Africapitalist issue 01 draft 1 by amadidigital

theafricapitalist Business . investment . economic & social development

Development Impact Investing Can it work for Africa?

theafricapitalist Business . investment . economic & social development

Impact investing Can it work for Africa?

theafricapitalist Business . investment . economic & social development

Impact investing Can it work for Africa?

Contents Nov. 2013 – Jan. 2014

Cover Feature The transformative power of ‘Impact Investing’

Paul Kagame We sit down with Rwanda’s president on reforms and leadership

Tony Blair Britain’s former Prime Minister on Africa

Sections

Opening shot

Country feature

Africa in numbers

Tony Elumelu

90 Days

From elections to people we bring you the events that have shaped the continent

Q&A

Mo Ibrahim talks African leadership

Focus

West Africa’s power sector

Liberia

Trade in the continent

City guide

Perspective

We take a whistle stop tour of Nairobi, Kenya

Yawa Hansen-Quao on getting ahead

Africapitalism

Final word

Could it be the answer to Africa’s challenges?

Entrepreneurs

Africa’s young are turning to innovation to solve Africa’s power crisis

Harvard’s Micheal Porter on competitiveness

The Africapitalst is published quarterly by the Tony Elumelu Foundation, 1, MacGregor Road - Ikoyi, Lagos, Nigeria. www. tonyelumelufoundation.org Tel: +234-1-2774641-5 Email: xxxxxx Founder: Tony O Elumelu, CON Chief Executive Officer: Wiebe Boer Director Corporate Communications: Moky Makura Editor: Allan Kamau Sub-editor: Felicity Heywood Project manager: Kelechi Amadi, Design: Richard Horsford Contributors: Kissy Agyeman – Tobogo, Jackson Biko , Peter Guest, Adam Green, Yawa Hansen-Quao

opening shot

elcome to the first edition of The Africapitalist, a magazine dedicated to highlighting an African-led, private sector-driven development plan for Africa. Africa today stands at a crossroads. Our fast-growing and youthful population has high aspirations but is increasingly frustrated, believing they are locked out of the growth story. The urgency of creating inclusive growth so our young people are both motivated and equipped to seize the myriad opportunities opening up across the continent has never been greater.

I believe that the African private sector is uniquely positioned to create the numbers of jobs and entrepreneurial opportunities required to turn this restless frustration into constructive action. To do this, we need an enabling environment created by an engaged public sector and an active development community working in concert to create both economic prosperity and social wealth. I call this approach “Africapitalism” and I believe the conditions are ripe for it to bear fruit. The magazine will seek to catalyse action toward this goal. Success begets success so we will celebrate individuals who are contributing to moving Africa forward – through investment, business, policy and leadership in order to inspire others to emulate their achievements.

We’ll also share these stories on a dedicated Africapitalism page on the AllAfrica.com portal and we will also soon be announcing the launch of a new academic programme focusing on the principles of Africapitalism, as well as the opening of a new Africapitalism Institute in Nigeria.

I am particularly happy to announce these developments because of my belief in the transformative impact of education – we need to equip the next generation of Africapitalists with the skills that they need to create globally competitive businesses. The next edition of this magazine will provide further details of the development of these projects and I look forward to sharing their progress with you.

I hope that you will enjoy reading this magazine and that you will find the content both thought provoking and inspiring. I welcome your thoughts and ideas on how we can unleash the power of Africapitalism to drive our continent forward – together, we can make a difference.

Tony Elumelu

development | impact investing

ninety days

From strikes to elections Felicity Heywood takes a look at the significant events over the past three months and look forward to the next.

AUGUST Egypt The unrest in Egypt continued with two protestor camps being broken up by security forces and reports said more than 500 supporters of the ousted President Morsi were killed. The Muslim Brotherhood, which backed the protests, said the final death toll would be closer to 2,000 people.

Somalia

ninety day in numbers

South Africa

British Olympian Mo Farah has joined campaigners working to keep Barclays Bank from closing its money transfer business that people from developing countries heavily rely on. Farah, originally from Somalia, joined some 25,000 people who signed a petition to stop the Barclays move and presented it to the British government this month. Barclays argues that it cannot monitor the cash transfers sufficiently and fears it could be utilised by money launderers.

