The Africapitalist Volume 3 by The Africapitalist Magazine

IDEAS . ACTIONS . PEOPLE . PLACES

Moving Africa Forward

Volume 3

THE TRUE SIZE OF OPPORTUNITY IN AFRICA Why investors are taking a fresh look at the continent’s investment potential Exclusive interviews:

H.E.Shaukat Aziz • Dr. Akinwumi Adesina

Contents December 2014

Letter from the CEO, Tony Elumelu Foundation Dr. Wiebe Boer

90 Days

From high-level summits to ground-breaking new reports, we take a look at key events from the last quarter

U.S. - Africa Summit

The Africapitalist speaks to H.E. Shaukat Aziz, Former Prime Minister of Pakistan and Chairman of the Advisory Board of the Tony Elumelu Foundation.

Dr. Akinwumi A. Adesina, Minister of Agriculture and Rural Development of the Federal Republic of Nigeria.

Investment guru Dr. Mark Mobius, Executive Chairman of Templeton Emerging Markets Group on why Nigeria’s rise to the top is long overdue

Final Word:

Q&A:

Interview:

Africa in numbers

Africa’s changing consumer market

The Democratic Republic of Congo turns around mining industry with new investors

37 Africa’s creative economy

Beating the drum for Africa’s creativity

adopting new technologies with ground-breaking innovations, setting the stage for an economic turnaround. THE AFRICAPITALIST is published quarterly by the Africapitalism Institute. 1, MacGregor Road - Ikoyi, Lagos, Nigeria. Web: www.africapitalisminstitute.org Tel: +234-1-2774641-5

Director, Marketing & Corporate Communications: Claudine Moore

Country feature

Empowering a new generation of African investors | Africa is taking baby steps in

Integrated Marketing & Communications Manager: Toyin Awesu

We look back on four years of achievement at the Foundation

41 Innovation in Africa:

CEO of the Tony Elumelu Foundation: Dr. Wiebe Boer

Tony Elumelu Foundation - Four years later

Growing middle class spurs investments in Africa

best understand the diverse opportunities in the African continent? Which are the fastest growing markets? Which companies have been the smartest in tapping the consumer opportunity?

Director, Africapitalism Institute: David Rice

Africa’s rising middle class

Cover Feature: The true size of opportunity in Africa | How can investors

Founder: Tony O. Elumelu, CON

Summit shines a spotlight on Africa’s promise

Editor: Allan Kamau

Africapitalism in action

Mobilising the African diaspora

Innovation clusters in Nigeria

Mapping ICT clusters to promote investment

Infrastructure

Design & Art Direction: Teddy Murimi

Plugging Africa’s infrastructure deficit

Contributors: Tolu Ogunlesi, Lola Adesioye, Peter Guest, Nick Easen. Sarah Rundell, Michael Dynes, Sapna Chandaria, Michael Agu, Dr. Mark Mobius

City guide

Sample Kampala’s diversity

THEAFRICAPITALIST | 3

LETTER FROM THE CEO

n October 2010, inspired by Tony Elumelu’s Africapitalist vision of African-led philanthropy and private sector-led development, I left the Rockerfeller Foundation in Nairobi to move to Lagos and help establish the Tony Elumelu Foundation. As the inaugural CEO, the Foundation was launched with a focus on supporting African entrepreneurs and creating a better enabling environment for the African private sector to thrive. Now, four years later, I am tremendously proud – and humbled – by what we have already achieved in this relatively short period, and excited by what the future holds for this ambitious and committed Foundation, as well as for the broader Africapitalist movement it represents. Over the past four years, we have seen a transformation in discussions about Africa and a widespread recognition of the importance of placing entrepreneurs and the private sector at the forefront of Africa’s development. When it was launched, the Foundation reflected our belief that African voices should set the agenda for Africa’s development and, moreover, that these voices should include a responsible and engaged private sector, as well as traditional charities and donors.

It may seem obvious now but, when we launched the Foundation, African voices were often still excluded from discussions about the continent’s future. Therefore, a personal highlight for me, in my time as CEO of the Foundation, has been attending this year’s U.S.-Africa Leaders Summit in Washington, D.C. In the company of both political and business leaders from across the continent, I saw first-hand the tremendous appetite for engagement with African leaders from the international community. As the article about the U.S-Africa Summit in this issue makes clear, the focus is now on creating long-lasting and equal – yet African-led – partnerships.

In part, this reflects the tremendous economic potential Africa now offers. Indeed, one of the major themes of this issue is identifying the true size of Africa’s opportunities. From its changing consumer markets to its growing creative industries, not to mention the (re)emergence of certain countries, such as the Democratic Republic of Congo, as viable investment opportunities, there has never been a better time to do business in Africa. Yet, this optimism must be balanced by a nuanced approach to telling the continent’s story. It is essential that the “Africa Rising” narrative be supported by data and research that recognises the diversity in growth, economic performance and commercial opportunity across this continent of 54 countries. An example of this kind of approach is profiled in this magazine; at the Foundation, we have been supporting a project to map innovative clusters in Nigeria to offer policymakers real-time information on areas with growth potential. This is just one example of the ways in which technology and research empowers us to better address development challenges and, equally, to identify and support success stories at an early stage. Looking back over my past four years at the helm of the Foundation, it is these kinds of projects that inspire me the most – like our founder, I too have a passion for supporting entrepreneurs. At the Foundation, we are increasingly committed to placing entrepreneurs at the heart of everything we do. We are launching our most ambitious and significant project to date – the Tony Elumelu Entrepreneurship Programme (TEEP), to which we will commit $100 million to grow early-stage entrepreneurs across the continent. I would like to thank the contributors to this edition of the magazine, including Dr. Akinwumi Adesina, Nigeria’s Minister of Agriculture and Rural Development; and His Excellency Shaukat Aziz, Chairman of our Advisory Board. I am continually moved by the level of support our project receives from international and African thought leaders and influencers. I hope that, in the next phase of its growth, the Tony Elumelu Foundation will continue to play this role of mobilising an international community that is committed to Africa’s development and excited by everything our continent has to offer. Yours,

Dr. Wiebe Boer Yours, CEO, The Tony Elumelu Foundation

Dr. Wiebe Boer CEO, The Tony Elumelu Foundation

4 | THEAFRICAPITALIST

“OVER THE PAST FOUR YEARS, WE HAVE SEEN A TRANSFORMATION IN DISCUSSIONS ABOUT AFRICA AND A WIDESPREAD RECOGNITION OF THE IMPORTANCE OF PLACING ENTREPRENEURS AND THE PRIVATE SECTOR AT THE FOREFRONT OF AFRICA’S DEVELOPMENT.” Dr. Wiebe Boer

THE AFRICAPITALIST | 5

AFRICA IN REVIEW | NEWS BRIEFS

90 DAYS

From high-level summits to new investments and ground-breaking reports, we analyse the news, trends and events shaping Africa’s commercial and economic agenda.

AUGUST Washington, D.C. Obama woos Africa President Obama welcomed public and private-sector leaders from across the African continent to Washington, D.C. for a three-day U.S.-Africa Leaders Summit, the first such event of its kind. The Summit, the largest event any U.S. President has held with African Heads of State and government, was aimed at strengthening ties between the United States and one of the world’s most dynamic and fastest-growing regions. The August summit advanced Obama’s agenda on trade and investment in Africa. It also highlighted America’s commitment to Africa’s security, its democratic development and its people (see story pg. 14).

President of Benin Boni Yayi chats with U.S. President Barack Obama prior to a session during the U.S.-Africa Leaders Summit.

London Africa takes to the catwalk Emerging African designers showcasing their work at this year’s Africa Fashion Week London (see story on Africa creative economy pg. 37).

NINETY DAYS IN NUMBERS

1billion the number of Africans under the age of eighteen by 2050, according to UNICEF

6 | THEAFRICAPITALIST

230%

increase in number of middle class households in highgrowth African countries over the last 14 years Standard Bank Report

share of U.S. Foreign Direct Investment to Africa

2030 year by which Dar-es-Salaam and Luanda could have larger populations than London - PwC Cities Report

60%

share of Africa’s labour force in agriculture, compared to 30% in other regions

AFRICA IN REVIEW | NEWS BRIEFS

630,000

TECH BYTE

Number of Twitter followers @PaulKagame at the end of October, the highest for any African leader.

5th Annual SuperReturn Africa Cape Town, South Africa

OCTOBER Kenya Kenya’s economy up by 25% Kenya’s Gross Domestic Product (GDP) was estimated to be 25% bigger after the base calculation year was changed to 2009 from 2001. Economic output was measured at $55.2 billion last year, up from $44.1 billion previously. A higher figure for GDP will help to lower Kenya’s debt ratios, and improve the country’s ability to borrow. Kenya revised its data to take into account expanding industries such as new technology and informal businesses. This took Kenya up to 9th in Africa’s GDP rankings from 12th, above Ghana, Tunisia and Ethiopia, based on a World Bank table for 2013.

Africa

Facebook now has 100 million users in Africa The social network announced that it has more than 100 million monthly active users in Africa. The figure means that nearly 10% of all Africans use Facebook on a regular basis. The figure is equal to half of the 200 million Africans who are connected to the internet,

2-4 December 2014 according to Facebook. More than 80% of Facebook’s users in Africa visit the site via mobile devices.

Mauritius

Mauritius first in Global Report Mauritius is ranked first in Sub-Saharan Africa and 39th worldwide in the Global Competitiveness Report 2014-2015 published by the World Economic Forum. The country has improved its ranking by climbing six places from 45th place in the 2013-2014 report.

Only three Sub-Saharan economies, including Mauritius (39th), South Africa (56th) and Rwanda (62nd) made it to the top half of the rankings. The report stated that the region needs to move towards more productive activities and address the persistent competitiveness challenges. It noted that the biggest challenge facing the region is human and physical infrastructure, which continues to hamper capacity and affect the continent’s ability to enter higher, valueadded markets.

Africa top destination for China investment 7%

17%

Australia

10%

Middle East

11%

South America

12%

Europe

Sub-Saharan Africa

Chinese global investment since 2006 (including contracts)

The Next 90 Days

14%

North America

14%

East Asia

15%

West Asia

China’s growth and appetite for Foreign Direct Investments (FDI) has made Africa its largest investment destination, according to a new report by the Economist Intelligence Unit (EIU).

Africa Power 2015 London, United Kingdom

29-30 January 2015 24th Summit of the African Union Addis Ababa, Ethiopia

30-31 January 2015 World Economic Forum Annual Meeting Davos-Klosters, Switzerland

21 - 24 January 2015 21st Annual Investing in African Mining Indaba Cape Town, South Africa

9-12 February 2015 Africa Pharmaceutical Summit Accra, Ghana

11-12 February 2015 Africa - Australia Infrastructure Conference Melbourne, Australia

5-6 March 2015 African Extractives London, United Kingdom

16-17 March 2015

Source: The American Enterprise Institute and The Heritage Foundation | China Global Investment Tracker

THEAFRICAPITALIST | 7

AFRICA IN REVIEW | NEWS BRIEFS

OCTOBER Zambia@50 celebrations held on the 24th of October.

Africa Good progress on Africa Foreign Direct Investment (FDI) In 2013, Africa’s share of global FDI projects reached 5.7%, its highest level in a decade according to a report from consultancy Ernst & Young. The number of new FDI projects in Sub-Saharan Africa (SSA) increased by 4.7%, although the total number of new FDI projects declined by 3.1%, due to the political uncertainty in North Africa. While South Africa maintained its position as the top FDI destination, emerging hotspots for investment are Kenya, Ghana, Mozambique, Uganda, Tanzania and Zambia.

Africa Value of African Private Equity Deals Rises African private equity deals are on the rise, according to a survey by Freshfields Bruckhaus Deringer. The value of global private equity deals targeting Africa rose 137% in the first half of 2014 compared to the same period last year. Global private equity funds completed 15 deals collectively worth $1.5 billion in the period between January 1, 2014 and June 30, 2014, up from 10 deals worth $621 million in the first half of 2013. 8 | THEAFRICAPITALIST

Somalia Somalia gets ‘first-ever’ ATM The first-ever Automated Teller Machine (ATM) was installed in the Somali capital, Mogadishu, in what has been dubbed ”a big step forward,” the BBC reported in October. Conflicts in the country have thwarted the development of Somalia’s banking sector for more than two decades. Many people in the country tend to rely on money transfers from abroad.

According to the report, the new machine has been set up by Salaam Somali Bank at an upscale hotel and only dispenses U.S. dollars.

Africa

Sub-Saharan Africa most reformed globally A new World Bank Group report found that Sub-Saharan Africa had the highest number of business regulatory reforms globally in 2013/14, with 74% of the region’s economies improving their business regulatory environment for local entrepreneurs.

AFRICA IN REVIEW | NEWS BRIEFS

Agenda Africa

Mrs. Margaret Kenyatta (seated second left) joins President Jakaya Kikwete of Tanzania and President Omar Ali Bongo of Gabon (seated far right respectively) and Hillary Clinton at the Clinton Global Initiative 10th Annual Meeting.

(Left to right ) Djbouti President Ismail Omar Guelleh, Former New York City Mayor Michael Bloomberg, South Africa President Jacob Zuma (far right) and other African leaders listen to U.S. President Barack Obama deliver closing remarks during the U.S.-Africa Business Forum at the Mandarin Oriental Hotel in Washington, D.C.

Dr. Ngozi Okonjo-Iweala, Coordinating Minister for the Economy and Minister of Finance of Nigeria, speaks during the Challenges of Job-Rich and Inclusive Growth seminar during the 2014 IMF/World Bank Annual Meetings.

Doing Business 2015: Going Beyond Efficiency found that Benin, the Democratic Republic of Congo, Cote d’Ivoire, Senegal and Togo are among the 10 most improved States worldwide in the past year among the 189 economies covered. Since 2005, all countries in the region have improved the business regulatory environment for small and medium-size businesses, with Rwanda implementing the most reforms, followed by Mauritius and Sierra Leone. Africa is the fastest growing high net worth individuals (HNWI) market in the world.

165,000

HNWIs living in Africa, with combined wealth holdings of

660bn

This equates to roughly

28%

of total individual wealth held on the continent

South Africans are the wealthiest individuals in Africa with $11,310 in wealth per person whilst Ethiopians are the poorest with $260 per person. Source: The Africa 2014 Wealth Report | Research and Markets

“Wherever you go in Africa there are Chinese business people, there are Brazilian business people. None of us went to Brazil or to India and China to tell them to come and invest in Africa. They find out themselves and they come and invest. Why must we come and inform this misinformed American business? You guys invented Google, invented all these media platforms. Use them, please.”

Sudanese born businessman, Mo Ibrahim, speaking at the recent U.S.-Africa Summit.

Investors jump on African Bond markets Internationally marketed Sub-Saharan sovereign bonds issuance $7 billion

6 5 4 3 2 1

‘06

‘07

Source: Dealogic

‘08

‘09

‘10

‘11

‘12

‘13 ‘14 Year to Date

THEAFRICAPITALIST | 9

INTERVIEW | H.E. SHAUKAT AZIZ

Shaukat Aziz

THE UNABASHED EVANGELIST OF AFRICAN CAPITALISM

Soft spoken Chairman of the Advisory Board of the Tony Elumelu Foundation, Shaukat Aziz speaks about his work and passion for Africa, as well as the organisation’s promise to the continent.

BY TOLU OGUNLESI

few years ago Shaukat Aziz received a request from Nigerian business mogul and entrepreneur Tony O. Elumelu, CON, to chair an advisory board of a new venture, the Tony Elumelu Foundation.

