who then worked for ADM, told me they had a significant presence in Ghana, processing cocoa in the north and shea nuts in the south. He said he would put me in touch with ADM’s people in Ghana so I’d have someone to talk with when I got there.

He introduced me to Kris Klokkenga, who was general manager of ADM’s shea nut processing factory in Tema. When 55

I arrived in Ghana to start my business classes, I contacted Kris and we agreed to meet for dinner in Accra.

Kris is a tall Dutch-American farm kid from central Illinois. He was quite a spectacle in Ghana, standing out in the crowd, but it was clear from day one that he was committed to making things happen.

His first introduction to Ghana came in early 2007 on a mission Kris Klokkenga, with farm consultant Justin Bruch trip with his father, Jim. Kris was good friends with Enoch Nyodor, a Ghanaian pastor and missionary friend in charge of Ghana Medical Mission. Enoch’s wife, Lydia, was an ophthalmologist. Together, they served the people and churches of numerous villages around Ghana.

At this time, Kris was both working full time for ADM in Illinois in commodity trading and logistics, and he was studying part time at Lincoln Seminary. When he returned from his trip to Ghana, he expressed interest to his boss in whatever opportunities might come up in Ghana. Just a short time later, he got a call that the general manager position at the shea nut factory in Ghana was available if Kris wanted it. He accepted the position and made arrangements to move there in early 2008.

When Kris and I met for dinner, we realized we shared a commitment to African development and a commitment to improving the lives and the opportunities for the people of Africa.

However, we both believed that business for profit was the key to long-term empowerment and sustainable development. We agreed that a company that could put out a great product and stand on its own in the market—while also empowering individuals—would be worth our time and energy. We agreed that agriculture was the correct sector to focus on, not just because Kris had experience in production farming and processing, but because the vast majority of Africans were involved in agriculture and could therefore benefit from development in this area.

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As general manager of the shea nut processing facility in Tema, Kris would purchase shea nuts from brokers and farmers throughout Ghana and neighboring Burkina Faso. His factory would then process the nuts, converting them into fats and other materials that would serve as food supplements or creams. His interaction with farmers was quite limited, and the burning question he started to wrestle with was: who is working directly with these farmers to increase their productivity? Kris was determined to find a way to be more engaged in enhancing the productivity and quality of Ghanaian farmers’ lives, and we both decided this type of thing might make a very good business model.

When I left Ghana after my three-week program, I was exhausted but energized. I had new friends, I had a clearer perspective on what to do and how to do it, and I was excited to pursue the ideas that Kris and I discussed.

Meanwhile, my nephew, Ross Jelgerhuis, and his friend Blake Bozarth, who were students Zein Baluch at Covenant College, introduced me to their friend from school, Zein Baluch, whose father, Issa Baluch, was involved in freight and logistics throughout sub-Saharan Africa. I asked if it would be okay to meet with Mr. Baluch in Dubai on an upcoming trip to Africa, and Zein facilitated the contact. (Little did he realize that two years later, Zein would be working on the farm in Ghana.)

In late September, just a few weeks after returning from Ghana, I booked a ticket on Emirates from New York to Ghana with a stopover in Dubai.

When I met Issa for the first time, we had great discussions concerning business in Africa, and, in particular, why American companies were so reluctant to invest there. We agreed that information and partnerships were the missing keys. We discussed what we might do together to address these weaknesses.

As a seasoned businessman, Issa had built a successful company by creating linkages between buyers and sellers in Africa and the rest of the world. He nurtured relationships with key 57

customers and built a service-oriented business that allowed his African customers to build their own companies, achieving greater cost savings that resulted in more investment and more profitability. These were the key lessons that Issa felt could be shared with US companies considering investments in Africa.

We discussed ways to do this and began to coalesce around the role the United Arab Emirates could play in facilitating this communication between US businesses and potential partners from Africa, Asia, Europe, India, and the Middle East.

Meanwhile, I stayed in contact with Kris in Ghana, traveling there in November and December of 2008, and we continued our discussions concerning what type of company could be developed in agriculture. We decided to commit our ideas to paper, and to consider specific plans to build a farm. We talked to a wide range of people in agriculture in Ghana to understand the existing assets and shortcomings, and to shape our ideas moving forward.

In January 2009, I took my twelve-year-old daughter Whitney along on the trip to Ghana and Dubai. By this time, my trips were becoming monthly, and I greatly wanted my family to share in the adventure. So, Whitney came along, and we stayed at Kris’s house in Ghana and had various meetings there, and then went to Dubai to meet Issa and his family. It was a whirlwind trip with little sleep, but we covered a lot of ground and gave Whitney her first exposure to Africa and the Middle East.

It was then we learned of Issa’s prostate cancer and his need to undergo surgery. It was a sobering and serious moment for Issa and his family, and it clearly necessitated a time out from our discussions on possible collaboration.

It was time to make decisions. The ideas were coming together in Ghana. We decided we should build a farm, the farm would be managed professionally and would utilize irrigation, and we would incorporate small farmers into the system utilizing a franchise model. This became our plan in March 2009. It was time to execute.

Unfortunately, however, we did not start out with the Africa Risk Dashboard. Little did we know, we were about to create it.

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Deciding to do something is one thing. Making it happen is another. Kris and I were determined to make this happen, but assessing the tangible costs and requirements of building a commercial farming operation in Africa was not a simple proposition. There was no manual on this. We were on our own.

The first thing we needed to do was figure out the size and scope of the project. There were a number of factors that would contribute to this analysis, starting with money. Kris and I had some money, but neither of us had piles of cash lying around.

At the same time, we wanted to drive the project the way we wanted to drive it. We were determined to do this our way without being dependent on a source of funding that would alter the core purpose. If the project was worth pursuing and worth our sacrifice, it had to be done right, and it had to possess a character and quality that would empower the people of Ghana and serve as a profitable model for sustainable economic development.

So, we decided the initial project must be funded with our own capital. It needed to be built around a budget Kris and I could provide.

We arrived at a rough sense of what we could afford and what that would buy us. Clearly, we did not have the resources to create a full-scale, Iowa-style commercial farm. We needed to go smaller, but it had to be substantive enough to attract the right type of investment, and developed sufficiently that the culture and tone and purpose of the project would be well-established and not be lost with an infusion of new money and new equity stakeholders.

At the same time, we wanted to provide a mechanism for small-scale farmers to enjoy the benefits of economies of scale, to make more money, and to develop new skills. Our concept was that the small farmer struggles to produce to their potential when they must do everything alone, isolated from the capital and the strategic alliances needed to command large-scale support systems, like quality transportation networks, equipment, and inputs such as seed, fertilizer, weed and pest control, irrigation, etc.

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Moving Family to Africa to Build a Farm By summer 2009, it was clear that the only way to organize a farm in Ghana was for someone to live in Ghana, wake up every day and focus on it. Kris had an excellent position in Ghana, and it made sense for him to continue to work full time. He was gracious to open his house to our family if we would move to Ghana to work on the farm. In August, our family boarded the plane and moved to Ghana.

Kris and I formed Africa Atlantic Franchise Farms in September 2009. A Ghanaian-registered company, we filed the papers and received a Certificate to Commence Business.

When we moved with Vicki and our three daughters in the summer of 2009, I was joined

by Andrew Chandler, a recent graduate of Florida State University and family friend. Andrew lived with us in the startup days of the project, and then later moved to the farm and Jon with wife Vicki and daughters Whitney, Sydney, and Carly, 2009 served as a key staff member in its establishment. In early 2010, Andrew was joined by another Florida State graduate, Andrew Thompson, and they become a critical team in the early formation of the farm on the shores of Lake Volta.

We had limited time and budget, and we quickly needed to find land with access to water for irrigation so we could set up our project. Kris and I spent countless hours looking at land around the Kpong Dam and along the Lower Volta River. We put the word out in Ghana that we were looking for land.

The inquiry for land with access to water led us to an introduction to Edward Appah, MD, a retired surgeon born and raised in Ghana who moved to Germany, where he attended medical school and practiced medicine for several decades. Dr. Appah and his wife, Helen, had a passion for developing their community and arranged for 10,497 hectares (25,927 acres) of land on the Afram Plains to be identified for potential agricul60

tural development on the shoreline of Lake Volta, one of the world’s largest reservoirs. Dr. Appah joined our partnership in October 2009, becoming a shareholder and the local partner for Africa Atlantic Franchise Farms. He arranged with the chief of Abetifi, the landlord of the Afram Plains property, for a Right of Entry to set up a demonstration farm.

It was clear from the beginning that neither Kris nor I had the funds to build a full-scale commercial farm in Ghana. We hoped instead to build a pilot farm using a four-span Zimmatic center-pivot irrigation system and used equipment that Kris had purchased in Illinois. We would operate the demonstration farm, prove the Jon with daughter Whitney, and children from fishing village on Lake Volta, 2009. model, and seek external investment to scale up the farm to commercial viability.

In November 2009, Andrew Chandler and I took our van to the lakeside village of Kotoso, secured a canoe and boat driver, loaded up our bicycles, and ventured across Lake Volta to explore the land area. We visited the village of Agbokpakope and met David, our local boat transport operator, and Kojo Dzanado, who later became essential contributors to the development of the farm on the Afram Plains. We identified an area near the water, about one kilometer north and west of the village, and we decided to set up the base camp that would later become the farm site. Over the next two months, we spent many days and nights at the site, arranged for a bulldozer to come and clear an area to set up, secured dirt bikes for greater mobility, and made plans to move our equipment to the site from the port in Tema.

Early on, we discovered the hazards of importing and clearing shipping containers and moving cargo to remote locations.

We will examine these challenges in more detail in later chapters, but the lack of infrastructure at the farm forced us to ap61

proach the Volta Lake Transport Company to arrange for barge transport of our containers to the farm site about a hundred kilometers up the river. This became an important relationship.

Once our shipping containers with our equipment and irrigation system were ready for transport, it was clear we would not be able to deliver these containers by road. Instead, we commissioned a barge to make the journey to deliver the contents to the farm site.

(L) The first farm site, near Lake Volta (R) Andrew Thompson, Kris Klokkenga, Jon Vandenheuvel, Drew Chandler. AAFF farm site. Afram Plains, Ghana 2010

In April 2010, we successfully delivered the shipping containers to the farm site on the Afram Plains with the support of the Volta River Authority and the Volta Lake Transport Company. While just delivering equipment to the site was a tremendous accomplishment, it was only the beginning of what would be an epic struggle to organize a farm, involving tremendous personal sacrifice and risk on the part of many individuals.

As we will see in later chapters, these harsh realities discovered through experience and hard work became the foundation of our risk dashboard on many levels and led to our central recommendation for investors centered upon hard and soft infrastructure.

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C HA P T E R 3

A F R IC A AT L A N T IC HO L D I N G S A N D L E S S O N S L E A R N E D T H E HA R D WAY Note: In this chapter and for the rest of the book, we transition to “we,” meaning Issa and Jon. After our discussions in Dubai in 2008, we did not meet again for more than a year. In February 2010, we met in North Carolina and resumed the discussions from 2008 that would form the strategic partnership not only to continue navigation of the farming project in Ghana, but to frame the project and its challenges in the fuller context of African investment risk and opportunity, and to consider how the model could be applied in other countries and other industrial and socioeconomic situations.

By February 2010, it was clear the farm in Ghana would need both strategic and financial support. Issa suggested this project could become a laboratory for consideration of the many challenges facing agriculture in Africa, and he agreed to take on the project as a majority investor and chairman.

After discussing Issa’s proposal with Kris, it was decided to form Africa Atlantic Holdings as a British Virgin Islands-registered company, and Kris and Jon would migrate their majority shareholding of the farm in Ghana to this new company. With the induction of new seed funding to continue the farming operations, Africa Atlantic Holdings (AAH) became the majority shareholder of Africa Atlantic Franchise Farms (AAFF) Ghana.

The agreement was signed in May 2010 and shares transferred from Jon and Kris to AAH with the consent of Dr. Appah shortly thereafter.

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Under this structure, we made plans to continue development of the demonstration farm. Also, we decided Kris would leave his full-time position with the shea nut processing facility in Tema and become the managing director of the farm in June 2010, and Kris, Issa, and Jon at the May 2010 formation of Africa Atlantic Holdings we would seek to install a small laboratory-scale farm on 16 hectares (43 acres) using center-pivot irrigation. In addition, we decided to seek a long-term lease for the full land concession, and agreed with the chief of Abetifi to lease the land to AAFF for fifty years for a lump-sum lease payment.

Little did we realize, it would take nearly two years from this point to set up and operate the center-pivot irrigation unit. It would take two years to register the land lease with the Eastern Region Lands Commission. It would take three years to become aware of the requirement to complete an Environmental and Social Impact Assessment, and it would take more than four years to secure a private equity Term Sheet with sufficient investment to expand the farm to commercial viability.

After countless meetings with multilateral and bilateral developmental agencies, international banks, developmental banks, the Ghanaian government, and agribusiness experts from Ghana, South Africa, Europe, Australia, the United States and Canada, not one of these meetings produced a blueprint for setting up a viable commercial farm in Ghana. Not one of these meetings offered a “risk dashboard� to help plan, budget, and manage an investment strategy to achieve commercial viability.

After countless meetings with government and multilateral agencies responsible for infrastructure development, whether local, regional, national, or international, not one could present a clear set of guidelines or steps to organize a public-private partnership.

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We found ourselves neck-deep in African agribusiness—“up a creek without a paddle,� as they say in the United States. We realized this was a bigger challenge than we expected, but we were not alone. Every other commercial agribusiness project in Ghana faced similar challenges. We soon learned through networking events with other projects across Africa that the lack of knowledge, expertise, and support for the infrastructure needed to invest in commercial agriculture successfully in Ghana was also the case in Nigeria, Zambia, Mozambique, Uganda, Angola, Tanzania, and elsewhere.

We engaged in discussions with other commercial agribusiness investors, government leaders, and many other stakeholders, and we recognized patterns and recurring themes impacting nearly every commercial agribusiness investment we came across. Not only were their challenges similar in the field, but they faced similar lack of understanding and support among developmental agencies and institutions. We heard very few success stories and very few examples of truly sustainable commercial success.

In spite of tremendous emphasis on small farmers, we found very few stories of successful models to help farmers transition from subsistence farming to sustainable commercial farming.

This was no surprise, as we also realized that if we needed a certain element or feature in order to farm successfully or secure external finances, the same would be true for the small individual farmer.

For these reasons, by the close of 2010, it started to sink in that we would be in this for the long haul. There would be no easy fixes, and there would be very little help. We were on our own in the African bush.

Motivation and Methodology While there have been many frustrations along the way, the most rewarding part of our project is meeting the amazing people devoting their lives to the advancement of humanity through agriculture in Africa. In our efforts, we have concluded that the challenges confronting the agribusiness industry in Af65

rica cannot be understood except through a full three-dimensional viewpoint—top to bottom, bottom to top, side to side, and everything in between.

All dimensions are critical to understanding and solving problems. The view from the ground matters, but one sometimes cannot see the forest through the trees. The aerial view matters, but there are many things that cannot be seen without boots on the ground. Lateral views, front and back and side to side, represent relationships, from institutional relationships to individual relationships to family and tribal relationships, all of which influence situations for good and bad. Everything is interconnected.

From the top-down perspective, “Thirty-thousand-feet level,” as they say, we understand the vision of policymakers and global political leaders when they express their goals for the development of African agriculture. We understand the top-down approach. However, in the end, “all politics is local.” Execution on the ground, in the field, is what will ultimately prove the validity of the plan.

Kris (left) and the AAFF Demonstration Farm (right), Lake Volta, Ghana

In the course of developing AAFF in Ghana, we have had to put ourselves in the shoes of the African farmer. This is not a concept. This is a tangible investment. Scouting hundreds of miles and thousands of acres of rural areas, taking a canoe and a machete across a lake to a remote area in the African bush, fighting mosquitoes and watching out for snakes, setting up 66

camp, building a team on the ground, and starting a farm has given us a much clearer perspective from the bottom up. Building any small business anywhere in the world is hard. Doing it in a foreign country is very hard. Doing it in a remote area of West Africa, well, that is the laboratory from which this book draws many of its lessons.

Issa’s experience includes building and then operating a complex freight and logistics network throughout sixteen countries in sub-Saharan Africa and another two dozen countries throughout Asia and the Middle East. He has transported billions of dollars of goods in boxes, some bulk, some specialty, some perishable, on the sea, in the air, and on the ground, from international manufacturing hubs in China to remote villages by motorcycle in rural Democratic Republic of Congo to war zones in Iraq. This is truly a 3-D perspective, a lateral perspective, where there is no staying stuck at thirty-thousand feet, yet no staying stuck at zero feet. All perspectives, in real time, are needed.

What motivates this improbable team to set up a farm in West Africa? Each of us has personal reasons we have already touched upon, but as a team, our investment ethos is simple: We care.

But we also believe that caring isn’t enough. We can have pity or sympathy from a distance. But in order to truly understand, we must step in the shoes of the African farmer, identify with their situation, ask the tough yet obvious questions, and drive challenges and risks toward solutions. We must start with foundational issues. We must tackle the dangers that lie beneath the surface in order to scale a business above the surface. We realize we don’t have all the answers and need lots of help. And we know it will be difficult to make a sustainable difference, maybe even impossible. But we would rather fail than not try.

All perspectives driven by sincerity and good will, which can include both profit-driven enterprises and nonprofits, public and private, are needed and should be welcomed to the discussion. No single perspective has all the answers. Furthermore, problems of this complexity, similar to America’s challenges 67

with its big cities and poor rural areas, did not happen overnight and will not be solved overnight.

However, as we welcome all people of good will to this discussion, we also realize that good intentions do not necessarily solve problems. We run into this question often, especially in the United States. Can these problems in Africa be solved? Is there a solution out there? So much money has been spent. So many programs and donations. It seems like there is no solution.

This is true. It does seem impossible. As did a horseless carriage at one time, and landing a man on the moon. In reality, however, it is not impossible to envision solutions. Solutions can be found. But our approach, our method of approaching the problems, also matters.

The methods of agribusiness development in Africa, described sometimes by our British friends as “interventions” or “schemes,” are well meaning and can temporarily improve situations, narrowly speaking. However, too often these “schemes” are overly influenced by politics, patronization, and/or preconceived notions. These types of “tunnel vision”—the failure to recognize the link between a single problem and the dozens of problems that surround it, the failure to confront tough questions, and the culture of assuming that farming is simple and “easy”—result in poor decisions, wasted resources, programmatic failure, and cultural demoralization. Putting one million or one billion or one trillion dollars into a tunnel vision exercise does not address root causes or improve the underlying systems.

They just extend the tunnel further and further.

Therefore, while motives matter, methods also matter. Motives can be hard to read. Generally, we try to take a person’s statement of motive for what it is, a personal driver. However, when it comes to solving problems, it’s not that we don’t care about someone’s motive, but we recognize that it requires alignment of all stakeholders, from the United States, Europe, India, and yes, even Russia and China, to tackle these challenges. If the problems can be understood and defined, and the goals can be clarified, and if the priority is this concept of “sustainability,” 68

which impacts social and environmental as well as economic issues, there is no reason why we cannot all work together.

This is why we are excited to collaborate with the Massachusetts Institute of Technology (MIT) and other organizations that are willing to take a very simple, yet scientific approach to problem solving in this context, to view the problems as “systems” problems, requiring “systems” solutions.

In a laboratory, it is critical to ask the right questions—logical and iterative questions, sequential questions—to come up with ideas, test them, keep or toss them out, and move on to the next set of questions.

For example, applied to African agribusiness: If a small farmer has the right seed and fertilizer, will he/she achieve better yields? Probably yes.

However, If a small farmer does NOT have a proper land lease title, will he/she qualify for a commercial equipment loan? Probably no.

Therefore, If a small farmer has the right seed and fertilizer, AND has a proper land lease title, will he/she be able to scale his/her business? Potentially, yes.

When one applies this simple iterative process to a topic like agribusiness in the African context, he or she can unearth an amazing series of discoveries. Where does this thought process take us? It takes us to root causes, to a deeper understanding of the multidimensional nature of the industry, and to the need for a systems approach to systems challenges.

“What Does Not Kill Us Will Make Us Stronger” A friend shared with us a powerful story. “We can’t grow wheat in this country! We tried in 1960 and it didn’t work.” This was the official position of the phytosanitary office of an African agriculture ministry in 2013. The request for importing seed varieties for testing was denied.

A championship weight lifter works out “to failure” in every set. A world-class musician will practice—and fail—until they 69

can play the notes to perfection. A great baseball player only gets three hits for every ten at-bats. A great soccer team will make twenty shots before one goes in the net. A scientist will test a thousand formulas before finding three that might work, and one that ultimately works. Innovation is impossible without testing, stretching, failing, learning, and improving. If this is true for athletes and musicians, and true for scientists in the laboratory, it is also true for businesses, even farmers, in Africa.

Western agriculture has achieved more in the past few years in nutritional and production improvements than in all previous years in the history of mankind. The science of agriculture has resulted in an explosion of new biotechnologies, patents, cures, remedies, and a host of other accomplishments.

There is one thing it has not done, however. There are still American children who go to bed hungry every night. There are still millions of Americans living in poverty, left out of the prosperity they see all around them. Proximity to wealth and nutrition does not always equate to access. Scientific innovation does not automatically trickle down to lift up the poor. Social and economic isolation in Africa is severe, played out individually and corporately, but similar isolation also exists in Baltimore, just fifteen miles from Jon’s home in Maryland.

Can Africa’s agricultural transformation offer new insights on how the world can “do it right this time”? Yes, the West can produce amazing amounts of food, but can we build a rising tide that also lifts all boats?

This is Africa’s moment. The world needs Africa to show us the way, to show us how to prosper without leaving people behind.

For this reason, under Issa’s leadership, we have placed an equal investment focus on developing a knowledge and training initiative to coincide with our farming investment. As a Harvard Advanced Leadership Fellow, then a Senior Fellow, Issa has placed a heavy emphasis on taking the lessons we have learned in our experience, and pulling in the lessons of his thirty-plus years in African logistics and supply chain, to form a collabora70

tive platform for the advancement of research and training in African agribusiness.