Construction and airport workers have gone on strike in South Africa in protest against low pay. It is common for strikes at this time when annual pay deals are being negotiated, but with the rand falling by 17 per cent against the dollar, it is hitting the country hard. Car workers had laid down tools for a week already, and gold miners are threatening to join.

1 million

3,000

350

6th

The amount of Chinese migrants to Africa 50% of the worldâ&#x20AC;&#x2122;s cobalt reserves are in Congo.

Eritreans flee their country each month according to the UN.

The number of African migrants drowned in Mediterranean waters off the Italian Island, Lampedusa in October.

people killed in the Westgate Mall attack in Kenya.

Largest Spending nationality of luxury goods in the UK is Nigerians .

theafricapitalist | 4

development | impact investing

SEPTEMBER

Zimbabwe

Rwanda Female MP’s have won 64 per cent of the seats in the Parliament maintaining their lead worldwide for the most women in Parliament. This is an increase of 8 per cent on the previous Parliamentary term. Women now occupy 51 seats out of 80. According to reports, the average female representation in Parliaments’ worldwide is 21 per cent.

Kenya The 21st September saw an unprecedented attack by unidentified gunmen at Westgate Mall in Nairobi. The attack which lasted three days resulted in at least 72 fatalities which included 61 civilians, six Kenyan soldiers, and five attackers. Over 200 people suffered injuries. The Muslim group al-Shabaab has claimed responsibility. The group said the attack was in retaliation for Kenya’s military deployment in Somalia.

USA

The Museum of African Art in New York

OCTOBER

has changed its name to the New Africa Center in a move to expand its remit. There are plans to include a policy institute and members’ club for business executives, cultural and policy leaders. The $60m transformation of the building has meant the museum has closed its doors until 2015. In the interim, pop-up art shows and events are to be held. Hadeel Ibrahim of the Mo Ibrahim Foundation is one of the backers.

Ethiopia Pressure placed on the African Union (AU) to withdraw from the International Criminal Court (ICC) has been blocked by disagreements between Francophone and Anglophone countries. Sources say some countries including Ghana and South Africa wanted the AU to withdraw completely, but instead it has issued five demands to the ICC to

Kenya

The opposition party the MDC-T boycotted the state opening of Parliament on the 17th, indicating its continued disagreement with the results of the election in July that returned President Robert Mugabe and the Zanu PF party for an eighth term.

Next 90 days Mozambique electionsLocal 20 Nov 2013

Mauritania elections Senate, National Assembly, regional & local 1st rnd 23 Nov 2013; 2nd rnd 7 Dec 201

20th Africa Oil Week 2013 25th – 29th November 2013 Cape Town, South Africa

ASEA 17th Annual Conference 1-4 December 2013 Abidjan, Cote d'Ivoire

African High-Growth Markets Summit 2-3 December 2013 Addis Ababa, Ethiopia

Super Return Africa 2013 introduce new relations with the court on crimes against humanity and high-level impunity with a November 12 deadline.

For the fourth time, the Mo Ibrahim Foundation has failed to award its $5m prize to a retired African president who exemplified good governance during his term. Reports pointed to the possibility of Mwai Kibaki of Kenya who stepped down as president earlier this year, but the unrest in the country during its 2007 elections appeared to rule him out.

3-5 December 2013 Accra, Ghana

Kenya Investment Summit 2014 26-27 February 2014 Intercontinental Hotel, Nairobi, Kenya

Nigeria Summit 2014 24-25 March 2014 Lagos, Nigeria

theafricapitalist | 5

Paul Kagame “It’s our responsibility, we Africans to do something about our situation. We inevitably need support [but] at the end of the day, we should be in the driving seat”

profile | Paul kagame

The Reformation

Master Rwanda’s President Paul Kagame has engaged a successful economic formula that is putting other countries into the shade. Here he tells Adam Green his recipe of civil engagement, self-reliance, and international partnership.

rranging interviews with African heads of state can be a long process characterised by delays, last minute changes and cancellations, often coordinated via the presidential aides’ email accounts. That is not the case for the Rwandan President Paul Kagame. His staff operate with speed and efficiency, and the President arrives to a carefully laid out suite only a couple of minutes after the agreed time.