Aziz says he didn’t have to think twice before accepting the offer. A banker who spent more than 30 years working for Citibank, rising to the role of Executive Vice President in 1992, Aziz says he knew Mr. Elumelu by reputation – as the Chief Executive, until 2010, of a pan-African banking empire – and therefore, considered it as an opportunity to contribute to an ambitious vision to promote philanthropy and capitalism in Africa. It helped that he had long been familiar with the continent, having overseen Citibank’s operations in the Middle East and Africa (He sat on the board of Citibank Nigeria). In September 2014, I met him in a hotel lobby in Knightsbridge, London, to talk about his work with the Foundation, and the promise of Africa. The grey-haired, casually dressed (long-sleeved shirt, cotton windbreaker, chinos and suede loafers) 65-year-old is a knowledgeable champion of Africa and an unabashed evangelist of capitalism. Every aspect of our 45-minute conversation is touched by those twin passions, laid out in his soft-spoken, but emphatic manner.

Socialism, he says, belongs to the past: “You cannot have policies of the past trying to run the future…Even countries where socialism was started have moved to private-sector models. Some have moved fast, some are moving slowly, but everybody is moving in that direction.”

SERVICE IN GOVERNMENT He says the potential of any economy can only be unleashed when governments allow the private sector to sit in the driver’s seat. “I believe strongly it is not the business of any government to be in business. Those days are over. Now you 10 | THEAFRICAPITALIST

INTERVIEW | H.E. SHAUKAT AZIZ

H.E. Shaukat Aziz and Tony O. Elumelu, CON during the Tony Elumelu Foundation’s 2014 Annual Board Meeting.

get the best brains in the world to come and run those businesses as a private enterprise.” This might well be a précis of the concept of Africapitalism, coined by Mr. Elumelu, which asserts itself as “a new form of capitalism” that deploys African-led private sector initiatives to simultaneously create profit, prosperity and philanthropic impact for the longterm.

The confidence with which Aziz sets out his assertions about the all-important role of the private sector is rooted in hands-on experience; immediately following the storied Citibank career, was a stint in politics. It started in 1999, when, after 25 years abroad, he returned home to Pakistan, at the invitation of President Pervez Musharraf, to

take up a role as the country’s Finance Minister. Compared to his Citibank salary, what the new job offered was negligible. “Money was not my objective,” he explains. He would spend the next eight years in government: the first five as Finance Minister and the final three combining that role with that of Prime Minister. (When he stepped down, in 2007, he became the first Prime Minister in the country’s history to do so upon completion of the constitutional term of office).

He presided over a wave of economic reforms that attracted plaudits from across the world. He explains that the privatisation programme he pursued – which the BBC noted in 2006 had made him “widely respected among foreign investors” – was driven by three objectives: deregulation (“remove the permit systems and make companies more

“I believe strongly it is not the business of any government to be in business. Those days are over. Now you get the best brains in the world to come and run those businesses as a private enterprise.” H.E. Shaukat Aziz

market driven”), liberalisation (“open the economy to everyone; anybody should be able to come in, buy, sell and manufacture”) and privatisation (“If you have State assets sell them publicly, cleanly. When privatisation is transparent, it works like a charm. When it is not, people criticise”). But he’s quick to add that there’s a critical role for governments to play, by providing independent, impartial and competent regulation. Through the use of industry experts, their job is to “co-exist” with deregulation. The aim of regulation should be to protect the interests of consumers, not limit the space for competition.

His reforms led to a ten-fold rise in Foreign Direct Investment, and a doubling of Pakistan’s tax revenues. In 2001, Euromoney and The Banker magazines crowned him FinanceMinister-of-the-Year. On a visit to Pakistan in February 2005, World Bank President James Wolfensohn praised Pakistan’s “terrific progress” in macro-economic terms, and urged that its achievements reach the vulnerable sections of the society.

THEAFRICAPITALIST | 11

INTERVIEW | H.E. SHAUKAT AZIZ

Aziz doesn’t hesitate to acknowledge that it is not enough to focus on high-level progress; the “trickle-down” and “ripple effect” are important as well. “As Prime Minister I used to always think about – how does the ordinary citizen benefit from this?” he explains. He says he found immense satisfaction in watching rising levels of prosperity among ordinary people. “The guy who’s walking around got a bicycle, the guy on the bicycle got a motorbike, and the guy on the motorbike, his dream is to get that little Suzuki 600cc car.” BIGGEST ASSET His government introduced and supported micro-credit schemes that targeted poor entrepreneurs, brought down interest rates on mortgages to unleash a low-cost wave of construction. Unlike many, he does not believe that the poor are poor because they are lazy. “Only to the very sick and very old do you give cash grants, [which] has to be transparent. But for 90% of the poor, they are ready to work, but nobody gives them an opportunity.”

Listening to Aziz speak, it becomes clear just how much a premium he places on human development. “Never underestimate the potential of a human being,” he says. Under his watch, Pakistan’s education spending surged. It is, therefore, not hard to see why he is convinced that the future of Africa, lies not in its natural resources, but in its population. “If we develop the human capital of Africa, which, by the way is world-class, it is the best contribution we can make. At the end of the day, it’s not big buildings or huge homes that develop a country, it’s the people, and they are the biggest asset a country has. So if you educate them, give them the skills and right environment, everything grows.” BUILDING HUMAN CAPITAL The former Pakistan Prime Minister has been visiting the continent for more than a quarter of a century and has seen a great deal of change happen. Being an optimist – in his own words, and “a great believer in the future of Africa”, he readily acknowledges that the future of the African continent ultimately lies in the hands of Africans, not outsiders.

This belief is one of the cardinal elements of the philosophy of Africapitalism, summed up 12 | THEAFRICAPITALIST

H.E. Shaukat Aziz

in a quote regularly attributed to Mr. Elumelu: “Nobody is going to develop Africa except Africans.”

Aziz says human talent development, currently manifesting in the form of academic prizes, fellowships and grants, is one of the priorities of the Tony Elumelu Foundation. It is this development of human capacity that will transform Africa’s “tremendous potential” into reality. Our conversation touched on philanthropy and I sought to know his thoughts on charitable impact, especially against the backdrop of Africapitalism’s focus on the nexus of capitalism and philanthropy. “To spread knowledge, to spread skills to encourage human development is the best giveback you can have,” he says. “The Tony Elumelu Foundation is an excellent example of how you give back to society, and we are doing a lot and will do more.”

A caveat immediately follows, a reminder of the unfaultable singular logic of capitalism: “But remember, if you don’t have profit you cannot spread it, you can’t give donations, you can’t [even] give tax to the government.”

There is no way I would interview a former Pakistani Prime Minister without asking his thoughts about Nigeria’s terrorist crisis, which has now dampened the country’s 2014 economic projections by half a percentage point. Aziz was Finance Minister when the September 11, 2001, bombings

occurred in the U.S., drawing Pakistan into the war on terror, and a few years later narrowly escaped a bomb blast for which an Al-Qaeda affiliated group claimed responsibility.

He suggested that “a feeling of deprivation – a lack of income, human rights, justice, opportunity and dispute resolution creates feelings of hopelessness” which lead people to “behave irrationally”. The solution, he proposes, is a two-pronged one, combining a psychological approach – “winning the hearts and minds of the people, through leadership, and communication” – with a security one which entails “a strong security and intelligence apparatus”.

His passion for Nigeria has earned him a place on President Goodluck Jonathan’s Honorary International Investors’ Council, chaired by Baroness Lynda Chalker. He visits the country at least twice a year, sometimes more and thinks the country should focus heavily on upgrading its infrastructure – housing, education, healthcare, power – and reforming agribusiness. Again he stresses the importance of reducing inefficiency and corruption by reducing the size of the public sector. “Nigeria is a country of tremendous potential… this is a country which obviously is the most populous country in Africa … and can be a model for all of Africa and the world in terms of growth and governance. The citizens must be in the driving seat to do this.” TA

FEATURE | U.S. - AFRICA SUMMIT

President Barack Obama joins African leaders for a group photo during the U.S.-Africa Leaders Summit at the U.S. Department of State in Washington, D.C.

Summit shines spotlight on

Africa’s promise

The first ever U.S.-Africa Leaders Summit saw a fresh attempt to refocus relationships towards investment and trade, as the continent’s economy surges.

BY LOLA ADESIOYE

.S. President Barack Obama, along with more than 40 African Heads of State, as well as hundreds of business leaders gathered in Washington, D.C. in early August to re-energise affairs with Africa. The Summit gave high-level political impetus to the U.S.’s growing engagement with the continent. The event was described by First Lady, Michelle Obama as the “largest gathering of African leaders ever hosted by an American president in the United States.” Africa is under the global spotlight and the message was loud and clear – America is now taking Africa’s potential more seriously.

This was helped by a bout of deals and pledges from U.S. corporations that President Obama estimated at $14 billion and the organisers put at $33 billion.

indication that Africa’s role in the world, not to mention people’s perceptions outside of the continent, has moved in a dramatically positive direction.

After a week-long schedule, there was no doubt in the minds of attendees that the relationship between Africa and the U.S. has entered a new era. This was displayed in the palpable energy, excitement and enthusiasm during the Summit. It was perhaps an

Trade, investment and the role of the private sector were also at the forefront, with U.S. Secretary of State, John Kerry, highlighting the potential of Africa’s 700 million people under the age of 30. He referred to it as “a staggering youth bulge unknown at any time on the face of this planet.”

The packed schedule of networking events, receptions, breakfasts, town hall meetings and a State dinner, saw top American and African leaders, as well as business executives actively engage, with impassioned keynote speeches and an entertaining spouses’ dinner hosted by Michelle Obama.

A SPOTLIGHT ON GROWTH The Summit focused squarely on Africa’s emergence as a vital economic powerhouse, underpinned by rapid economic, population and consumption growth, including the continent’s rising middle class.

THEAFRICAPITALIST | 13

FEATURE | U.S. - AFRICA SUMMIT

“Africa’s rise means opportunity for all of us - including the opportunity to transform the relationship between the United States and Africa.” Barack Obama, U.S. President

together: expanding trade that creates jobs; strengthening governance; and deepening security cooperation against common threats. Yet U.S. interest in Africa comes at a time when South-South trade, as well as investments from China and other emerging markets, are playing an increasingly important role across the continent. America has realised that it has been behind the curve and made it clear at the Summit that it is now seeking to catch up.

Many other aspects of contemporary Africa were also discussed from gender equality to health, food security, climate change, leadership, democracy, good governance and peacekeeping, as well as counter-terrorism. The role of technology, mobile phones and social media was also covered. American leaders from the Obamas to Joe Biden, the U.S. Vice President, attempted to spell out a new mantra focused on equality and partnership between the two continents, as well as on African leadership and self-sufficiency. Respect for the continent - for African stewardship - as well as engaging the private sector and entrepreneurs was the order of the day at this event. There is also increasing recognition in the U.S. that growth and de14 | THEAFRICAPITALIST

“There is a staggering youth bulge unknown at any time on the face of this planet.” John Kerry, U.S. Secretary of State velopment in Africa will only come through trade and not aid.

NEW AREAS OF FOCUS The Summit’s theme was “Investing in the Next Generation” with the aim of trying to strengthen the role of the U.S. in Africa’s future. President Obama hailed the event as an opportunity to focus on three areas

The yearly U.S. African Growth and Opportunities Act (AGOA) Forum also took place during the event, with a comprehensive review of the Act’s strategy beyond 2015, when it is set to expire. Unfortunately, due to the fact that Congress was on holiday, the reauthorisation of AGOA is still pending. TIME TO ACT At the main Summit, leaders made real financial commitments to a number of key initiatives. The Power Africa initiative, launched during President Obama’s 2013 trip to Africa and arguably his signature programme, received an additional $300 million in U.S. government funds and an additional $5 billion from the World Bank.

A total of $3 billion was also committed by the African Development Bank while the Swedish government donated $1 billion. On a continent where poor infrastructure and lack of power pose significant barriers

FEATURE | U.S. - AFRICA SUMMIT

Mr. Tony O. Elumelu, CON on the U.S.-Africa Business Forum panel discussion at the U.S.-Africa Summit in Washington, D.C. BLOOMBERG

to development, the importance of such pledges cannot be understated. In addition, Coca-Cola announced a $5 billion commitment to fund new manufacturing lines and the production of new cooling and distribution equipment. It also aims to create additional jobs and opportunities across its African supply chain. Part of this pledge will support key sustainability initiatives focused on safe water access, sustainable sourcing, women empowerment, community well-being and operational efficiency over the next six years. It brings Coca-Cola’s total investment in Africa from 2010 to 2020 to $17 billion.

General Electric also pledged to invest $2 billion over the next four years in developing its supply chain, infrastructure, human capability and sustainability. While private equity firm Blackstone, together with partners, committed $5 billion to energy infrastructure projects through their joint Black Rhino fund.

Here the focus was on power transmission and pipeline projects. This commitment is significant given that it is three times the $1.4 billion in private equity financing

“It’s time for a new model of partnership between America and Africa - a partnership of equals that focuses on African capacity to solve problems, and on Africa’s capacity to grow.” Barack Obama, U.S. President raised for Sub-Saharan Africa last year, according to the Emerging Markets Private Equity Association.

A highlight of the Summit was the Business Forum, co-hosted by Bloomberg Philanthropies and the U.S. Department of Commerce. This took place on the last day and was attended by some of Africa’s most important business leaders, President Obama, U.S. Commerce Secretary, Penny Pritzker and

Michael Bloomberg, who has made a $10 million investment to build Africa’s media capacity.

The Summit, widely considered a resounding success, will now take place every four years in order to, according to President Obama, “hold ourselves accountable for our commitments and to sustain our momentum.” He went on to say that “Africa’s rise means opportunity for all of us - including the opportunity to transform the relationship between the United States and Africa... it’s time for a new model of partnership between America and Africa - a partnership of equals that focuses on African capacity to solve problems, and on Africa’s capacity to grow. And that’s why we’re here.”

While the outcomes of this first summit, including economic pledges, commitments and investments will only be realised in the coming years, U.S. enthusiasm and renewed energy towards Africa is significant in itself. The continent continues to rise and this time, America is paying a lot more attention. It’s also starting to engage a lot more positively. This can only be a good thing. TA THEAFRICAPITALIST | 15

Post 2015 MDGs: The Critical Role of Africa’s Private Sector. The Africapitalism Institute hosted its first public event in the United

States on Tuesday, 23 September, engaging over 150 stakeholders on Africapitalism, a philosophy originated by Tony O. Elumelu, CON, that calls on the African private sector to commit to a long-term investment approach, focused on generating both economic prosperity and social wealth. Conducted on the sidelines of the 2014 United Nations General Assembly and the Clinton Global Initiative, the panel discussion focused on the role of Africa’s private sector in the next generation of UN development goals. 3

1. Attendees at Post 2015 MDGs: The Critical Role of Africa’s Private Sector panel discussion at New York University’s Stern School of Business. 2. Dr. Peter Blair Henry, Dean of the NYU Stern School of Business gives the welcome address. 3. Keynote Speaker Dr. Kandeh Yumkella, United Nations UnderSecretary-General

and

the

Special

Representative

the

Secretary-General for Sustainable Energy for All.

4. Valerie D’Costa, Program Manager of the World Bank InfoDev Program. 5. Panelist Sara Menker, CEO of Gro Intelligence. 6. L-R Maureen Harrington, Standard Bank; Clint Misamore, Milken Institute; Eric Osiakwan, Founder of Angel Fair Africa; and Olumide Soyombo Co-Founder of Bluechip Technologies. 7. Panelists from L-R Matthew Bishop, Globalization Editor for The Economist; Professor Tandeka Nkiwane, Special Advisor to the CEO of NEPAD and Advisory Board member of the Africapitalism Institute; and

Gad Cohen, Partner at eleQtra Ltd. 8. David Rice, Director of the Africapitalism Institute. 9. Uzo Iweala, Editor of Ventures Africa moderating the panel discussion. 10. Attendees discuss Africa post MDGs. 11. Dr. Kandeh Yumella discussing energy in Africa. 12. Dr. Wiebe Boer, CEO of the Tony Elumelu Foundation and Dean Henry.