We have teamed up with Harvard Professor Calestous Juma, one of the leading thinkers on the subject of African science, technology, and globalization, and MIT Professor Wesley Harris, one of the most successful aerospace engineers in US history and a man with a deep passion for Africa, to develop this initiative from Cambridge, Massachusetts, and beyond. This platform is only just beginning, but the Professor Calestous Juma, fruit of this collaboration is already takHarvard University ing shape as we engage stakeholders from around the world and on the ground in Africa among colleagues in private equity, banking, the public sector, the nonprofit sector, and like-minded NGOs. This collaborative approach, open-minded, solution-oriented, smart and non-partisan, offers a platform to look at conditions in Africa critically and honestly, realistically and constructively, to identify patterns and risks, threats and opportunities, weaknesses and strengths, and to envision models that can work, not only for the international investor, but also for the smallest economic unit, including individual women and youth.

Our mission throughout this process, the reason we call the farm in Ghana “Africa Atlantic FRANCHISE Farms,� is to bring the benefits of economies of scale to the small farmer, to design systems that include everyone, that work for everyone.

Our mission has been tested from all angles and across many disciplines, presenting a huge barrier to progress. Our resolution has been stretched, as have our pocketbooks. We have put millions of dollars and countless hours into cracking this code, and we have sought the wise counsel Professor Wesley Harris, MIT of fellow travelers.

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The story is a work in progress. The farm in Ghana has demonstrated the workability and scalability of commercial-grade production. Yields have been good. But infrastructure is needed.

Our efforts have now taken us to less peaceful countries, like Nigeria and Somalia, and have been inclusive of more diverse manufacturing and industrial elements. The challenges, the risks, and the financial architecture is very similar to agribusiness in Ghana.

We have been encouraged along the way by many good and encouraging friends. MIT Professor Alexander D’Hooghe has contributed many key insights to this initiative, which we will review in greater detail later in the book. Steve Hayes, president of the Corporate Council on Africa, has been especially helpful both in advice and steering us toward helpful collaboration. Jim Lutzweiler, the former head of strategic partnerships for South African NGO, and now head of global policy for PepsiCo, has been a faithful friend to the project. Elizabeth Uwaifo, an awardwinning attorney from London, born in Nigeria, has been a steady source of wisdom and encouragement. Hanna Chouest, an attorney with the law firm of Sidley Austin, has been a wise and talented advisor to our non-profit initiative, AKILI. Friends in the world of developmental finance, including Gene Moses with the International Finance Corporation, Willem Meyer with Campitor Investments in South Africa, and Ben Valk with Rabobank from the Netherlands, have provided critical insight and support as well.

And, of course, Issa has witnessed firsthand the direct and indirect cost of the lack of infrastructure systems as well as the inability of governments to set investment policies or bring diverse stakeholders into collaborative arrangements to build the necessary infrastructure to make Africa globally competitive.

The consensus is clear among these many wise friends: Africa’s struggle is not merely a cosmetic struggle. It is a structural problem, a massive infrastructural problem, and it is costing Africa trillions of dollars in lost opportunity and lack of competitive advantage in spite of lopsided natural resource wealth.

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Only a structural solution can solve a structural problem.

Only a systems solution can solve a systems problem.

Our story now continues within the context of the Risk Dashboard based on lessons we have learned along the way.

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PA RT I I T H E A F R IC A R I SK DA SH B OA R D : A D IAG N O S T IC T O O L F O R I N V E ST O R S

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C HA P T E R 4

T H E R I SK DA SH B OA R D Everyone who has been to Africa, and those who are from Africa, have seen its majesty and natural beauty. Those privileged to ride an airplane over Africa on a clear day, either within a single region of a country or across the entire continent, have witnessed incredible wonders.

When you travel to Africa as a tourist, you see the beauty clearly and you can take your time to enjoy it. For prospective investors, some of whom started as tourists, the first visits to Africa can be magical.

However, when you make the decision to invest capital in Africa, and you arrive in that same airplane, you remember the beauty of Africa, but you may land in a thick fog of the unknown. This fog can be light or intense. It can be hard to predict.

And when you arrive, you might not really know how long the fog will last.

What is this fog? And how long will it be until you can see clearly?

In the case of Africa Atlantic, the fog was moderately thick when Jon arrived for executive business courses in 2008. Back in 2001, when Jon visited Ghana as part of a congressional factfinding mission, there was zero fog in Ghana. Clear as crystal.

Bright colors. Ghana was paradise, at least according to the US Embassy. Everything was awesome. However, when Jon returned to Ghana in 2008 as a private investor looking for a road map, it seemed his Delta 767 immersed in fog upon landing at Kotoka International in Accra. Some of the confusing haze lifted during workshops at the local business school, which pro77

vided valuable insights, but as Jon’s discussions later intensified with Kris to the point of deciding to invest his life savings, build a farm, pack up a house in the United States, and take his wife and three kids to live in Ghana, he had to deal with an entirely new and much thicker fog.

It became a race against time for Kris and Jon to clear away the fog, to see clearly the path forward. How long would it take?

Where was the daylight? What happened to all the bright colors?

The “fog� in this illustration is, of course, not literal fog. It illustrates a picture for uncertainty, for risk. It is the thick curtain that conceals the truth, the reality, solutions to problems, even the problems themselves.

Issa had seen much of this fog before, but many of the circumstances of setting up agribusiness in Africa were new, even for a thirty-seven-year veteran of African freight and logistics.

Matters of land title, project financing, infrastructure, publicprivate partnerships (PPP), and buying and operating tangible assets represented new dimensions of investment and risk taking in the African context.

As the complexities began rolling in from the countryside, the clock started ticking. When you arrive as a tourist, you have a few dollars in your pocket to spend on hotels and souvenirs, and then you get back on the plane and go home. However, when you arrive as a private investor, there is no money for souvenirs, and there is no plane home. There is only one path, and the fog must be removed for you to see it, and you must be equipped to move forward down the path even as new fog rolls in from all directions. You are burning fuel, and you do not know where the next filling station is. And even if you did, you would keep pouring money into the tank even while encountering more fog, a longer path, dead ends, and detours. How long will the fuel last?

How long before oil must be changed? Flat tires? Running into ditches and trees because of the lack of visibility? Hoping you are not actually next to a cliff with no guardrail?

Many government-funded agencies, multilateral developmental finance institutions, and nongovernmental organiza78

tions (NGOs) do not experience this fog. In fact, discussing the “fog” almost seems like a lecture in a strange foreign language.

Local governments that receive much of their funding from donations also do not necessarily see this fog. It is not their fault.

They receive funds to invest in certain priorities. It might be electricity. It might be roads. It might be skills training for farmers. It might be seed or fertilizer subsidies. It might be health or school nutrition.

Responsible administrators will execute programs as they are prescribed. High-level administrators, government ministries, and heads of agencies may be given discretion, with the prescribed mandate, to allocate funds where they deem most appropriate. This may allow geographical allocation decisions and priorities for certain areas and industries.

Feasibility studies will be commissioned, budgets will be drafted and submitted, and procurement requests for information (RFI), requests for proposals (RFP), and purchase orders will be organized.

Unfortunately, unaware of the thick fog that confronts the private-sector investor, including the fog surrounding Africa’s small and medium sized enterprises (SME) and small farmers in particular, these budget decisions are made by government employees, funds are spent, and projects are executed. Annual reports are then commissioned by these same government employees, and the consultant community that drafted the feasibility studies are hired to write-up the progress reports for the donors.

Meanwhile, Africa imports fifty billion dollars in food every year that it could produce itself. The continent suffers from a ninety billion dollar annual infrastructure deficit that it cannot fund without private investors. There is fifty percent youth unemployment, including thirty percent for college graduates.

There are power shortages. In Ghana, imports are twelve billion dollars while exports are one and a half billion.

“Fog” can be fatal, but it doesn’t need to be. It can be burned away with sunlight, but only with concentrated sunlight. The brighter the sunlight, the quicker the fog will burn away.

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For Africa Atlantic, this became our mission. Unfortunately, as we burned fog away, more fog rolled in—a vicious cycle.

The Dashboard Our company developed the Africa Risk Dashboard through trial and error in the course of developing our farm in Ghana.

The story of AAFF’s development itself illustrates the importance of understanding that farming in Africa is no less complicated than performing brain surgery in Africa.

In short, the following dashboard indicates five major areas of risk facing AAFF, and, as it turns out, nearly every other commercial enterprise in agribusiness (and many outside of agribusiness) in the African marketplace.

This dashboard seeks answers to a very simple question: “What problem, if not solved, can kill your project?”

RISK DASHBOARD Legal/Policy

Finance

Operations

Policy

Donor culture

Agronomy

Land title

Accounting

Energy

Contracts

Banking/finance

Water

Corporate governance

Insurance

Equipment

Political stability

Markets

Transport/

Project finance

Logistics

Social

Environment

Security

Ethics

Conservation

Crime

Human resources

Water

Extreme poverty

Community development

Weather

Terrorism/war

Waste

Pandemics Famine

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As we’ve made presentations around the world highlighting this dashboard, stakeholders often ask, “What is the most important risk listed on the board?”

Our answer is always the same: “If it is on the board, and we have no solution, we might be dead.”

One may think that “dead” would mean something different to a private investor than to an African smallholder. True.

“Dead” for an international investment could be the inability to deliver a twenty percent Internal Rate of Return (IRR) on invested cash. But is it really so different for the African smallholder? Should it be different?

What we have learned is there is another side to the same coin. On one side of the coin is the risk. On the other side of the same coin is the new opportunity created by overcoming the risk. The opportunity on the other side of the coin makes finding solutions to the risk factors worthwhile. This is no less true for the international investor and banker than it is for the African smallholder.

In order to understand the context for each major category on the Risk Dashboard, here is a basic overview.

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C HA P T E R 5

L E G A L / P O L IC Y R I SK Policy Investments that build industries and build local, regional, and national economies require time and money on a major scale. These investments do not occur without thorough analysis, and the return on investment can take many years, and many forms.

A public-sector investor, particularly for infrastructure, will seek returns in the form of job creation and the public welfare, whereas the private-sector investor is looking for a meaningful financial return to shareholders. A road will facilitate investment in enterprises that will use the road, but the road—unless a toll road—will not yield profit to shareholders. Instead, the enterprise that uses the road will yield return to shareholders and create jobs.

This chain of events does not occur overnight or by accident.

This chain of events results from a government policy that sets the rules of the game so that many diverse interests, representing both public and private sectors, can come together, make decisions, and mobilize cash.

These investments—the ones that result in new industries and new or expanding enterprises—are also codependent, meaning that the partnership is a dance. It creates a series of actions, reactions, moves, and counter-moves. One decision unlocks the next decision.

The government, which sets and enforces policies, creates the conditions for investment decisions. The conditions might be advantageous to business investment or disadvantageous. Ei83

ther way, investors must consider the policies and plan accordingly.

For those who write and enforce policies, they must decide what they want to achieve, and then evaluate whether policies help or hurt their objectives. This is often a matter of balancing complementary and competing objectives. A policy that is imbalanced, empowering one at the expense of the other, will likely fail to achieve the desired objective. Further, a policy that is either constantly changing, perhaps with election outcomes, or that is poorly or inconsistently enforced, will also likely fail to support the desired objective.

Ironically, then, for example, a higher tax rate or a more expensive regulatory requirement that is clear, consistent over time, and easy to plan for might allow an investor to plan and therefore move forward with the investment, more so than a lower tax rate or less expensive regulation that causes confusion or is inconsistently administered. A private-sector investor will usually prefer the lower tax or regulatory burden, but the reliability and consistency over time might be preferred, especially with more capital-intensive investments, because the uncertainty and risk of the unknown can produce fear and indecision.

There are limits to this perspective, of course, as there will be a point where a rate or regulation becomes simply too burdensome, and the decision to invest is not worth it because the investment will not achieve a positive financial outcome. In this case, the investor will seek more favorable terms in other locations.

Government policy goes far beyond simple taxes and regulations, but the key to investment is a combination of smart and efficient policies that support private investment and the consistency of policies, both in provisions and in enforcement.

In the end, there are two policy-related enemies of the private investor. Enemy number one is inconsistency, and enemy number two is cost. Therefore, if a government policy is clear and consistently presented, and if the overall policy impact on the investor, including tax and regulation, along with government services and infrastructure, comes to the investor at a reasonable cost, the policy will be conducive to private investment.

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Since launching our investment in Ghana in 2009–2010, our firsthand observation is that government policies, both international and multilateral agency policies, and the policies of the Government of Ghana, have failed to support private and public investment to achieve global competitiveness, economics of scale, and food self-sufficiency. Public policy regarding agriculture, Jon in front of Ghana Ministry of Food and Agriculture both the national policy and the policies of international bodies and foreign government assistance programs, is mostly ineffective.

Our analysis of the policy environment in Ghana is based on many factors. The following are just a sampling of the policy issues that contribute negatively to the investment conditions we found in Ghana.

• Confusing corporate law, tax law, regulatory environment • Lack of infrastructure; absence of public-private partnership protocol • Misdirected public developmental funds, including international donor funds • Ineffective financial policy, including banking, project finance, devalued currency • Costly and inconsistent electrical power supply • Confusing land tenure policies and procedures We will consider these points, and more, as we examine each topic of the Risk Dashboard. Public policy impacts everything, and investors must be fully aware of the implications, good and bad, of the policies set forth by the host government, as well as the policies of many foreign countries and multilateral agencies engaged in the country and exerting influence over the government’s policies.

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Land Title and Registration It is important to legally register land prior to investing significant capital in agribusiness enterprises. The process for obtaining and registering land in Africa for use in agriculture is particularly confusing and controversial. However, there is a system of laws in most African countries. For example, in Ghana there are the Land Registry Act (1962), the Ghana Land Title Registration Law (1986), and Ghana’s Ministry of Lands, Forestry, and Mines.

Private and public investment, directly or indirectly, starts with land. Economies and industries are built on land. Even aviation and maritime industries connect physical spaces on land.

The knowledge economy, technology and communication, connect and support people on land.

Land title, property rights, and the recognition of these rights within a system of laws that are recognized and respected by the government and the society represent the starting point of private and public investment in activities, enterprises, and infrastructure to make use of the land and property. Without these rights, or with inconsistent enforcement of these rights, the investment process is short-circuited. Money will not flow, economies will stall, jobs will not be created, and public services will not be funded.

Author Hernando DeSoto explains, “With titles, shares, and property laws, people could suddenly go beyond looking at their assets as they are—houses used for shelter—to thinking about what they could be—things like security for credit to start or expand a business.” 1 Unfortunately, this system of laws is absent from the industrial policies of many African countries. The result? As DeSoto states, “The poor of the world—five-sixths of humanity—have things, but they lack the process to represent their property and create capital. They have houses but not titles; lands but not deeds; businesses but not statutes of incorporation.” 2 1 2

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DeSoto, Hernando, Globalization at the Crossroads: The Power of the Poor. Blog.

DeSoto, Hernando, Mystery of Capital: Why Capitalism Triumphs In the West and Fails Everywhere Else, New York, NY: Basic Books, 2000. pp 6,7.

Agriculture in the United States enjoys a financial liquidity that allows cash to flow, capacity to expand, costs to diminish, and the entire food supply to be plentiful and affordable for all citizens.

This financial liquidity is a direct result of the system of laws protecting land and property rights. As farmers operate their businesses, they do not need to sell 10 hectares (24.7 acres) in order to plant seed and fertilize the other 90 hectares. Instead, all 100 hectares (247 acres) are properly titled, either free hold title or lease title, and this becomes collateral, “security for credit,” as DeSoto states, to receive bank financing for working capital to plant crops.

Fly from Boston to Los Angeles, Bismarck to Houston, and you will see mile after mile of farmland. All this land is titled.

Nearly all this land will serve as “security for credit” with local, regional, or national banks to offer affordable financing for farmers to buy seed, feed, tractors, and trucks. This same “security for credit” then translates into improved technology, improved methodology, and improved reliability to offer security for insurance. Crop insurance and property insurance further reduce the risk of the industry. The system begins and ends with the legal rights of land and property.

Most empowering? The small farmer can also enjoy these benefits. Increasingly, in the United States and Canada, the small farmer struggles to compete with larger farmers. But for most of the last fifty to one hundred years, the small American farmer has been the engine of wealth creation by producing affordable food and has seen their property values increase, enabling them to support their families and retire comfortably.

Some will argue that these conditions cannot be created in Africa. They are wrong. Not only that, but Africa has no choice but to create these conditions. African farmers compete with American farmers. It is a global market. The price of food in Ghana is set by the best practices and efficiency of farmers in Brazil and Manitoba.

The laws of economics cannot be suspended out of sympathy for the African farmer, and the connection between land 87

rights and the laws of economics is bright, clear, and unmistakable. Aid agencies and politicians must take responsibility and open their eyes to what DeSoto is saying, connecting the dots between land rights, property rights, and wealth creation. Developmental policies in Africa, whether relating to agriculture or any other industry, such as housing or transportation, must be redesigned and transformed according to these principles.

The process of securing land in Ghana can be extremely difficult, time consuming, costly, and fraught with peril. We have succeeded in leasing, registering, and defending a fifty-year land lease title for 10,497 hectares (approx. 26,000 acres). For the sake of ongoing relations in the business, we will not offer commentary on our particular land title arrangement. Instead, we will speak generally to the experience of other private investors, both Ghanaian and international investors, in securing land title for their enterprises.

There is a dual-track leDr. Appah (left); Chief of Abetifi, His Majesty gal process in Ghana. One the Adontehene (center); with Jon in 2010 is based on traditional law and tribal rights to lands dating back hundreds of years, and the other is based on British Common Law and the laws of the Republic of Ghana. A proper land lease title, one that can be protected in court, is achieved by completing required steps along both tracks. One without the other will expose the investor to unacceptable risks, yet many investors are either unaware of this or dismiss it.

Banks and international investors, seeking compliance with international guidelines, only recognize land lease titles that fulfill both traditional and national legal requirements. The national legal requirements for registration of land involve a title search (for other claims on said property), a public notice and comment provision, and accurate records of land boundaries.

Why does this matter? Money. It takes money to build and operate businesses. Where does this money come from? The 88

source of funds will often determine the level of seriousness individual investors or governments will take in the matter of proper land registration.

For example, we have good friends from the United States, Europe, and South Africa who have come to Ghana to invest in farming. They have ignored the tedious, complex, costly, and time-consuming land registration process because they intended to self-finance their projects. They had sufficient funds (they thought) to set up farming operations without the need for external finance.

Unfortunately, in every case, these projects ran into the unknown, and the unknown unknowns, and all have collapsed.

It may be admirable for an investor to bankroll a project, maybe driven by love or compassion, but in the end, it short-circuits the formal building blocks, the foundational principles, of business formation. Sometimes this works, but in Africa, with so many threats and risks with the lack of infrastructure, the costs are simply too great for single investors to write checks.

Our fellow farm investment friends took out checkbooks to finance infrastructure—roads, power lines, water systems, and so forth. Infrastructure, as we have discussed, does not yield a direct return on investment unless it is “fee for use” infrastructure (such as a tollway). In rural Africa, “fee for use” will not come close to covering the cost. Therefore, if an investor is setting up a twenty million dollar project, and ten million dollars of the project cost is infrastructure, and he/she simply writes a check, then the pressure is on the other ten million to outperform comparable investments in cost of goods sold (COGS) by competitors in Brazil, South Africa, and Minnesota. Not going to happen.

The financial model for a farming operation, generally speaking, cannot absorb the full cost of infrastructure. A farm in Nebraska will pay tax to partially finance the infrastructure they use every day, but this is not a lump sum. It is a token absorbed in operating costs.

In Africa, therefore, private investors who take possession of a piece of land and do not bother with titling the land be89

come responsible for one hundred percent of the project funding, including infrastructure. They cannot, and will not, qualify for external financing. They have written their own enterprise death sentence.

Land title, as DeSoto points out, creates security for credit. The same security is required for private equity investment from international capital markets. Unfortunately in Ghana, few international and local investors bother with it. It is a costly process, and investors can spend hundreds of thousands, even millions, to survive during this process—with no certainty of outcome.

Worse, many small local farmers do not bother with it and are not even aware of its importance and the opportunities they will never realize due to the fact that their land is not legally recognized. The engine of wealth creation in developed economies is the value of property over time. These assets provide financial security for today and for retirement.

Unfortunately, multilateral agencies and governments engaged in development of the agribusiness industry rarely even talk about land rights. Farmers in the cocoa industry in Ghana, for example, are generally as poor today as they were a hundred years ago. For all that blood, all that sweat, all their tears, all they get is the price the Ghana Cocoa Board is willing to pay for that year’s crop. It is a crime against these farmers, and it starts with their legal land rights.

International investors can come and go, take it or leave it. But what about these cocoa farmers? What choices do they have?

As we see in the Africa Risk Dashboard over and over, if it is a risk and a threat to the international investors, it is an equal or greater threat to the local farmer. This was a lesson we learned the hard way. This is why we are writing this book.

Contracts Contracts represent a system of conditions and obligations.

This sets the dynamics of offer and acceptance, the rules of bargaining, third-party beneficiaries, responsibilities and assign90

ments, as well as the legal consequences or remedies available when contracts are breached. Contracts with potential agricultural off-takers is relevant in this context.

Borrowing again from the work of DeSoto, the informal economy pays a heavy premium for being informal. “Dead capital” means money is strictly changing hands; it is not being leveraged even to the most basic extent possible.

This would be tolerable if the entire economic system were isolated. All competitors would share the disadvantage. However, Africa is not isolated. Africa’s informal marketplace is a full member of the global economic community, at least as a consumer. Therefore, the price of goods in African countries is driven by the competitive advantage of formal economic systems.

It is hard to measure an opportunity cost. How much would Africa gain by adopting more formal contractual business practices? It’s hard to say. However, Africa clearly cannot leverage its natural and human resources, its financial wealth, and its incredible spirit and energy without legal contracts. The money that flows in informal systems is significant, but it cannot scale.

In Ghana, it is a cash economy. This is not to say there are no contracts. Contracts occur for larger-scale transactions or transactions between international, governmental, and formalsector activities. However, as a general rule, everyday business is handled informally.

This seems harmless, and generally is harmless, and there are both traditional and nontraditional methods of enforcing informal agreements. The harm comes from lost opportunity.

For example, in agriculture, properly managed and maintained farmer cooperatives around the world can convert contractual relationships between farmers into major bargaining power.

This collective bargaining power can be leveraged either to negotiate more favorable terms for the materials that farmers need to operate their farms, or the best price for the goods that farmers produce.