The process is a microcosm of the Rwandan government as a whole. Nearly everywhere you look, indicators are improving, from increased school attendance and completion at all three education levels, to increased access to healthcare and sanitation. Growth figures are impressive for a resource-poor, landlocked country. GDP grew by an average of 8.8 per cent between 2006 and 2011, exceeding the national Vision 2020 of 8 per cent. Between 2005/6 and 2010/11, poverty fell by 11.8 percentage points. I ask Mr Kagame how the country has managed to create a reform agenda whose momentum seems to penetrate all agencies and ministries. The tall, softly-spoken leader - with a reputation as a hard task master – tells me that popular engagement is critical. “We have to involve our people, make them buy into and participate not only in the formulation of these policies, but

bringing in what they think are the immediate problems, and also making sure they are engaged in activities which actually make these policies meaningful. [There has to be] daily communication on one thing. If progress is made, you use it as an example. If it has made any impact in their lives, you want them to give that testimony”. Rwanda’s genocide is an indelible part of the country’s narrative and unprompted, Mr Kagame points out how the events’ shaped today’s success. “Our tragic history and many of the problems we have faced, bad as they are, … has had its own silver lining in the sense that people have internalised it, they have felt pain, we are there to say ‘No, you can’t keep like this, we don’t deserve to be like this. There is a way out of this’. It also has to come from a mind-set that nobody is going to come and take you out of it without your participation”. The world’s failure to support Rwanda in its hour of need has created an atmosphere of self-reliance in government. While historically an aid-intensive institution, Rwanda’s government has been pushing for a different relationship of late. In his UN address this year, Mr Kagame said: “One of the failings of aid has been the lack of attention to a country-specific context

in the agreements. So now is the time for the developing world to make its voice heard, to shape the debate and to ensure policies and programmes are demand-driven”. While some countries in Africa would buckle entirely after an aid cut, Rwanda appears to have weathered its own when donors’ withdrawal of support following UN allegations of involvement in supporting rebel militia groups in the Democratic Republic of Congo. Speaking to media in December 2013, central bank governor Claver Gatete announced that the “we are going to maintain our macroeconomic regulations to ensure that the Rwandan economy continues to flourish”. The aid shortfall encouraged them to issue a $400 million Eurobond, which proved a success. President Kagame does not want to alienate himself, or Rwanda, from the Western powers of which he has occasionally been critical. “We want partners. We can’t do it alone”. He seeks to balance self-reliance with a conciliatory language inviting partnership. “It’s our responsibility, we Africans - especially the leaders and populations. We definitely need to do something about our situation. We can’t do it alone. We inevitably need support at the end of the day, we should be in the driving seat”. But the president is not without his critics. Both domestic and foreign naysayers focus on Rwanda’s role in the DRC conflict, and the allegations of political repression at home. Conversely, his popularity on the streets of Rwanda is quite real. Time will tell if President Kagame will be remembered for the controversies, or Rwanda’s advances.

theafricapitalist | 7

Global fixer Tony Blair tells Pete Guest about how he wants to use the lessons learned as the Prime Minister of the UK, to build a better Africa.

profile | tony blair

“There’s a lot of footloose capital at the moment that can find its way to Africa if the right rules and the right governance is in place.”

he Gleneagles summit in 2005 is remembered for its rock star grandstanding and its grandiose promises on aid. Amid huge public pressure, drummed up during a period of economic selfconfidence, the summit is often cited as a turning point in what had been a diminishing global support for overseas development assistance.

More than eight years later and in straitened economic times, its convener, Tony Blair, is not focusing on headline promises on aid. Instead, it is the experience on the home front from those later years in government that Blair is now taking to African governments through his Africa Governance Initiative (AGI). “I was 10 years’ as prime minister and the truth is I was far more effective on domestic policy in the last half of my term than I was in the first half,” he admits, during an early-morning interview in the Mayfair townhouse that serves as the London headquarters of AGI. “In the first half I was still in many ways learning how prioritisation and performance management had to work.”