13. Panelists Sara Menker, CEO of Gro Intelligence and David Rice, Director of the Africapitalism Institute. 14. Dr. Wiebe Boer and Hadiza Bala Usman. 15. L-R Clive Edmondson, UBA New York; Dr. Wiebe Boer, Tony Elumelu Foundation; Adegboyega Festus, UBA New York; and Mike Nwosu, UBA New York. 16. Dean Peter Blair Henry, Dean of the NYU Stern School of Business. 17. Frank Sommerfield and Katarina Wenk-Bodenmiller of

Sommerfield Communications. 18. Attendees. 19. Dean Peter Blair Henry and Professor Tandeka Nkiwane. 20. Ivan Kagame, son of Rwandan President Paul Kagame. 21. L-R Dr. Kandeh Yumkella; Isabel Raya, United Nations; David Rice; Emeka Ugwu-Oju, President of the South East/South South Professionals of Nigeria; Shari Berenbach, President & CEO of the United States African Development Foundation. 22. Diane Fusilli, Executive Director, Communications, New York Academy of Sciences.

23. Dr. Wiebe Boer discussing Africapitalism. 24. L-R

Buke Dube, Columbia University; and Mpule Kwelagobe,

former Miss Universe and CEO of Mpule Institute.

www.africapitalisminstitute.org

16 | THEAFRICAPITALIST

INTERVIEW | DR. AKINWUMI A. ADESINA

Africa can feed the

world

Dr. Akinwumi A. Adesina, the Minister of Agriculture and Rural Development of the Federal Republic of Nigeria, is one Africa’s most distinguished public figures.

Ada Osakwe sat down with him to discuss prospects for African agriculture and development. TA: Nigeria’s agricultural reforms are widely regarded as being successful. What lessons can Nigeria offer other African countries in driving such a transformation agenda?

the poor. A greater percentage of our population live in the rural areas and depend on agriculture for their livelihoods.

Dr. Adesina: Agriculture is critical for Africa’s future. The size of the agriculture and agribusiness sector in Africa is expected to grow to $1 trillion by 2030. Foreign Direct Investment in agriculture in Africa will increase from $10 billion in 2005 to $45 billion by 2020.

Without turning agriculture around and treating it as a business, we will not be able to lift our teeming population out of poverty. We must end prodigal economics, where Africa imports $35 billion per year of food it can otherwise produce. We need vibrant agro-industrial developments to lift Africa to the higher ends of global value chains.

I say this because of my experience in turning around agriculture in Africa and expanding economic opportunities for

Dr. Adesina: Developing economic infrastructure is crucial for the growth and development of African economies. The continent needs roads, ports and railways to boost intra-regional trade and ease movement of people, goods and services. We must urgently address

This is because the continent has 65% of the world’s arable land, and as we think about feeding the nearly nine billion citizens of the world by 2030, Africa is where the answer is. To do this, agriculture must be turned into a wealth-creating sector, and not one that perpetuates poverty.

TA: Which other sectors do you believe African countries need to grow to continue on a positive growth trajectory?

THEAFRICAPITALIST | 17

INTERVIEW | DR. AKINWUMI A. ADESINA

Africa’s energy deficit. While on average only 50% of Africans have access to power, the situation is worse in rural areas, where only 5% of Africans have access to electricity. We must broaden the energy mix, including grid, mini-grid and off-grid systems, while improving energy efficiency.

The Power Africa Initiative of U.S. President Obama of which Mr. Elumelu is a strong supporter through his $2 billion commitment, the African Union-NEPAD Programme for the Development of Infrastructure in Africa and the growing wave of private sector investments in the continent are crucial for closing the $547 billion Africa needs to ensure universal energy security by 2030. Greater priority is also needed to expand ICT bandwidth to lower the cost of communications. This needs a regional approach to build the landing cable stations needed to develop undersea fibre optic cables for regional connectivity. We must boost intra-regional trade through lowering tariff and non-tariff barriers, harmonising customs and improved border administration. Poor transport infrastructure costs Africa more than a 40% increase in costs. It is estimated that removing infrastructure constraints and trade barriers would boost Africa’s economies by at least $35 billion annually. We must encourage and deepen regional financial markets. There is no reason for Africans to be strangers in their own countries. When an African invests in another African country, it should not be seen as foreign direct investment, but as ‘home direct investment’ because Africa is our home, nations are where we live. But we also need to improve our performance in global trade. TA: You are a big believer in private sector investments. Why is this important to you?

Dr. Adesina: I am a strong proponent of private sector investments to complement the age-old public sector funding. There is so much money out in the world that is looking for well-structured projects and initiatives. We must begin

Dr. Wiebe Boer, Honorouble Minister Adesina and Vice President Namadi Sambo at the commissioning of one of the grain silo complexes developed by the Federal Ministry of Agriculture and Rural Development of Nigeria.

to utilise these resources in smart and innovative ways. Huge amounts of pension funds, sovereign wealth funds, and rapidly growing capital markets and venture capital offer pools of funds that must be tapped for Africa’s development.

When I was Vice President at the Alliance for a Green Revolution in Africa (AGRA), I designed and spearheaded the roll-out of innovative financing instruments that unlocked over $150 million in new lending to the agriculture sectors of Kenya, Ghana, Nigeria, Uganda, Tanzania, and Mozambique. I worked extensively with commercial banks’ CEOs at private sector institutions such as Standard Bank, Kenya’s Equity Bank and National Microfinance Bank of Tanzania to encourage them to adopt creative financing approaches that leveraged donor funds to agriculture lending. In Nigeria, I adopted a government-enabled, private sector-driven approach to unlocking growth in the agricultural sector. I helped the Central Bank of Nigeria to design a $350 million risk sharing facility that is helping to unlock $3.5 billion in financing from commercial banks. My ministry also launched a $100 million private equity fund for SME agribusinesses and the Fund for Agricultural Financing in Nigeria, which is fully managed by a private

sector fund manager. We have also attracted more than $5 billion of private sector investments to Nigeria’s agribusiness sector from both indigenous and global investors. TA: Can you comment on the initiative by the Tony Elumelu Foundation to set up a commodities exchange and warehousing system in Nigeria and the rest of Africa?

Dr. Adesina: I am very impressed by the Tony Elumelu Foundation. They have partnered with top-notch global investors to develop the Africa Exchange Holdings (AFEX) with the view to strengthening the agricultural commodities markets. Farmers need to have access to credible prices for their goods so they can make money. To do this, AFEX is developing commodities exchanges across Africa. As storage facilities are critical to developing a viable commodities exchange, my ministry partnered with AFEX where we gave a short-term lease of eight of our warehouses across the country for them to pilot an electronic warehouse receipt system. This is revolutionary in this market and I’m pleased that AFEX is pushing ahead with its endeavours. That’s a true demonstration of the private sector as the engine of growth in our economy. TA

Ada Osakwe is an Elumelu Fellow, seconded to Nigeria’s Federal Ministry of Agriculture and Rural Development as the Senior Investment Adviser to the Honourable Minister.

18 | THEAFRICAPITALIST

FEATURE | TONY ELUMELU FOUNDATION - FOUR YEARS LATER

Entrepreneurship driven

development

The Tony Elumelu Foundation (TEF) was established in 2010 with the goal of supporting entrepreneurship across Africa by enhancing the competitiveness of the African private sector – bringing to life the principle of Africapitalism developed by its founder. 2014 marks the Foundation’s 4-year anniversary and the announcement of its biggest project to date.

Mr. Tony O. Elumelu, CON (fourth from left) with the 2014 Elumelu Professionals Programme associates. Also pictured; Katja Schiller Nwator, Director of the Elumelu Nigeria Empowerment Fund (left) and Dr. Wiebe Boer, CEO of the Tony Elumelu Foundation (far right).

THEAFRICAPITALIST | 19

FEATURE | TONY ELUMELU FOUNDATION - FOUR YEARS LATER

he Tony Elumelu Foundation (TEF) was established in 2010 with the goal of supporting entrepreneurship across Africa by enhancing the competitiveness of the African private sector – bringing to life the principle of Africapitalism developed by its founder. 2014 marks the Foundation’s 4-year anniversary and the announcement of its biggest project to date. Having built UBA into a leading pan-African bank over the past 13 years, Mr. Tony Elumelu, CON, had seen the transformative impact on economies and societies created by providing people across the continent with access to capital. He also understood firsthand the scale and nature of the diverse challenges faced by entrepreneurs seeking to grow their businesses – both at a micro and macro level, including lack of access to funding, support services, skills training and infrastructure, as well as the inevitable administrative hurdles. Motivated by a desire to tear down these barriers to growth, Mr. Elumelu was convinced that the next phase of his career would be dedicated to exploring innovative new ways to unlock the power of entrepreneurship to drive more inclusive growth and create jobs on an unprecedented scale across Africa.

Before retiring as CEO from the bank four years ago, Mr. Elumelu and his advisors reflected on how the soon to be established Tony Elumelu Foundation could best use his experience and resources to support African entrepreneurs to create transformative businesses across the continent and build a cadre of home-grown business leaders able to run well-managed, responsible and globally competitive companies.

Dr. Wiebe Boer was recruited from the Rockefeller Foundation to serve as the inaugural CEO and the Foundation was established with a dual mandate: firstly, to create “1000 UBAs” and secondly, to “institutionalise luck”. The first mandate, to create 1000 UBAs, was about working with African entrepreneurs to help build market-leading pan-African businesses that would in turn drive wider economic transformation and job creation across the continent.The second mandate, to institutionalise luck, was about creating an enabling environment 20 | THEAFRICAPITALIST

where entrepreneurs across Africa could thrive and be successful and thereby contribute to Africa’s transformation.

FULFILLING THE MANDATE Over the past 4 years, the Foundation has worked with entrepreneurs running businesses of different sizes at different growth stages to see where it can make the greatest impact in order to fulfil its first mandate. The African Markets Internship Programme, which later evolved into the Elumelu Professionals Programme, focused on placing high potential young entrepreneurs into fast growing businesses across the continent. It boosted the businesses by bringing in innovative new approaches and best practice management discipline and also gave the interns practical experience and exposure in the industry. Soon afterwards, the Nigeria 50 programme was launched to identify and highlight Nigeria’s fastest growing unlisted companies. By celebrating the entrepreneurial talent and innovation that exists in Nigeria, the programme was able to create a new generation of role models for future entrepreneurs and demonstrate that despite the challenges, talented entrepreneurs can and will succeed.

Another programme was The Foundation’s partnership with the Co-Creation Hub in Lagos to support entrepreneurs by providing seed funding to enable them to move from ideation to growth. BOLD NEW PROGRAMME The team’s experience in rolling out these programmes over the past 4 years is now being channelled into its latest venture, which will become the Foundation’s flagship entrepreneurship programme – the Tony Elumelu Entrepreneurship Programme. Targeting entrepreneurs across Africa at ideation phase, the programme will equip budding entrepreneurs with the seed funding, mentoring, training and networking opportunities to build their businesses. It aims to support 10,000 entrepreneurs over the next 10 years in order to effectively seed an entrepreneurial revolution across the continent. Not all entrepreneurs are ready for the kind of support TEF provides because of the con-

“I am confident that we are now positioned not just to deliver successfully against our original mission but also to inspire and empower entrepreneurs for generations to come.” Mr. Tony O. Elumelu, CON

FEATURE | TONY ELUMELU FOUNDATION - FOUR YEARS LATER

President Goodluck Jonathan flanked by Vice President Namadi Sambo and Mr. Tony O. Elumelu, Founder of the Tony Elumelu Foundation during the launch of the N1.5billion Elumelu Nigeria Empowerment Fund (ENEF) to revitalise the economies of post conflict and disaster communities across Nigeria, at the Presidental Villa, Abuja on October 17. With them are Diezani Allison-Madueke, Minister of Petroleum Resources (L) and Stanley Lawson (ENEF Board Member), Director, Central Bank of Nigeria (R).

dition of their particular community. With this in mind, the team recently launched the Elumelu Nigeria Empowerment Fund (ENEF), which aims to revitalise the economies of post-conflict and post-disaster communities across Nigeria, such as the Niger Delta and the Plateau. These communities have often been disconnected from the broader economy and so certain preliminary steps need to be taken within the community in order to build strong foundations for enterprise, which can then provide a route out of poverty and towards reintegration with the national economy. In this way, the Foundation can work hand in hand with vulnerable communities to restore hope,

helping people rebuild their lives and instilling a sense of empowerment for the future.

ADVOCACY ON BUSINESS POLICY While fuelling entrepreneurship is core to achieving the Foundation’s first mandate, to grow 1000 UBAs, advocating for a more enabling business environment in Africa is key to achieving the second mandate: institutionalizing luck. In collaboration with governments, institutions, decision makers and community leaders, TEF has provided policy recommendations designed to significantly improve the continent’s competitiveness. To date, the

Foundation has supported the launch of two innovative policy and research bodies. The first was born out of a request from Nigeria’s President Goodluck Jonathan for the Tony Elumelu Foundation to work with the Federal Ministry of Trade, Investment and Industry to collaborate in creating an independent national body which could engage the private and public sectors to build an environment where entrepreneurs can thrive and thereby improve Nigeria’s competitiveness in regional and global rankings.

The National Competitiveness Council of Nigeria (NCCN) was accordingly established in 2013 as a public-private collaboration to THEAFRICAPITALIST | 21

FEATURE | TONY ELUMELU FOUNDATION - FOUR YEARS LATER

improve the productivity of businesses operating in Nigeria by developing and implementing a clear competitiveness agenda for the country.

Having helped establish NCCN in Nigeria, the Foundation then wanted to focus on creating a platform to change the way investment and business was done on the continent, drawing on the Africapitalism concept originated by Mr. Tony Elumelu, based on his deep conviction that the African private sector should lead the way in developing the continent. Africapitalism is an economic philosophy centered on the belief that the African private sector has the power to transform the continent through long-term investments in strategic sectors, creating both economic prosperity and social wealth. By investing in ways designed to create, preserve and multiply local value, the private sector can solve Africa’s development challenges more effectively than philanthropy, international development assistance or the

public sector can achieve alone.

The Africapitalism Institute, launched at World Economic Forum on Africa (WEF) in Abuja earlier this year, is a Pan-African, independent, non-profit think tank committed to researching and advocating for public policies and business practices that will support Africa’s economic development in ways that generate both economic prosperity and social wealth. In this way, the Institute can influence an operating environment which supports African entrepreneurs to create globally competitive businesses that support local value addition and job creation.

POSITIONED FOR GROWTH The Foundation’s next area of intervention will be to provide support for the leaders and managers of these businesses, to equip them with the skills, tools and knowledge they need to run their companies responsibly and sustainably. The Tony Elumelu Business School will be established in Lagos

to create a dedicated facility to educate a cadre of African managers capable of building companies at scale across the continent, thereby multiplying opportunities for job creation and social impact.

