AskyI recently joined a new frequent flyer program, which is not something I expected to do. I am already a member of several, covering each of the three major airline alliances, and I thought I was pretty well set. But as I sat in the departure lounge in Lomé, the capital of the West African nation of Togo, waiting to board a flight to Abidjan, Ivory Coast, a pretty young lady in company livery invited me to join the ASky Club. ASky is a new, mostly private, airline that serves a substantial West and Central African route network, operating Boeing 737 and Bombardier Dash-8 aircraft. It is affiliated with Ethiopian Airlines, which offers connections to North and South America, Europe, and Asia.  [click to continue…]



The world is discovering Africa. By Africa, I mean sub-Saharan Africa. The North African countries from Morocco to Egypt are generally lumped together with the Middle Eastern countries with which they share much closer ethnic, religious, and economic ties. I am writing about the other 870 million people who live on the continent.

I wrote in this blog last year about reports on Africa published by BCG and McKinsey, which – belatedly, in my view – had just jumped on the Africa bandwagon. McKinsey devoted much of The McKinsey Quarterly of June 2010 to a cover story and associated articles on “Africa’s Growth Story” . Noting the rapid growth of Africa’s population, its relative abundance of arable land, its rapid urbanization, growing domestic markets, and a higher rate of return on investment than other regions, the McKinsey survey concluded that “Global executives and investors cannot afford to ignore this. A strategy for Africa must be part of their long-term planning. The time for businesses to act on those plans is now.” In April 2011, renowned investor Mark Mobius wrote about Africa on his blog, saying, “I believe the opportunities for the development of Africa’s markets are appealing primarily because of the strong growth numbers now emerging out of the continent. Africa is expected to grow more than 7% annually in the next 20 years, due to an improving investment environment, better economic management and China’s rising demand for Africa’s resources.” He went on to tout Nigeria as “one of the frontier markets that I like.”

But before you rush off to invest in Africa, remember that Charles de Gaulle once said, “Brazil is the country of the future, and it always will be.” It may not be long before people start to say similar things about Africa.

Let me be clear. I am a strong believer in Africa, having spent much of the past 25 years living and working in places as varied as Botswana, Senegal, Nigeria, and Sudan. I have previously written in this space that by 2050, and maybe sooner, Nigeria will be a more important player in the world economy than Russia. Africa does represent tremendous opportunities, but Africa is sure to bring disappointment to many investors, just as Brazil – and also China – has done on numerous occasions.

It is not just about the risks in Africa, since in many cases African risk may be overpriced, which creates additional opportunities for investors who know what they are doing. It is more about the challenges of doing business in a continent in which more than 70% of the population lives on less than two dollars a day. Any businesses looking to serve this population will need to adopt different new and non-traditional ways of doing business. There remain plenty of traditional business and investment opportunities in Africa, mainly in the mining and energy sectors that still receive the bulk of foreign direct investment, and also in big infrastructure projects now typically financed by a combination of public and private capital. But you’d be missing a lot if you assumed that natural resources are the whole story. According to a 2011 report by the World Bank,  “Between 2000 and 2008 less than one third of Sub-Saharan African GDP growth was due to natural resources, with the bulk reflecting the rapid expansion of wholesale and retail trade, transportation, telecommunications, and manufacturing.” It turns out that 870 million consumers, with a total purchasing power of over a trillion dollars, are worth paying attention to.

A few caveats are in order. Africa has 53 countries (soon to become 54, as Southern Sudan gains its independence on July 9). Some of them are tiny. Seychelles, an archipelago in the Indian Ocean, has 455 square kilometers of land area (about the same as San Jose, California), and 90,000 people. Some are huge. Nigeria has 150 million people. Sudan, until next month the largest landmass on the continent, covers 2.5 million square kilometers, more than six times bigger than California. Some are shockingly poor (Zimbabwe has a per capita GDP of $500) and some are fairly or even very wealthy. Equatorial Guinea, flush with oil revenues, has a per capita GDP in excess of $30,000, though in most measures of human well-being it ranks about the same as Tajikistan or Nicaragua. Which brings up another point. Some countries suffer under staggeringly corrupt and dictatorial governments, while others are governed reasonably well. Some countries remain too poor, too corrupt, or too chaotic for all but the most specialized investment opportunities. A single strategy for Africa makes even less sense than a single strategy for Europe encompassing Norway, Greece, and Albania.