Implementation Starting in Sierra Leone and Rwanda, the initiative has now expanded to six African countries. Blair also works with a number of other nations around the world, advising on the practicalities of making government work for investors and for their people. “Nearly all these emerging market countries have the same problem. Someone will do them a report that says:

‘Here’s how you sort out your country.’ The report will be, in theory, absolutely fine. But it doesn’t give you any sense of prioritisation or implementation.

“[These countries] have so many challenges and the scale of those challenges is so huge, and unless the government when it comes in prioritises ruthlessly and focuses on getting those priorities implemented, then you can end up trying to achieve everything and achieving nothing,” he says. “Incidentally, this is a lesson I learned in a highly-developed country like the UK.” It was Gleneagles that set the stage for Blair’s work on governance. The summit is often remembered for its focus on increasing the aid commitments of Western governments by creating the target of 0.7 per cent of gross national income (GNI) dedicated to overseas development assistance. At the same time, the Commission for Africa report highlighted many of the challenges to African development, including infrastructure and governance. It was based, Blair says, on a new approach that emphasised partnership over donation. “In other words you ended up with this set of obligations on the developed world, but a recognition that unless the developing world put its own house in order, then this money was not likely to go far.”

Some of the challenges across the continent have become very public issues; transparency, security and government accountability have made headlines. Blair, however, is quick to reel off the improvements in life expectancy and the reductions in the death rates from malaria and HIV/AIDS, as well as the GDP growth figures. Transparency and accountability are major

aspects of good governance, he says, but the larger challenge is efficacy. A lack of political and economic accountability of governments in the Middle East and North Africa provided the motivation for major and sometimes violent political change. Leaders who had previously been praised for opening their economies and driving investment-led growth were unseated. These are salutary lessons for other governments. Stability “The Arab upheavals were in my view as much to do with the failure of governments to deliver as they were to do with issues of democracy and human rights.”

Blair, who also works as a Middle East peace envoy, continues: “The best way to attain stability through a period of change is that you are step-by-step improving the lives of the people.” For Africa, this means basic services and utilities. Electrification has to be high up any government’s agenda, he says, as has other infrastructure. “The other thing is good quality inward investment. You’ve got a lot of good African businesses, but getting good

Blair in africa

The six countries where the Africa Governance Initiative operates, to support “effective governance”: 1. Guinea 2. Liberia 3. Malawi 4. Rwanda 5. Sierra Leone 6. South Sudan

1 5 2

6 4 3

theafricapitalist | 9

profile | tony blair

quality foreign investment in; investment that actually adds intellectual capital, [and] is socially responsible is of huge importance. There’s a lot of footloose capital at the moment that can find its way to Africa if the right rules and the right governance is in place.” The general environment for corporate social responsibility has improved, and international legislation, such as the UK’s Bribery Act and the US’ Dodd-Frank has forced transparency onto companies coming into emerging markets. But there also remains an unfortunate imbalance in capacity between smaller host governments and their large investors— something that Blair and his colleagues are trying to redress. “You need the investment—particularly when it’s resources—to be done in a responsible way,” Blair says. “Very often there’s completely unequal bargaining power between the big resource companies and the governments, because these companies have very highlypaid lawyers and financial experts. We come across countries where literally you have some civil servant within a ministry trying to deal with some of the best and

smartest financial and legal people in the world. There was a completely unequal struggle. So the other thing we do is provide support for that kind of contractual bargaining.”

A new openness Making sure that resources are properly managed to create longer-term, sustainable economic benefits is central to achieving the goals of Gleneagles. The outcome of the mid-2000s expansion of aid was supposed to, rather counter-intuitively, be an end to aid, as governments in Africa were expected to deploy the money to build infrastructure and deepen their economies. Nevertheless, the evolution of new thinking and a greater openness within the international development community has also created new possibilities for sharing solutions to common challenges. What works in China could, ultimately work in Nigeria; what reduces poverty in Brazil could be deployed in Mozambique.