The team’s passion for their unique mission continues to grow. Reflecting on the anniversary, Mr. Tony Elumelu commented “The first four years of the Foundation have been both exciting and revealing. We have used this time to reflect deeply on the core issues we are seeking to address and we’ve explored a variety of ways to achieve our dual mandate. Four years on, we have a clear mission and a sharp focus. Our flagship programmes have been designed to draw on our shared experience, ideas and lessons learned and will be executed with rigour and at scale. I am confident that we are now positioned not just to deliver successfully against our original mission but also to inspire and empower entrepreneurs for generations to come.”TA

Panelists Sara Menker, CEO, Gro Intelligence; David Rice, Director, Africapitalism Institute, Matthew Bishop, Globalization Editor, The Economist; Tandeka Nkiwane, Special Advisor to the CEO, NEPAD and Gad Cohen, Partner, eleQtra Ltd at the Africapitalism Institute’s panel discussion “Post 2015 MDGs: The Critical Role of Africa’s Private Sector” at New York University.

22 | THEAFRICAPITALIST

SPECIAL REPORT

Mapping Africa’s changing consumer market The true size of opportunity in Africa Growing middle class spurs investment Mining powerhouse makes a comeback Africa’s creative economy

Why investors are taking a fresh look at the continent’s investment potential

THEAFRICAPITALIST | 23

COVER STORY | THE TRUE SIZE OF OPPORTUNITY IN AFRICA

Africa’s changing Consumer Market

According to a new report by global consulting firm Accenture, there are five key consumer groups in Africa:

Basic Survivors

Working Families

Basic Survivors are the largest consumer group in Africa and are characteristically low income earners. They tend to live in urban slums or rural areas and make day-to-day decisions on basic needs.

Working Families are the second largest consumer group. They focus their spending on their children’s needs and value stability and routine in their lives. Children are the key consumer target here.

Basic survivors are showing a strong decline as incomes increase and as they start to move up into the higher lifestyle.

2005 2010 2015

0.2-2 Income in $ per day

4. Cosmopolitan Rising Strivers Professionals Rising Strivers are emerging Cosmopolitan Professionals are from the first two segments, typically located in urban areas. having built their purchasing They are busy with work but power through access to credit often have active social lives. As or other resources. They value xxxxxxxxxxxxxxx a result, these consumers value upward mobility and buy basedXXTuribus, pragmatic products odis ellau- but are also on convenience, quality, or evendae brand and influenced ditateconscious sam harum cusam volupidunt. more “expressive” factors. by the media. Offictiunt quaeratat-

Working Families show the most significant increase, growing from 21% in 2000 to over 33% by 2015.

2005 2010 2015

Rising Strivers are expected to show significant growth from a low base of only 9% to over 16% by 2015.

2-3

3-7

Income in $ per day

Future (2030)

The Affluent The Affluent of Africa have disproportionately high purchasing power, and are considered wealthy regardless of where they travel across the globe. bn This group834 is extremely small and very fickle.

They are currently very small and are expected to show conservative growth to only 3.1% and 2.8% of the population.

Although the Affluent show minimal growth over the review period, higher growth rates should be expected in the longer term as these markets mature.

2005 2010 2015

KEY *$ = US Dollars

2005 2010 2015

7-27

27 27

Income in $ per day

Estimated Consumer Spend 2020 ($ billions)

Before 2010 Many African countries will experience marked growth in the working-age share of the population between 2005 and 2025, but not all have strong institutions and economies to take advantage of the bulge in workers.

1.7$ tr.

Collective GDP in 2010

3.9$ tr.

Collective GDP in 2030

1.03 billion 1.4 billion No. of consumers in 2010

No. of consumers in 2030

399 million 736 million 24 | THEAFRICAPITALIST 24 | THEAFRICAPITALIST

No. of people aged 15 – 64 in 2010

With the new wave of interest in Africa as an investment destination, South Africa can be a pivotal entry point for foreign investors.

No. of people aged 15 – 64 in 2030

315 South Africa

167

Tanzania Uganda Nigeria

Ethiopia

Kenya

Ethiopia

FEATURE AFRICAPITALISM INSTITUTE All |groups will 3.8% urban population with a population of 3.8m in Addis Ababa.

experience minimal dips though the Working Family group will expand more than the rest by the year 2020.

Addis Ababa hosts the African headquarters of many major multilateral organisations.

Kenya

Analysis shows that 9 African countries will comprise nearly threequarters of total consumer spending in Sub-Saharan Africa by 2020

Nigeria

The Basic Survivors group will experience a decline as the years go by while the Working Families segment will increase due to improved economic factors. The Basic Survivors group will remain static with minimal change though The Affluent segment will increase albeit slowly to 0.05% in 2020.

22% urban population with a population of 4 million in Nairobi.

Nairobi is arguably the best-connected city on the continent in terms of ICT.

50% urban population with Lagos boasting a population of over 11.7m.

SOURCE: ACCENTURE | The Dynamic African Consumer Market: Exploring Growth Opportunities in Sub-Saharan Africa INFOGRAPHIC BY TEDDY MURIMI

South Africa

1.7 12% 2%

Africa’s Collective Gross Domestic Profit

Africa’s population as percentage of world population

The opportunity for Africa lies in

strong upward mobility of consumers

Africa’s GDP as percentage of world GDP

South Africa looks to experience a drastic decline in the Basic Survivors group and visible significant rises in Affluent, Rising Strivers and Cosmo. Professionals segments by the year 2020.

62% urban population with a population of over 3.8m in Johannesburg.

With its strong institutions, South Africa is a leading foreign direct investment (FDI) destination on the continent, attracting investors looking to set up their African headquarters.

With ageing and patchy infrastructure creaking under booming economies, Tapping into the companies have turned to innovative ways to reach untapped markets. hidden wealth offered by the African consumer markets requires a mind-set shift.

In Kenya and Nigeria, where power In Cote d’Ivoire, youths pushing bright red outages can last days, Samsung has rickshaws dispense steaming cups of Nestlé introduced solar-powered mobile phones. coffee in neighbourhoods.

THEAFRICAPITALIST | 25

COVER STORY | THE TRUE SIZE OF OPPORTUNITY IN AFRICA

The true size of opportunity in

AFRICA

How can investors best understand the diverse opportunities of the African continent? Which are the fastest growing markets? Which companies have been the smartest in tapping the consumer opportunity?

frica’s transition to a leading emerging market is well underway. Investors of all stripes either have an Africa strategy, or are fast developing one. That brings a new set of questions: which economies present the best opportunities, which sectors are growing the fastest, and why? Most importantly, how should companies go about entering new markets, especially in the consumer space? In short, investors need to figure out how to size up and seize the African opportunity. CONTINENTAL TRENDS First, look to the pan-African shifts. One is demography. The UN predicts Africa’s population will surpass 1.5 billion in 2030 and 2 billion in 2040, and the continent is projected to have an urbanisation rate of 43.2% by 2025. Africa’s population is also young, with youthful audiences better educated than their parents and more technology savvy.

43.2%

Africa’s projected urbanisation rate by 2025

But if demography is a common trend, there is also much that separates the continent’s countries; from resource-rich to resource-poor, sea-facing versus landlocked. Governance standards differ markedly from Mauritius and Botswana at the top to Somalia and South Sudan at the bottom. West Africa boasts a big hitting market in Nigeria but regional integration is lagging, while East Africa is a more unified bloc but lacks any stand-out economy of the scale of Nigeria. Mozambique, Ghana, Zambia, Tanzania and Ethiopia are all predicted to achieve high growth between now and 2017, while others - such as Senegal and Cameroon - are neither booming or busting.

Establishing which economies are achieving sustained growth is the first step for investors. But they must go further, especially when it comes to the consumer opportunity - arguably the biggest shift on the continent. Here, contextual knowledge is becoming ever more critical. How can investors identify the ripe markets? “Sizing markets in Africa can be difficult because of the lack of reliable data,” says Sarah

Boumphrey, Head of Strategic, Economic and Consumer Insight at Euromonitor International’s South Africa office. “The first step is to understand the size and dynamics of the economy as a whole. Gaining a knowledge of the structure of the population is also a good starting point. For major markets such as Nigeria, South Africa and Kenya, there is data available for income distribution. Beyond this, research has to be conducted to understand the attitudes and motivations of these consumers – just as it would elsewhere in the world. Targeting the bottom of the pyramid requires innovation through adapting products and services, changing the business model, constructing unique distribution networks, or even creating the market from scratch”. GDP, urbanisation rates and household income all signal whether a significant number of people are about to start buying ‘new’ types of products like laundry, detergent, toys, fast food or high-end goods like refrigerators. As consumers start buying new products for the first time, companies can profit enormously. Since consumers tend to stick with familiar brands, the long term commer-

of the economy as a whole. Gaining knowledge of the structure of the population is also a good starting point” 26 | THEAFRICAPITALIST

cial benefits to be had from being their ‘first’ are clear to see.

“ECP felt there was a middle class that could afford a speciality coffee place, and from a cultural perspective there was a desire to have breakfast or lunch outside of the home”.

COVER STORY | THE COVER TRUESTORY SIZE OF | AOPPORTUNITY BETTER MAP OF IN AFRICA AFRICA

Michelle Essome, CEO of the African Venture Capital Association on ECP’s 2012 investment in Nairobi’s Java House.

THE RACE FOR THE AFRICAN CONSUMER The first signal that Africa’s consumer markets were becoming a serious draw came in 2011, with the $2.4bn purchase of South Africa’s Massmart – which had operations in over a dozen African countries – by Walmart, the world’s largest retailer. South African retailers have been busy making acquisitions in several countries, and regional players like Kenya’s Uchumi are expanding too.

Private equity players began building their footprint soon after. Hoping to tap into Kenya’s emerging middle class ‘coffee culture’, Emerging Capital Partners invested in Nairobi’s Java House in 2012. “There was a gap in the market for something like this,” says Michelle Essome, Chief Executive Officer of the African Venture Capital Association. “ECP felt there was a middle class that could afford a speciality coffee place, and from a cultural perspective, there was a desire to have breakfast or lunch outside of the home”.. But the African consumer is not only found in formal retail outlets. Indeed, the most exciting part of the growth story is how many consumers exist in the places where foreign

Case Study 1:

Samsung market in Africa

Back in 2007, Samsung looked closely at the African market, then dominated by second-hand mobiles from European markets - often smuggled in. They commissioned research to help them understand the bottom of the pyramid: segmenting consumers, understanding lifestyles, and looking for data to feed into product design. They noticed many differences to their home customers. In South Korea, mobile phones were a fashion item as well as a consumer good, regularly

replaced when new models came out, but in many African markets they are a major purchasing decision. Often, a mobile phone is people’s first significant, durable consumer good. People on lower incomes make decisions over their phones the way those in rich countries might think about choosing a car, looking at years of ownership and cost of maintenance, for instance. Samsung also strengthened their local understanding by investing in the broader ICT ecosystem, through training and university partnerships in Kenya and Nigeria.

THEAFRICAPITALIST | 27

COVER STORY | THE TRUE SIZE OF OPPORTUNITY IN AFRICA

The lowest income ‘survivors’ are highly price sensitive, according to Accenture, focused on daily needs rather than longer term spending on education or insurance, for instance. They tend to avoid formal mass stores in favour of informal products from known vendors.

Personal care companies have been savvy in seeing the consumer opportunity beyond the conventional middle classes. L’Oreal and Unilever are investing in research into African skin and hair. Pigmentation studies have helped Unilever understand how African skin ages differently from Caucasian skin and to develop anti-ageing products, while L’Oreal has developed hair care ranges based on scientific understanding of African hair. They have made progress in understanding the female market. The relationship between women and their hair stylist is stronger in African markets than the West. The likes of L’Oreal realised that, while they speak to Western consumers through supermarkets and television adverts, they could prosper more in Africa by developing relationships with hair stylists.

profitable? To find out, all companies and investors, no matter how big, need to get out there and test products and survey customers, whether through focus groups, consumer surveys, or product pilots.

investors and companies never thought to look. They were arguably searching for a ‘middle class’ similar to that found in the West. “We need to step away from the phrase ‘middle class’ and all that we associate with it - white collar jobs, university education, civil service - and look at visible consumption in Africa. Something is happening, it is dynamic, it is aspirational, it is entrepreneurial,” says Niti Bhan, Director of the Emerging Futures Lab.

The other mistake consumer companies had been making was assuming that South Africa was a prototype of the whole continent. “Three or four years ago, people seemed to 28 | THEAFRICAPITALIST

think that if you understood South Africa you understood Africa; that if you understood the South African consumer then you understood the African consumer,” says Roze Phillips, Managing Director at Accenture South Africa. That is not the case. Most obviously, formal retail accounts for just 2% of the Nigerian market versus 70% in South Africa. Brands limiting themselves to formal retail and the conventional middle class are missing a huge chunk of the consumer population. Stepping away from the malls and the coffee shops, how can companies find these emerging African consumer classes? Can they be

WHY STRATEGY MATTERS Understanding the segmentation of African consumer markets can help companies develop well-crafted strategies. “The key to success in Sub-Saharan Africa is knowledge – a thorough understanding of the market, consumers, local partners, competitors and the economic backdrop is vital,” says Ms Boumphrey at Euromonitor International.

Companies entering Africa or expanding into new markets could learn from the examples of Unilever, Diageo and others. “Companies need to take a decision: are we going to take the African consumer seriously and respect them in their own right, or are we going to think of them as the poor African”, says Niti Bhan, who is even cautions against the phrase ‘bottom of the pyramid’. “That kind

COVER STORY | THE TRUE SIZE OF OPPORTUNITY IN AFRICA

“We need to step away from the phrase ‘middle class’ and all that we associate with it - white collar jobs, university education, civil service - and look at visible consumption in Africa.” Niti Bhan, Director of the Emerging Futures Lab

of labelling acts as a barrier to consumer product companies being able to accurately assess market opportunities. If you have already labelled the vast majority of the population as poor, you’ve blanked them out. We’re not accustomed to looking at Africans as consumers.” Ms Boumphrey echoes that sentiment: “Although individual spending power at the bottom of the pyramid is limited, this segment taken as a whole represents a valuable opportunity for local and multinational consumer goods companies.” A LOCAL PRESENCE Could hiring local managers and staff help companies avoid missing out on these val-

51% This percentage of consumer spending in Sub-Saharan Africa is located in just two markets: South Africa and Nigeria. uable markets? Wambura Kimunyu of Cellulant, a mobile platform company, believes nationals are less likely to miss African consumer opportunities due to outdated assumptions about those on lower incomes being too poor to be taken seriously as conbeer is brewed by SABMiller using cassava grown locally in Mozambique.

Beverage companies have led the way in showing how to understand African consumers on their own terms. Some are producing specialty beers, which are more affordable thanks to low-cost and locally grown inputs like sorghum, cassava and millet. SABMiller has commercialised its specialty beers successfully. Others have found ways of reducing cost through packaging. Diageo sells its Senator Keg brand in large returnable containers suitable for communal consumption. Impala

Roze Philips of Accenture says brewing companies are enjoying success in Africa because their presence runs deep through sourcing and production. “In many brewing facilities, production capacity is sitting in those markets, so they have lower cost of inputs because production is local; but second, they show to the population they are part of the fabric of the country.”

sumers. “Everybody that I know, knows someone who lives in a slum. When the West is looking at Africa and sees a slum, it is the most miserable place, but because we are all so used to it, it doesn’t mean you are in such abject poverty that you cannot afford anything. You are not neglecting it just because it is a slum, you understand there are people struggling to make a living but they have the same desires and wants. The way you look at certain situations because you are closer to them, is very different.” Joint ventures and commercial partnerships with local firms, or simply hiring loImpala beer, brewed by SABMiller, using cassava grownlocally in Mozambique.

“That’s why beverage companies are so good; they have had a long time to invest, integrate and innovate.”