All of this means that almost anything you can say about Africa is equally true and equally false, depending on location and context. Companies looking at business opportunities in Africa can’t use a shotgun approach. They have to choose their markets carefully and tailor their strategies to the peculiarities of each one. Many very large African and international companies, some of them present on the continent for a hundred years or more and others that hardly existed before the 1980s, have created successful business models that make sense in Africa. We don’t hear much about the ones that failed to do so.

Monitor Group last month released a report Promise and Progress: Market-based Solutions to Poverty in Africa, which distills the results of 16 months of research into “initiatives that use the market economy to engage low-income people as customers, offering them socially beneficial products at prices they can afford, or as business associates – suppliers, agents, or distributors – providing them with improved incomes.” The report is a companion piece to a 2009 report addressing the same issues in India.

The market-based solutions (MBS) that Monitor highlights are intended to meet the needs of the poor, but in ways that make a profit for the solutions providers, whether they are micro-enterprises or multinationals. Typically, they are based on value and supply chains that involve both. Some use leading-edge technology for things like mobile phone-based payments systems, often for people without bank accounts. Others are relatively low-tech. Monitor cites the example of Voltic, Ghana’s leading bottled water producer, which introduced a new brand, packaging, and distribution system targeted at the poor, which enables informal street traders to sell 500-ml sachets of pure water for three cents apiece. Though Voltic employs only 450 people directly, its distribution chain has created an estimated 9,000 jobs. The business proved so successful that brewing behemoth SABMiller bought it in 2008.

My own experience and research show that many old-line companies, including the big breweries such as Heineken and Guinness, as well as Coca-Cola, have developed new products for local markets and mastered lower-cost production and extensive distribution systems that engage independent wholesalers, retailers, and street vendors in networks that provide both products and income to millions of people.

Africa may be poor, but close to half of all Africans over the age of 15 have a cell phone. Companies like Vodaphone and Celtel and MTN pioneered business models would never have been tried in developed markets, but which have proven immensely profitable.  Bharti Airtel last year paid $8.3 billion to acquire the African operations of Zain, a Kuwaiti company that acquired Celtel in 2007. MTN Nigeria, part of the South African MTN Group, which owns cellular operators in 22 African and Middle Eastern countries, recorded some $5 billion in revenues and $1.25 billion in net profits in 2010. They did not do this by selling iPhones and expensive data plans.

The takeaway message here is that profit-making companies, not donor and charitable organizations, are the key to improving Africans’ lives. In 2009 Africa received about $48 billion in official development assistance. That’s a lot of money, but it amounts to only 4% or so of the continent’s GNP. Although a lot of it is wasted, it is still  useful,  mainly to the extent that it improves conditions for private business by improving infrastructure and education and removing administrative and regulatory barriers to investment. Aid alone cannot do the job.

This is far too big a topic to cover in a single blog post, and indeed Monitor has produced a 236-page book, which I am still reading. Look for future posts expanding on these, and related, themes.


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I owe the title of this piece to John Hempton, an Australian who writes the excellent Bronte Capital blog ,  who told me that the number of visits to his site increased a hundredfold when in 2008 he published a piece with the title “Hookers that cost too much, flash German cars and insolvent banks: an introduction to Swedbank’s Baltic homeland.” It was a long and complex analysis of sovereign risk and bank insolvency in the Baltic States, and ultimately fascinating, but he probably wouldn’t have snagged more than 50 readers without that title. Let’s see if it works for me.