“We live, by-and-large, in a post-ideological world. This is the great opportunity for Africa,” Blair says, praising the new World Bank president, Jim Yong Kim, who has stated his aim of delivering solutions over ideologies. That – alongside a growing cohort of smarter, more socially-engaged business leaders – give cause for optimism. “Public

Blair on transparency Corruption in some parts of the continent also remains in sharp focus. Sierra Leone, one of the countries that Blair has worked closely with, scored badly on the 2013 Transparency International Corruption Perception Index, a widely-used benchmark for graft. Blair thinks that the West African country has been harshly judged. “I know it almost sounds ridiculous to distinguish between different types of corruption, but people who work in these countries know the difference between a major contract being given on the basis of a corrupt payment, and low-level, endemic, bureaucratic corruption that you’ve got to drive out,” he says. “My view is that Sierra Leone has advanced hugely in the past few years, and I think that sometimes these measurements are a little ... open to question.”

opinion hasn’t caught up with where we are today. When I was coming into politics, you looked on aid as a gift. It was an act of charity for poor people, but you didn’t ever really expect those people to stop being poor. You did what you could to assuage their poverty. That’s not the case anymore,” Blair says. “Change is happening. Twenty years ago, Latin America was still a basket case. It’s not today. What people have got to understand today is that it’s not all hopeless. On the contrary, there are many, many reasons for optimism. The scale of the challenge is still very big, that’s true. But where we are and where we were are very different places.”

“What works in China could, ultimately work in Nigeria; what reduces poverty in Brazil could be deployed in Mozambique”

10 | theafricapitalist

interview | Q&A with Mo Ibrahim

The good governor Mo Ibrahim talks about the impact his foundation has had on the continent and what needs to be done to affect future change. 1. What inspired you to create the Ibrahim Index of African Governance (IIAG) and the Ibrahim Prize for Achievement in African Leadership? Seven years ago I chose to establish a foundation with the aim to promote good governance and leadership on the continent. The Ibrahim Index of African Governance, was created to provide a framework for citizens, governments, institutions and businesses to assess the delivery of public goods and services, and policy outcomes across Africa. The Ibrahim Prize was established to honour former heads of state or government, who, during their mandate, have demonstrated excellence in leading their country, and serve as models for the next generation of leaders Since its launch, the Ibrahim Prize now has three Ibrahim Laureates - Presidents Chissano of Mozambique, Mogae of Botswana and Pires of Cape Verde - who have set high standards of excellence in African leadership and are role models for leaders-to-be. 2. What have the Index and Prize achieved so far? Since the launch of the IIAG, the Foundation has engaged on a regular basis with governments, civil society organisations and the business sector. Our 2013 IIAG results show that since 2000, the countries that have experienced overall governance improvement are now home to 94 per cent of people living on the continent. The Foundation is pleased that a number of leading organisations have embraced the Ibrahim Index as a primary resource for measuring governance. To take one example, the 2013 African Economic Outlook [an African Development Bank and UN report], which focused on structural transformation and natural resources, identifies the quality of governance as measured by the Mo Ibrahim Foundation, as ‘the first driver behind positive structural change.’

3. What have been the key lessons learned from the work on governance and leadership so far? The Foundation realised right from the beginning that we could only achieve our vision through the widest partnerships. We have deliberately sought to provide government, business, academia, civil society, media, women and young people with the information, knowledge and resources they need to be empowered to improve governance in Africa.

Governance is not just about corruption or transparency, human rights, democracy or infrastructure; it is about all of these things. Governance is a basket of deliverables which any 21st century government is responsible for delivering to all citizens. If it is about deliverables then it is measureable. Another key lesson is that good governance in the public sector is a prerequisite for development but it is not enough. We cannot have it without good governance in the private sector. These two must really go hand-in-hand. Leadership and governance are complementary: leadership is about assessing and taking risks and choosing priorities, while governance is about implementing those choices and managing the decisions properly.

4. What is the best way to promote good leadership in young people in Africa? Right now the most important challenge is African youth. Through a comprehensive diversity of programmes such as the Ibrahim Fellowships and Scholarships, the Foundation provides opportunities and experiences for African leadership in the academic and professional fields, with exposure to prominent institutions as well as multilateral and international organisations. The Foundation also engages regularly on these issues at university platforms and youth forums.