THEAFRICAPITALIST | 29

COVER STORY | THE TRUE SIZE OF OPPORTUNITY IN AFRICA

The first signal that Africa’s consumer markets were becoming a serious draw came in 2011, with the $2.4bn purchase of South Africa’s Massmart – which had operations in over a dozen African countries – by Walmart, the world’s largest retailer.

cals, can make a difference. “That is one of the key tenets in Africa; having someone locally who can educate you on how things are done,” says Michelle Essome. “It is a twoway street, whether you are a multinational or an investor or a fund manager. It is about finding the person to educate you on the best way to do things.” But merely hiring ‘nationals’ may not be enough if they aren’t ‘up close and personal’ to the local markets. “I am aware of at least one company that made such a mistake by bringing in someone who was a ‘national’ but not a ‘local’ because he was a repatriate – and had moved home to take the role,” says Elikem Nutifafa Kuenyehia, Founder of Ghanaian law firm Oxford & Beaumont and an entrepreneurship mentor. Nationals who have moved abroad and are now returning home may be no less out of touch than foreigners coming to Africa for the first time. CONCLUSION Back in 2010, McKinsey’s ‘Lions on the Move’ report revolutionised how the world looks 30 | THEAFRICAPITALIST

“People who grow up and live in African countries tend not to underestimate how much pent up consumer demand exists among lower income groups, an opportunity many Western companies and investors have historically ignored.“ Michelle Essome, Chief Executive Officer of the African Venture Capital Association. at Africa. It became clear that, across a broad range of countries and sectors, there was a growth surge that put the continent as a leading emerging market globally - a position it has continued to hold four years later. But no-one said it would be an easy market to tap. The companies that have had the most success are those that, like MTN in Nigeria, saw market potential among consumers that their competitors had underestimated or ignored.

Investors stepping into the fray for the first time would do well to look to the examples of Samsung, Unilever and Diageo - to name a few - who have taken the time to truly understand their customer base and step beyond the traditional supermarkets and formal retail chains that dominate in other markets. Whether it is their local hiring and sourcing strategy, their market research and product development, or their approach to flexible pricing, their success provides a proof of concept for the rest. TA

THE TRUE SIZE OF AFRICAN OPPORTUNITY

FEATURE | AFRICA’S RISING MIDDLE CLASS

Growing middle class spurs

investments in Africa Impressive growth has favoured urban elites but can the continent’s wave of success lift the prospects of the rural poor? BY PETER GUEST

he shopping mall has become the most visible sign of Africa’s rising consumption, just as it came to typify America’s booming personal wealth in the 1950s and 1960s.

Lagos already has Adeniran Ogunsanya, Ikeja City Mall and Centro Lekki Mall, with more planned; Lusaka has Manda Hill. The 21,000 square foot Accra Mall opened in 2008, followed in 2012 by the Marina Mall. Later in the year, the Garden City Mall in Kumasi and the West Hills Mall in Accra should open their doors. McCormick Property Development, which owns 52 malls in South Africa, is overseeing four new developments in Southern Africa - a total investment of $1 billion.

Young, educated and increasingly wealthy Africans are embracing retail as entertainment and taking consumer culture to heart. The malls, and the new generation of casual shoppers that now flock to them, have become an easy shorthand for the huge socio-economic

changes happening on the ground in many African economies.

The ‘Africa Rising’ narrative is now well established. Compound Gross Domestic Product (GDP) growth rates have soared, beating the global average for most of the past 15 years. That growth proved robust throughout the financial and economic crises in Europe and the U.S. and has in the most part survived a slowdown in global demand for the commodities that underpin many African industries. That economic growth has filtered down to ordinary citizens, creating wealth amongst a new middle class of households with disposable income and consumerist aspirations.

In 2011, the African Development Bank (AfDB) estimated that the total size of this middle class was more than 310 million people across the entire continent, up from around 150 million in 1990 and 195 million in 2000. The AfDB’s figure was greeted with a degree of cynicism, as it defined the middle class by an income level relative to the over-

all level across the continent. In the bank’s report, middle class included individuals with daily per capita consumption of just $2.

‘FLOATING CLASS’ The inclusion of what the AfDB calls a “floating class,” not far above the poverty line on $2-$4 per day, may have inflated the figures, but as the report pointed out at the time, it was indicative of the overall direction of travel. In 1990, 27% of Africa’s population fell under this definition of middle class. By 2000, that figure had grown by only 0.2%. Between 2000 and 2010, wealth creation accelerated ahead of population growth, and by the end of the decade, 34% of the total population fell under this definition.

African Development Bank Chief Economist Mthuli Ncube said that the $2-$4 per day per person figure may appear low, but at a household level, where a family may be five or six strong; it builds to a meaningful amount. With this rising household income comes an increase in spending power, although the shift is about more than just wealth. Con-

THEAFRICAPITALIST | 31

FEATURE | AFRICA’S RISING MIDDLE CLASS

sumption and asset ownership are part and parcel of attaining middle class status.

“The key figure is income, because that’s the easiest thing to understand,” Ncube said. “But it’s also about lifestyle: where they educate their children, where they take their holidays. How they spend on health, and all of these things.”

Ncube and his team at the AfDB have also developed an index based around assets. “In the West we look at assets — whether we own a television, own a car, own a house, own art, those kinds of things,” he said. A second piece of research, published by Ncube and his team in 2012, took an asset-based approach to understanding the scale of the middle class in Africa, using household survey data. They concluded that, based on an index that included ownership of durable assets, such as radios, televisions, refrigerators and cars, as well as the quality of their water supplies and housing, the ‘asset owning’ middle class had tripled, from 5% to 15%, over the previous two decades.

“It’s slow growth, but you find that the growth accelerated a bit after the economic reforms in Africa in the 1980s and 1990s. That’s what unleashed a good part of the middle class.”

Mthuli Ncube, African Development Bank Chief Economist

THE NUMBERS & FACTS Low income households make up 92% of the population in Kenya, 96% in Uganda, 97% in Tanzania and 99% in Ethiopia, which has consistently been one of the fastest growing economies on the continent over the past 10 years, according to the African Development Bank (AfDB) research.

32 | THEAFRICAPITALIST

“[Asset ownership] has changed for the middle class in Africa, there’s no question about that,” Ncube said. “It’s almost in line with consumption patterns. It confirms what we have found in the income data.”

entrepreneurs, they could realise better opportunities, there were more free market economies. This is linked to the economic liberalisation in Africa in general, and better economic management.”

RAPID GROWTH Across 11 major Sub-Saharan economies, there are around 15 million people within this income bracket, the bank said, although the majority are still in the lower bracket.

“One of the things that we show in our research is that the size of the middle class and its growth is very sensitive to the political economy. In countries which have been fragile or where governance is shaky, the middle class growth suffers,” Ncube said. “It’s all linked to the positive Africa story which has been gaining momentum over the last decade, but this middle class has been growing. Since 1983 we’ve been getting a figure of 3.2% per annum on average. Slowly but surely, now it’s there.”

This lower figure was backed up in August this year, when Standard Bank published a new report that once again attempted to codify the definition of middle class for Africa. Standard Bank used South Africa’s Living Standards Measure (LSM), a metric that takes into account assets and discretionary income. The bank defined lower middle class as anyone with an LSM of five, which is roughly analogous to annual consumption of $5,500, and middle class as those with incomes above $8,500.

By 2030, the total number of Africans in the higher levels could rise to 22 million households, each earning between $8,500 and $42,000 per year. Behind them will be an equally fast expanding cohort of lower middle class households, earning between $5,500 and $8,500 per year. Nigeria alone could add 7.6 million new middle class households over the next 16 years, according to the AfDB. Ghana should add 1.6 million over the same period and Angola a further million. Several East African countries are lagging, the report notes.

“The size of it is recent, but it goes way back,” Ncube said. “Its slow growth, but you find that the growth accelerated a bit after the economic reforms in Africa in the 1980s and 1990s. That’s what unleashed a good part of the middle class. People could become

10years 58%

AfDB estimates that life expectancy will increase by 10 years on average across the continent by 2050, putting pressure on the retirement industry and healthcare systems.

According to a September 2014 report from PwC, 58% of Ghanaian households have access to a television set, while Angola, Tanzania and Kenya are expected to catch up fast.

Those trends towards liberalisation, stability and macroeconomic management, accelerated through the 2000s, creating the conditions for that middle class to expand.

Urbanisation has also been a major contributor to the establishment and growth of the middle class. In 1980, 28% of Africans lived in cities. By 2010, that figure was 40%. By 2030, that will be more than 50%, and, according to forecasts by the consultancy McKinsey, the top 18 cities on the continent will have a combined spending power of $1.3 trillion. Defining the middle class is important in understanding its social and commercial potential, but to some extent it is just an academic distinction - companies are already moving in to take advantage of the growing consumer spending. “The definition sometimes is very generous,”said Amadou Sy, Senior Fellow at the Brookings Institution’s Africa Growth Initiative in

4bn

Entertainment and media is already a $4 billion industry in Nigeria, and a $1.7 billion industry in Kenya.

22mn

By 2030, the total number of Africans in the higher levels could rise to 22 million households, each earning between $8,500 and $42,000 per year.

FEATURE | AFRICA’S RISING MIDDLE CLASS

Huge Demand Mobile phone penetration, another bellwether for African consumer growth, hit 80% in 2013 and is still growing faster than any other region. Media consumption is catching up. Entertainment and Media is already a $4 billion industry in Nigeria, and is worth $1.7 billion in Kenya. Demand for basic banking services for individuals and entrepreneurs will inevitably grow — as evidenced by the expansion of domestic and regional finance companies, such as UBA and Ecobank. Companies like Ghana Home Loans in Accra are finding a huge demand for basic mortgage products that allow young people to get into that country’s booming property market. Increased asset ownership is also fuelling a need for insurance products. Technological developments and the adoption of mobile phones have overcome the distribution and infrastructure challenges that had stunted the growth of some financial services, and are now

Washington, D.C., pointing to the $2 per day per capita figure. “But if you are a mobile phone operator, that’s good enough for you, because you have someone who will spend a huge proportion of their income just to have airtime. If someone has $2, he might spend 50¢ [on airtime].” PROMISING TRENDS The social, political and economic importance of the rising middle class is evident in South Africa, where, after the collapse of the apartheid regime, a new, educated class of black South Africans emerged to take on jobs in the public and private sector. Encouraged by government policy, including the Black Economic Empowerment, or BEE programme, and by the commodity-driven growth of the economy, this cohort, known in South Africa as “black diamonds”, has grown to 4 million individuals who collectively spend around $20 billion per year. Half of them send their children to private education, and half have a post-secondary degree. Real estate prices have increased in middle-income neighbourhoods, car ownership is up, and many analysts believe that the country’s economic future depends on this internal consumption,

opening up retail too. Nigerian-headquartered online shopping startup Jumia has expanded into Egypt, Morocco, Kenya, Côte d’Ivoire and Uganda. Healthcare, which, behind food, is typically the largest expense of the majority of African households, is also likely to take off in the private sector. The simple increase in longevity that comes with better lifestyles, diets and care will also drive economic opportunities. “The other thing is on the political front,” Ncube says. “Over time when this middle class grows, it begins to assert political aspirations, and leadership starts paying attention.” The changing social dynamics in Africa are not universally positive. In some cases, the same trends that drive commercial interest can cause social tension, in particular demographics. East African economies are falling behind, as population growth outpaces wealth creation.

“But if you are a mobile phone operator, that’s good enough for you, because you have someone who will spend a huge proportion of their income just to have airtime.” Amadou Sy, Senior Fellow at the Brookings Institution’s Africa Growth Initiative in Washington, D.C. rather than on the strength of its export sectors.

While the trends driving the creation of the African middle class are predominantly led by the private sector, there is a huge role for governments in making sure that the gains are maintained. The public sector, Sy says, needs to be involved in creating the social safety nets that will help those currently excluded from Africa’s growth to move up into higher income brackets.

Likewise, as Ncube warns, the emergent middle class at the lower end is fragile to shocks caused by market prices or to changes to personal circumstance. “It is fragile to a death in

the family, to shocks, to whatever is thrown at them,” he says.

This, he says, is a reason for governments and development organisations to continue to engage with this section of society, and not to rest on its laurels in the belief that their income and lifestyles will be durable. “We don’t want the poor to be poor… but perhaps there is a way that we should target the middle class to make sure that they don’t fall back into poverty, to make sure that they graduate into high income, but they don’t fall back,” he says. “There is still a sense of a revolving door at that lower level of $2-4.” TA THEAFRICAPITALIST | 33

COUNTRY ON THE RISE

COUNTRY FEATURE | DRC

Mining powerhouse makes a

comeback

The Democratic Republic of Congo is turning around its mining sector with new investors, but power shortages and royalty disputes could reverse recent gains

At the furnace in the gold room in the Kibali gold minein the Democratic Republic of Congo.

34 | THEAFRICAPITALIST

BY MICHAEL DYNES

surge in copper production from the Democratic Republic of Congo (DRC) has seen the Central African country re-emerge as Africa’s single biggest producer of the red metal – overtaking regional rival Zambia for the first time in decades, and signalling the long-awaited return of the African continent’s once mighty mining power house.

Copper output rose to 943,000 tonnes in 2013, and is forecast to exceed one million tonnes in 2014 as copper miners such as Freeport McMoran, Glencore Xstrata and the Eurasian Natural Resource Company

COUNTRY FEATURE | DRC

Freeport McMoran is investing $170 million in refurbishing Katanga’s N’Seke power plant which supplies its giant Tenke Fungurume mine (above).

boost production, although output is likely to plateau thereafter as a result of acute electricity shortages, and the inadequate road and rail infrastructure needed to bring the extra production to world markets.

Gold production is expected to top 16 tonnes in 2014 - up from four tonnes in 2013, and a mere 100 kilogrammes in 2007. Most of the increase is attributable to the new Kibali gold mine in north eastern Orientale Province – a $2.5 billion joint venture between Randgold Resources, AngolGold Ashanti, and Stateowned miner Sokimo, which is expected to ramp up to more than 650,000 ounces of gold a year over the life of the mine – making it one of the largest gold mines in Africa. This represents a remarkable turnaround for the DRC, a country whose mining sector was brought to its knees during the final days of former President Mobutu Sese Seko’s rule, and the two back-to-back wars between 1998 and 2003 that ravaged the central African giant following his downfall.

Yet for a country whose mineral endowment - including copper, cobalt, gold, diamonds, tin, tantalum, tungsten, zinc, uranium and a host of other metals, is estimated to be in excess of $24 trillion, it is only a modest beginning. The DRC has the potential to be an extractive sector giant, although the government and the mining houses continue to fight over how best to achieve it.

BOOSTING VALUE ADDITION A priority for President Joseph Kabila’s government in recent years has been to boost the extractive sector’s in-country value addition, thereby diluting the DRC’s reliance of the export of primary resources. Freeport and

“Exploitation of natural resources is crucial to our ambition of becoming an emerging market country by 2030.”

Honourable Augustine Matata Ponyo, Democratic Republic of Congo’s Prime Minister

Glencore - the DRC’s biggest copper and cobalt producers, are able to process most of the copper and cobalt they produce inside the country – a value addition that greatly boosts the monetary worth of the country’s biggest export.

Most other producers have little option, however, but to export lower value copper and cobalt concentrates as the DRC does not generate sufficient electricity to transform all the copper and cobalt it produces into refined products. An attempt to ban the export of all concentrates in 2013 backfired when Moise Katumbi, the Governor of Katanga province, refused to enforce it for fear it would lead to a sharp reduction in exports. The DRC does not have a gold refinery, so all gold produced is exported for processing elsewhere. But Kinshasa remains eager to attract investment in a new gold refining sector, with aspirations to create a local gold jewellery-making industry that would create significant value added, and help boost local skills and job creation. DEADLOCKED PROPOSALS Prospects for the future expansion of the extractive industry remain mixed. The government and the miners have been deadlocked for three years over proposals to redraft the DRC’s antiquated 2002 mining policy, which granted significant fiscal concessions in an attempt to attract new investment in the ailing extractive sector.