In Ghana, there are farmer cooperatives, but the lack of a system of contracts that can link the farmers into a more power91

ful economic unit undermines the entire system. These farmer organizations are ineffective, unreliable, and fail to lift up the individual farmers or the industry as a whole. As a result, the farmers are cooperative “nomads� looking for the best deal any given year.

Contracts take time and cost money, and if they are only partially enforceable, they are not practical instruments for the day-to-day business of Ghanaians or most Africans. This is classic short-term gain, long-term pain. Save time, lose the future.

There are promising technologies that could remedy this, but for the individual economic unit, there must be a compelling reason to participate in formal economic structures. This will take time, and more importantly, a full systems approach.

This is the point of the Risk Dashboard. The matter of contracts is important. Fixing this complex issue is important. But if you only fix this one single point and fail to fix the other points, it will not be a solution at all, and individuals and entrepreneurs will logically revert to the informal system.

Corporate Governance Corporate governance refers to rights and equitable treatment of shareholders, board selection and practices, compensation, transparency and disclosure, and corporate social responsibility. Poor corporate governance practices can have disastrous consequences for companies, shareholders, the capital and financial markets, and the economy as a whole. Good corporate governance, in contrast, can help clearly distinguish the line between ownership and control of a business; balance the powers of shareholders, board members, and other stakeholders; and ensure accountability of all parties. Good corporate governance leads to better productivity and attracts investment.

Industrialization takes entrepreneurship and money, and the units that make up the engine of industry are the small- and medium-sized enterprises, and sometimes larger multinational enterprises that raise and deploy money, organize and hire people, and put the literal and figurative shovels in the dirt.

If external money and support were not needed, these units could operate with a handshake or from one generation to the 92

next with signatures on the back of a napkin. But if external money or the support of public infrastructure are needed, then the units need to be formally recognized. Obligations must be spelled out in documents, reports must be filed, and the interests of all stakeholders, including owners, investors, banks, and governmental institutions, must be protected.

In Ghana, corporate governance rules and requirements are spelled out in government regulations. The system of laws is quite thorough, based on British Common Law. It spells out the rights and obligations of shareholders and management, and requires annual reports. Companies that engage in financing and contractual relationships must maintain “good standing” with the relevant government authorities. It is a reasonably modern and functional system.

However, the typical Ghanaian SME is not registered with the government. A small farmer is not likely to be registered as a corporate unit. While this conveniently makes it more difficult to track, tax, and torment these small businesses, it also makes it more difficult to help them.

As with contracts, corporate governance and regulation must be understood for the advantages of recognition, otherwise it simply will not happen. Combined with all the other benefits, it would be easy to justify the added hassle of corporate regulation. But it is a package deal, and right now most Ghanaian small businesses are making a rational decision to fly below the radar screen.

Political Stability Prior to any commercial farm development, it is important to evaluate the strength or fragility of each country’s legal stability using practical frameworks. Once operating, to mitigate a spectrum of competing political, social, and economic interests, essential conflict resolution skills are necessary to achieve desired outcomes.

The World Bank publishes an annual “Ease of Doing Business” ranking for countries around the world.3 This report is 3

2017 World Bank Economy “Ease of Doing Business” Report and Rankings (data benchmarked as of June 2016)

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valuable, and it would be difficult to improve upon it as background for understanding the risk associated with any given country in Africa. The score is based on a country’s performance in the following areas: • Starting a business • Dealing with construction permits • Getting electricity • Registering a property • Getting credit • Protecting minority shareholders • Paying taxes • Trading across borders • Enforcing contracts • Resolving insolvency These ten categories, taken as a whole, provide a reflection of the ability of a government to offer businesses an environment where they can operate. In a way, they represent a “Country Risk Dashboard” or at least a framework to help with the decision-making process.

Something to keep in mind: The World Bank rankings of “ease of doing business” cater to international investors, but the “ease of doing business” actually matters more to local companies, especially in the agribusiness sector.

Collectively, African nations score lower in these rankings than any other region. What does this mean? It means that Africa’s competitors in key industries, like food, enjoy easier conditions for business.

Translation? It is harder to start a business in Africa, harder to deal with construction permits, harder to get electricity, harder to register a property, harder to get credit, harder to protect shareholders, harder to comply with tax laws, harder to buy and sell across borders, harder to enforce contracts, and harder to resolve insolvency (creating a freeze on credit). Other than that, Africa is a great place to invest!

Ask yourself a simple question: will better seed varieties or a cell phone app for farmers improve this situation? These are 94

systematic, structural problems and disadvantages that potential stakeholders and investors must solve systematically and structurally.

Out of fifty-four African countries, Ghana ranks number ten in “Ease of Doing Business.” This is a respectable score, and in many ways I knew this even before knowing about the World Bank scoring. Ghana is a stable and peaceful country, and although it is not easy to address these ten factors in Ghana, it can be done.

Unfortunately, Ghana’s competitors in food production score much better. This means it is less expensive—a lot less expensive—to do business in other countries and simply sell food to Ghana than to produce food in Ghana to sell to Ghana.

Political stability, therefore, according to the Africa Risk Dashboard, is not measuring Ghana or any other African country against other African countries. It is measuring Ghana against all countries in the global economy. From this perspective, Ghana does not rank tenth; it ranks 108th. This means it is easier to do business in 107 countries than Ghana.

The good news for Ghana? Nigeria ranks 169th. Nigeria ranks worse than Yemen, Zimbabwe, and Sudan.

Until stakeholders from government, business, and the nonprofit sector adopt global best practices in matters of political stability and condition-setting, and until these stakeholders stop celebrating mediocrity and instead embrace best practices as essential to socioeconomic survival and prosperity, there will be no improvement.

Will this transformation occur overnight? No. Will it occur across entire countries at once? No. It must start in specific areas where all ten “ease of doing business” factors and all major risk factors are methodically mitigated.

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F I NA N C IA L R I SK Donor Culture There is a big cultural difference between private money and public money. There is a big cultural difference between private money intended for profit versus not-for-profit.

This would seem obvious, but in practical reality in Africa, it is not obvious. There is a donor subculture engaged in the subject of economic development who use public or nonprofit money both to train and to implement “private” enterprise development. There are conferences and “high-level convening” meetings of important people to discuss the latest opinions from experts on the subject.

This is a tremendous risk to the private investor. In fragile environments, a private investor must enjoy a collaborative relationship with host governments and must be able to cooperate on key infrastructure investments, both in soft infrastructure and hard infrastructure.

Unfortunately, the donor culture distracts host governments from focusing on building core infrastructure and foundational systems for industrial scale and global competitiveness. Host governments are instead focused on what the donors want, such as the latest trends, ideas, and technologies that may be valuable as one-off plays in certain situations, but are not effective in nurturing the necessary conditions for private investment to succeed.

For example, a donor might be excited about a mobile phone technology that gives the rural farmer access to important information about agronomy or the latest prices for commodities 97

at certain markets. Yet does the farmer have access to finance the equipment needed to implement the new information? Is the farmer connected by an efficient transport system to change his plan to sell to one market versus another to take advantage of higher prices?

As we have been saying, a systems problem demands a system solution. The donor culture, currently, does not get this.

The private sector is too busy trying to survive to engage in the campaigns needed to change the donor culture and design better donor programs.

The private sector is invited to these donor-convening events—for a registration fee and a hotel room at the most expensive hotels in Africa or Europe. What is the “private” sector in these gatherings? The private sector attendees might be members of the corporate social responsibility group of an international oil and gas company. They might be representatives of large multinational corporations with major contracts with the government. They might be bankers from quasi-private institutions or development banks. We have attended several dozen agribusiness conferences in the past five or six years focused on Africa. These events have occurred in Africa, Europe, the United States, and Middle East. Absent at the agribusiness meetings?

Farmers. There are seed companies, fertilizer companies, tractor companies, and sometimes banks and social impact private equity funds, but there are no farmers, no farm project developers, no grass roots entrepreneurs.

There are two different “clocks” that regulate international money invested in African agribusiness. One type of clock is a stopwatch with a hard deadline. When the alarm bell rings, the clock stops. Game over. The other clock is like the Debt Clock in New York City that just keeps running and running and running.

Guess who has the stopwatch? The private investor/entrepreneur. Guess who has the Debt Clock that keeps running? The international donors. They get money every year from Europe or the United States to help those in need. They report every 98

year to the funders, show pictures and rattle off statistics, and the politicians vote to keep the money flowing.

Then there is the money clock for the small African farmer.

This money clock is just a normal wind-up clock. Keep winding it and it will keep ticking on and on. The farmer goes out every season, works hard, and does the best he can. Same as a hundred years ago or a thousand years ago. If there is a government subsidy, a training program, or a new innovation, he might try it. He might get three tons instead of one-and-a-half tons per hectare in a season as long as supplies last. The donor will hire a respected consultant to write a report, the report will go to the politicians, and the money will keep flowing.

Yet with all these great progress reports delivered each year to powerful parliamentary committees in Europe and North America and the boards of directors of major philanthropic organizations, Africa still imports fifty billion dollars of food annually that it could produce itself. Progress? What progress?

The private investor in African industry exists in a completely different universe than the multinational donor agency or the multinational corporation or the multitudes of consultants and so-called experts populating business class seats and the best hotels in African capital cities. The private investor/entrepreneur and the small farmer, in this regard, share a perspective. Two sides of the same coin.

The “coin” in this case is literally money. The international investor’s side of the coin faces enormous unknown financial risks and has limited money to mitigate against these risks. The African small farmer’s side of the coin faces these same risks and cannot mitigate against them, so he or she simply subsists at the break-even point year after year. Same coin. Same financial risks. Different reactions. Same outcome, which is food insufficiency and a perpetual national dependency on imports.

Money is limited. No single source of money, not even Bill Gates or the United States government, could make up the structural deficits that prevent Africa from competing.

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Therefore, the greatest financial risk for the private investor in African agribusiness and the private investor in African industrial development and sustainable job creation is the donor culture and the wasted public and philanthropic money that has failed to build the foundation of the industry.

Instead of using limited resources strategically to design, build, and operate USAID-funded tractor in Ghana infrastructure that can leverage two and three times as much in private investment, money is squandered on trendy “schemes” and “interventions” that barely and only temporarily scratch the surface of improving the competitiveness of the African farmer.

We are a private investor that went to Ghana to build a farm.

We came with our own money. Over the years, we met with donors to discuss strategic collaboration. We met with agencies of the national and local government funded by donors to discuss strategic collaboration. We read the press releases of programs funded by donors that reached hundreds of millions of dollars.

We received notices in our inboxes about applications for these donor funds. On several occasions, we prepared formal applications for the donor funds. Lacking previous experience with donor-funded programs or failing to invest in high-priority (political priority) areas selected for special donor “interventions,” we never made it to the second round. We spent months applying for this program or that program, all the while investing our own private millions of dollars to build a commercially viable farm, and thousands of dollars on our own research and training initiatives.

Some private investors do not bother with this process, and some give up. For us, we have no choice but to engage in an “all of the above” approach to investment and development. We desperately need funding for infrastructure. A private investor needs infrastructure to succeed. But a private investor cannot afford to pay for infrastructure single-handedly.

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We have chosen to engage the donor culture. We have paid our dues for a seat at this table. We hope the new US presidential administration, the government of the United Kingdom, European governments, and major foundations and philanthropic and impact investors will see the need to make better decisions with public and donated funds.

Accounting/Bookkeeping Accounting is the primary language for communicating information about the economics of a business. The vocabulary and methodology of bookkeeping and accounting records become a necessary tool for planning, budgeting, calculating and evaluating performance, valuing, and making investment or operational decisions.

As a Risk Dashboard matter, it is very clear. Either your enterprise has proper accounting methods and reports, or it does not. If not, the business cannot comply with government annual reporting standards, and therefore cannot remain in good standing from a regulatory perspective.

However, without proper accounting methods and reports, the business cannot attract external financing, making the cost of doing business and the ability of the business to scale up or transfer ownership severely limited if not impossible.

If this is true of an international company doing business in Ghana—or anywhere—it is also true of a local enterprise. It may seem overly ambitious to assume that a peasant farmer in the African bush should have accounting methods in line with international reporting standards. However, it is every bit as important for the small African farmer to have proper accounts as it is to have proper seed. Failure to possess valid accounts in line with international standards translates into developmental inertia.

President George W. Bush used the expression “the soft bigotry of low expectations” to describe a welfare culture that tolerated substandard practices for the poor, whether in education or health or other performance measurements. The same can be said of the way governments and many nonprofit organizations 101

view the African small farmer. By failing to develop small farms as proper enterprises, whether by law or by financial accounting standards, it is indeed a practice of “soft bigotry.”

A company, whether a multinational or a small farm, is doomed in Africa without proper accounting. Thankfully, AAH hired a very strong financial controller, Natasha Rodriguez, who successfully harmonized AAFF’s financial records into audited reports consistent with international standards. Natasha worked closely with Ernst & Young as well as the banks and relevant financial Natasha Rodriguez agencies of the Ghanaian government to ensure proper audited financial accounts each year for the company. She also worked closely with legal counsel to ensure compliance with all laws and regulations.

In the end, no project can succeed without a Natasha—the smart, disciplined professional who will make sure the financial, human resource, legal, and governance issues are in order.

Whether it is Africa or London or New York, it doesn’t matter.

Banking/Finance Before a business can attract financing, decision makers must be able to determine how much money can and should be allocated; when and from whom it should be allocated; what is a reasonable valuation of the company; and how should funding, employment contracts, and exit decisions be structured. Companies can also source debt capital, but this must be assessed as to when it becomes prudent in a company’s life-cycle to explore debt options. Examples of a commercial bank’s services available to farms in Africa need to be assessed on what it takes for African enterprises to qualify for financing and what conditions make these enterprises more attractive.

There are many banks in Africa. The availability of banking services is not the concern. Rather, the major weakness in the African banking system is tied more directly to the system of 102

laws and property rights outlined previously and the resulting lack of credit facilitation. In this environment, there is a systematic absence of liquidity among SMEs, a systematic absence of consumer credit, and a systematic absence of affordable project finance.

The lack of liquidity among SMEs in Africa can be understood like this: In order to free up cash to feed livestock, a farmer must sell or butcher livestock for cash. If he has one hundred cattle, he may need to slaughter ten in order to feed the other ninety. In this situation, the farmer might eventually grow his herd, but he essentially spins his wheels in perpetuity.

Contrast this situation with the African farmer’s global competition, whether from England or Brazil. In markets with effective farm SME banking, a farmer may have one hundred cattle properly recorded as collateral, and therefore the farmer has a line of credit at his rural bank to borrow funds at an affordable interest rate. He can keep all one hundred, borrow funds to feed them or to add to his herd, or simply earn a higher personal income and enjoy a much better standard of living.

A similar dynamic impacts African enterprise consumer credit. Banks might lend money in Africa, but the lending practices unfortunately are severely limited by the larger ecosystem.

Farm SMEs, as consumers, rarely qualify for equipment or capital expansion loans. The inability of the African SME to access funds for these capital improvements or increased capacity result in a stunted-growth industry.

Africa’s agribusiness sector, similar to its manufacturing sector, cannot scale up Jon speaking at investment conference, Abu without greater access to Dhabi, 2013 consumer finance.

Contrast this situation to an American farmer who enjoys a thirty-year credit rating and the ability to borrow against assets 103

and income for new tractors, new storage units, new trucks, and new buildings.

The situation for one farmer in one location, one small processor, one small transport company, or one cold storage entrepreneur would limited the growth of the industry in part. But the systematic lack of banking and project finance for an entire region or an entire country or an entire continent makes the entire situation “high-risk.�

We entered Ghana as international investors, and we hoped that our best practices and our compliance with global standards, accounting standards, proper legal titles, and so forth would position our enterprise for commercial finance. Unfortunately, this was not the case, and still is not the case. And this is, unfortunately, true of most African agribusiness entrepreneurs, which results in Africa’s continuing reliance on imports and stunted growth. We will examine the implications of this in more detail in upcoming pages.

Insurance Farm insurance impacts the cost of capital, which impacts the cost of production. Crop insurance is an important risk management tool, currently accessible to farmers in Western economies and virtually non-existent for farmers in sub-Saharan Africa. As a risk mitigation tool both for farmers and banks, it has a dramatic and decisive bearing on access to finance.

One might ask, does insurance create stability, or does insurance reflect stability? In the African context, it is both.

There are insurance products in Africa. Property insurance is quite common. In fact, it is required for vehicles and many commercial buildings and other properties. We had an insurance policy on our Toyota Hilux Pick-up. When the vehicle was stolen and my colleagues Andrew Chandler and Andrew Thompson were robbed at gunpoint, we filed a proper police report filing and the insurance company investigated. We then received a satisfactory settlement for the vehicle. In addition, we were able to take out a maritime insurance policy to cover the transport of equipment by barge on Lake Volta.

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There is health insurance in Ghana and many other African nations. Ghana’s government provides a national health insurance system. However, lack of funds, lack of income, and many other factors greatly limit the effectiveness of the insurance mechanism. Nonetheless, a system exists.

Ghana, along with many other African nations, enjoys conditions of sufficient peace and stability to warrant an insurance industry. This is very positive. Unfortunately, the benefits of this industry have not flowed deep enough to address the risks of more vulnerable enterprise activities or more vulnerable and economically disadvantaged individuals.

Africa’s agricultural competitors in Western countries have access to all manner of modern insurance services. From property insurance to crop insurance to government subsidies (a form of insurance), the African farmer is outgunned.

For this reason, the lack of insurance products for African enterprise activities, particularly agriculture, represents a major risk factor and limiting factor in the development of economic capacity.

Markets Economic concepts, including supply and demand analysis, theories of enterprise and individual behavior, competition and monopoly, and welfare economics, are as relevant in Africa as they are in the United States. Inflation, unemployment, interest rates, exchange rates, productivity, and deficits all impact the viability of an agribusiness investment—or just about any jobcreating industrial investment.

It is critical for investors and entrepreneurs to understand the market and understand all aspects of the market, not just what they want to hear. There are extremes of views concerning the African market that distort the true picture from all angles. On one side, there can be oversimplification and “wishful thinking” when it comes to the African market—the sense of the inevitable growth in middle income demand for goods and services, the advantages of inexpensive labor, the continued exploitation of mineral wealth, and so forth. On the other side, 105

there can be an excessively dark view of the African market, that Africa is a cesspool of corruption, violence, and extreme poverty, and that it is impossible to service the African market effectively and profitably.

As with many caricatures, there is a faint resemblance to the truth contained in the picture, but it is far from the accuracy required to invest with confidence or to believe it best to avoid the market altogether.

Generally, US investors have avoided the African market.

Those who have ventured into Africa have done so according to their ability to limit their exposure to the fluidity and extremities of risk of the African market. For example, oil and gas companies, mining companies, and consumer goods have a long and successful track record in Africa. Their exposure to Africa’s marketplace risks are relatively contained when compared to manufacturing, agriculture, or financial services. A commodity extraction company sets up a closed system to extract the commodity, limiting the interaction with the wide range of legal, financial, operational, social, and environmental risks facing other investors. This is not to say they do not face these risks.

Far from it, they certainly face these risks. But they are able to contain their exposure to the risk within narrow and controlled enterprise systems, and, in many cases, a bilateral relationship with the government.

Contrast this with an agricultural or manufacturing business, particularly a business not otherwise contained within a dedicated policy or physical zone. They are exposed to the national and local marketplace conditions, and they must respond to every external stimulation, provocation, or road block with no special treatment. The unknown—and the unknowable unknown.

A mature market offers fewer unknown conditions, and even fewer unknowable unknowns. In certain industries, Africa is a mature market. Extraction industries (e.g., oil and gas, mining) and consumer goods (e.g., beverages, soap, plastics, electronics, vehicles) are mature markets in Africa. Agribusiness by nature is more exposed to raw economic and societal dynamics, 106

more interactive, and more complex in terms of economic integration and human engagement. Farming is as old as humanity, but modern commercialized, globalized agriculture and all its market dynamics are not widely practiced outside of South Africa, and certainly its methods and practices have not reached the general population of farmers on the rest of the continent.

In the agribusiness sector, there is market data in Africa, even down to the penny in the case of commodity prices and consumer demand. There are reports and studies conducted by credible researchers, there are credible government reports, and there are historical data available for many market-related indicators. There is a growing number of technologies, apps, and other modern mechanisms to share information. Unfortunately, the market is not mature, and these modern trinkets do little to advance the market as a whole, even with the financial backing of USAID and the Bill and Melinda Gates Foundation.

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O P E R AT IO NA L R I SK Great ideas and plans on paper rarely come to life in reality with operational efficiency and execution. Things that seem achievable and obvious at thirty thousand feet above the ground can seem impossible on the ground. The “thick fog” that investors face in Africa may conceal a sinkhole in the middle of the highway.

They say the “devil is in the details.” Often, in our experience, we have seen Satan himself lurking in the operational details of implementing our investment in Africa.

Agronomy Clearly, in matters of agriculture, agronomy, the science of soil management and crop production, is critically important.

However, for the Risk Dashboard, it is not simply agronomy as a science, but also how agronomy is positioned as a competitive advantage or disadvantage.

The science of agronomy is advancing at lightning speed, the product of billions of dollars invested in research and development in laboratories around the world.

Unfortunately, few of these labs are in Africa.

Africa possesses more than half the world’s available arable land for cultivation.4 However, its failure to leverage the agricultural potential of these natural resources has translated into systematic competitive disadvantage in the global marketplace.

4

June 2010 McKinsey Report, “What’s Driving Africa’s Growth?”, Acha Leke, Susan Lund, Charles Roxburgh, and Arend van Wamelen

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A key issue is the inability to produce crops at scale.

Small-scale farming reflects a lack of infrastructure and resources. For this reason, we needed to organize our farm with the goal of operating at a large scale, even though we were only opCraig Nelson, Kris, and Peter Mueller at erating a laboratory-scale AAFF, Ghana farm. We engaged Justin Bruch, a farm consultant originally from Iowa with experience operating fifty-thousandacre (twenty-thousand-hectare) farming operations in Ukraine for international investors. Justin worked closely with Kris and our farm staff, including Leonard Polzin, Peter Mueller, and Craig Nelson, to manage each crop and even helped with weekly activities, monitoring, and systems to prepare the project to operate at a large scale.