Given the exponential rise in the use of mobile phones and social media, there is much to leverage when it comes to transparency, accountability and participation. New social media platforms that engage, empower, alert and amplify voices outside of traditional power circles, might help to reach audiences by making information available in as many formats and platforms as possible.

5. The Mo Ibrahim Foundation will hold its conference in Addis this year. The theme is An African Conversation, celebrating this year’s 50th anniversary of the African Union. What do you think African unity looks like now and what do you think it will look like in 10 years? Africa has come a long way, but there is still a lot to do. If the opportunities are huge; so too are the challenges. The truth is that over the past 50 years, Africans have not shared enough of our knowledge, our data or even our goods with each other. We have to work together more closely, sharing best practice—including which policies, structures and approaches are most effective for a country and its citizens.

theafricapitalist | 11

Global fixer Tony Blair tells Pete Guest about how he wants to use the lessons learned as the Prime Minister of the UK, to build a better Africa.

profile | tony blair

“There’s a lot of footloose capital at the moment that can find its way to Africa if the right rules and the right governance is in place.”

‘Here’s how you sort out your country.’ The report will be, in theory, absolutely fine. But it doesn’t give you any sense of prioritisation or implementation.

Blair in africa

The six countries where the Africa Governance Initiative operates, to support “effective governance”: 1. Guinea 2. Liberia 3. Malawi 4. Rwanda 5. Sierra Leone 6. South Sudan

1 5 2

6 4 3

theafricapitalist | 9

profile | tony blair

quality foreign investment in; investment that actually adds intellectual capital, [and] is socially responsible is of huge importance. There’s a lot of footloose capital at the moment that can find its way to Africa if the right rules and the right governance is in place.” The general environment for corporate social responsibility has improved, and international legislation, such as the UK’s Bribery Act and the US’ Dodd-Frank has forced transparency onto companies coming into emerging markets. But there also remains an unfortunate imbalance in capacity between smaller host governments and their large investors— something that Blair and his colleagues are trying to redress. “You need the investment—particularly when it’s resources—to be done in a responsible way,” Blair says. “Very often there’s completely unequal bargaining power between the big resource companies and the governments, because these companies have very highly-paid lawyers and financial experts. We come across countries where literally you have

some civil servant within a ministry trying to deal with some of the best and smartest financial and legal people in the world. There was a completely unequal struggle. So the other thing we do is provide support for that kind of contractual bargaining.” A new openness Making sure that resources are properly managed to create longer-term, sustainable economic benefits is central to achieving the goals of Gleneagles. The outcome of the mid-2000s expansion of aid was supposed to, rather counter-intuitively, be an end to aid, as governments in Africa were expected to deploy the money to build infrastructure and deepen their economies. Nevertheless, the evolution of new thinking and a greater openness within the international development community has also created new possibilities for sharing solutions to common challenges. What works in China could, ultimately work in Nigeria; what reduces poverty in Brazil could be deployed in Mozambique. “We live, by-and-large, in a post-ideological world. This is the great opportunity for Africa,” Blair says, praising the new World Bank president, Jim Yong Kim, who has stated his aim of delivering solutions over ideologies. That – alongside a growing cohort of smarter, more socially-engaged business leaders – give cause for optimism.

“Public opinion hasn’t caught up with where we are

today. When I was coming into politics, you looked on aid as a gift. It was an act of charity for poor people, but you didn’t ever really expect those people to stop being poor. You did what you could to assuage their poverty. That’s not the case anymore,” Blair says.

“Change is happening. Twenty years ago, Latin America was still a basket case. It’s not today. What people have got to understand today is that it’s not all hopeless. On the contrary, there are many, many reasons for optimism. The scale of the challenge is still very big, that’s true. But where we are and where we were are very different places.”