Several years ago I was talking business with a Frenchman in Antananarivo, the capital of Madagascar, and the topic turned to the very visible Chinese presence in the city, where they were building a soccer stadium, among other projects. He was one of those expatriates who has lived in a place for years and years, and knows everyone and everything. The Malagasy people were getting fed up, he said, with the Chinese taking over every economic activity in sight. Even the local bar girls – and Madagascar has some stunningly beautiful women – were now facing stiff competition from Chinese hookers. I didn’t undertake my own investigation, but I am not surprised. The Chinese, and, to a lesser degree, other Asians, are everywhere on the continent, and the people are not happy about it. [click to continue…]



When two leading strategy consulting firms, each of which prides itself on rigorously independent analytical thinking, release reports in the same week on roughly the same topic, there are only two possible conclusions: either they have been afflicted by the same kind of groupthink that led those famously independent Wall Street firms over the precipice of subprime mortgages, or they are onto a real and important phenomenon. I suspect a bit of both.

On June 2, Boston Consulting Group (BCG) released a report “The African Challengers: Global Competitors Emerge from the Overlooked Continent.” That same week,  the McKinsey Quarterly, the journal of McKinsey & Company consultants, released its summer issue with a cover story and several additional articles devoted to “Africa’s Growth Story.” Having spent much of my career in Africa, and having written fairly extensively in this blog and elsewhere about both the promise and the frustrations of the continent, I am gratified to see an alternative take on Africa to what many call the “CNN Effect,” which focuses on poverty, starvation, and armed conflict to the exclusion of almost everything else. Still, it’s not clear that these reports fully meet the test of truth, originality, and relevance.

With respect to originality, both McKinsey and BCG are a dollar short and a day late. In May 2007, Stephen Jennings, the billionaire founder of Renaissance Capital, who made his fortune investing in Russia after the breakup of the Soviet Union, said, “If Russia was a once-in-a-lifetime opportunity, sub-Saharan Africa is a second once-in-a-lifetime opportunity.” Starting his first African operation in 2006, Jennings has put his money where his mouth is, establishing offices in Lagos, Nairobi, Harare, Accra, and Johannesburg, launching the $1 billion Africa Renaissance Fund, buying up African brokerage houses in several countries, and participating in scores of African mergers, acquisitions, and IPOs, most of them worth at least several hundred million dollars.

Also in 2007, Goldman Sachs, whose analyst Jim O’Neill coined the term “BRIC” in 2001, released a report “BRICs and Beyond,” which identified what it called the “Next 11,” large population countries, at least some of which could soon rival the G-7 countries in economic importance. Nigeria, the report predicted, could become the 10th or 11th biggest economy in the world by 2050, ahead of France, South Korea, Canada, and Italy, and just behind Japan, the U.K., and Germany. Though Goldman Sachs doesn’t agree, I have stated several times that by 2050 Nigeria is likely to have overtaken Russia as well.

Being first isn’t the only thing that matters, of course. Half a dozen people developed versions of the incandescent light bulb well before Thomas Edison, but without Edison their inventions might have remained an uncommercialized curiosity.

But do these reports tell us anything that is true, non-obvious, and useful? Let’s start with BCG’s report, whose scope is narrower than McKinsey’s. BCG examined 600 companies in Africa to come up with a list of 40 “Challenger” companies from countries it inevitably dubbed “the African Lions.” The Lions comprise Algeria, Botswana, Egypt, Libya, Mauritius, Morocco, South Africa, and Tunisia. I have always had a problem with the BRICs construct – there seems to be much more that divides than unites the four countries – but BCG’s grouping makes even less sense. “Great diversity exists among both the African Lions and the BRIC countries,” says the report, “but the development model for all of them rests on similar pillars: political stability, rule of law, property rights, access to capital, and public investment in education, health, and social services.” Really?

China, Russia, Algeria, and Libya may be long on political stability, but they come up woefully short on property rights and rule of law. Inconveniently for BCG, five of the 40 Challengers don’t even come from the Lion countries since BCG’s criteria for lionhood somehow weren’t elastic enough to allow them to include Angola, Nigeria, and Togo in the group. The exclusion of Nigeria, the continent’s largest country by population and second-largest by GDP, is particularly hard to explain, since according to the Heritage Foundation’s Index of Economic Freedom it scores well above Libya and China and the same as Algeria and Russia on property rights and better than all but China on corruption.