THEAFRICAPITALIST | 35

COUNTRY FEATURE | DRC

THE NUMBERS & FACTS

943,000mt

Democratic Republic of Congo produced a record 943,000 metric tonnes of copper last year, driving economic growth to at least 8.5%, according to the International Monetary Fund. Dewatering operations at a Katanga Mining Limited mine.

16tonnes

Gold production is expected to hit 16 tonnes this year - up from four tonnes in 2013, and 100kg in 2007.

Prime Minister Augustine Matata Ponyo, a vocal advocate of increasing the fiscal burden on miners, told the DRC’s mining conference in Goma in early 2014 that: “Exploitation of natural resources is key to our ambitions of becoming and emerging market economy by 2030.” But he also told the conference that he intends to increase tax revenues on the mining sector from 14.5% at present to 25% by 2016, in order to fund the government’s, education, health and infrastructure programmes. The proposals drew a sharp rebuke from miners who insisted that the government’s actions would be tantamount to killing the goose that lays the golden egg, especially in a country where the geological data is poor, the skills base is low, political stability is at best uncertain, and the lack of adequate power and transport infrastructure forces miners to build their own infrastructure – dramatically increasing the costs of operating in the country. The ongoing row between the government and the miners is a reflection of the age-old tension between sovereigns and mining houses over what is the most equitable division of the spoils from mining ventures. Governments generally want increased shares when commodity prices are high, and are often reluctant to take less when they fall. The DRC’s potential to benefit from its mineral wealth was hampered by the US government in 2010 through the passage 36 | THEAFRICAPITALIST

of the Dodd-Frank law. The law was designed to stop the trafficking of “conflict minerals” from the country and calls on publicly traded U.S. companies to voluntarily disclose to the US Securities and Exchange Commission the specific sourcing of minerals. But the provision also targets Angola, Burundi, the Central African Republic, the Republic of Congo, Rwanda, Tanzania, South Sudan, Uganda and Zambia as potential sources of the minerals for no other reason than their shared border with the DRC. Unfortunately, this law is another in a long line of examples of non-African countries attempting to engineer social change on the continent that ends up hurting those it was intended to help.

ADDRESSING POWER SHORTAGES Earlier in 2014, the government appealed to miners to suspend further expansion plans, and to accept power rationing – at least until new generation becomes available. The DRC currently produces about 900 MW, and demand has outstripped supply by about 300 MW since 2009, and will continue to do so pending substantial progress on the proposed $12 billion, 4,800 MW, Inga III power station on the Congo River – which is unlikely to materialise much before 2020.In the interim, miners are being forced to partner with the State to implement temporary upgrades. Copper miner Glencore is currently investing $282 million to refurbish existing transmission lines serving its Katanga

24trn

The estimated mineral endowment of the Democratic Republic of Congo.

25%

DRC intends to raise tax revenues on the mining sector from 14.5% at present to 25% by 2016, in order to fund public education, health and infrastructure.

copper concessions, while rival copper producer Freeport McMoran is investing $170 million in refurbishing Katanga’s N’Seke power plant which supplies its giant Tenke Fungurume mine. Randgold Resources and AngolGold Ashanti had to build their own hydro power plants to supply the new Kibali mine, while Canadian miner Banro has to import diesel fuel to operate the thermal plant supplying its Twangiza gold mine in South Kivu. While the DRC has the mineral potential to rival any mining jurisdiction in the world, the government will need to address the concerns of miners if it is to remain competitive. Other countries are competing ever harder for increasingly scarce investment dollars, increasing the risk that the DRC could be left behind. TA

SECTORS TO WATCH

SECTOR FOCUS | AFRICA’S CREATIVE CONOMY

BY NICK EASEN

n any given evening across the continent, you can tune in to an incredible array of Africa’s creative output - from Nollywood to Kannywood, Bongo Films to classic Egyptian cinema and modern opera in Johannesburg, to ancient music festivals in Fez. Then there’s Touareg art and desert blues in Mali, fashion shows in Addis Ababa and sculpture exhibitions in Kinshasa. This is barely a taste of what’s on offer from Cairo to Cape Town every day of the year.

Africa’s creative economy, which includes a whole host of genres from cinema, to art, music, fashion, radio, theatre, publishing and Internet gaming, is serious business and is on the upswing. “There is no doubt that creativity is the new money. In many areas, such as industrialisation, Africa may be a latecomer. On creativity, it is not,” says Carlos Lopes, Executive Secretary of the United Nations Economic Commission for Africa (UNECA).

Beating the drum for Africa’s

creativity

The contribution of the continent’s creative economy is often overlooked. Greater investment and focus from policymakers could change prospects for the sector

The creative sector’s contribution to Africa’s coffers remains speculative at best; figures are scant and fragmented, although it is believed to be significant.

South Africa has the biggest media and entertainment industry valued at $10.5 billion in 2013 by PricewaterHouseCoopers; Nigeria is in second place at $4 billion, followed by Kenya at $1.7 billion. By 2018, these industries will have risen dramatically to $17.1 billion, $8.5 billion and $3.1 billion respectively. Nollywood is already the second-largest movie business in the world – after India’s Bollywood – in terms of films released. Big and little screen blockbusters are Nigeria’s second largest paymaster after agriculture. A LOT OF OPPORTUNITIES The general consensus is that the creative industries could be specifically beneficial to Africa. They could help economies diversify and avoid overdependence on limited natural resources. Also, Africa’s heritage and traditions THEAFRICAPITALIST | 37

SECTOR FOCUS | AFRICA’S CREATIVE CONOMY

being held back - aside from a sincere lack of investment. There is also poor infrastructure and a low number of cinemas. According to UNESCO, the U.S. has around 40,000 movie houses, China 36,000, Nigeria 55, South Africa 860 and Egypt 230. Many other African nations have numbers in the double or single digit figures. Ethiopian Fashion week

“Just like any other industry, creativity requires one to invest not only time, but also passion and resources,” Liz Kiptum, Founder Creative Garages. across its 54 recognised States are rich seams of artistic inspiration, with the potential for untold export revenues.

The global picture values exports of creative goods at more than $440 billion, according to the United Nations Conference on Trade and Development (UNCTAD). Yet Africa exports are less than one percent - $2.3 billion. The continent has yet to really benefit from the vast volume of international trade in this sector. A few winners at the Berlin Film Festival or Venice Biennale, or lauded fashion and art exhibitions in New York and Paris have yet to snowball and consolidate a pan-African creative industry.

Fragmented, poorly commercialised marketing and distribution (both locally and overseas), with incomplete cycles of production, were some of the reasons highlighted at last year’s Africa’s Creative Economy Conference as to why the continent’s artistic sector is 38 | THEAFRICAPITALIST

Another big issue is piracy and illegal distribution, especially of DVDs and movies. “The intellectual property system remains critical to the development of the creative industries,” explains Afam Ezekude, Director General of the Nigeria Copyright Commission.

AFRICA’S DEMOGRAPHIC EDGE Africa’s most significant opportunity in the creative sector over the coming decades will be its demographic advantage. It will soon have one of the world’s largest labour forces. Young and assertive, Africa will need a sizeable creative industry to harness and captivate this new generation of web and media savvy Africans – ripe to spend money on the arts, theatre, music, movies and exhibitions.

10.5bn

The value of South Africa’s media and entertainment industry, making it the biggest in Africa followed by Nigeria and Kenya respectively. “Lagos has a larger consumer market than Mumbai and spending in the continent’s households exceeds those of India and Russia,” notes ECA’s Lopes.

For instance, this year the number of video on demand users in Sub-Saharan Africa will grow by about one million people alone, according to consultants Deloitte - despite the lack of broadband infrastructure in the region.

There will also be 750 million French speakers in 2050 and 85% of them will be in Africa. It’s the reason why the television station Canal+ is expanding in the continent. In the Internet sector, Facebook recently held its very first Hackathon in Cape Town. “The event is an example of the growing opportunities available in Africa’s creative economy,” Andrew Human, CEO of the Loerie Awards says.

Need for investment “The industry has generated over 200,000 direct jobs, one million indirect jobs and we believe that we could double and triple all these,” explained Dr. Ngozi OkonjoIweala, Nigeria’s Coordinating Minister of the Economy and Minister of Finance at a Nollywood event last year. However, complacency and the need to invest haunts the creative sector, as Creative Garages is finding out in Nairobi. The group runs a networking platform for Kenyan artists seeking more recognition and support from their government, and a raised profile to the level of tourism and food production. “Just like any other industry, creativity requires one to invest not only time, but also passion and resources,” says Liz Kiptum, founder of Creative Garages. She believes lack of funding is partly due to the widely held assumption that creative output involves little or no effort and has no real monetary value, so it warrants little investment. Yet you only have to look at the tax revenues of, say, the South African film industry, to see the contribution that creative industries can make. In 2012, direct and indirect taxes pumped $63 million into the treasury, according to a report by the National Film and Video Foundation. Nigeria’s recent rebasing of the economy showed that its movie and music business accounted for no less than 1.4% of GDP, with significant tax paid as well.

However, if Africa’s creative industries are to assert themselves globally, the younger generation will need to come up with their very own narratives, creative ideas, industry ambitions rather than importing media from overseas. A more active, creative sector on the African continent is also one that can be more easily exploited from overseas and only time will tell which direction it is heading to. TA

PROFILES | AFRICAPITALISM IN ACTION

MOBILISING THE AFRICAN

diaspora BY LOLA ADESIOYE

Alexander Amosu

Attracted by growing optimism and opportunity, Africans abroad are heading back to the continent. We speak to some high-profile returnees on their experiences and why moving back offers both rewards and challenges

lexander Amosu is a businessman and serial entrepreneur, who shot to prominence in the UK after becoming a millionaire at 18 from making ringtones for mobile phones. Ever since, he has launched several successful businesses including Amosu Luxury, a luxury goods company which makes exclusive and custom-made items – ranging from champagne, to designer suits and bespoke Blackberries - which have set world records for being some of the most expensive goods of their kind. Now based in Nigeria, Amosu launched the Nigerian version of celebrity magazine OK! in 2012 and has recently entered into a deal with Warner Music for the distribution and promotion of African musicians.

“From the day I did Dragon’s Den [Alexander was a judge on the Nigerian version of the show], I knew that Nigeria’s potential was phenomenal. That’s the beauty of being in a country where things are still developing and growing: there are so many opportunities to build your brand and business.

I strongly believe in Nigeria and I know that things are going to change for the better. But it’s not going to change on its own.

People like Aliko Dangote and Femi Odetola inspire me with their entrepreneurial flair, and their belief that in Africa you can be a billionaire; it’s not impossible and it’s within your reach. The most positive thing that I’ve taken away is that if you really, really want to be successful, Africa is the place to be. JOINING FORCES Most challenging for me is the frustration that certain things are not in place. Things like – I’ll give an example – distribution of OK! Magazine, which we

own. The distribution issues in Nigeria are horrendous. But the whole point of coming into an emerging market is to be able to contribute to these types of services, to try and change the experience so that it works for everybody. I strongly believe in Nigeria and I know that things are going to change for the better. But it’s not going to change on its own. It’s going to change with people like myself and the younger generations coming back home, bringing our expertise, knowledge and support, and joining forces to make Nigeria a better place. We have signed a deal with Warner Music to be the first African music distributor, through Warner globally. And that basically means that we can take any artiste that has established themselves across Africa but doesn’t have the platform across the UK, Europe, or the US, and distribute them through Warner globally so that their songs can be out there, played on radio and charted so that they can be given the exposure that they would not normally get just by staying in Africa. It’s great that Warner, in partnership with us, are looking to sign African acts to make sure the music reaches the masses globally. Gone are the days of people thinking that Africa is just trees and animals and lions! I do not want to give anybody the idea that it’s going to be a walk in the park. It’s very, very challenging to work in Nigeria or any part of Africa, but that the rewards are so much greater and so much higher that if you are able to conquer it, you will enjoy the fruits of your labour. My advice is grab the opportunity with both hands. Create a destiny for yourself and your family and rather than work for somebody else, go to Nigeria or anywhere in Africa and be the leader, be the boss, be the one who is employing people and giving people opportunities.” TA

THEAFRICAPITALIST | 39

PROFILES | AFRICAPITALISM IN ACTION

Nicole Amarteifio Nicole Amarteifio is the Writer and Co-producer of hit web TV series “An African City. Before heading back to Ghana to work on the series, she worked in international development at the World Bank in Washington, D.C.

“

I was born in Accra, Ghana, but shortly after my birth, my family moved to London. After a few years in England, my father decided that it would be best to raise us in the United States. He felt the United States allowed young people to dream and dream big. He wanted us to have the confidence to actually fulfill those big dreams. When I look at my life today, he was right.

Washington, D.C. But even as a child, I knew that Ghana was home and where I belonged. In America, people only saw you as black. In Accra, even with my westernisation, they look at me as Ga. There is history and a rich culture associated with my last name and my other Ga names. In America, my last name is simply a tongue twister with no meaning. So, I always felt a “belonging” to my country of birth.

I was educated in Scarsdale, New York. I completed my first degree - a Bachelor of Arts in African Studies - at Brandeis University in Massachusetts and my second degree at Georgetown University in

I decided to go back because it’s home. I also felt like I owed it to my parents. They left the Ghana of the 1980s because of the political instability, but the Ghana of today is politically stable. They lost many

years, I didn’t have to. It feels like everywhere I look in this country - there is an opportunity. I would definitely encourage others to return. We have one life to live; why not use that one life to make an impact in your country?” TA

Sara Menker is Founder and CEO at Gro Intelligence. Co-headquartered in Nairobi and New York, the company gathers, aggregates and processes data using proprietary algorithms to unlock crucial insights into weather patterns, trade flows, pricing dynamics and production.

Sara Menker

“

I was born in Ethiopia and lived there until I completed my high school education. I then moved to the US and attended the Mount Holyoke College in Massachusetts and the London School of Economics, where I studied Economics and African Studies. After graduating, I joined Morgan Stanley in New York and worked in commodities risk management where I covered commodity markets. I later moved on to trading, where I managed an options trading portfolio. While working at Morgan Stanley, I obtained an MBA at Columbia University.

studying the African agricultural markets and quickly became interested in the entire ecosystem - what made it work and what was holding it back. Eventually, I felt that part of the solution to unlocking Africa’s agricultural sector lay in building the right data infrastructure that allowed us to monitor agricultural data on a timely basis. That is when I decided to start Gro Intelligence. I knew I wanted to move to Kenya and also the problem I wanted to solve. While at that time I did not have much solidified information, I knew I had to dedicate more time to it. So I quit and moved to Nairobi.

By the time I left eight years later, I had risen to the position of Vice President. In 2012, I quit and moved to Kenya to set up Gro Intelligence and have been in Nairobi for the last two and a half years.