The science of agronomy is one thing; accessing it and leveraging it is another. The risk, therefore, is how to systematically access the science in Africa. The systematic application of the science in Africa, the inclusion of the masses of small farmers to access the science systematically, the funding for the science to be systematically and sustainably relayed, and the ability to convert the science into value-added products and cash returns in Africa are the risks that threaten African agribusiness industry.

The systematic application of agronomic best practices is the challenge. As we will see in the next section, there is a strong international organization with solutions to these challenges called Global GAP. We will look at this organization and its solutions in greater detail.

Of course, taken in isolation, improvements in agronomy without parallel upgrades in infrastructure, banking, policy, and so forth will not achieve the desired impact. It is but a single element of risk in a sea of many other risks. A major one, for sure, but only one.

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Energy Mechanized agriculture and all manufacturing activities require electricity. This is a major constraint to African farm and industrial progression. Rural areas often lack physical connectivity to national power grids, and even where connectivity exists, the source of power can be expensive and unreliable.

For the Risk Dashboard, our concern is not simply the lack of electricity—it is the lack of an integrated and systematic approach to all infrastructure and how this translates into the lack of public-private partnerships to finance improvements in electrical connectivity.

Unless your business is power generation, if you are a consumer of power, the electricity deficit can be a fatal risk. A business simply cannot afford to donate electrical connectivity to the general public as they pay cash to extend electricity to their place of business.

If this is true of an international investor, it is also true of the small African enterprise. Access to power is a prerequisite to mechanized agriculture, and mechanized agriculture is a prerequisite to food self-sufficiency. If a=b and b=c, then a=c. Access to affordable electricity is a prerequisite to food self-sufficiency.

Better seed? Yes. Better fertilizer? Great. Without electricity and mechanization? Pointless.

Rural African agriculture and industrial development sorely lack the strategic planning and coordination required to bring affordable electricity to their doors. This means the international investor and the African SME find themselves in a high-risk situation.

Some of our good friends in Ghana have spent millions in cash equity financing electrical connectivity for their enterprises. This digs a deep cash valley fast; it provides money for a known problem but at the risk of an unknowable return on investment. As agriculture and manufacturing burn up cash for public utilities, they generate an indirect return on investment in electricity. One European investor in Ghana spent twentyfive percent of his cash just to connect his enterprise to the central power grid. This was a “Valley of Death� too deep to crawl 111

out of. He went bankrupt within thirty-six months on a twelvemillion-dollar investment.

Water/Irrigation Water issues, particularly related to irrigation, but also to clean water for livestock and some types of processing, are a major challenge in rural Africa. The cost, function, performance, and repair of irrigation system components such as pumps, valves, pipes, actuators, and hydrostatic transmission systems make widespread use of such systems unsustainable.

In fragile situations with unreliable rainfall, irrigation is the only form of crop insurance that an investor can obtain. Beyond this, it is the only way to predict outcomes over the life cycle of the investment. It is the only way to achieve confidence in the profitability of the enterprise.

Consider, for the moment, the capital expense required to set up and operate a commercial farm in an African country.

There is the corporate registration in the country; the set-up of proper banking and financial accounts; the land and titling process; the environmental and social impact assessment; the purchasing of equipment and set-up of buildings and facilities; the recruitment and hiring of key personnel; the transport of equipment; the arrangements for processing, selling, and transporting the finished product; the provision of food and shelter to construction teams and land preparation teams; and finally, the purchase and transport of seed and fertilizer to remote locations.

All of this expense before a single seed is planted.

How can an investor take this risk? And this list does not include construction of a year-round road, access and connecting roads to the farm site, or the cost and installation of electricity.

And then you wait for rain?

In Ghana, in 2011, we planted our first crop without irrigation. Weather data and local observers suggested that crops should be planted after the first major rain in the month of April, so we planted our first test crop of corn then. It did not rain significantly again until June. The crop was stressed under the 112

intense heat and yielded just twenty-four bushels per acre (one and a half tons per hectare). While this is the average yield for the local Ghanaian farmer, the 2014 average Iowa yield for corn was 178 bushels per acre (11.2 tons per hectare).5 We planted a minor rainy season crop without irrigation and yielded 0.7 tons per hectare (eleven bushels per acre).

Without irrigation, the Ghanaian farmer could get four tons per hectare or one ton per hectare, which makes financing for this farmer based on his yield expectations hard to judge. The entire financial system of African agriculture deals with this type of situation. Without irrigation, frankly, it is very risky even to assume one ton per hectare.

Irrigation infrastructure is expensive. Our experience suggests that fifty percent of the cost is above the ground, and fifty percent of the cost is below the ground and below the water table. This is not a perfect rule of thumb, but we believe the allinclusive cost of irrigation is roughly $5,500 USD per hectare ($2,227 USD per acre). This is just the capital expenditure, to say nothing of the operating and maintenance costs.

AAFF irrigation installation and operation

Unfortunately, without irrigation, it is impossible to build a reliable financial model for the enterprise. Our decision to irrigate the land was the only option.

Unfortunately, irrigation costs are only affordable at a largeenough scale to absorb and spread out costs over more land, more crops, and more yield, making the upfront cost even greater.

5

US Department of Agriculture, 2014

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No electricity means no irrigation. No irrigation means no reliable output. No reliable output means no commercial financing. No commercial financing means no industry. No industry means Ghana must rely on imports from Iowa or Brazil or Russia.

Equipment Modern agricultural machinery, including the use, maintenance, and repair of tractor or vehicle engines, mechanical power trains, and hydraulic systems represent a make-or-break risk factor in African agribusiness. Poor maintenance and the lack of spare parts makes it very challenging to operate equipment.

And without access to reliable equipment, African farmers will suffer increased costs and lower production than their global competitors.

The issue is cost per ton. Equipment can be expensive, but lower yields over smaller areas is more expensive. This is the law of economies of scale. It applies to manufacturing generally, and certainly applies to agriculture.

Time is also money. Doing everything by hand, from planting to maintenance to harvest, or to manufacture goods by hand or assemble by hand, takes time, and time is money.

In agriculture, in Africa, it simply is not possible to compete with imports with production and manufacturing systems relying on hands only. Both quantity and quality suffer in contrast to global competitors, making cost per ton prohibitive for consumers. This is a structural deficit, not something that can be fixed through import taxes or other policy levers.

Africa has no choice but to mechanize its farm production and other manufacturing processes. This requires equipment— lots of it—as well as the skills and resources to operate and maintain this equipment. Also, access to this equipment must go deep into the rural communities, reaching critical mass, so that the industry tide can rise and lift all boats.

For the investor, equipment is both an upfront cost and a tremendous ongoing cost to operate and maintain. All machines wear down, and the investor cannot afford down time. Can the 114

mechanized farm operator drive a few miles to the local John Deere to pick up a spare part any time? Or order it online for next-day shipping? This isn’t an option in much of rural Africa.

Equipment maintenance is, itself, a make-or-break activity.

There is nothing more lovely than a shiny new tractor, but there is nothing more depressing than that shiny new tractor sitting idle missing a spare part that must be shipped across an ocean and delivered by motorcycle before getting to the farm whoknows-when.

Consider the equipment requirements for one single farm.

Consider the risk of bringing a combine harvester to a remote African village, operating it under the hot sun, and maintaining it over its seven-year depreciation cycle. Tractors, trucks, dryers, conveyers. Pumps, pipe, electronic systems.

Consider the fact that without equipment, the farm cannot produce at cost per ton to compete with imports.

Consider that if this is true for the international investment farm, it is also true of the small farm entrepreneur, no matter what seed they plant or what fertilizer they use. If their yields increase, their lack of harvesting equipment or transportation equipment will eat into the gains big time. It is a vicious cycle.

We had the good fortune in Ghana, for a brief period, to have a brilliant and mechanically savvy individual at the farm to engage in equipment repair and construction activities.

Dr. Nathan Heston was a Peace Corps volunteer who also earned a PhD in physics from the University of Florida. He spent many months at the farm site in Ghana coming up with solutions to problems.

Dr. Nathan Heston Unfortunately, having this type of talent available in these harsh conditions is a rare thing, and logistics limited our ability to utilize Nathan’s skills to the advantage of the larger neighboring community. Mechanization is a prerequisite to competitive commercial development in Africa, but finding and converting skills into solutions for a project is not easy.

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Every project must consider the need for this type of skill set, either as in-house talent or at least accessible when required.

Too many mechanical things can go wrong. This is true in Iowa and Africa, but access in Africa is more expensive and difficult to obtain.

Transportation/Logistics Often the single most expensive factor for the African farmer is transportation. This would be true across the world if not for highly efficient multi-modal systems connecting farmers in Western countries, with roads connected to storage elevators, connected by rail to lake or river ports, then transported by barge and cargo vessels to global markets. The absence of these efficient transport mechanisms, where often it is less expensive to transport a ton of grain from Iowa to Nigeria than to produce and transport that same ton from Kano to Lagos, translates into a major risk to the economic viability of farms in Africa.

Studies have shown that the cost of transportation for African farmers is a significant percentage of the total cost of goods sold.6 When the cost is added to the availability of transport options, and the resulting loss or spoilage of costs, it becomes a major risk factor Transporting equipment and containers to AAFF farm via Volta Lake in the system.

Transport barge Transportation and logistics require infrastructure and equipment. These elements require major investments. A private investor cannot pay for these systems alone. Government must play a key role.

In Ghana, in 2010, we were forced to engage with the Volta Lake Transport Company and the Volta River Authority to arrange for our equipment to be delivered to our farm site. This was due to the absence of a road to connect to our farm site. Yes, 6

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Njenga, Wahome, Hine, (2014) Pilot Study on First Mile Transport Challenges in the Onion Smallholder Sector. IFRTD Report African Community Access Programme, AFCAP/GEN/1

we had right of entry to a beautiful piece of land on the shoreline of Lake Volta, but getting our equipment to the farm and then getting the produce off the farm to a buyer involved unknown costs and risks in the transportation sector.

Fortunately, we received Kris offloading equipment at AAFF from Lake Volta ferry, the “Yapei Queen� cooperation from the Volta Lake Transport Company and made a good friend there with Martin Hiles, who was supportive of our venture and did everything in his power to support us.

We also received support from Ken Appiah, the director of the Volta River Authority Maritime Office at Akosombo. Together, we were able to organize barge transport for our equipment to the farm site, and later, a transport solution for our crops to be transported by barge off the farm site to trucks at Akosombo and to the final buyer in Tema. We assessed this cost at less than twenty USD per ton, if taken at full scale. And this could scale up to thousands of tons per year.

Large-scale transport solutions are a prerequisite to accurate financial modeling. A bank or investor cannot finance a project unless this connection is firmly understood and established. It cost us years and hundreds of thousands of dollars to find this out. We now have a solution because we invested the personal time and money to arrange a solution.

But what about the small farmer?

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S O C IA L A N D E N V I R O N M E N TA L R I SK Establishing productive relationships with the community is vital to achieving goals. Particularly in sub-Saharan Africa, agriculture and industrial development requires anticipating, understanding, and successfully navigating multicultural dynamics.

Many multilateral institutions, including the World Bank, focus on social and environmental risk, and they have established terms of reference to guide projects on the standards and methods they must employ to ensure compliance with global best practices. These standards are outlined more specifically in the coming pages, but it is critical to recognize at the earliest stages of a project that these standards are a prerequisite to any consideration by international financial institutions.

Ethics A friend of mine once said, “Investment capital is a coward; it does not go to unfriendly places.� If a farming or manufacturing project seeks commercial relationships, the players within the culture of an agricultural or industrial enterprise or system must all agree to a set of ethical standards, and these standards must ultimately comply with international expectations and financing requirements.

Navigating ethical dilemmas goes with the territory in every business everywhere. In Africa, however, investors and business people must understand that ethical clarity is a major risk factor they must mitigate through careful communication and sensitivity. The topic of ethics goes beyond stealing and hon119

est accounting. The fair treatment of employees, equal pay and inclusion of women, sensitivity to religious and cultural differences, and the ethical treatment of animals all impact the ethical foundation of the enterprise.

Much has been stated concerning corruption in Africa, and while this is certainly an important issue, we must consider that corruption is only a single element of risk with no more importance than the many other risks associated with investment in agribusiness or industrial development.

Certainly, creating a safe environment for investing must start with shared values, and if international capital is required, international standards must apply.

Unfortunately, corruption and deceit in Africa get more attention than similar practices in Western countries. Corruption is legitimized, or “legal” in more advanced economies, but since they do not require international financial assistance, they get to lecture Africa about ethics, not the other way around. This is less about ethics and more about cash.

Our experience in Ghana has seen few ethical dilemmas.

This is not the case with friends and associates who have invested in other countries. There are several measurements available to assess these risks, including the World Bank “Ease of Doing Business” annual ranking. The countries in Africa that rank the worst in this category must be noted carefully by investors.

These poor rankings are well-deserved.

Our observation is that this is a slippery slope that also varies by industry. An investor must decide how to position his or her activities both to avoid potential for corruption and to confront it and oppose it when necessary.

Our most unfortunate experience with corruption in Ghana was the result of our own errors, and these errors served to empower the bureaucracy. We found ourselves at the mercy of an agency of government, and they wanted special compensation to resolve the matter. We waited it out and finally moved on without compromise. It was not easy, but thankfully we have found this to be the exception, not the norm.

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Human Resources Agriculture and industrial development occur in close proximity to people. Investments in oil and gas projects and mines can occur in tightly controlled, limited-access environments.

Agribusiness and manufacturing, by definition, require significant and intimate engagement with people. For this reason, relationships are of utmost importance. An international project might assume it has paid for its land and can operate as an independent business organization with little to no interaction with the local community. Perhaps in some cases this is possible, but this comes at considerable risk. At the same time, a project, especially a new investment, might make promises to the local community they cannot fulfill. This also becomes a tremendous risk.

Human resource management is a major risk/opportunity factor in the social and operational context of an agribusiness or manufacturing investment. Handle the task poorly and risk collapse of the business. Handle it well and you will have a chance to prosper. Strategic thinking is required, along with patience and understanding. Building trust and respect, constancy, and communications are make-or-break issues.

Human resource risk starts with the shareholders. A local partner is often required for international investment. The local partner has rights and responsibilities. As a human resource risk, it is extremely important the local partner is in agreement with the objectives and strategies of the project. It is also important the local partner understands international standards for corporate governance and fiduciary responsibility.

Our experience in Ghana with a local partner is complicated and ongoing. In this text, we will not comment on it other than to say our local partner, as mentioned, was instrumental in securing the land lease title for the land we used to develop the laboratory farm. We can also say that we have weathered many storms together. However, it is uncertain whether the path forward can be navigated to completion.

In other cases, local partnerships have seen extremes, both tremendous successes and tremendous failures. The key prin121

ciple is that an international business needs to operate according to international standards, yet it must also engage appropriately with the local community and serve the interest of the local community.

Executive management is another key human resource risk factor. The skill and training to run international investments according to international standards requires global-grade talent. It is not always easy to find the required executive management skills in African countries. However, projects that rely on sourcing this talent from expatriates incur the associated costs.

It is a catch-22, and this dilemma must be considered.

Clearly, it is critical that African colleges and universities be equipped to train talent to manage all aspects of international investment projects. From lawyers to accountants to bankers, to engineers and technical experts, this pool of talent is absolutely invaluable. However, a private investor cannot afford to build this talent pool with cash investment any more than a private investor can build infrastructure with their own cash (unless that infrastructure is profitable through tolls and user fees).

Rank-and-file local labor is, of course, extremely important.

Many will make the argument that affordable local labor should make it highly attractive and profitable to invest in African agribusiness or manufacturing. Unfortunately, this is a gross oversimplification. Yes, local labor can be inexpensive, but the requisite skill sets and acceptance/adaptation of international standards involves costs in the form of training and time. It can be done. It has been done. But if this responsibility is exclusively the private investor’s, it increases the risk and serves as a disincentive to invest.

AAFF employee Kojo Dzanado receiving recognition for excellent work and operating tractor with instruction from Andrew Thompson

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We have been fortunate in Ghana to find excellent local talent. Our farm assistant, Kojo Dzanado, who we call Prosper, has been a faithful employee of AAFF from the very beginning of the project. He has learned all the key skills, and he is a loyal and dedicated farm professional. Men and women of this caliber just need a chance—as well as the tools and training—to succeed.

Governments have a major role to play in these human resources challenges and risks, along with international and multilateral development agencies. We have organized a nonprofit initiative to focus on research and training in these areas. But it will take a team effort to raise the bar and empower African talent with the tools they need to build and operate globally competitive enterprises.

Community Development A successful farming or industrial project occurring in a remote, poor area will attract new settlement and will increase expectations of shared benefit with the surrounding community. This is true universally, but in rural African contexts, this dynamic represents both a risk and an opportunity.

The risk, of course, is that farming is not always a profitable business, even in the best of times. Yet there can be the assumption that the farm has money and therefore the farm has a responsibility to share the wealth. Disappointment can translate into resentment and unmet expectations, resulting in frustration, hostility, and sometimes even violence.

This risk must be managed through effective communication and also project design. The opportunity, of course, is to design a method of recruiting and inducting talent into the farming system as new profit centers for mutual benefit. But this does not happen without careful planning.

We had the good fortune of engaging a very bright individual to lead the community relations activities of the company.

Emily Daher, a graduate of Calvin College in Grand Rapids, Michigan, organized many key relationship initiatives, including a local school garden and 4-H Club, as well as community health meetings and screenings, and she supervised the formal 123

environmental and social impact assessment process. Other key team members in this effort included Amber Hop, Samantha Van Gilder, and Trevin Hoekzema.

Developing communities requires building strong institutions, Emily Daher setting up mushroom growing and it also requires operation (left); Amber Hop (upper right) and Sam money. For a commuVan Gilder worked in community health. nity to ultimately take the reins and sustain itself, the money cannot simply be donated from outside sources. Eventually, a successful community must stand up on its own funding, its own institutions, its own progress.

The risk associated with many international investments in Africa, including our experience in Ghana, is that so-called “job creation” is completely misunderstood in terms of economic reality. Creating jobs requires making money, and making money is not easy, as we have seen. Politicians want to wave a magic wand, suspend the laws of economics, and dictate job creation.

They may inadvertently undermine their own objectives by forcing investors to adopt local communities before they are ready to do so.

In agribusiness, an initiative called an “outgrower scheme” is often called upon to create jobs. The idea is that a major farm operation or feed mill sets up central operations, and then they organize small farms in the area who grow crops and sell to the central or “nucleus” farming operation. This is a favorite technique of developmental organizations. Unfortunately, it doesn’t really upgrade the industry or empower the farmer. And in terms of human resources, it doesn’t really migrate peasant farmers into commercial farmers.

There are international companies who have perfected the “outgrower scheme” to their advantage, like Olam International.

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Does it create jobs? Yes. Is this positive? Yes. Does it provide for upward mobility and job advancement? No. In Ghana, cocoa has been a major crop for farmers for many decades. Yet, where is the large Ghanaian-owned commercial cocoa operation? The one that now converts cocoa into valueadded products for global distribution? The industrial developer creating new products that require new skills and that drives the hiring of young Ghanaian professionals in engineering, finance, and the sciences? This has not happened. So is the cocoa industry a jobs program? Yes, it is better that farmers work and get paid than not. But it is severely limited in terms of skill and job advancement.

The risk in human resources, frankly, is a very limited vision for the progression and transformation of African talent. This translates into stunted ambition and the absence of innovation in human development.

We can and must do better across all categories of human talent, from the local partner/shareholder, to the executive manager, to the local employee and small entrepreneur—all wonderful people with unlimited potential. But success starts with leadership, vision, and a plan to transform, not just subsist.

Environmental Risk Farm and industrial investment’s potential abuse of natural resources for economic benefit must be balanced with sustainable practices. Agribusiness managers must maintain the nutritive elements of soil, water, and air. Many methods exist to mitigate and remediate agricultural and industrial activities such as riparian buffers, biochar, contour farming, cover crops, agroforestry, companion planting, wetland mitigation, and microfiltration.

Conservation Sustainable agriculture starts with a culture of conservation and translates into standard practices and accepted norms. Of course, economic viability is a prerequisite to conservation. The failure to achieve profitability serves as a negative incentive to 125

exploit nature and people. The worst environmental abuses occur where there are the fewest resources to prevent it, both public and private.

Africa has an opportunity to lead the world in the application of conservation methods in the production of energy, in agricultural and industrial development, and human behavior.

Effective risk management should advance alternative methods and approaches.

In this context, unlike more developed economies, a renewable energy source actually is capable of being both the right environmental solution and the most economically viable solution. In certain situations, solar, wind, or hybrid power solutions may be more cost-effective than a conventional fuel-consuming power solution.

Planning and coordination are key to mitigating environmental risk. Smart people from Africa and around the world can work with private investors to design investments in such a way as to meet the energy requirements and conservation goals while also making a profit. This must be the future.

Clean Water Even though a farming project may be developed near a lake or river, this is not an excuse to waste water. For one thing, the water may not always be as plentiful, and for another thing, it is expensive to move water electronically. Pumping costs money.

Another environmental risk related to water is contamination through chemicals and run-off, or human waste. Rural African water must be assumed to have elevated levels of E. coli, bilharzia and other contaminants. Water in general, therefore, represents an environmental risk that requires advanced engineering and conservation principles applied to the planning of erosion-control systems, water-control structures, water-quality management, and drainage systems.

For the Risk Dashboard, investors must keep in mind that clean water is not a given—it comes at a cost. And the availability of water comes at a cost. Very little research has been done, and even less infrastructure has been developed, to optimize 126

both access to pure water and conservation of water. Investors will find themselves on their own and must make no assumptions regarding the capacity of African governments to offer a scalable water solution for agribusiness or industrial development.

Weather Weather is a risk to farmers and industrial investors around the world, but in sub-Saharan Africa, changing weather patterns absent crop insurance and other risk mitigators become the perfect storm. Weather risk, meaning the timing, duration, and quantity of rainfall in a given location and year, and the ability to predict rain with any confidence, is particularly difficult in Africa. On this basis, the only relatively predictable source of rain would be irrigation from a reliable seasonal or year-round source of water. Other weather factors should also be considered, including atmospheric measurements, radiation, stability, precipitation, winds, fronts, forecasting, and severe weather.

Applied topics include global warming, ozone depletion, world climates, and weather safety.

For the Risk Dashboard, investors must recognize the risks associated with changing weather patterns and plan accordingly.