McKinsey’s analysis is altogether a more serious effort than BCG’s. It makes some true, if not terribly original, points, one of which is that as important as natural resources are to African economies, much of the economic growth in recent years has come from other sectors, including transport, distribution, telecommunications, manufacturing, and agriculture. McKinsey correctly attributes this growth not only to commodity price booms but also to better macroeconomic management, the sale of many state-owned enterprises, trade liberalization, and more business-friendly policies and regulations. The McKinsey report highlights Nigeria as “an example of an African oil exporter that has begun the transition to a more diversified economy. Natural resources accounted for just 35 percent of Nigeria’s growth since 2000, and manufacturing and services are growing rapidly.”

The McKinsey report also highlights the rapid growth of Africa’s population, its relative abundance of arable land, its rapid urbanization, growing domestic markets, and a higher rate of return on investment than other regions, concludes that “Global executives and investors cannot afford to ignore this. A strategy for Africa must be part of their long-term planning. The time for businesses to act on those plans is now.”

McKinsey’s analysts do have a point. It would be reckless to ignore Africa’s growing importance as a market and a source of much of what the world needs, but does that really mean that investors must act now? There’s no evidence that the first foreign companies to invest in China made any more money than those who waited to learn from their mistakes, and some evidence they actually fared worse. And does it mean that a single strategy for Africa, which consists of 53 countries instead of one (54 if you include Western Sahara, which is claimed by Morocco), makes any sense? McKinsey identifies several different groups among African countries – diversified economies, oil exporters, transition economies, and pre-transition economies – but provides precious little guidance to the corporate, institutional, or individual investor trying to make sense of it all.

If the ongoing crisis in the eurozone teaches us anything, it is that even countries that share a common market and a common currency are very different and offer the investor very different opportunities and risks. Germany and Greece were never very much like each other, but the chasm between them is now especially wide, with the spread between yields on German and Greek sovereign bonds rising to 8.5% this week.  They, however, are as peas in a pod next to the differences between, say, South Africa and Equatorial Guinea or Egypt and Angola.

Africa does not represent a single investment opportunity any more than Europe or emerging markets or the BRICs. There is a Facebook group called “Africa is a Continent not a Country, and no I Can’t Speak African,” which sums it up nicely. Both BCG and McKinsey grossly oversimplify matters. If these publications are any indication of the kind of advice these firms offer their paying customers, any company or investor trying to figure out how to approach Africa should probably look for a different set of advisers.


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In 2003, motivated by the savagery of civil wars in Sierra Leone and Liberia, 75 countries joined a U.N.-sponsored global initiative to prevent trade in “conflict diamonds,” popularly referred to as “blood diamonds.” Conflict diamonds are gems mined in areas afflicted by armed conflict, the proceeds of which go to purchase arms and other materiel to prolong and intensify the conflict, which is usually all about control of those same diamond deposits. This initiative, called the Kimberley Process, instituted a system of certification under which governments of both source countries and purchasing countries would collaborate to prevent conflict diamonds from being sold internationally. The Kimberley Process was endorsed by major diamond producers, including world market leader De Beers, to avoid being tainted by the blood diamond label and, perhaps coincidentally, to reinforce their market dominance by banning trade in stones of uncertain provenance.  But it was also a good-faith effort to put an end to the spread of vicious conflicts motivated and fueled by mineral resources.

Less well-known than the conflicts in West Africa is the civil war that continues to rage in parts of the Democratic Republic of Congo (DRC), known at various points in its history as Zaire, the Belgian Congo, and the Congo Free State, which in the late 19th and early 20th centuries was the private preserve of Leopold II, King of the Belgians. The current war, which dates back to the 1994 Rwandan genocide and the overthrow of dictator Mobutu Sese Seko in 1997 and has its roots in earlier political and ethnic squabbles, is reckoned to be the deadliest armed conflict since the Second World War, claiming over five million lives between 1998 and 2008. [click to continue…]