Initially it was tough because I had moved to a foreign country and had to learn how things worked. While the start-up process of setting up a full business operation was challenging, the next and really big challenge was finding talent. I had chosen Kenya to base our operations because it was quickly becoming

Four years prior to quitting, I had started

40 | THEAFRICAPITALIST

known as the tech hub for Africa and had open capital markets. What I did not realise was how technically complex the product we would eventually work on would be and the types of engineers we would need. It took some time as well as also opening an office in New York to build out the team we now have. I found out that while there is a growing interest by Africans living abroad to move back home, the risk factor that is attached to the move is still too high and it takes a long time to make the decision. My advice to anyone looking to move back is to adjust that risk factor downwards and take the risk of moving back because once you move you realise there are a lot of opportunities and capturing them early is key. If you look at a Chinese national moving back to China in the early 90’s, one of the biggest differences is that there was a constructive effort to make the economic incentives align with the government’s desire to attract talent back home. There is a certain amount of policy making that is required in order to attract talent back to Africa by different African governments just like China did. They were able to do this not only in the private sector but also in the public sector. I don’t think African governments have figured that out yet.” TA

FEATURE | INNOVATION IN AFRICA

Empowering a new generation of

African investors Africa is taking baby steps in adoption of new technologies with ground-breaking innovations setting the stage for socio-economic turnaround BY SARAH RUNDELL

nnovation is one of the most important drivers of economic growth. How to stimulate this holy grail of productivity and avoid the harmful measures that can stifle it dominates conversation amongst Africa’s economists and politicians.

“This process of continuous upgrading, or innovation, is the most important source of economic dynamism. Economies that don’t foster innovation tend to fall behind or stagnate. Those that innovate surge forward or catch up with front-runners,” argues Calestous Juma, the faculty chair of Innovation for Economic Development Programme at Harvard Kennedy School and co-chair of the African Union’s high-level panel on science, technology and innovation. Africa is a fertile ground for the kind of problem solving innovation born out of necessity. Examples range from the robot cops directing Kinshasa’s traffic clogged roads, to

smartphone apps offering medical diagnoses; Mogadishu’s solar-powered street lights and safari parks use of civilian drones to combat poachers. South Africa’s co-hosting of the giant radio telescope Square Kilometre Array, which will bring top scientists and research to the region and transform local manufacturing sectors supplying the project, shows the impact of flagship, government-led innovation. Africa’s innovators depend on investment in science, technology and engineering. Innovation will only thrive if governments build the basic infrastructure to support it and promote the entrepreneurs to drive it. Innovation is not easy but a new generation is taking Africa’s technology, healthcare and agriculture in new and unexpected ways. TECHNOLOGICAL INNOVATIONS Africa had all the benefits of being a latecomer when it leapfrogged into the mobile revolution and took advantage of established technologies. The continent has created a mobile pay-

ments industry that has transformed business and banking and propelled Kenya to a world leader in mobile payment innovation. A third of Kenya’s Gross Domestic Product is now transferred this way in a model being rolled out in other emerging economies, including India.

Mobile payment has given Africa the confidence to adopt other technologies to address its unique challenges. It’s the basis of pioneering work underway at Nairobi-based IBM Research Africa, the latest laboratory in IBM’s global network. The new centre, which already employs more than 25 top scientists, focuses on developing new technologies with “an immediate impact for the African continent,” said IBM Research Africa’s Chief Scientist Osamuyi Stewart, a Nigerian with a career that spans universities in Cambridge and Vancouver. Working in tandem with governments and the private sector, IBM’s research expects to target Africa’s toughest challenges. THEAFRICAPITALIST | 41

FEATURE | INNOVATION IN AFRICA

IBM scientists in Africa. From left to right Anne Onsarigo, Nathan Wangusi and Komminist Weldemariam.

“Our priority areas are education, energy, water, food security, healthcare and financial inclusion, human mobility and public safety,” he said. With a ten-year, $100 million initiative, IBM will apply Watson cognitive technologies to these areas to analyse massive amounts of Big Data.

“The aim is to help people make better decisions by penetrating complex data and coming up with new ways to look at problems. What if we can discover a correlation between contaminated water and student’s attendance and performance at school? What if we can better understand the impact of weather, potholes and speed bumps on travel time? Watson can help build models around this – help us to understand travel patterns.” It sounds like a contradiction but Africa is also applying old technologies to achieve ground breaking innovation. Microsoft is working to provide fast internet access via

THE NUMBERS & FACTS

42 | THEAFRICAPITALIST

white space technologies, those unused parts of the wireless spectrum used for television before its migration from analogue to digital. In a remote part of Kenya’s Rift Valley, without even basic electricity, the company is working with the government and internet service provider Indigo Telecom to deliver high-speed, low-cost wireless broadband via solar-powered base stations and TV white spaces.

“We’ve got the magic formula,” said Indigo Telecom chairman Peter Henderson. “Through this new white space radio technology using the old TV spectrum, we send out signals down the UHF for miles. We receive it on old fashioned TV aerials and turn them into something unbelievably useful.” Microsoft, which has been researching TV white space for years but said it sees most potential for the technology in Africa, is also piloting in Limpopo in South Africa and at

the University of Dar es Salaam.

Centres like IBM, and others including InnovateLagos, CCHub and Nairobi’s iHub, play a role in fostering technology-based business innovation by supporting start-ups and scaling up new businesses. IBM is working with young entrepreneurs who use its resources and talent pool through partnerships. “We are also deeply integrated with local universities across the continent and have several knowledge transfer programmes in place to help build skills within the higher education community,” said Stewart. Future technological innovation will also depend on a new generation of universities to combine research, teaching and product commercialisation. Harvard’s Juma cites Nelson Mandela Institute of African Science and Technology in Arusha, based at the Ministry of Telecommunications, Science and Tech-

90%

20,000

44%

Of vegetables consumed in Freetown in Sierra Leone are grown there making it one of the cities with the highest level of urban agriculture in the world.

The number of outgrower farmers involved in a rice producing project in Nigeria on a scale that could make it Africa’s largest rice farm and turn the continent’s largest economy from rice importer to exporter.

Jump in TB case detection in hospitals using rat technology in Mozambique.

FEATURE | INNOVATION IN AFRICA

“The aim is to help people make better decisions by penetrating complex data and coming up with new ways to look at problems.” Osamuyi Stewart, IBM Research Africa’s chief scientist

nology as a template for other universities focused on innovation for economic development to emulate. HEALTHCARE SOLUTIONS The idea that Africa cannot depend on others to innovate, but must develop and nurture its own generation of pioneers, links innovation across the sectors. It is a fundamental tenet guiding a cluster of research labs at the University of Cape Town’s department of chemistry. H3-D, the first and only integrated drug discovery and development centre in Africa, is developing a malaria medicine that has potential to treat drug resistant strains of the disease.

“Our most noteworthy achievement thus far has been our malarial clinical candidate that is currently undergoing phase one clinical trials in Cape Town. This is the first time a compound was discovered and developed to this stage from scratch in Africa,” said Dries Oelofse, at the University drug discovery and development centre, which operates like a biotech or pharmaceutical company, delivering clinical drug candidates for testing in humans. “I must stress that there is still a long way to go. A drug can take 10 to 15 years to develop because it must be proven to be not only efficacious against a disease, but also safe to administer to humans,” he said. Even if the drug doesn’t reach this final stage, its role in building local capacity and the medical milestones already achieved have changed South Africa’s pharmaceutical sector forever. “There are many more diseases afflicting Africans that could be discovered and developed here. As our track record grows, and as local sources of funding look to address this component of the continent’s long-term

Huge Demand Innovation is also changing the delivery of healthcare in Africa. Even though most phones in Africa still access 2G and SMS networks rather than faster 3G and 4G, the ripple effect from the mobile revolution is transforming healthcare delivery, even offering valuable insight to more developed economies on how to provide a no-frills health service. Examples include French NGO Pesinet’s work in Mali, where it uses SMS technology to diagnose malnutrition. Health workers in the field send a child’s age, height and weight by SMS to a central server which determines the risk and sends a message back. In an effort to get around staff shortages, the HealthStore Foundation, a not-for-profit operating via a franchise model in Kenya and Rwanda, has trained community health workers to diagnose and treat the top five diseases, including malaria and dysentery. In the eight African countries where it works, VisionSpring brings affordable eye care via its low-cost franchise model teaching local vision entrepreneurs how to diagnose problems and treat them. The company provides employees with “business in a bag” that contains all the required products and equipment. In fact, some of the most groundbreaking healthcare advances have also been the simplest. At a clinic in Maputo, rats sniff a series of 10 holes containing

health needs, we could grow even further,” said Oelofse. NEW FARMING MODELS Similarly, the best innovations in agriculture can be startlingly simple. Nigeria is developing a new farming model with Singapore-headquartered Olam International to boost rice production in a system based on

human sputum or mucus samples. If they detect TB in any of the samples, it alerts medics by keeping its nose in the hole. Over the last year, the project has already seen rodents sample 27,000 potential TB cases in Mozambique, successfully identifying 800. It’s led to a 44% jump in case detection in the hospitals working with rats, which can evaluate 40 samples in seven minutes, equal to what a skilled lab technician can do in a day. “When one considers that a person with active TB who is left untreated can infect between 1015 people in a year you can see the impact that this has,” enthuses Georgies Mgode, deputy programme manager at APOPO TB in Tanzania, a social enterprise that develops, researches and implements detection rat technology for humanitarian purposes. “Our rat detection programme is extremely efficient, cost-effective and easily scalable.”

a single commercial farm with outgrowers to form a giant cooperative. The project has 20,000 farmers as outgrowers, producing the crop on a scale that could make it Africa’s largest rice farm and turn Nigeria from rice importer to exporter. Mobile technology has also provided a foundation to further innovation like mAgri ser-

THEAFRICAPITALIST | 43

FEATURE | INNOVATION IN AFRICA

Africa’s economy is growing rapidly, fuelled by investments from local and foreign investors. However, the region’s retail sector is dominated by old-fashioned channels such as open markets, where all sorts of items are sold, from clothing and foodstuffs to phones and household items. The sector remains undeveloped, with no major players holding dominant stakes. However, the entry of international chains such as Shoprite, Woolworths and Pick ‘n’ Pay is slowly changing prospects for the sector. Retailers are critical agents of economic change who assist in creating demand. They have a deep understanding of both consumers and producers. Retail represents an important economic indicator because consumer spending drives much of the economy.

vices. Farmers in Nigeria can call helplines for advice or receive daily alerts through SMS and voicemail to access information on pests and diseases, seeds, weather and market prices.

Innovation is also changing farmers’ ability to get their goods to the market. Groups such as the Dutch Agricultural Development and Trading Company are behind new solutions like an Autonomous Mobile Processing Unit, which brings a cassava processing machine to farmers’ backyards.

In Uganda, African Rural University, the country’s first women-only university is determined to address the skills shortage. “At university level girls have to compete with boys for the very limited places,” said founder Mwalimu Musheshe. “ARU helps produce more women leaders and role models.” His aim is to provide “a transformational education” with women becoming “agents of change” in Uganda’s rural development. Conversely, urban agriculture is also on the rise. According to the Economic Intelligence Unit’s 2013 report, Freetown in Sierra Leone has the highest level of urban agriculture in 44 | THEAFRICAPITALIST

As Africa is growing in population, the increasing purchasing influence of the elite and limitless investment opportunities continue to lure potential investors, with foreign and local investors falling over themselves to set up new ultra-modern shopping malls. More globally renowned retail firms like Walmart, Pick ‘n’ Pay, and Woolworths are poised for a massive entry into the Nigerian market. OVERCOMING HURDLES Challenges such as inadequate infrastructure, ineffective transportation systems and good roads, erratic power supply, all collude to inhibit the success of retail businesses as much as they affect other sectors of the economy. South Africa’s fast moving consumer goods retailer Pick ‘n’ Pay has a portfolio of about 450 stores in

South Africa, Zambia, Mauritius and Mozambique and a staff strength of roughly 45,000 people. Pick ‘n’ Pay was among the earliest retail outlets in Sub-Saharan Africa to include services such as credit facilities, ticket resale and online customer lotteries. The rise of the retail shopping class in Nigeria is symbolic of many things. It represents the burgeoning spending supremacy of the average Nigerian, and to a larger extent the importance of Nigeria as an emerging, major hub for industrial or retail business. It is clear to observe here that the retail sector can play a big role towards transforming the continent at large.

Samuel Agu, Heirs Insurance Brokers

the world with 90% of vegetables consumed in the city also grown there.

Agricultural Technology Foundation, one of the organisations working with Uganda.

In partnership with other groups, it is using a sweet pepper gene that has already improved disease resistance in several vegetables, pioneered by Academia Sinica, a Taiwanese research institute.

Africa has already shown its innovative talents. With continued investment in technical training and infrastructure, and by nurturing start-ups on their journey to fully-fledged businesses, the continent will hit its innovation stride.

Biotechnology is also at the forefront of Africa’s agricultural innovation. Rather than push commercialised genetically modified (GM) crops, a handful of regional research bodies are developing crop varieties to boost food security in the continent. Ugandan scientists are developing banana strains that are both nutritious and resistant to Xanthomonas wilt, a disease that can claim up to 30% of a harvest, according to the Kampala-based National Banana Research Programme, where the genetic modification trials are underway.

“Only a portion of our work is around GM but the science is progressing and the results are interesting. There are great possibilities to change Africa’s agricultural landscape if we can meet the safety concerns around the technology,” said Emmanuel Okogbenin, Technical Operations Director at Nairobi-based African

However, his excitement is muted by slow progress. “The old public model doesn’t work because political instability results in policy change all the time with no consistency. Having the right team and partners is crucial,” he said. “We also need more research into African crops and staples like millet and yams rather than European crops. Policymakers are looking at the laws governing biotechnology, but so far only four countries allow GM crops.”

“Economies are continuingly refreshed from within by the introduction of new knowledge,” said Juma. “It’s time for African countries to shift their economies from dependence on the export of raw material to becoming knowledge-based and driven by innovation.” TA

SPOTLIGHT | NIGERIA INNOVATION CLUSTERS

TAPPING HOMEGROWN

innovation

Tony Elumelu Foundation funds mapping of high growth ICT clusters in Nigeria

nnovation is valued so highly that reports measuring and promoting it pour out of global universities and thinktanks.

Now Africa is getting in on the act with the Tony Elumelu Foundation sponsoring a report by The African Institution of Technology to map clusters in Nigeria. These valuable pockets of innovation, where similar companies and institutions group together, complementing one another, have been highlighted for the first time in Nigeria: Innovation Cluster Mapping. The results can be found at www.NGClusterMap.com. It gives policymakers real time data on which areas to stimulate to unlock growth, and businesses seeking opportunities in Africa’s biggest economy through a map pinpointing where to invest.

Lagos’ Yaba suburb supports Nigeria’s most dynamic ICT clusters with hundreds of startups on the point of ramp-up. Abuja’s ICT sector is close behind. Kano, Bauchi and Kaduna have clusters of companies involved in food processing and leather production. Manufacturers have clustered in Nnewi, and Awka while in Port Harcourt a petrochemical industry is growing around access to natural gas. Shoe making companies cluster in Aba. The report named Ibadan as Nigeria’s future healthcare hub because of its world-class university(the University of Ibadan), teaching hospital and proximity to Lagos. OBVIOUS CULPRIT The report’s author, Professor Ndubuisi Ekekwe, argues that Nigeria’s familiar challenges around infrastructure, poor skills and access to capital are hindering a more dynamic cluster culture. “Nigeria isn’t an innovation society, it’s inventive. Entrepreneurs come up with a lot

“The ICT economy is driven by electronics. Building a strong electronics platform puts a nation on the path of becoming a creator of ICT rather than just a consumer.” Professor Ndubuisi Ekekwe, author of Nigeria: Innovation Cluster Mapping Report of ideas, but innovation only happens when these ideas go to market and become scalable companies. We have no capacity to make these ideas come to pass,” he says.

The power crisis is the most obvious culprit but the absence of other infrastructure like a postal system to service an online deliveries market also kills off innovation. Nurturing a cluster culture needs proactive support: “Taiwan has shown that any nation with a strategic intervention programme can grow the electronics industry,” he says. One idea could be for government to subsidise specialised electronics manufacturing like Printed Circuit Board (PCB) production in cities that already have a manufacturing base like Nnewi and Awka.