Waste Agricultural and industrial waste management is a major risk to the environment. Best practices such as converting biorenewable resources into bio-energy and bio-based products are not widely understood, supported, or practiced in sub-Saharan Africa. Bio-renewable concepts, processes, and products such as anaerobic digesters as they relate to drivers of change, feedstock production, power production, and waste management must be explored. However, these concepts must be framed in a way that is manageable in very poor rural areas with limited public resources available. A private business or farm cooperative is going to have a difficult time paying for these measures. A collaborative approach is required.

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C HA P T E R 9

SE C U R I T Y R I SK Africa is a massive continent, not a single country. Security concerns in Africa vary widely, but in terms of the Risk Dashboard, it is important to consider security matters and the potential impact on the viability of an investment.

Security is not simply the absence of crime, terrorism, or war, but these are perhaps the concerns with the greatest potential for damage and destruction of investment. Other security concerns, such as famine, health-related pandemics, or natural disasters impact the viability of an investment both directly and indirectly.

Crime Corruption is a crime. Corruption can take many forms, and the criminal aspects can threaten investments or prevent investment decisions from being made in the first place.

Good friends of ours invested fifty million USD to develop a private investment in Nigeria. They operated the investment for three years and mobilized more than thirty manufacturing investors to invest in an industrial area. These manufacturers brought more than four hundred million USD to Nigeria in the form of factories, facilities, and jobs, and together they created 4,500 positions. Sadly, one day they received a termination notice, special delivery. Their shareholder agreement was deemed invalid, and they were told to leave the country. This was 2016.

The matter is now being disputed in Nigerian courts, and perhaps one day a favorable resolution will come through. However, the only safe assumption is that the investment was a total 129

loss. This threat to the security of an investment is catastrophic, both in reality and in perception. Nigeria ranks 169th out of 190 countries on the World Bank’s “Ease of Doing Business” measurement. They rank worse than Yemen, Sudan, and Zimbabwe.

A population of 180 million people denied so many opportunities because its leaders fail to stop or prevent crimes.

Extreme Poverty The word “poverty” is a relative term. A person living in the United States is considered to be living in poverty with incomes that exceed the median income of most developing countries.

This is not to diminish their hardship, but rather it is to establish a context for the conditions that impact individuals, families, communities, regions, even countries.

The Risk Dashboard treats “extreme poverty” as a security risk for several reasons. First, the conditions of extreme poverty may coincide with a lack of infrastructure, education, professional services, health care or medical services, and so forth.

Second, extreme poverty may impact the stability and safety of the local community or the capacity of social institutions to provide for the safety and health of employees. Finally, extreme poverty is to be considered in comparison to the local conditions of the competition, as in, the industrial competition for the production of goods and services.

Using our definition of extreme poverty, most of sub-Saharan Africa—outside of the more affluent areas of major cities—meets or exceeds these conditions. We do not differentiate between “very, very” poor, “very, very, very” poor, or “very, very, very, very” poor. Two “verys” next to the word “poor” is extreme in our definition, and the risk of instability, safety, security, access to services, and hardship of life is an important reality to consider.

In our area of Ghana, on the Afram Plains, the people are very, very poor. They are not starving to death, but they have extremely limited access to medical care, extremely low incomes, extremely limited access to education, and extremely limited economic opportunities. This is a security risk. It means 130

there are no public institutions or public services, and we are surrounded by individuals who would make more money selling a power tool from our farm than they would make fishing for several months.

AAFF’s location requires transport over 11 Extreme poverty kilometers of Lake Volta, making it extremely by itself is a limited isolated from social and economic support systems. risk, but the economic isolation can deprive populations of important opportunities and remove the means of holding citizens, particularly those who exploit women and children, accountable for their actions. Extreme poverty mixed with political instability or other external threats can be lethal.

Terrorism and War Instability can take many forms, but the most serious is caused by acts of war and terrorism. Africa’s land area is so vast, there are many places where no effective governmental institutions protect citizens or investments. Entire countries fall into this category, with Somalia being considered perhaps the most fragile of all. The Democratic Republic of Congo (DRC) has a land area the size of half of Europe. The eastern part of DRC is essentially ungoverned. War lords and terrorists have operated relatively unchecked in Somalia, DRC, and many other places.

In Baidoa, Somalia, refugee/IDP camp with Ali Ibrahim, Chief of Staff, President Sharif Hassan Shiekh Aden, President of South West State of Somalia.

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There are more than fifteen million Africans today either living as refugees or internally displaced persons. We will examine approaches to these situations later in this book. For the Risk Dashboard, it is important to consider that for many of the agricultural and industrial development opportunities available in Africa, it is possible that these will be in current conflict areas or immediately post-conflict areas. These fragile situations combine tremendous physical and developmental needs with incredible opportunities to help people and transform areas through investment. Communities here truly need public, private, and nonprofit sector leadership and engagement.

Pandemics The Ebola outbreak that occurred in recent years revealed the vulnerability of entire nations, regions, even the world, to the security risk of infectious diseases. While the outbreak was eventually contained, it created severe risk for the security of these populations, investors in these countries, and support systems around the world.

There is a saying, “A crisis doesn’t create character, it reveals character.� The Ebola pandemic revealed a resilience of character among local populations, certainly, but it also revealed a character of carelessness by developmental and humanitarian planners. It took many days for planners to recognize the threat, and even longer to respond.

For the Risk Dashboard, it is important to note that these pandemics can happen quickly, and they can shut down your investment without warning and without recourse. A responsible investor will understand the risk of these outbreaks and plan accordingly.

Famine Starvation should be obsolete. Unfortunately, millions of Africans are chronically malnourished, and of this vulnerable population, half are under the age of five.

The insecurity and desperation brought on by famine can quickly migrate to violence and rebellion. There are countless 132

examples of this state of affairs, and the responsible investor will examine a country and consider both what role he or she could plan in helping to prevent famine, and also how to survive a famine without losing the investment, or worse, the lives of the trusted employees and their families who may be suffering.

Summary The central point of the Risk Dashboard is that industrial investment in Africa is a risk-filled venture, and systemic risk requires systemic solutions. In Africa, you cannot assume the risks are mitigated by the government or society around you.

The project designer/practitioner must ensure that there are solutions in place to handle these major risk areas and two dozen sub-areas. There are even more risks out there not recorded in this narrative. This is purely a summary of some potential risks.

There are many ways to fail, but very few ways to succeed.

We have seen too many agricultural projects in Africa fail because they took the opposite approach. They assumed there were many ways to succeed, and few ways to fail. Ten, twelve, twenty, even one hundred million dollars later, they are surprised that the investment is failing.

Likewise, politicians oversimplify agribusiness and industrial investment. They claim that with good soil and good weather, crops can grow and agribusinesses can succeed. They ignore, or simply are unaware of, the catastrophic impact of the absence of good infrastructure or proper legal and financial support systems. They don’t take the time to understand the cost. And then they want to snap their fingers and have private sector come in with open checkbooks. They use public resources to create big initiatives that sound good on the campaign trail but do not work in reality. They organize farmers and send entrepreneurs on fools’ errands. All this happens because they are careless with risks associated with industrial investment and agribusiness in Africa in a competitive landscape with global producers. It is easier to give speeches than to produce products profitably in Africa.

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It would be nice to create an immunization serum for these risks, but this is not possible. Many DFI institutions try to create immunity by supporting isolated programs focused on a particular geographic region or a particular narrow commodity.

Notoriously, these so-called “interventions” fail. Their failure should not be a mystery to anyone. They have failed because they have not considered the totality of their risk exposure.

Batting five out of six on the Risk Dashboard is not good enough. Even one risk area left exposed can kill a project. I’ve seen it. And without naming names, these are friends and these failures break my heart.

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PA RT I I I R I SK M I T IG AT IO N A R C H I T E C T U R E : C R E AT I N G A S A F E P L AC E T O I N V E ST

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C HA P T E R 1 0

T R A N SI T IO N F R OM F R AG I L I T Y T O S TA B I L I T Y What makes an area “fragile”? It starts with conditions that prevent people from being able to work, invest, provide food and shelter for their families, and sustain themselves over time.

The conditions that cause fragility may be viewed collectively as a dysfunctional system, a “cluster of threats and risks” working against individuals, communities, and even entire countries: • If there is war/terrorism, fragile conditions that must be addressed are created.

• If there is an unfair or uncertain government policy, or lack of clarity on property rights, a fragile condition is created that must be addressed.

• If there is lack of infrastructure, fragile conditions are created that must be addressed.

• If there is a lack of finance and a lack of clarity on investment policies, fragile conditions that must be addressed are created.

• If there is a lack of education and training, fragile conditions are created that must be addressed.

Government Perspective Political leaders, whether democratically elected or not, possess the responsibility to provide for the general welfare of their people. When conditions in their countries are not favorable to providing for the basic needs of their countries, they are faced with the need to mobilize resources and people to meet these 137

needs. It is a rare situation that a government has, at its disposal, the independent financial resources to meet these needs. With the exception of perhaps some sparsely populated oil- or mineral-rich countries, the resources required to meet basic human needs must be generated by economic activities.

The viability and sustainability of these economic activities will determine whether or not a government can provide for the general welfare of its people. Investment is needed in order to organize viable and sustainable economic activities, whether it is agricultural production, manufacturing, the extraction of mineral resources, or the provision of services. For this reason, the investor’s perspective must also be considered concerning the conditions of a country or a particular geographic situation.

Investor’s Perspective From an investor’s perspective, the greatest challenges can also become the greatest opportunities, but only if the conditions are favorable to capitalize on these situations. In highly fragile environments, the absence of security, water, infrastructure, and so forth can either be a barrier to or an opportunity for investment. It all depends on the way the situation is positioned by leaders and stakeholders responsible for these areas.

Human Rights Perspective From a humanitarian perspective, there are additional considerations. An investor might profit from challenges, like wars and famine, but this might violate the rights of the people, and it might come at their expense. Therefore, the investor’s perspective and the humanitarian perspective must be considered in the same systemic equation. It is not “either/or.” It is “both, and.”

Stability Systems Begin and End with Food Security Why does Africa import fifty billion dollars of food each year that it could grow itself?

The simple answer to this question is that it is cheaper and more efficient to import these products than to produce them domestically.

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However, the reason it is cheaper to import food (and pretty much every other manufactured product) is not so simple. In fact, it represents the most fundamental disconnect in the current economic situation in Africa and other fragile areas.

In the profession of land surveying, a “benchmark” is a fixed point from which all other field measurements are based. If, somehow, the surveyor fails to correctly vector from the benchmark measurement, the whole map will be off base.

In business, there are also benchmarks. One of these benchmarks is called “the competition.”

Africa is a competitor, part of the global market, and therefore its agribusiness outcomes are measured against the benchmark of its global competition. Who is the competition for Africa’s small farmers? Each other? Iowa? Brazil?

If you drop a pencil in Africa, it falls to the floor, just like in America. It’s called the law of gravity.

Similarly, the laws of economics are not suspended in Africa. The economics of scale, like the law of gravity, shows no mercy when we test its basic tenets, no matter what our good intentions may be. I might want to fly like Superman, but gravity says no. Likewise, African and world leaders may want Africa to be self-sustaining when it comes to food security, but the laws of economics say, okay, fine, then become the lowest-cost, highestquality producer and defeat the competition.

Super-efficient, scientifically-advanced production in Iowa and Thailand set the global benchmark for price and quality.

Africa must import these efficient, low-cost products or risk inflating prices artificially through import protectionism, spawning black markets, or else inflating street prices, thus depriving citizens of the nutrition they need to live. Therefore, unless Africa can produce food more efficiently in its own countries, it will always be disadvantaged against countries that can produce more efficiently. By definition, this is not sustainable.

Government policies can influence consumer prices and quantities, adjust trade valves, and tweak demand and supply, and the sharper, more lethal edges of competitive disadvantage can be softened temporarily with donor interventions. Howev139

er, in the end, African farmers are competing in a global marketplace. Africa is importing fifty billion dollars in food every year that it could produce itself. And even with less expensive imports, the cost of food commands a much higher percentage of average household income than developed countries, and still leaves individual nutritional deficits, leaving too little disposable income for other necessities such as housing, education, and health.

Indeed, in this situation, rich nations get richer while poor nations get poorer.

In order to reverse this dynamic, we must start with the most basic questions: Why does Africa import so much food?

Why is it less expensive to import maize or rice from thousands of miles away than to produce it locally in Africa?

The simple answer: lack of infrastructure. But there is nothing simple about the lack of infrastructure, as we will see in this book.

What makes this situation complex is that Africa lacks an integrated system of infrastructure that can foster economic conditions where African professionals can produce food on African soil more efficiently than their competitors in the United States, Europe, South America, and Asia.

Infrastructure: Hard and Soft In our view, “infrastructure� refers both to hard infrastructure (roads, rail, ports, power, equipment, etc.) and soft infrastructure (laws, policies, land titles, contracts, financial products, insurance, technology, research, education and training, etc.). The interplay between hard and soft infrastructure, the financing required to build and maintain it, and the ability of African producers to take advantage of it frame the substance of First Hectares.

Food security is a global imperative, and the urgency of increased food production to meet the demand of growing populations is well-covered by experts from all regions. Sub-Saharan Africa finds itself at the focal point of this urgent call for action, 140

but repeated summits and conferences and billions of dollars of interventions have failed to set a truly sustainable course. The symptoms are being treated, but not the root causes.

They say “the devil is in the details,” and this could not be truer than in the gray matter standing between investment and return on investment in African agriculture.

There are tremendous risks but even greater opportunities for all stakeholders embedded in the details of shared vision, strategies, projects, and tactics in the global pursuit of food security. Amplifying these risks and opportunities are the social and economic contrasts and complexities of the human condition. Enormous wealth and poverty and educational disparity create the gulf between the wealthiest who control industry and government and the poorest who struggle at the bottom of the economic pyramid, some barely able to survive.

We have looked at the Risk Dashboard framework to “derisk” African agribusiness and to address these challenges through knowledge, innovation, and systems thinking. It is by no means an exhaustive statement on the matter, but we hope it asks the right questions so we can build the right solutions.

Systemic problems demand systemic solutions. Structural problems demand structural solutions.

In the end, our systemic and structural solutions can be summarized in this unifying concept: municipal infrastructure blocks.

Why Municipal Infrastructure Blocks?

Here are a few initial case elements.

First, efficient industry and SME development is not an individual sport. It is a team sport with many components that must work in a coordinated fashion. Many voices must be heard, locally, nationally, regionally, and globally, and many contributions must be integrated into collective action from the private sectors, public sector, and nonprofit sector. To succeed, we need to hear from women, men, youth, rival tribes, and local chiefdoms. The infrastructure block planning process, as a type of municipal planning process, is a multi-stakeholder platform for 141

all voices and all contributions to be considered and directed toward a unified course of action, implemented at all levels, in real time and space, that results in long-term collective action and shared benefit.

Second, while governments should not build farms or factories, globally competitive manufacturing and farming systems cannot be built without proper infrastructure. Farmers and manufacturers cannot build highways and power lines and water treatment facilities. They can ultimately pay their fair share for access to these systems, but everyone benefits, including consumers who pay less for food, so everyone should help pay for this infrastructure. Municipalities are localized government structures that exist to sort this out in accordance with regional and national policies and priorities.

Third, as purely a practical financial reality, stability infrastructure is too expensive to serve only narrow interests. A single factory or farm investment in Africa, even if backed by deep pocketed investors, cannot afford to pay for roads and electricity connections over multiple miles. Farming and manufacturing financial models that use modern equipment and technology to optimize the economics of scale in Africa, are too fragile to absorb these costs when the global competition, farming in Kansas, or factories in China, can use roads and railways built and paid for many years ago.

And finally, and perhaps most importantly, in order to allow all actors to have a seat at the planning table, including the smallest units, and in order to allow the African SME access to the means of efficient production, an inclusive, collaborative planning process is required. This will not happen by accident or luck. The small farmer and small entrepreneur will only enjoy the benefits of economies of scale if they are connected, legally, ethically, and morally, to fair and equitable systems where individual and collective rights are respected and protected. This is not easy. The easiest thing to do would be simply for the central government, like the former Soviet Union in Russia and Ukraine, to build huge farms and run them like food factories where everyone is an employee. Yes, you can achieve economies 142

of scale, but does this uplift the small farmer and his or her family? Or is he/she simply reduced to an employee?

In summary, “stability blocks,� including municipal planning, municipal financing, municipal laws and ordinances protecting rights and enforcing laws, are the mechanisms that provide stability over long periods of time, which means longer financing and payment horizons making large-scale investments (both equity and debt) more affordable to all stakeholders. This, in turn, will benefit everyone, creating the framework for smaller-scale investments to operate in a system with the right to access these efficiencies. Instead of building a road for one company, a stability block municipality builds the road for many companies on small, medium, and large scales. And it has a system of laws and rights and responsibilities to ensure everyone is treated fairly.

This is the story of the heartland of the United States. Rural America came about as a network of interconnected agribusiness municipalities, spanning from coast to coast and disrupted only by the Rocky Mountains and the Rio Grande. Corn and cotton, meat and cheese. Family farms work cooperatively with other family farms, gathering around grain elevators connected by roads and railways to the major rivers, and ultimately to large sea ports or major agricultural processors, creating value-added products for grocery stores in America and around the world.

Assembled around these shared facilities are farm suppliers, schools, hospitals, and churches.

Could one farmer have built all that? Who paid for these municipalities? Who paid for this infrastructure? Everyone did.

The municipal bond is the financial center of gravity for the infrastructure of the country.

This is why food is relatively inexpensive in the West, demanding just a small portion of average income. It is why there is a large middle class. Collective planning and long-term infrastructure investments financed through long-term financing facilities at low rates of interest ensure that everyone who participates benefits in turn.

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The US municipality structure, oriented toward agribusiness, did not invent the law of economies of scale. It simply harnessed it for the benefit of many. Small towns connected to medium-sized areas connected to large port cities connected to the world. This law of economics is not a creation of capitalism—it is equally true in communist countries or dictatorships. However, when municipal planning is conducted by free people with individual and property rights protected, supported by a culture of education, innovation, and entrepreneurship, this municipal structure helps convert “great potential� into tangible results.

In Africa, competitive agribusiness, inclusive and protective of even the smallest farmers, will only occur in competitive systems of hard and soft infrastructure, occurring in real time and space, organized and led by qualified African professional men and women. Without these systems, African agribusiness professionals, large or small, will not prevail against their global competitors.

Therefore, designing, funding, building, and sustaining these inclusive systems of hard and soft infrastructure into sustainable agribusiness municipalities is the best way to create the conditions required for African agribusiness professionals to compete with any country, anywhere, anytime, for the next generation and beyond.

Is Africa ready for this type of system? Are African farm professionals, along with policymakers, capable of coming together to design ways to work together for the benefit of everyone, in structures that can be financed through commercial and sustainable sources of funding?

Can Africa compete without this system, without greater coordination around infrastructure?

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“Valley of Death” and the Cost of Instability, Lack of Infrastructure There is a business planning terminology known as the “Valley of Death” illustrated here.

Illustration by Baluch and Vandenheuvel. Lines represent project life cycles and costs, some going in the valley deep and never digging out of valley; some going deep but able to dig out over time.

The concept is fairly straightforward. A new enterprise starts by spending money and time. In some businesses, like consulting, revenues may be earned immediately, and commercial sustainability (profitability) occurs on day one. Other businesses are more capital-intensive, such as a factory, a business centered on a new manufactured product, or a new farm.

Governments must also analyze infrastructure and policy decisions from this perspective. If you are a government, you must assess the cost and benefit of a road, a power plant, or a bridge. Infrastructure is expensive. How long until there is a positive return on investment?

This is where the policy framework and policy makers must step up their game. Governments should not build farms in Africa, but efficient, globally competitive private farms cannot be built without government.

For decades in Western agriculture and manufacturing, government policy created the framework for agriculture to develop and prosper. These policies, including land, roads, electricity, railroads, waterways, and ports, along with innovative farmer 145

financing, government subsidies, and insurance products, enabled individual farm families and farmer cooperatives to focus on what they do best: grow food.

In a manner of speaking, writing a policy costs nothing. Obviously, writing a law involves the expertise of lawmakers and their staff, the research, the vetting, and other steps. But this is not the same cost as actually building a highway or a port.

Therefore, it is an achievable step for lawmakers in developing economies, like Africa, to craft policies that, if properly implemented, would support investment.

The investment itself will only flow into countries with a workable framework. Private money will only flow into countries if there is a reasonable chance of flowing back out. Donor money can go one way. Charitable money can go one way. Private investment, however, demands a return loop. Therefore, it will only flow into systems with return valves switched to the “on” position.

Unfortunately, in too many countries, including Ghana, the return valve is not switched “on.” Furthermore, there is very little clarity from the government for how to organize the investment environment for agriculture to allow for a return flow.

This, then, is where the “Valley of Death” illustrates the lethality of the absence of effective government policy frameworks.

There are two ways to die in the Valley of Death. You can spend too much and dig a hole too deep the business model, no matter how much time you take, cannot dig you out. Or you can spend money, dig a shallow hole the business model could dig you out, but you simply run out of time.

There are also two ways to survive. You can spend a large amount on a good plan that works and can earn profit relatively quickly and dig you out quickly. Or you can spend a smaller amount, but have enough time to implement the plan with less capital and ultimately dig out, albeit slowly.

In African agribusiness, particularly farming, there are known costs and then there are known unknown costs. Then, in the phrase former US Defense Secretary Donald Rumsfeld 146

made famous, there are the “unknown unknowns.� In a relatively stable economic environment, it is easier to predict costs and timing because there are fewer unknowns. Commercial-scale farming is capital-intensive everywhere. And when the farm is being built from scratch, in addition to equipment, inputs and working capital, there are many other start-up costs such as roads, buildings, and electricity. These are relatively knowable costs.

The unknown costs are harder to predict, as there are both direct costs and indirect costs, and the ultimate unknown cost: time. Anything having to do with a government official, whether it is a land title, permit, license, tax certificate, or water use assessment, can cause fatal delays to the investment. Further complicating this equation are the public policies of the government related to all aspects of business. For example, investment promotion incentives such as tax holidays, currency policies, interest rates, price controls, or subsidies might be unclear or arbitrarily implemented with no guarantees. Other policies might involve the energy sector, customs, import laws, export laws, or labor laws.