“The ICT economy is driven by electronics. Building a strong electronics platform puts a nation on the path of becoming a creator of ICT rather than just a consumer.”

He points to Brazil, where government-led capacity building in the electronics sector has paid off with big investments from IBM and Apple. “All the iPhones sold in Latin America will have been made in Brazil,” he predicts. Although Ekekwe calls for government support, he believes that in Nigeria it will be the private sector that will ultimately step in. “Businessmen are starting to say they are not going to wait for the government. We are seeing it with power particularly.”

Ekekwe calls his report “a starting point” in understanding clustering in Nigeria. He wants it to be the first of many to ensure cluster data is up to date enough to shape policy and influence investment. He cites Harvard Business School’s cluster mapping website and similar initiatives at the University of Cambridge as examples of how this kind of data can drive policy. “At the moment there are no records like this in Nigeria. It is a key to opening investment.” TA THEAFRICAPITALIST | 45

FEATURE | INFRASTRUCTURE

Plugging Africa’s

infrastructure deficit Mega-projects grab the headlines but renewed interest in smaller scale projects shows promise

BY MICHAEL DYNES

he World Bank estimates that year-onyear economic growth in Sub-Saharan Africa is slashed by around two percentage points due to lack of infrastructure.

Around $100 billion needs to be invested each year between 2010-20 to eliminate that deficit and bring African infrastructure up to a level comparable with other developing regions. While investment has been rising, there is still a shortfall of some $40 billion a year. The World Bank, the African Development Bank, and African governments are seeking to address the infrastructure gap by throwing their support behind an extensive and growing portfolio of large-scale infrastructure projects or mega projects with values in excess of $1 billion.

These mega projects include such ambitious schemes as the proposed $12 billion dollar, 4,800 MW Inga III hydroelectric dam in the Democratic Republic of Congo, the $30 billion Lamu Port-South Sudan-Ethiopian Transit Corridor in Kenya, and the $10 billion North-South Corridor transport infrastructure project linking Durban - Southern Africa’s busiest port, and Dar es Salaam in Tanzania. The sheer magnitude of these mega projects makes them extraordinarily seductive. They typically cost in excess of $1 billion, affect the lives of more than 1 million people, and have the potential to be economically transformational – bringing about a dramatic improvement in the lives of large numbers of people over a wide region that could not be achieved by any other means.

Inga I Dam, with the feeding canal for Inga II in the foreground. The DRC’s existing transmission system runs from the Inga I & II power complex in the far west of the country, via the capital Kinshasa to the Katanga copper belt in the southeast. The proposed $12 billion Inga III Hydroelectric Dam will generate 4,800MW of power.

46 | THEAFRICAPITALIST

FEATURE | INFRASTRUCTURE

MEGA PROJECTS NOT THE ANSWER Yet mega projects also have a tendency to completely overshadow the much larger number of smaller-scale projects in the $100 million to $200 million range, which collectively can have an equally important developmental impact – but are often neglected because they fail to attract the early stage preparatory work required to make them attractive to private sector investors.

“It is these $100 million to $200 million smallscale infrastructure projects that really help to chip away at poverty levels across Sub-Saharan Africa,” Gad Cohen, a founding partner of EleQtra, the United Kingdom-based private sector infrastructure developer, told The Africapitalist. “But they do need someone bold enough to step in and shoulder the early stage development risk,” he added.

HISTORICAL DOWNTURN IN INVESTMENT The market failure that is currently affecting African infrastructure projects has its origins in the fallout from the 1997 Asian financial crisis, and the 2001 collapse of the US energy giant Enron. Prior to these events, cash-rich US and European utilities were very active in Sub-Saharan Africa. By the dawn of the new millennium, however, many had over-extended themselves, and most were forced to retreat from Africa – just as the region embarked on its post-millennium growth spurt. “Between 2001 and 2004, there was virtually no project development in Africa,” Cohen said. “While the World Bank and the other development finance institutions blamed this market failure on a lack of debt, equity or political risk insurance – or a combination of all three, we attributed the failure of the private sector to invest in African infrastructure schemes as a direct consequence of the lack of investment-grade projects to invest in,” he added. “There was a famine of bankable projects in Africa,” Cohen said. “We saw this as an opportunity to apply a novel solution to Africa’s market failure by specialising in high-risk, early stage, project preparation work, which could then be spun off to other private sector firms after EleQtra’s project teams had devel-

“It is these smaller scale infrastructure projects that really help to chip away at poverty levels across Sub-Saharan Africa.” Gad Cohen, founding partner of EleQtra

oped the schemes to the point of commercial viability.”

NEW INFRASTRUCTURE CAN TRANSFORM “It has taken a while for people to realise that it is relatively easy to make loans, put up equity or write insurance policies,” Cohen said. “What is really hard is getting to that stage. That takes time, money and skill. It requires persistence, and a long view about what can be done,” he added.

EleQtra and InfraCo played a key role in the construction of Cape Verde’s award-winning Cabeolica wind farm - a €61 million, 25.5 MW, power project on the wind-swept archipelago, which propelled the island chain into the record books overnight as the country with the highest penetration of renewable energy in Africa. Cape Verde is now able to harvest the trans-Atlantic trade winds to help supply its 450,000 population with low-cost energy, while at the same time greatly reducing its excessive dependence on imported and expensive fossil fuels.

“Getting projects like this off the ground is never easy,” Antao Fortes, Cabeolica’s Chief Executive Officer said. “Cabeolica is a public-private partnership which has benefitted from strong backing from the Cape Verde government. We generate the electricity, and the national utility, Electra, buys from us. At present Cabeolica is providing 20% of the islands’ total electricity demand, although the government has ambitions to see that increase to 50% by 2020,” Fortes added. INSPIRING AFRICAN INVESTMENTS Ghana has begun work on the new $900 million, 350 MW, Kpone power plant in the port city of Tema – another EleQtra-InfraCo infrastructure project, which when completed in

2017, will supply up to 20% of the West African country’s power generation, and should see the end of the incessant power outages which have blighted the country for years. InfraCo sunk $10 million into the Kapone power project, while EleQtra spent nearly a decade developing the scheme before it was finally spun off to a consortium made up of Sumitomo, the African Finance Corporation, and Africa Infrastructure Investment Managers. That’s an incubation period few other private sector infrastructure developers would be prepared to contemplate.

Ghana is not the only country looking to the private sector to help boost power infrastructure. Nigeria’s Transnational Corporation – in partnership with General Electric of America, bought Delta State’s under-performing Ughelli power plant for $300 million in 2013 during the privatisation the country’s Stateowned power generation and distribution assets, and has already succeeded in increase output from 160 MW to 450 MW, and expects to increase that to 1,000 MW by early 2015. The African Development Bank (AfDB), which is seeking to scale-up financing for new infrastructure projects across Africa, earlier this year launched the Africa50 Fund, designed to facilitate funding from non-traditional investors, and dilute Africa’s over-reliance on the traditional donor community. The AfDB is hoping to provide seed capital for wide range of African infrastructure projects, and attract new investment from sovereign wealth funds, pension funds and other institutional investors seeking long-term revenues streams from infrastructure projects that promise to bridge Africa’s infrastructure deficit, and underpin long-term economic growth across the continent. TA THEAFRICAPITALIST | 47

CITY GUIDE | KAMPALA

Sample Kampala’s

diversity

round 900,000 visitors find their way to the wide variety of attractions in Kampala each year, especially with Uganda being Lonely Planet’s top destination of 2012. The city offers something for everyone; the hectic bustle of the city as well as the peace and beauty of nature. Kampala continues to surprise with it’s new festivals, sporting events, arts, culture and bustling nightlife. 2014 also saw Kampala hold its very first KLA ART Biennale. TA

THE SPEKE RESORT Situated in the idyllic setting of Munyonyo on the shores of Lake Victoria, the resort is luxury at its best. Although it may not suit everyone’s budget, it is well worth a visit. For $8 you have access to their Olympicsize swimming pool, gymnasium and sports facilities. The Speke Resort is a great place to relax on a Sunday, walk around and watch youngsters playing football, eat some roast meat or walk down the marina to view the boats and fishermen.

FAT CAT BACKPACKERS Fat Cat Backpackers is a new budget hostel located in Kololo, near Kisemente and Acacia Mall. The hostel opened its doors in July 2014 and has since then received positive reviews on Tripadvisor. Clean rooms and beds, hot showers, professional workers, 24-hour security and reception complement its services. At Fat Cat Backpackers, they know the rest of the city pretty well too, so if you need directions or want some tips they can help you out. The location is within walking distance to some of the city’s best bars, clubs, restaurants, and the Acacia shopping mall.

48 | THEAFRICAPITALIST

The Speke Resort Wavamunno Road 94, Kampala 7036 | Tel: +256 41 4227111 | www.spekeresort.com

Fat Cat Backpackers Plot 13 Bukoto Street, Kololo |Tel: +256 (0)771 393 892 | www. fatcatkampala.com

CITY GUIDE | KAMPALA

DUKEM | Ggaba Road Close to the Ggaba Road, Kabalagala junction next to a big carwash station, Dukem is a budget Ethiopian restaurant in the Kabalagala neighbourhood close to Makerere University. It is well known for its large Ethiopian community. So if you want proper Ethiopian food, Kabalagala is the place to be. The workers are friendly and happy to help you order if you are new to Ethiopian food. Expect spicy stews and veggies served with Injera (sourdough-risen flatbread). Besides the fantastic price ($2 for one mixed dish enough for two people) you get to share the food from one plate.

BARS AND LOUNGES

YASIGI BEER GARDEN

DEUCES | Ggaba Road, Kabalagala

A cool new hangout, Yasigi is Kampala’s very first beer garden with a microbrewery, located in a lush, green garden in Kololo. It’s the place to meet before going out to Kisemente, enjoying self-brewed beers and trying out delicious sweet potato, beer-battered chips or wood oven pizzas.

A great place to dance and hang out in Kabalagala with the locals or watch a football game. It can get pretty packed on a weekday so arrive early. Monday night is hip-hop night. Deuces stays open until very late, so it is suitable for those who wish to sample Kampala’s night life.

Yasigi Beer Garden, Plot 40 A&B Windsor Crescent Road, Kololo, Kampala | Tel: +256 41 4661110

THE ZION TRAIN Off Bunga Hill Road, Opp. La Reference Kampala | Tel: +256 788 077858 EXPERIENCES

For a relaxed night out catching spoken word performances, listening to the percussion or watching the B-boys take the dance floor; the Zion Train is an interesting venue. Check out their Facebook page: https://www.facebook. com/zt256 or give them a call for the calendar and activities. Zion Train is a cultural and creative hub founded on a Rastafarian concept and reggae music. It has a bar/restaurant that serves tasty roast meat.

FRIDAY CRAFTS MARKET

SHOPPING

Nsambya, Ggaba Rd A nice place to shop for handicrafts where you deal directly with the artists. At this market you can strike a good deal on great pieces of Ugandan works of art. You can easily spend a few hours here walking around, admiring the items on display while chatting with the artists. The Friday handicrafts market is certainly worth a visit.

BUKOTO FRIDAY SECOND HAND MARKET Kira Rd, Bukoto On a Friday you can budget-shop for a new outfit for the weekend at the Bukoto market on Kira Road. Get ready to bargain and to go through many different clothes stands, with designer outfits available at rock bottom prices.

THEAFRICAPITALIST | 49

FINAL WORD | MARK MOBIUS

NIGERIA:

THE RISE TO THE TOP LONG OVERDUE The recent rebasing that placed Africa’s most populous country as the continent’s leading economy is a reflection of its rapid growth over the years. However, work is cut out for the country to put its house in order as a pace setter for the rest of the continent.

’ve been a frontier market fan for some time now, especially when it comes to Africa, and particularly when it comes to investing in Nigeria.

While not the largest country in Africa in terms of land mass, Nigeria is an African giant by other measures — and certainly not a sleeping giant. Nigeria boasts the largest population in Africa, at 174 million as of July 2013 and recently stole the top spot from South Africa as the largest economy on the continent. How did that happen? Without question, Nigeria’s economy has been growing at a fast pace — among the fastest in Africa in the past few years. Gross Domestic Product (GDP) growth in Nigeria stood at 6.3% in 2013 and is projected to reach 7.1% this year, while South Africa grew a more modest 1.9% in 2013 and is projected to grow 2.3% in 2014. Nigeria boasts one of the fastest-growing economies not only in Africa but in the world, with GDP growth rates above 6% every year since 2003. Some say Nigeria’s GDP figures had been hiding a secret; the assumptions for the shape of the economy were years out of date as Nigeria’s GDP data had not been rebased since 1990. Last year, Nigeria’s National Bureau of Statistics announced the intention to rebase its data from 1990 to 2010, and hints emerged that the rebase was going to paint a picture of a much larger economy than previously reported. Sectors that had barely existed in 1990 would be granted larger weighting. Early in April 2014, the new figures for Nigeria’s GDP were published, and at $509.9bn, the new 2013 GDP figure was roughly 1.9 times the previous estimate. Of course, one cannot just look at the numbers, as there are a number of important caveats. South Africa’s per-capita GDP remains far above that of Nigeria, and its stock market 50 | THEAFRICAPITALIST

has a market capitalisation value more than twice that of Nigeria. As the only market that is generally classified as “emerging” in Africa (versus “frontier” for the rest of the continent), we think South Africa is likely to remain the key initial investment destination in Africa for some time to come — and one we remain keenly interested in, too.

STUCK IN ELEVATORS However, no matter how you measure it, we think the development of Nigeria has great implications for the entire continent. Nigeria could set an example for other countries and act as a “growth engine” for the rest of southern Africa. Of course, Nigeria faces challenges as any nation. However, it is in the way in which its leaders solve those problems that will determine how fast progress is made. Most important, for example, are basic public services. The most evident of those is electric power. Most hotels and businesses require their own gasoline or diesel electric power generators because of the unreliability of the government power system. My team and I have had our share of being stuck in elevators in Nigeria when the power fails, so we know first-hand how important it is to an economy and the businesses in it to be able to keep things running.

Nigeria’s government appears determined to tackle a number of major issues that have hampered economic development in recent decades. Nigeria’s huge resources of oil and gas are a case in point. The country is a global player in terms of oil and gas production, but corruption, inefficiency and widespread theft have stunted output, while subsidised prices for fuel have so distorted incentives for refining and marketing oil that Nigeria is among the largest importers of refined petroleum products in Africa.

MARK MOBIUS.

PhD, Executive Chairman Templeton Emerging Markets Group The author currently directs analysts based in Templeton’s 17 emerging markets offices and manages the emerging markets portfolios. He has spent more than 40 years working in emerging markets all over the world. He joined Franklin Templeton Investments in 1987 as president of the Templeton Emerging Markets Fund, Inc. In 1999, he was appointed joint chairman of the Global Corporate Governance Forum Investor Responsibility Task Force of the World Bank and Organisation for Economic Cooperation and Development. Dr. Mobius has won several awards, including “50 Most Influential People” by Bloomberg Markets Magazine in 2011 and “2010 Africa Investor Index Series Awards” by Africa Investor. Dr Mobius earned Bachelors and Master’s degrees from Boston University, and a PhD in economics and political science from the Massachusetts Institute of Technology. He is the author of several books, namely Trading with China, The Investor’s Guide to Emerging Market and Mobius on Emerging Market, among others. Mark Mobius’ comments, opinions and analyses are for informational purposes only and should not be considered individual investment advice.

With mobile phones prevalent throughout the country, Nigerians are becoming more aware of government inefficiencies and corruption. However, work is cut out for the country to remain a pace setter for the rest of the continent. TA

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