When a private investor from a foreign country or even a local investor makes an investment decision, the clock starts ticking. There is a timeline. Unlike many developmental programs that are fully funded for three years or five years, and then possibly renewed, and unlike donated money for nonprofit programs, the private investor has a hypersensitivity to time, and a very different set of requirements in terms of spending money.

The Valley of Death principle, therefore, illustrates this race against time for the private investor, as well as the government choosing to build critical infrastructure. These timelines and expected returns, by the way, are very different. This difference is, however, poorly understood. The best solution occurs when critical infrastructure is built according to a risk-return model appropriate to long-term financing requirements, and when business enterprises, financed by private individuals or corporate investors seeking larger and more immediate returns, are built according to a risk-return model appropriate to more 147

medium- and short-term requirements. Problems arise quickly when private investment meant for medium- and short-term returns must be deployed to pay for critical infrastructure, which should be built with public funding because it will support entire economic areas and many people outside the core enterprise. This capital will never return money to the investor, but it is spent so that the enterprise can operate. This puts enormous pressure on the enterprise to make larger returns to offset the relative low or nonexistent returns for the infrastructure.

In African agribusiness, policy makers from Africa and the international community routinely fail to coordinate policies and infrastructure decisions to clear the path for foreign investment. There are vast disconnects that make investing intensely risky. The result, more often than not, is failure. Most projects are doomed, whether their investors and principals spend a lot of money up front or a lot of time trying to figure things out on their own.

People who fly into Africa and see all this beautiful arable land and fresh water ask themselves, “Why can’t I just build a farm, throw seed in the ground, and start making money?� A European farm investor with twenty million dollars already raised for farming in Africa actually said this publicly at an international agribusiness investment conference I attended, and I have heard variations on this same theme from farm investors from South Africa, the United States, India, and elsewhere. They come, sometimes with money burning a hole in their pocket, sometimes with VIP invitations from presidents and ministers.

Big ideas. Many promises. A lot of talk.

However, after a few flights into Africa, the landings get a little more difficult, with the fog getting thicker and thicker every time. They remember what the hills looked like, very green and lush, but they finally arrive one day and find themselves in a valley dense with haze. They may or may not be aware, but we know from our experience in Africa, they are in the Valley of Death.

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The clock is ticking. There are hazards all around them, with some traps they might have seen before, some they have not.

Will they survive?

Infrastructure: The Bridge to Stability The infrastructure deficit in Africa is well-documented.

Ernst and Young’s 2013 report on Africa’s infrastructure deficit reads as follows: • Power: According to research from The World Bank Group (WBG), the forty-eight countries of sub-Saharan Africa (with a combined population of eight hundred million) generate roughly the same amount of power as Spain (with a population of forty-five million).

• Roads: Only one-third of Africans living in rural areas are within two kilometers of an all-season road, compared with two-thirds of the population in other developing regions.

• The cost of addressing Africa’s infrastructure deficit is estimated to be approximately ninety billion US dollars every year for the next decade, with spending needed for new investments as well as operations and maintenance of what is already there. 7 The dilemma is that infrastructure is needed for economic development, but it is extremely expensive and cannot be paid for by governments alone. Deals structured in Africa over the past several years that have assumed revenue from commodity sales, such as oil and gas, have achieved mixed results. Known as “resource for infrastructure” deals, China has been the main driver of this structure. Many deals were structured when commodity prices were high, giving China access to more affordable resources, while also generating strong revenues for host countries able to service loans secured with China. The mixed results include pushback from host African countries, according to a 2015 report of the Council on Foreign Relations.8 7 8

EY Dec 2013 Dynamics Global Report (p16) April 27, 2015 Council on Foreign Relations Backgrounder, China in Africa, Alessi and Xu

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These bilateral arrangements are good as long as there is a positive political relationship. But the risk of shifting political winds, shifting commodity prices, and other uncertainties can quickly make government sponsored investments sour, and the rules and standards governing these deals, from transparency to governance to social and environmental sensitivities, can be set aside by government decisions.

A more sustainable and internationally bankable approach to infrastructure deals is one that centers upon private and developmental funding. This funding, while more difficult to obtain due to conditions and international standards, has the benefit of greater capacity to reflect true market conditions. And funds must be repaid, which makes it more important to find business and economic solutions to problems, rather than simply political resolution. This puts pressure on the host governments to utilize the infrastructure to generate public revenues.

This requires profitable business engagement, and this then drives the infrastructure investment decisions.

It is a classic “What comes first: the chicken or the egg?� situation. Funds to pay for infrastructure will come from enterprises using the infrastructure to make money. But until and unless there is profit, the infrastructure proposition in a fragile economy is an extremely risky proposition. And of course, investors cannot afford to take these risks unless the prospective payoff is compelling.

In this situation, there is a role for government, but not as a primary funder, nor as the mortgager of future commodity revenues. Rather, government is the steward of limited public resources and a convener, a facilitator, and a guarantor of projects in the public interest. The role of government is to listen, to learn, to help, and to lead, bringing all stakeholders together, establishing standards for the projects that will not only increase the likelihood of the enterprise’s success, but also help ensure the equitable distribution of the social and environmental benefit.

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Infrastructure Block Bankability When money can be exchanged and earned in reliable conditions, there is always more of it to be had. Africa’s competitors are well-financed and operate at peak efficiency.

Let’s start with the issue of bankability and its role as a catalyst for unlocking the flow of private and public investment.

Imagine the United States without a system of home mortgage financing. Would the United States have one of the world’s most affordable housing markets? Think of the job creation in the housing industry, from construction contractors to appliance manufacturers to utility operators. The list of direct and indirect beneficiaries potentially includes hundreds of millions; the economic impact reaches multiple trillions. Why? One word: bankability.

Consider what makes a farm enterprise “bankable” in the United States. Imagine an Iowa farm enterprise without a land title, crop insurance, or access to a system of gravel roads, paved roads, railroads and the ultimate floating roadways—the Mississippi River and the Gulf of Mexico. A farm enterprise can borrow money because it has land title; it can borrow against the value of its crop because it is insured against catastrophe, and the land itself is valuable as collateral to the bank because it exists in proximity to efficient means of transport that can convey its produce to markets, and therefore can be sold if necessary.

This means either the farm enterprise can pay back the loan or the farm enterprise can be repossessed and represents equal or greater value than the borrowed money. Without this “bankability,” would the United States have some of the world’s most affordable food?

In America and elsewhere, these systems of finance, law, and operational efficiency, and public access to these systems, do not exist by accident. They exist from years of trial, error, planning, problem solving, and stakeholder engagement from governments, communities, the private sector, and civil society.

Collaboration, sometimes hostile, sometimes civil, sometimes fair, sometimes corrupt, resulted in a system that “works.” Imperfect, yet foundational to advancements in other sectors, like 151

education, medicine, technology, and science. Affordable housing and affordable food meant that children could go to school and change the world.

The system works because reliability, justice, and efficiency in one area can allow innovation in other areas. Because a railroad from a farm to a river, and a barge from a river to an ocean, and binding legal agreements between all stakeholders, can dramatically reduce the cost of the end product, while protecting rights of investors, and protecting the environment and human rights, balancing the public interest, and freeing up resources for other pursuits.

This efficiency can be scaled to impact more than the underlying need. The system works because the railroad to the farm can carry supplies, machinery, and technology one way, and carry finished products the other way. The barge to the ocean can carry both food and manufactured products that can be shipped to other nations. Faster, cheaper, smarter solutions for basic things unlock advancement in other things.

The justice and fairness, protecting both private and public interests, can also be scaled. Imagine Silicon Valley with no intellectual property rights. Imagine Lake Michigan with no environmental protection. The “soft infrastructure” of laws protecting private property, human rights, and the environment not only make development possible, but make it smarter and more sustainable.

Why can a bank loan money to a US consumer at a fixed rate of three percent interest for thirty years? Because the system works. The documents prepared for signature for closing such a loan stand an inch thick and include “risk protections” addressing land title, insurance, employment verification, nondiscrimination, local building codes and ordinances, utilities, property maintenance, and dozens of other matters. The end result? “Opportunity.” This creates the opportunity to own a home that you can afford, based on a stable system of trust and checks and balances that unlock your other ambitions and those of your family.

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Translate efficiency and sustainability and the resulting scalability into a project or enterprise risk profile. This is fertile soil for opportunities, a virtual gold mine for the exciting and profitable agribusiness opportunities in store for Africa and their global partners. That is, if it is sustainable.

Infrastructure Block Sustainability The concept of sustainability is a good one, and while its use as a term can be overused, its principles are timeless and foundational.

Sustainability is commonly linked to environmental matters, and this is appropriate. The planet is both fragile and resilient. There is a global consensus against pollution and contamination, which has become the subject of treaties, studies, research, and the target of billions of public and private dollars for clean-up and mitigation.

However, the concept of sustainability has also been linked to social and economic sustainability. “Social sustainability” involves the preservation of human rights and dignity, and more positively, the right to the “pursuit of happiness,” such as education, proper health care, freedom, justice, and economic opportunity. “Economic sustainability” involves, fundamentally, the commercial viability of an activity, whether it is a private enterprise, a public utility, or an industry sector, such as trucking or aviation.

Social sustainability can be hard to define. What are the rights that everyone is entitled to? And how much public money or private money can be devoted to protecting or advancing these rights? If public money is required, or public policies, who makes these decisions, and how are decision makers held accountable?

Economic sustainability is less hard to define, but more difficult to balance with the other two elements of sustainability, whether it be environmental or social. If a business cannot make money, it will fail. And if businesses routinely fail, it will have a chilling or freezing effect on new investment. As my friend and 153

former boss Congressman J.C. Watts says, “Capital is a coward.

It does not flow to unfriendly markets.”

Obviously, “sustainability” is a global challenge, not simply an African challenge. The world has ideas, but fewer proven solutions. This “balance” between environmental, social, and economic sustainability is increasingly demanded of policy makers, businesses, and civil society. But this “balance” can often itself be “unsustainable” if a disproportionate burden is placed on governments, businesses, and civil society. Governments cannot raise revenue without private business investments, large and small. Businesses cannot “sustainably” divert its profits into roads and bridges, or social welfare programs. Corporate Social Responsibility (CSR) is a serious commitment, but expectations must be realistic. First, earning a profit is not easy. And second, corporations have shareholders who invest to earn a profit. Some of these investors may be “the rich”, but many investors are the pension funds of millions of workers all around the world. CSR, therefore, can play a small role. But it is not “sustainable” as a driver of social and environmental sustainability.

Achieving a balance is like building a Sustainability Dashboard with a bunch of dials. The dials represent all stakeholders.

If the dials range from zero to ten, and if everyone can adjust their dial to do what they can, but not more than what is sustainable, this represents the best possible outcome.

Africa’s agribusiness industry can leapfrog the world in defining and achieving this elusive balance of environmental, social, and economic sustainability. The insights gained on this journey can be applied in the United States and around the world. This is a huge opportunity.

As Harvard Professor Calestous Juma points out in his book, The New Harvest, African countries are fortunate that they can utilize innovations and technology that has been “debugged,” i.e., tested and proven in other markets. African investors and stakeholders can take performance up several levels, apply best practices, and later on teach the world new methodologies and

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systems that, then, can advance humanity outside of Africa. This is what “sustainability� should mean in the African agribusiness context.

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C HA P T E R 1 1

SM A RT M U N IC I PA L I N F R A S T RU C T U R E B L O C K S : I N T E G R AT I N G G L O BA L S TA N DA R D S Manufacturers and farms everywhere exist in competitive contexts. Understanding the difference between a competitor and a rival is critical. Your neighbor might be a rival, and in certain highly-localized contexts, he might also be a competitor.

But in a global agricultural value chain, your neighbor is actually your partner; your actual commodity competitor might be hundreds or even thousands of miles away.

There is much talk about the “enabling environment” for African agribusiness, but little connection between government, multilateral and developmental strategies designed for African agribusiness when compared to the strategies implemented in countries that compete with African farmers. Thus, the question of building an “environment” that “actually enables” is one-hundred percent dependent on the competitive context. This is an important benchmark for re-orientation of African agribusiness developmental strategy, and ultimately unlocking commercial bankability in African agribusiness. Stakeholders must ask the question, “Who is the actual competition?” Are Ghanaian farmers competing with each other, or are they competing with Brazil?

If Ghanaian farmers and Nigerian farmers are competing with Illinois farmers, not just for commodities, but for the bank and investor financing that supports large scale, highly efficient, technologically advanced farming, in a system with ef157

ficient road, rail, and water transport, and sometimes generous government subsidies, then what shortcuts exist for the African farmer to compete? In what way does the African farmer enjoy a “free pass” to produce with less financing, less land, less technology, and less efficiency?

No shortcuts exist. Government price controls on imported agricultural products increases the street price for staple food.

Therefore, the government can influence price, but this tool is limited and short term. Long term, there are no shortcuts. African farmers must compete.

In the development of AAFF, we have discovered, through trial and error, the many elements required to operate an efficient, bankable, and scalable commercial farming company. In the course of this discovery, we have adopted a motto: “If we need it, they need it.” This means that if a private, international investment team building a commercial farm needs a land title in order to qualify for commercial financing, the African smallholder also needs a land title. If we need access to efficient transportation, or access to electricity, or access to efficient grain storage, the African smallholder also needs these things.

In short, if AAFF faces legal risks, financial risks, operational risks, social risks, or environmental risks, the African smallholder also faces these same risks. Are we equipped to mitigate or overcome these challenges?

Globally Competitive? African Production Must Meet Global Standards All agribusiness stakeholders, in the end, are financial stakeholders, with the benefits of reduced risk and increased efficiency passed on to consumers and producers alike. The consumer pays for value, increasingly defined as both the quality of the product and the sustainability of its supply chain. By addressing financial risks in a sustainable manner, starting in the African food chain, stakeholders must make the connection between global best practices and return on investment, whether the investor is a small local enterprise, a government or multilateral program, or a multinational bank or private equity fund.

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As we seek to improve the global supply chain for agribusiness products, we must focus on the application of global standards for financial analysis and financial management in the supply chain. Compliance with global standards is demanded in developed economies, but these standards are often too costly or poorly understood to implement in the African agribusiness value chain. As a result, investment failure in African agribusiness is common, diminishing the appetite for Foreign Direct Investment (FDI) in the sector. We can address this challenge by supporting the designs and strategies needed to implement global financial and management standards in the African context. A sample of applicable financial and managerial standards would include: • International Standards Organization (ISO) Guidelines (HR, Management, etc.)

• Environmental and Social Impact Standards (IFC Terms of Reference) • International Financial Reporting Standards (IFRS) • New York Stock Exchange Listed Company Manual (NYSE LCM) • Global Impact Investment Rating System (GIIRS) • Entrepreneurial Finance Labs (EFL) Credit Scoring • Fair Trade Standards (FTS) • Global Traceability Standards (GS1) • Organization for Economic Cooperation and Development (OECD) Global Standards Good Agricultural Practices There is an organization based in Cologne, Germany, called GlobalGAP. “GAP” stands for “Good Agricultural Practices.”

The organization was formed over twenty years ago by a consortium of fresh produce importers from Europe who felt the need to take decisive measures to ensure the produce they purchased was produced in a safe, sanitary, and environmentally-sensitive manner.

Today, GlobalGAP is the premier private standard-setter and assurance auditor in the world. With farm auditors in six conti159

nents and dozens of countries, GlobalGAP sets a high mark for farming practices that guarantees quality produce. More than simply setting and auditing for standards, GlobalGAP is active across the globe in training and mentoring farmers, from large scale corporate producers to African small farmers. GlobalGAP takes an active role in helping farmers understand global best practices and acceptable standards, and helping farmers reach these standards.

GLOBALGAP CHECKLIST Nº

Control Point

AF

ALL FARM BASE

Control points in this module are applicable to all producers seeking certification, as it covers issues relevant to all farming businesses.

SITE HISTORY AND SITE MANAGEMENT RECORD KEEPING AND INTERNAL SELF-ASSESSMENT/INTERNAL INSPECTION HYGIENE

AF 1 AF 2 AF 3 AF 4 AF 5 AF 6

Compliance Criteria Level

WORKERS’ HEALTH, SAFETY AND WELFARE SUBCONTRACTORS

AF 7

WASTE AND POLLUTION MANAGEMENT, RECYCLING AND REUSE CONSERVATION

AF 8

COMPLAINTS

AF 9

RECALL/WITHDRAWAL PROCEDURE

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AF 10 FOOD DEFENSE (not applicable for Flowers and Ornamentals) AF 11 GLOBALG.A.P. STATUS AF 12 LOGO USE

AF 13 TRACEABILITY AND SEGREGATION

AF 14 MASS BALANCE

AF 15 FOOD SAFETY POLICY DECLARATION AF 16 FOOD FRAUD MITIGATION

CB

CROPS BASE

CB 1

TRACEABILITY

CB 2

PROPAGATION MATERIAL

CB 3

SOIL MANAGEMENT AND CONSERVA- TION FERTILIZER APPLICATION

CB 4

CB 5

The fertilization decision-making process involves consideration of crop demands.

Nutrients shall be available for crops in the growing substrate or soil, and fertilization is often necessary. Correct application to optimize use and storage procedures to avoid loss and contamination shall be followed.

WATER MANAGEMENT Water is a scarce natural resource, and irrigation should be designed and planned by appropriate forecasting and/or by technical equipment allowing for the efficient use of irrigation water. For information about responsible water use, see Annex CB 1.

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CB 6

INTEGRATED PEST MANAGEMENT

Integrated Pest Management (IPM) involves the careful consideration of all available pest control techniques and the subsequent integration of appropriate measures that discourage the development of pest populations, that keeps plant protection products and other interventions to levels that are economically justified, and that reduce or minimize risks to human health and the environment. An IPM Toolbox (Annex CB 2) has been developed to provide alternative actions for the application of IPM techniques in the commercial production of agricultural and horticultural crops. Given the natural variation on pest development for the different crops and areas, any IPM system shall be implemented in the context of local physical (climatic, topographical, etc.), biological (pest complex, natural enemy complex, etc.), and economic conditions.

PLANT PROTECTION PRODUCTS

CB 7

CB 8

In situations where a pest attack will adversely affect the economic value of a crop, it may be necessary to intervene using specific pest control methods, including plant protection products (PPP). The correct use, handling and storage of plant protection products are essential.

EQUIPMENT

FV

FRUIT AND VEGETABLES

FV 1

SITE MANAGEMENT

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FV 2 FV 3 FV 4

FV 5

SOIL MANAGEMENT (N/A if no soil fumigation is practiced) SUBSTRATES (N/A if substrates are not used) PRE-HARVEST (Refer to Annex FV 1 GLOBALG.A.P. Guideline - Microbiological Hazards) Four main activities may take place after the growing season: harvest, handling at the point of harvest (on field), handling in a packinghouse (in facility), and storage/ cooling. Although not all of these activities are carried out on every farm, the need to follow the appropriate hygiene principles and to maintain the tools, equipment and facilities are common and equally important for all these activities with regard to food safety.

Producers shall evaluate the requirements aggregated in this section considering all the applicable activities on the farm.

The significance of GlobalGAP’s direct engagement in African farming cannot be overstated. I recently attended an event at the World Bank in Washington and a special side event on Africa’s integration into the Global Supply Chain. The panel featured leading experts from major international and multilateral institutions. The debate was robust and substantive. Yet not one panelist raised the issue of global standards.

You see, if Africa’s farmers do not produce according to global best practices and global standards, they will be left out of the Global Supply Chain. There is no grading on a curve. Either the products meet global standards or they do not. Unfortunately, they typically do not.

Meeting these standards is not easy, and it is not cheap. If individual farmers must figure this out and pay for it by themselves, it will not happen.

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That is why GlobalGAP is critical to the attainment of the competitiveness required in African agribusiness. There are no corners that can be cut. Best practices in California and best practices in Mozambique must be indistinguishable. Africa should not be treated with sympathy or patronized. Instead, Africa should be empowered with the best, and Africa in turn can make the best even better.

Good Financial Practices When we started Africa Atlantic in 2009-10, we had no awareness of the specific expectations of potential investors or financial institutions. One of my first meetings in 2009 with a Development Finance Institution (DFI) was with the Overseas Private Investment Corporation (OPIC). From their website and program descriptions, it seemed like our new project in Ghana would be a good fit. I eagerly reached out to OPIC and was given an appointment with an investment officer.

It did not take long for me to realize that OPIC was not interested in our project. But what I did not understand then, but understand now, is that there is a checklist. I do not believe the checklist has been written down before, but the list contains the elements that are required in order to qualify for DFI financing of agribusiness projects in Africa.

The Risk/Opportunity Dashboard is certainly a good starting point, but now we need to talk about specific requirements.

Here is a table containing “Good Financial Practices� for farming projects in Africa seeking commercial, developmental or social impact financing.

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No

Control Point

Level

Yes

No N/A Justification

FS

FINANCIAL Major STATEMENTS Must Accurate financial statements are the central nervous system of financial health and bankability.

FS 1 Independently Major Commercial audited financial Must financing requirestatements ment FS 2 Records management Major Commercial Must financing requirement FS Electronic Data Minor Link financial 2.1 Collection Must and agronomic tech systems

AR

ASSET REGISTER REVIEW

The asset register is used to determine the debt: equity ratio—a key risk metric.

AR Land assets Major

Collateralization, 1 Must productivity capacity AR Title Major

Collateralization 1.1 Must AR Lien Rights - Land Major

Collateralization 1.2 Must AR Irrigation assets Major

Risk 2 Must management, collateralization AR Water Rights Major

Risk 2.1 Must management, collateralization AR EQUIPMENT ASMajor

Collateralization, 3 SETS Must productivity, efficiency

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AR 3.1 AR 4

Lien Rights Equipment Livestock assets

Major Must Major Must

Collateralization

Collateralization, productivity capacity Collateralization

AR 4.1 AR 5

Lien Rights Livestock Buildings, other property

Major Must Major Must

AR 6

Infrastructure

Major Must

AR 7 AR 7.1 AR 7.2 PL

Balance sheet

Major Must Liabilities - Debts Major Owed + Interest Rate Must Assets - Summary Major Must PROFIT & LOSS

Collateralization, productivity capacity Collateralization, productivity, efficiency Collateralization, Credit Rating Collateralization, Credit Rating Collateralization, Credit Rating

Profit and loss is used to monitor and evaluate income and expenses, efficiency, and profitability.

PL 1 Budget Major

Profitability plan Must Recom- PL Financial Model

Profitability plan mend 1.1 - Multi-year IRR Projection PL Annual Budget & Major

Profitability plan 1.2 Board of Directors/ Must Shareholder Review PL Quarterly Budget & Minor

Profitability plan 1.3 Board of Directors Must Review PL 2 Revenue Major

Productivity Must measurement

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PL Yield 2.1 PL Price 2.2 PL 3 Costs PL 3.1 PL 3.2 PL 4 PL 5 PL 6 PL 7 PP

Major

Must Major

Must Major

Must Costs-Direct Major

Must Costs-Indirect Major

Must Depreciation Major

Must Tax liability Minor

Must Profit (loss) Major

statement Must Cash flow Major

Must PUBLIC PRIVATE PARTNERSHIPS

Productivity measurement Productivity measurement Efficiency measurement Efficiency measurement Efficiency measurement Profitability measurement Profitability measurement Profitability measurement Efficiency measurement

Also called “Government Farmer Support Programs,” a key element of farmer risk management.

PP 1 Subsidies Minor

Risk Must management, profitability PP Seed Minor

Risk 1.1 Must management, profitability PP Chemicals Minor

Risk 1.2 Must management, profitability PP Fertilizers Minor

Risk 1.1 Must management, profitability PP 2 Transportation Major

Profitability, Must efficiency

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PP3

Storage

PP 4 Government purchase programs

Major Must

Minor Must

Risk management, profitability, efficiency Risk management

PM PRODUCE MARKETING Key indicators of the ways a farm enterprise can compete in the market and earn profits.

Recom-

Risk PM Cooperative mend management, 1 membership efficiency, profitability Recom

Risk PM Off-take mend management, 2 agreements efficiency, profitability Recom

Price risk PM Value addition mend management 3 capacity PM Feed Milling Access Minor

Profitability 3.1 Must PM Flour Milling Minor

Profitability 3.2 Access Must Recom-

Profitability PM Livestock Value mend 3.3 Addition Recom-

Risk PM Packaging mend management, 3.4 efficiency, profitability Recom-

Risk PM Cold Chain mend management, 3.5 Logistics efficiency, profitability

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RC

REGULATORY Major

COMPLIANCE Must Also called a “Legal Audit,” these elements help ensure the rights and protection of all stakeholders.

RC Corporate goverMajor

Commercial 1 nance Must financing requirement

Recommended RC Board of Directors; Recom- mended for corporate 1.1 Quarterly Meeting structure Recom-

Recommended RC Shareholders mended for corporate 1.2 annual general structure meeting Major

Commercial RC Corporate 2 registration Must financing requirement RC Tax compliance Major

Commercial 3 Must financing requirement RC Good Standing Major

Commercial 3.1 Status Must financing requirement RC Labor/human Major

Commercial 4 resource law Must financing compliance requirement RC Environmental law Major

Commercial 5 compliance Must financing requirement *Table created by Jon Vandenheuvel with input from Willem Meyer.

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Unfortunately, OPIC did not share this list with me. It’s possible they didn’t have it in this or any particular format.

The absence of this list cost us at least two million dollars, if not more, plus three years of our lives, and was potentially fatal to the project in Ghana.

I have met with dozens of DFIs, multilateral institutions, commercial banks and government agencies, from the World Bank to IFC to private banks seeking to finance agribusiness in Africa. Not one organization ever presented the list outlined above. The Ghana Investment Promotion Center was unaware of any of this—and was ill-equipped to promote agribusiness investment in the country. The Ghana Commercial Agricultural Project, financed by USAID and the World Bank, had no clue as to these requirements and expectations. Standard Bank led us along for eighteen months on a potential loan to scale-up the farm, until after I traveled to their headquarters in Johannesburg and they informed me there was no way Standard Bank could loan money to our farm. This decision could have been stated in the very first meeting. Instead, we devoted weeks to preparation for meetings with detailed financial models, when this simple checklist could have saved us all time and given us clarity on what we needed to do.

Fortunately, we figured this out through years of persistence, meetings, and trial and error. The list above doesn’t exist in a usable format for investors and developers of agribusiness projects in Africa. So we are thankful to have this list and are willing to share it in this document.

And as is the case with the Risk Dashboard, there are no shortcuts for small African farmers. Our slogan “if we need it, they need it” is true for “Good Financial Practices” as well. The small African farmer must keep books that can be audited according to international requirements. They must have proper corporate governance and file the required documentation with the government. They must comply with fair labor requirements and pay their taxes.

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There is no need for all this to be a mystery. The same is true for environmental and social impact guidelines and best practices, as we will see in the next section.

Environmental and Social Impact Assessments More than three years into our project, and after dozens of meetings with USAID, Millennium Challenge Corporation, and countless other government agencies about our project, I was finally introduced to this thing called the “ESIA”—the Environmental and Social Impact Assessment.

I had been introduced to executives with the International Finance Corporation (IFC), the private finance arm of the World Bank. They were the first to share with me the expectation that our farm in Ghana must complete an ESIA in order to be considered for financing by IFC. This was in 2013.

Here is what an ESIA requires.

International Finance Corporation Overview of Performance Standards on Environmental and Social Sustainability 1. IFC’s Sustainability Framework articulates the Corporation’s strategic commitment to sustainable development, and is an integral part of IFC’s approach to risk management. The Sustainability Framework comprises IFC’s Policy and Performance Standards on Environmental and Social Sustainability, and IFC’s Access to Information Policy. The Policy on Environmental and Social Sustainability describes IFC’s commitments, roles, and responsibilities related to environmental and social sustainability. IFC’s Access to Information Policy reflects IFC’s commitment to transparency and good governance on its operations, and outlines the Corporation’s institutional disclosure obligations regarding its investment and advisory services. The Performance Standards are directed towards clients, providing guidance on how to identify risks and impacts, and are designed to help avoid, mitigate, and manage risks and impacts as a way 171

of doing business in a sustainable way, including stakeholder engagement and disclosure obligations of the client in relation to project-level activities. In the case of its direct investments (including project and corporate finance provided through financial intermediaries), IFC requires its clients to apply the Performance Standards to manage environmental and social risks and impacts so that development opportunities are enhanced. IFC uses the Sustainability Framework along with other strategies, policies, and initiatives to direct the business activities of the Corporation in order to achieve its overall development objectives. The Performance Standards may also be applied by other financial institutions.

2. Together, the eight Performance Standards establish standards that the client is to meet throughout the life of an investment by IFC: • Performance Standard 1: Assessment and Management of Environmental and Social Risks and Impacts • Performance Standard 2: Labor and Working Conditions • Performance Standard 3: Resource Efficiency and Pollution Prevention • Performance Standard 4: Community Health, Safety, and Security • Performance Standard 5: Land Acquisition and Involuntary Resettlement • Performance Standard 6: Biodiversity Conservation and Sustainable Management of Living Natural Resources • Performance Standard 7: Indigenous Peoples • Performance Standard 8: Cultural Heritage 3. Performance Standard 1 establishes the importance of (i) integrated assessment to identify the environmental and social impacts, risks, and opportunities of projects; (ii) effective community engagement through disclosure of project-related information and consultation with lo172

cal communities on matters that directly affect them; and (iii) the client’s management of environmental and social performance throughout the life of the project.

Performance Standards 2 through 8 establish objectives and requirements to avoid, minimize, and where residual impacts remain, to compensate/offset for risks and impacts to workers, Affected Communities, and the environment. While all relevant environmental and social risks and potential impacts should be considered as part of the assessment, Performance Standards 2 through 8 describe potential environmental and social risks and impacts that require particular attention. Where environmental or social risks and impacts 1 The term “client” is used throughout the Performance Standards broadly to refer to the party responsible for implementing and operating the project that is being financed, or the recipient of the financing, depending on the project structure and type of financing. The term “project” is defined in Performance Standard 1. ii Performance Standards on Environmental and Social Sustainability January 1, 2012 are identified, the client is required to manage them through its Environmental and Social Management System (ESMS) consistent with Performance Standard 1.

4. Performance Standard 1 applies to all projects that have environmental and social risks and impacts. Depending on project circumstances, other Performance Standards may apply as well. The Performance Standards should be read together and cross-referenced as needed. The requirements section of each Performance Standard applies to all activities financed under the project, unless otherwise noted in the specific limitations described in each paragraph. Clients are encouraged to apply the ESMS developed under Performance Standard 1 to all their project activities, regardless of financing source. A number of cross-cutting topics such as climate change, gender, human rights, and water, are addressed across multiple Performance Standards.

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5. In addition to meeting the requirements under the Performance Standards, clients must comply with applicable national law, including those laws implementing host country obligations under international law.

6. The World Bank Group Environmental, Health and Safety Guidelines (EHS Guidelines) are technical reference documents with general and industry-specific examples of good international industry practice. IFC uses the EHS Guidelines as a technical source of information during project appraisal. The EHS Guidelines contain the performance levels and measures that are normally acceptable to IFC, and that are generally considered to be achievable in new facilities at reasonable costs by existing technology. For IFC-financed projects, application of the EHS Guidelines to existing facilities may involve the establishment of site-specific targets with an appropriate timetable for achieving them. The environmental assessment process may recommend alternative (higher or lower) levels or measures, which, if acceptable to IFC, become project- or site-specific requirements. The General EHS Guideline contains information on crosscutting environmental, health, and safety issues potentially applicable to all industry sectors. It should be used together with the relevant industry sector guideline(s).

The EHS Guidelines may be occasionally updated.

7. When host country regulations differ from the levels and measures presented in the EHS Guidelines, projects are expected to achieve whichever is more stringent. If less stringent levels or measures are appropriate in view of specific project circumstances, a full and detailed justification for any proposed alternatives is needed as part of the site-specific environmental assessment. This justification should demonstrate that the choice for any alternative performance level is protective of human health and the environment.

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8. A set of eight Guidance Notes, corresponding to each Performance Standard, and an additional Interpretation Note on Financial Intermediaries offer guidance on the requirements contained in the Performance Standards, including reference materials, and on good sustainability practices to help clients improve project performance.

These Guidance/Interpretation Notes may be occasionally updated.

A study of this nature on a project like Africa Atlantic Franchise Farms would take nine to twelvemonths and cost a minimum of one hundred thousand dollars. We asked IFC for references, and we were given two names of Ghana consultants who IFC felt would be qualified to complete the ESIA for AAFF. So we met with both and selected one team to compete the audit. We were about to sign the agreement when we were notified that IFC’s Global Environment and Social Responsibility overseers did not have confidence in the group in Ghana to complete the work, and they suggested we must hire someone to supervise their work in Ghana.

At this point, I requested a meeting in Washington, DC, with IFC staff and requested to know, first, what are the expectations on ESIA that our company must meet? And second, who can we hire that can supervise the ESIA process and enjoys the confidence of IFC at the highest levels?

So we hired Ted Pollett, an experienced ESIA advisor and agronomist, originally from Zimbabwe with extensive research experience in Africa, particular to the mining and oil/gas sectors. We also hired a local consultant team in Ghana to conduct the ESIA. We were blessed to have on our staff Emily Daher, a very bright and talented recent graduate of Calvin College whom we hired to work with the local villages near our farm.

She lived at the farm on the Afram Plains and organized meetings and school programs. She was then assigned to work with Ted and the consultants to implement the ESIA. The AAFF ESIA is a thick three-hundred-page report. It was the product of months of hard work by a dedicated team. Our 175

project is stronger because of it. Our relationships with local villages and individuals and youth are stronger because of it.

In fact, you cannot get an EPA permit to farm commercially in Ghana without it.

So why didn’t anyone tell us about the ESIA in 2010? Probably because those in positions to help promote commercial farming actually know little of what it takes to build these farms and even less about what it takes to make them profitable and to integrate small farmers into these systems.

But there are encouraging signs this could change. As I found out in Paris in December 2015.

Integrated Landscape Management In 2015, I was pleasantly surprised to learn about an emerging concept called “Integrated Landscape Management.” The principles of this discipline offer the solution to my main criticism of developmental initiatives related to small farmers in Africa.

My main criticism of developmental interventions related to small farmers is the failure to address the conditions in which small farmers operate. The conditions matter as much or more than any particular seed or fertilizer. A high yield with expensive transportation will eat into profits. A high yield on land with no title will still deny the farmer access to commercial finance.

High yields only help incrementally, and they only help in comparison to past yields in Africa, not yields in Brazil and Iowa.

Conditions. This is what Integrated Landscape Management (ILM) offers. It creates conditions for farmers to produce and compete.

I attended the Climate Summit (COP21) in Paris in December 2015. I was not planning to go, but at the last minute I was sufficiently intrigued with what I read about ILM that I decided to attend.

After attending the workshop on ILM, I had the opportunity to share our work in Ghana and the work we developed with MIT faculty related to “Model Agribusiness Cities” (more on this in the coming chapters). The take-away was clear. Our 176

work in Ghana was very much ILM. We had been developing this concept all along, this idea of building/creating conditions for farming that allow the farm to operate according to global best practices, whether this is farming, accounting, legal, financial, environmental, and so forth.

The discipline of ILM can be summarized as follows (from Global Landscapes brochure): Landscape Management (ILM) has arisen as a response to growing competition for natural resources. It reconciles demands from different sectors and stakeholders in a way that is more sustainable, inclusive and effective at scale. This approach is more likely to lead to sustainable landscapes in the long term by addressing trade-offs and synergies among stakeholders and between different parts of the landscape and by building collaborative relationships.

ILM requires both asset and enabling investments by a wide range of land managers. Asset investments create tangible value that is returned back to the investor, and enabling investments lay the institutional and policy foundation for asset investments. All integrated landscape investments require some degree of strategic planning or coordination through a landscape stakeholder platform and/or a landscape investment facilitator.

Key challenges and emerging solutions for financing integrated landscape investments: Financing integrated landscape investments presents several unique challenges. We outline five of these key challenges, along with corresponding emerging solutions that are currently being developed by cutting edge financiers and investors. • Incorporating landscape criteria into investment decisionmaking. This can be accomplished through the application of standards to screen out harmful investments as well as through active targeting of sustainable land use and integrated landscape investments. • Investment risks that are unique to ILM compared to traditional land-based investments. Mechanisms to reduce these risks include financial subsidies, guarantees, co-investment with landscape partners, raising and diversify177

ing returns and documenting a track record of investment performance.

• Investors and financiers’ effective engagement with landscape partnerships. These relationships can be built by joining existing platforms, strengthening weak or absent platforms, or, in cases where they do not have the capacity to engage, empowering intermediaries to manage landscape relationships.

• Strategically linking financial flows within landscapes. Assets and enabling investments can be coordinated through blending of objectives and funds with a single instrument or through the use of enabling investment companion funds, either jointly managed within the same institution or on a project by project basis. Finance can also be better linked within landscapes through the development of mechanisms to match funders with appropriately sized investments.

• Monitoring multiple outcomes at a landscape scale. Assessment tools designed to track impacts for sustainable land use and value chains can be geared towards landscape assessments. Other systems are being developed specifically to track outcomes within integrated landscape initiatives.

Recommendations to advance investment and finance for ILM: Despite this innovation, much more remains to be done to scale up financing for integrated landscape management. We recommend five key areas for immediate action: 1. Design standards and monitoring systems for integrated landscape investments. As more financial actors commit to the principles of integrated landscape investments they will need inexpensive, simple and effective systems that allow them to apply landscape standards and to track the impacts of investments within a landscape context. Given that cost is the limiting factor for impact monitoring, these systems should focus on identifying and adopting integrative and leverage indicators.

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2. Establish landscape investment incubators. Developers of specific integrated landscape investments as well as leaders of integrated landscape initiatives need improved financial literacy. A landscape investment incubator could help to provide the technical capacity needed to design landscape investments so that they are seen as bankable by potential funders.

3. Establish brokerage services for integrated landscape deals.

Financial actors have trouble finding bankable deals while farmers and businesses on the ground often lack finance for their investments. Brokering facilities that operate at landscape, regional, national or even international scales could help to fill this match-making function.

4. Incorporate integrated landscape principles into public financing. Some countries and jurisdictions have made significant strides in the design of public programs that cut across sectoral silos. But government agencies (and their donors) can do more to coordinate sectoral funding programs and to increase funding for integrated programs.

This will require improved inter-governmental communication and collaboration and increased recognition of the interlinkages among investments required to achieve sustainable development.

5. Create frameworks for financing ILM within national SDG and green growth strategies. In order to achieve the SDGs, countries will need to move beyond ‘business-asusual’ economic growth models and embrace models for inclusive green growth. Green growth will require the coordination of sectoral investments, but while this coordination is necessary at the national and sub-national scales, individual investment and finance decisions are best evaluated at a landscape scale.

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F R AG I L E Z O N E I N F R A ST RU C T U R E BLOCKS When investors fail, when SMEs fail, when regions and nations remain dependent year after year, instability can wreak havoc.

Our world is hurting physically, emotionally, and socially. In Africa, the pain is widespread, the economic and social isolation is crippling, and comprehensive and sustainable solutions rarely materialize.

Refugees and displaced persons, along with those living in extreme poverty in cities and rural areas of Africa, serve as sobering reminders that in spite of incredible advances in technology, the ability to achieve so many amazing things—instant global communications, life-saving medicines, etc.—there remains many who suffer unspeakable hardships, deprived of liberty and opportunity, and in too many cases, fleeing their homes for their very lives.

The poverty and refugee data is heart-breaking—the definition of “fragile.”

In Africa, there are more than eighteen-million people who are refugees, internally displaced persons (IDP), or persons at risk, according to the United Nations High Commissioner on Refugees Global Report for 2015.9 This situation, unfortunately, has gotten worse in recent years, even while earlier displacements in conflict areas like Somalia dating back to the early 1990s, remain unresolved. Hostilities in Nigeria, South Sudan, Burundi, Somalia, the Democratic Republic of Congo, and the 9

UNHCR 2015 Global Report (p46)

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Central African Republic, each involving a million or more individuals, result from a brutal and systemic mix of political, economic, and security melt-downs.

While these 18 million in Africa live in very desperate situations, displaced from their normal living situation, a population of more than 40 times this number exists in Africa in conditions that can only be described another degree of “fragile”—severely economically and socially disadvantaged.

The definition of “extreme poverty” established by the World Bank is an individual living on less than $1.90 per day.

By this definition, 350 million people—or about forty percent of the world population that fits this description in Sub-Saharan Africa—live in extreme poverty.10 Add to this figure the “working poor” who live on more than $1.90 per day, yet lack even the most basic opportunities for socio-economic upward mobility, and this figure doubles to at least seven hundred million. This means, essentially, that the vast majority of the population of Sub-Saharan Africa is either living in extreme poverty or is simply extremely poor.

Global Tinkering The people of the world are aware, generally, of the conditions of global poverty. Some political movements are even passionate about the topic. Africa has been historically defined by its poverty. “Helping poor people in Africa” has a certain romance to it—something to make us feel good about ourselves.

But have we become satisfied with merely tinkering around the edges of these situations? Have Africans, themselves, given up on their own countries? Is there a general satisfaction with small improvements, and only a sense of urgency when things get messy?

The world pays attention to Africa when situations get out of hand; otherwise, the extreme conditions and the critical mass of poverty is an acceptable, almost romanticized concession. Routine.

10

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World Bank/IMF Global Monitoring Report 2015/2016 (p4)

Many running feuds, violent in nature, between rival parties, tribes, warlords, and jihadists, result in the tyranny of the powerful against the weak. Villages raided, women and girls exploited, boys made into soldiers. The West sees these situations in popular movies, like Tears of the Sun and Blood Diamond, resulting in heavy exposure to the problems with little to offer as solutions.

The routine of poverty situations has spawned a lucrative industry, providing income to those who study the problems, report the problems, legislate the problems, communicate the problems, and manage the problems. Many people, many organizations, many governments are working on the problems. But no mandate appears to exist to solve the problems. There is no working model for an intervention that builds, from start to finish, a self-sustaining community. Where is the finished product after all the funding, all the programs, all the activities?

The metadata is oriented toward rates and percentages, grading progress on a curve. “There are fewer people living in extreme poverty today than twenty years ago”—never mind that the number remains 350 million in Africa; never mind that their definition of “extreme poverty” represents conditions so terrible that war, exploitation, starvation, and hopelessness are normal conditions in these places. Never mind that while rates have gone done, there is still no cure for this cancer. The concept of “zero” is not considered. Conversion from “fragile” to “fertile,” therefore, is not a subject on the radar screen of stakeholders.

Can you imagine the United States simply conceding that there is no cure for cancer? Only treatment of symptoms? Imagine if society had this view of polio and other diseases?

Yet when it comes to extreme poverty, and in this case specifically in Africa, the question of ending poverty, of finding models and templates of economic planning, policy, and investment that can offer self-sufficiency to hard-working people, is not even considered. Global leaders, multilateral agencies with responsibility for billions of dollars, celebrate mediocrity. They have not a single working model, in any jurisdiction, anywhere 183

in Africa, that represents a truly sustainable transition from a fragile condition to a prosperous, self-sufficient condition.

Since the question is not asked, a solution will not be found.

Sustainable conditions do not occur by accident. And investment conditions that are inclusive of the poor, and that reflect global standards and values in human rights and environmental protection, do not occur by accident.

In the fragile areas of Africa, how are these conditions created? Since these conditions do not occur by accident, what is missing?

Building the infrastructure for sustainable investment in fragile areas.

Systemic problems require systemic solutions.

Moving from a fragile state to a fertile or sustainable state is more than a matter of improved seed, soil, and fertilizer. It is more than a matter of any single part of the whole. It requires a complete functioning system, taking into consideration all the factors that impact the conditions for productivity and prosperity. This is the only solid foundation upon which to derive sustainable solutions.

Unfortunately, attempts to improve the lives of individuals, even communities, in fragile areas lack the systemic approach required to lay such a foundation. Money is spent, fuel is put into the gas tank, but the engine is not properly wired under the hood. There are short-circuits and crossed wires. Wheels are not aligned, if there are even wheels at all. All systems must be working properly in order for the fuel to be effective in propelling the vehicle forward.

The same is true for developmental interventions in fragile areas. Poverty is not caused by a single element, and ending poverty will not be achieved with a single element.

Treating symptoms is important, and nothing in this narrative should be interpreted as being critical of responding to the effects of poverty and dislocation at the point of need.

However, much more attention—and workable models— must be developed to address the full system of poverty in the context in which it occurs, and set as an objective not simply 184

alleviation of the symptoms of poverty, but the root causes of poverty.

In this workbook, therefore, we reflect on what it will take to convert a fragile area into a fertile area, and we focus on two specific and related examples of where this approach is needed: refugees and small farmers.

We reflect on these challenges as systemic challenges, with patterns and dynamics that no single remedy can address. It is not a matter of more money, for example, or even electricity or roads. Rather, it is “all of the above,” framed in a mosaic or a “dashboard” that allows visibility and awareness of the whole, not just the individual parts.

And since there are many parts, we use the well-known, time-tested concept of a “special economic zone” as a tool to bring the many components together as a single operating system. Many parts, but one system.

The foundation for investment, therefore, is exactly that: a solid, structured platform to organize solutions, offering stable conditions over time to allow sustainable solutions to incubate and scale. And to accomplish this incubation and scale in such a way that it can be repeated in various locations, in various ways, but with a similar result.

Refugee/IDP Municipal Infrastructure Blocks There are more than sixty million documented refugees and internally displaced persons (IDP) in the world, according to the United Nations High Commission on Refugees (UNHCR).

Of this number, eighteen million refugees, displaced, and other high-risk persons are in Africa.11 This is, of course, primarily a humanitarian situation in need of crisis response and action. However, at what point does a crisis become a “new normal”? In other words, at what point does it make sense to recognize that some people, in some cases most people, will never return to their homes?

In some cases, refugees could return to their countries, but perhaps to a different location? Perhaps to a new future opportunity? A safer, better place?

11

UNHCR Global Report Africa 2015 (p46)

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There are nearly one and a half million Somali refugees living in Kenya and Ethiopia, resulting from years of civil wars and terrorism. The social and economic situation in Somalia remains fragile. The social and economic situation in Kenya and Ethiopia is not much better. The prospects for a future in a foreign country is not workable, neither for the host governments of Kenya and Ethiopia, nor for the Somali people stuck in the middle.

Yet, living conditions in their original villages and areas in Somalia are fraught with peril. Al-Shabaab terrorists roam the areas and destroy with impunity and little resistance. International military counter-terrorism measures are too spread out to offer any safe areas to resettle.

The refugee camp of Dadaab on the Kenyan-Somali border is home to some 375,000 refugees. A “camp,” it is supposed to be temporary shelter, but it is not temporary. While this is perhaps the largest single camp, there are other camps of hundreds of thousands of people. They are refugee cities with new social order, economies, and problems. The common denominator? No future.

Agribusiness, as presented in this workbook, offers a central organizing vehicle in such situations. Everyone must eat, and food costs money. This provides the liquidity—the “H2O”—for new social and economic life.

How can agribusiness be applied in the context of refugee settlements? This is not an easy question, and for this book, I will only offer a preliminary view. Much more research and laboratory work is required, but the foundational principles are in place. Agribusiness can help offer a new life to millions of people in the most desperate conditions.

First, as we have discussed, successful agribusiness demands infrastructure. Both soft and hard infrastructure. Without this infrastructure, agribusiness will not succeed anywhere, whether Iowa or Ghana.

Infrastructure is expensive, and this involves complicated funding decisions that must balance feasibility with opportunity. This demands government involvement, and in the con186

text of agribusiness, also demands private sector involvement, including the farmers themselves. All stakeholders must be engaged. This demands coordination and communication. It demands vision and commitment.

Application: Infrastructure Blocks in Somalia?

We have had the privilege of working on an initiative in Somalia to facilitate the settlement of refugees and displaced persons in safe economic areas. We have enjoyed collaboration with MIT Professor Alexander D’Hooghe and the ORG Permanent Modernity lab he runs in Cambridge, Massachusetts, and Brussels, Belgium. Together, we have designed concepts for reconstruction of post-conflict Somalia.

The South West State of Somalia (SWSS) is a Federal Member State of Somalia, consisting of three regions: Bakool, Bay, and Lower Shabelle. The area extends from the Indian Ocean to the Ethiopian border.

The Dadaab Refugee Camp in Kenya is MIT Professor home to many citizens of SWSS. The exact figAlexander ure is not known, but it is safe to assume that D’Hooghe perhaps one-third or more of the 335,000 refugees are from SWSS. Many of the Somali citizens in Dadaab are children born in the camp who have never experience life outside the camp.

Within Somalia, due to the violence of Al Shabaab, many of the citizens of SWSS are Internally Displaced Persons (IDP) and populate camps throughout SWSS. These citizens have suffered for many years, lacking a place to call home and the means to support themselves or their families.

Return 125,000 Refugees and New Settlement of 125,000 IDP and Somalis The President of SWSS has committed to work for the economic security and physical safety of his people. For this reason, he is organizing an international team to design and implement an economic plan for SWSS that achieves two critical objectives: 187

1. Facilitates the return to Somalia of at least 125,000 refugees currently residing in refugee camps in Kenya and elsewhere in a safe and secure environment.

2. Facilitates the re-settlement of a minimum of 125,000 IDPs and other Somali citizens in a safe and secure environment.

Strategic Plan | The Somali Coastal Shabelle Green Belt

The centerpiece of the Strategic Plan of SWSS is the establishment of the Somali Coastal Shabelle Green Belt.

This eighty-thousand hectare area surrounded by a security perimeter will link the Indian Ocean to the Shabelle River with a diverse economic, agricultural, industrial, recreational and residential planned area.

The zone will offer the following industrial and community development capacity: 1. 48,000 hectare irrigated small farm zone (total area 60,000 hectares) 2. 15,000 hectare industrial zone 3. 4,000 hectare Sea-Air-Land logistics zone 4. 2,000 hectare ocean front recreational zone 5. 1,000 hectare corporate zone 6. 1,000 hectare government zone 188

Illustration by MIT Prof. Alexander D’Hooghe, the ORG Design Labs.

Governance | Free Zone Investment Authority The SWSS has assembled an international team to support the design and implementation of the Somali Coastal Shabelle Green Belt. This private sector-led team will establish the Somali Coastal Shabelle Infrastructure Company, a public-private partnership.

The Coastal Shabelle Green Belt will be a Free Trade Zone.

All regulatory, tax, and infrastructure elements will be part of a “one-stop-shop” for investors and stakeholders, organized by the South West State Free Zone Investment Authority. The favorable tax and regulatory policy will be accessible by international and Somali investors alike. (The policy framework will loosely mirror the Jebel Ali Free Zone of Dubai.)

Design & Implementation: Knowledge Transfer, Capacity-Building Model The Coastal Shabelle design and implementation model will be an educational collaborative. All planning elements will be carefully organized to include Somali students and faculty for 189

the purposes of professional and vocational advancement and future learning.

Zones will be designed for development in phases, with major infrastructure design and decisions coordinated from the central office.

Project management, like design, will be an educational collaborative. All project management elements, including construction and ongoing maintenance, will be organized for optimal training and mentoring opportunities for Somali students, faculty and professionals.

Municipal Infrastructure Block Concepts

Illustration by MIT Prof. Alexander D’Hooghe, the ORG Design Labs.

1. The appropriate and necessary legal and regulatory policy framework has been considered and approved by the Parliament of the SWSS. The Free Zone Investment Authority has been established.

2. The design of the “Small Farm Kit” - the boxed individual units containing all the necessary materials and technology to build a one-hectare farm and small house should be considered with input from a global team of agricultural, affordable housing, renewable energy, and other experts, along with Somali agricultural and construction professionals, including refugees and IDP’s in 190

this process. The infrastructure design, including irrigation and “village centers,� should be developed.

3. The design for the port facilities, airport, and the industrial area can begin with funding. Potential manufacturers will be recruited through the formation of the Free Zone Investment Authority, and site planning can begin.

Engineering considerations and social inclusiveness, along with security, will play a central role in shaping the financial and implementation requirements. This input will be incorporated into the master plan.

4. An application process for participating refugees, IDPs, and local Somali families will be designed and implemented once the initial due-diligence process has been completed, and the program outline is well understood and agreed-upon by both public and private sector leadership.

Implementation phase As the design and financing phase advances, the implementation phase should be organized.

1. A security sweep of prospective sites will occur at the appropriate time, followed by the establishment of a multi-layered security perimeter. (This program will not be discussed in planning literature.)

2. The Free Zone Investment Authority Office will be established, with the first returning refugees and IDPs recruited to support the design and construction of the zone. A rsidential and office park will be established to coordinate and house first-phase personnel.

3. The agricultural and port infrastructure, along with electricity and roads, will be built first.

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Illustration by MIT Prof. Alexander D’Hooghe, the ORG Design Labs.

4. Small farm kits, to be developed in boxes for easy mobilization, will be assembled and transported to the site when the first areas are prepared.

5. As these kits arrive on site, refugees, IDPs and local Somalis accepted into the program can begin to relocate into the zone. Everything they need to begin living and working in the zone should be contained in their kits, and timing should be considered to optimize favorable weather conditions for this transition period.

Can a stability infrastructure block be built in Somalia?

This is an ambitious and exciting plan. The restoration of hope for the Somali people will be an inspiration to the world.

The potential positive impact of this initiative cannot be estimated or measured. Lives will be transformed, and a model will be established that can serve as a blueprint for similar projects in Somali, Africa, and the world.

Let us hope.

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THE FUTURE Municipal Infrastructure Blocks and African Agribusiness Cities in the Twenty-first Century In our company, we have learned first-hand and observed in other agribusiness projects that there is no such thing as globally-competitive farming and meeting global standards when isolated from the tools to compete for value to the customer, including price, quantity, and quality. Yet “isolation” from these tools is the norm in rural Africa. Even within sight of a major city, infrastructure is insufficient to overcome the relative isolation, whether it be physical distance from markets or “soft” isolation of proper legal or financial structures or innovative technologies.

While risk and opportunity are two sides of the same coin, soft and hard infrastructure are the “chicken or egg” question for investors and stakeholders in African agribusiness.

In this book, we define “soft” infrastructure as laws, policies, contracts, and land titles; financial products and services such as banking and insurance; operational sciences such as management, agronomy, and engineering; social relations, training, and human empowerment; and environmental protection and conservation. We define “hard” infrastructure as utilities, roads, bridges, railways, ports, and technical structures.

Hard infrastructure only makes sense where there is at least the foundation of soft infrastructure in place to support enterprise activities; soft infrastructure only makes sense if plans exist, or can be developed, to establish the roads, bridges, and other building blocks for enterprises. A “bridge to nowhere” 193

is a bridge built without smart soft infrastructure support and analysis.

How do stakeholders come together to envision, and then design, and then plan, and then implement hard and soft infrastructure investments needed to support African agribusiness in an inclusive, bankable, and scalable manner?

Illustrations by MIT Prof. Alexander D’Hooghe, ORG Labs; and MIT Prof. Alan Berger, P-REX Labs.

The discipline of urban planning, with its system of stakeholder consultation (charrette) has a lot to offer in this area, and this is our conclusion as we complete our fifth year of developing a commercial farm in Ghana. In the end, we now realize, we are not simply building a farm. We are building a small agribusiness city. This city can produce goods, create income, and offer land rights to all inhabitants, whether direct employees of AAFF, outgrowers, or service providers. Roads, buildings, water and waste management systems, along with day-to-day services, are all needed in the functioning and development of the farming system.

As a basic estimate, a twenty-thousand-acre irrigated grain farm on Lake Volta in Ghana, plus a feed mill, a flour mill, livestock, lake transport, and a solar-power farm can become a onehundred-million-dollar-plus economic system that can support thousands of full-time employees who are one hundred percent banked, one hundred percent credit-rated and therefore bankable, with one hundred percent having access to education and affordable health services. All in a system that can be scaled-up.

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Agribusiness Municipal Impact Bonds: Blended Infrastructure/Enterprise Finance In the end, it takes money to develop hard and soft infrastructure that will allow African farms and individual farmers to reach their full potential. Food security is a lofty goal, but money is limited. There is not a dollar to waste. A comprehensive approach is needed, and the Integrated Landscape Management, Agribusiness Cities/Zones approach offers this multistakeholder, multi-dimensional approach.

The small and medium-sized enterprises required to transform African agribusiness, needed to produce the fifty billion dollars of food at a competitive price and quality that Africa currently imports from overseas, cannot succeed without proper infrastructure.

Infrastructure is expensive. Very expensive. This is why stories of a “bridge to nowhere” or pork barrel spending is so heavily criticized. Money for the public good must be carefully spent on projects that advance the public good.

“It’s the IRR, Stupid!”

The language of investment is Internal Rate of Return. This means profit. It is a reflection of the reward that justifies the risk.

IRR’s in African agribusiness are not pretty. Margins are slim. Many projects have failed. The financial model for an African farm investment is incredibly fragile, very sensitive to a wide range of variables. For example, an irrigated maize and soybean farm will be influenced by more than fifty cost-input variables.

If the investment is located in a rural area, in order to avoid dislocating villages and families, it is likely that the raw location lacks basic infrastructure, such as electricity connection and a decent year-round road within reasonable proximity to a highdemand market. These two items alone can require a capital investment of one to three million dollars.

What is the IRR on a road? If you are not charging toll, the IRR on the road is zero percent. Of course, the project cannot function without the road, so it must be built. Everyone, whether they work for the project or not, benefits from the road.

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Everyone will use the road. Same with electricity connection.

What is the IRR on fifteen kilometers of electrical connection to your farm or feed mill? Zero percent.

However, since these infrastructure elements are necessary to operate a farm and feed mill, they must be installed and paid for. This means that the effective IRR on the rest of the capital must be proportionally higher to achieve the desired IRR. If the IRR objective is twenty percent, the IRR on the activities funded by the investment must actually be significantly higher than twenty percent in order to make up for the sunk cost of the infrastructure.

In fact, it really doesn’t work. This is an unacceptable risk.

Some do it anyway, and these companies have failed. Good friends from Europe, the United States, and South Africa have struggled or gone out of business after investing millions of dollars.

In the meantime, as we have said, “if we need it, they need it” when referring to the African small farmer. The African small farmer needs infrastructure, roads, electricity, bulk storage and transport. They cannot pay for roads and electricity.

For this reason, we believe it’s essential to create a new financial instrument for African agribusiness, which I call the Agribusiness Municipal Impact Bond.

The Agribusiness Municipal Impact Bond would finance infrastructure the way it is financed throughout the world—on long-term loans with reasonable interest rates serviced by the economic units that benefit from the infrastructure.

A twenty million dollar agribusiness project situation that creates irrigated farming, feed milling, storage and transport capabilities that can service five hundred small farms and others in the region, would require roughly six million dollar in infrastructure finance.

If this six million dollars took the form of an Agribusiness Municipal Impact Bond at five percent interest over twenty years, it could easily be serviced from cash flows from the businesses.

It would relieve six million dollars in stress on cash, making the investors far more likely to see a real return on investment.

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The small farm families, in this scenario, can service their portion of the bond, and can rent-to-own their farm land within the municipal or agri-cluster area. This helps small farmers become land owners, able to build equity in their farms, living on cash returns but re-investing and building asset value so they can retire with a degree of financial security rarely seen in African agribusiness communities.

This is a doable structure, a win-win-win for the government, for the farm families, and for the investors.

Western economies were built around agribusiness systems, affordable food, and municipal bonds.

Vision for the Future African Knowledge Economy: From Food Insecure to Global Leader Anyone who studies agribusiness is keenly aware that the industry is the engine of a developed economy. As Africa seeks development, and as Africa seeks to feed its people, we witness the “perfect storm” of disruption, the “burning platform” that can accelerate innovation and transformation beyond anyone’s wildest imagination.

The job creation potential of agribusiness is a proven fact.

Are these farm labor jobs? If you are reading this book, you already know that job creation goes into virtually every conceivable industrial sector, from lawyers to gardeners to plumbers to chefs.

Many people have asked, “Why are you working with faculty from MIT and Harvard? They’re not agricultural schools.”

Actually, in a way, they are. They are “systems” schools, mega problem solvers, eager to conceptualize solutions on a large scale, nurturing a culture of innovation that does not presume to have all the answers, but with students and faculty eager to engage and partner in the pursuit of knowledge.

However, far beyond MIT and Harvard, there are many universities, individual students and faculty, along with innovators in private industry and public policy, in Africa and across the globe, all motivated to work together to find sustainable solu197

tions to Africa’s agribusiness challenges, unlocking Africa’s competitive advantage, and supporting its progress.

Researchers thrive on the pursuit of “first causes” challenges, meaning that finding the solution to one challenge helps lay the foundation for solving other challenges. Causal linkage is vibrant in the world of African agribusiness. It’s like a game of Whack-A-Mole, where you cover one hole only to see the mole pop up in another hole. Solving one problem is actually like solving nothing. When the problem is the entire system, it’s not enough to plug one hole. System problems require system solutions.

The African economy in the twenty-first century can start with feeding itself instead of importing food from Thailand, Canada, and Brazil. But in solving this challenge, it will then free-up money and intellectual capital to pursue new ideas that the world is hungry for. Currently, Africa produces maybe one percent of the world’s patents. Perhaps in twenty-five or fifty years, Africa can produce ten or even twenty percent of the world’s patents, as it is identifying and solving problems with its freedom and vast natural and human resources.

The Global Investor and the Future of the African Small Farmer Smallholder farming is the way of life for most Africans, directly or indirectly impacting eighty percent of the population.

This has been true for centuries, and it may be true for decades to come. Where is this going? What is the vision for the future of African smallholder farming?

Africans will answer this question, and, in fact, are already doing so. Some have a very negative vision and see poverty, hardship, and hopelessness. Many Africans in rural areas are migrating to the big cities to pursue anything other than farming. Many are seeking visas to leave Africa to pursue dreams in foreign countries. Those left behind in rural areas may not have any options, particularly women and girls who must stay behind to feed children.

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Many African leaders have expressed a positive vision for the future of smallholder farming, not necessarily because they believe it, but rather because they have no choice but to encourage farming as a way of life and subsistence to avoid starvation and social instability. They want to see more productivity, more income, and fewer imports and negative currency exchange.

This book is also about a vision for the future of African smallholder farming. However, the vision is less about what African small-scale farming will become, and more about unlocking the freedom and potential for it to become whatever the African people want it to become!

These observations, these frameworks, these innovations, would not be possible if not for an improbable convergence of people and circumstances resulting in Africa Atlantic’s farm investment in Ghana and coinciding collaborations with faculty from Harvard and MIT. If not for a former global logistics industry leader, a former congressional staffer, a former Fortune-50 agricultural executive, along with supportive friends and family, teaming up to struggle, learn, and persist. If not for mentoring by some of the leading thinkers in African business, science, and technology to explore every avenue, every potential alliance, every investor, every developmental organization, in order to find a path forward.

There are dozens, even hundreds, of similar investments in African agribusiness, some successful, most not. In the end, all contribute to knowledge; lessons learned well create new opportunities never imagined. AAFF’s experience offers a framework for shared thinking, a platform for a global conversation that can transcend disciplines and regions, allowing the farmer and the banker and the engineer to consider challenges in alignment with shared goals and objectives.

In the end, it is the people who drive this process. Their stories, their victories, their defeats, and their resilience contribute to greater knowledge and understanding. Woven between technical frameworks and innovative designs are the stories of

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entrepreneurs, men and women, African and global citizens, young and old, striving to find a better way that will support the progress of millions of African entrepreneurs.

The Africa Risk Dashboard is about empowering people with knowledge and perspective to avoid mistakes and maximize opportunities. Thank you for joining us on the journey.

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Praise for Africa Risk Dashboard

“I have known Professor Issa Baluch since 1992. I commend this primer for investors, students, and other decision-makers.”

—HH Sheikh Ahmed Bin Saeed Al Maktoum, Chairman & CEO, Emirates Airlines & Group; Chairman Dubai Airports

“This field report offers investors and other decision-makers a useful framework to plan their engagement in Africa.”

—Former U.S. Congressman J.C. Watts, Jr. “The book is a valuable guide for investors in Africa wishing to create an environment for exponential growth.”

—Elizabeth Uwaifo, Attorney, London, United Kingdom

—Dr. Wesley Harris, Professor, Massachusetts Institute of Technology

“In this book, Issa Baluch, and my former chief of staff, Jon Vandenheuvel, offer a smart framework to evaluate and mitigate risks, a useful tool for decision-makers.”

—Former U.S. Congressman and House Intelligence Committee Chairman, Pete Hoekstra

“Africa Risk Dashboard outlines how to de-risk investments to help African entrepreneurs, including women, compete in a global market.”

—Katrin Kuhlmann, Founder and CEO, New Markets Lab; Lecturer, Harvard Law School

“No one has so thoroughly understood what it takes to invest in Africa than the authors.

Their report is based in reality and not in theory. It is a must read.”

Africa Risk Dashboard

“I must commend this book to all academic colleagues researching, teaching, and studying African development, along with institutional investors and policymakers.”

Africa

RISK DASHBOARD Mitigation Architecture for Investors from Lessons Learned the Hard Way

—Stephen Hayes, President Emeritus, Corporate Council on Africa

—Anil Wats, Group Chief Operating Officer and Executive Vice President, Dubai Ports World

The Authors

In 1989, Issa S. Baluch founded Swift Freight International, one of the top freight and logistics providers in the Middle East & Africa. He was president of the National Association of Freight Logistics of the UAE; and president of the Zurich-based International Federation of Freight Forwarders Associations (FIATA). Mr. Baluch has authored two previous books, Transport Logistics: Past, Present and Predictions, and Transport Logistics, the Wheel of Commerce. He has been a Senior Fellow of the Advanced Leadership Initiative of Harvard University and currently serves on the Dean’s Council at Harvard Kennedy School. He is Chairman of First Hectares Capital, AKILI, and the FIATA Logistics Academy.

Jon Vandenheuvel is CEO of First Hectares Capital. He is the founding Director of the Free Zone Investment Authority of the South West State of Somalia, developing infrastructure for post-conflict Somalia. He is co-founder of AKILI, served as Visiting Scholar for African Urbanism at MIT, and is also co-founder of Africa Atlantic Farms in Ghana. Mr. Vandenheuvel started his career on Capitol Hill in Washington, D.C.

Issa Baluch & Jon Vandenheuvel

“Issa Baluch has been my mentor. What they teach us is how to provide peace-of-mind to business entrepreneurs on the African continent.”

Issa Baluch

Jon Vandenheuvel Forewords by H.H. Sheikh Ahmed Bin Saeed Al Maktoum, Former US Congressman J.C. Watts Jr. and Professor Wesley Harris, MIT