“What works in China could, ultimately work in Nigeria; what reduces poverty in Brazil could be deployed in Mozambique”

10 | theafricapitalist

interview | Q&A with Mo Ibrahim

theafricapitalist | 11

Feature | impact investing

Social net–worth A commitment to community development is increasingly an investment consideration alongside the financial bottom line. Africapiltaist take a look at current trends and what might be possible.

acked by John Coors, the billionaire scion of the Coors brewing family, One Thousand and One Voices (1K1V) looked at first glance to be the archetype of the US philanthropic foundation when it was launched at the World Economic Forum on Africa in May 2013.

Coors has a long-term interest in charitable giving to Africa. Even the name was redolent of the kind of small-scale, worthy

foundations that have proliferated on the continent, but then 1K1V announced a $300 million private equity fund. “We are of the mind-set that what we need is business done well, and business done right, and in fact if you do that, then social good follows. It’s cause and effect,” the group’s CEO Hendrick Jordaan says, speaking from Johannesburg where 1K1V has recently opened its first African office.

“Job creation has, in many cases, been secondary to the development of revenue generating industries” theafricapitalist | 12

Jordaan says that 1K1V is more a movement than a fund; a philosophy through which wealthy families can deploy and preserve their capital while still supporting their philanthropic activities. It is actively seeking out wealthy families around the world to back its investments, which will look to leverage both their financial capital and their influence.

Creating jobs

At the centre of the Coors approach is job creation, and in Africa, where much of its early work is focused, that is a major development need. While most of the continent’s economies have experienced positive gross domestic product (GDP) growth across the past decade, many have also struggled to deepen and diversify their economies beyond primary commodities. Job creation has in many cases been secondary to the development of revenuegenerating industries; infrastructure deficits and a lack of regional integration make the business environment difficult for entrepreneurs, who also suffer from little access to patient capital—or any affordable capital at all. GDP growth alone does not lead to poverty reduction; particularly if

Feature | impact investing

there is no increase in stable employment. Larger scale foreign direct investments (FDI) and private equity can lead to expanded opportunities for employment in developing markets. But those investments are often unable to filter to smaller businesses, which in developed markets are where the bulk of the jobs are located.

Return vs growth

“Most private equity funds have institutional LPs that are driven by asset allocation risk profiles that typically result in a five-year investment period and a 10-year fund life. It typically results in a narrow investment mandate and typically [there is] no or very little involvement by the institutional LPs, who are not in the business of growing companies. They’re in the business of allocating assets for return,” Jordaan says. “It matters because unlike your traditional fund, our fund is evergreen in nature, we can be as patient as we want to be… Our model is built around the active involvement of the leading families.” The high-touch approach (being closer to investee companies), taken by impact investors does have its advantages. It obviates the concerns around corporate governance that often dog investments in emerging markets. With the closer relationship, and demanding far more intricate reporting, impact investors typically know more about the people and their businesses portfolios than their traditional equivalents. This, in turn, helps to mitigate the political and reputational risks that investors are often concerned about when looking at high-growth markets. With continued stagnant growth in the industrialised world, and larger emerging markets, such as Brazil and India, showing signs of slowdowns, even relatively conservative investors are now looking into frontier markets.

Economic Forum noted that more than 11 per cent of US assets under management were invested using socially responsible investment (SRI) practices.

SRI funds emerged over the past two decades from a niche asset class to a mainstream set of principles through which many funds are managed. Institutions that signed up to the UN’s Principles for Responsible Investment represent around 15 per cent of the total global investable assets. Social responsibility is not a niche concern. “All the major banks are building their internal [high net-worth] service departments to create products for people interested in impact investing,” says Cathy Clark, Adjunct Professor and Director of CASE i3: Initiative on Impact Investing at the Duke University’s Fuqua School of Business, USA. “The demand side is clearly growing.” But Clark is wary about calling impact investing an asset class in its own right, seeing it, like SRI, as a filter laid over other types of investment, such as private equity or venture capital.

Performance indicators

Impact investing is by its nature active, meaning that investments must be not only screened, but assessed for an additional set of performance metrics. For philanthropic organisations or family offices — they are typically making smaller investments and can

Social Concern

Conservative investors are, research suggests, increasingly concerned about the social impact of their capital. A September 2013 report from the World

theafricapitalist | 13

Feature | impact investing

be more flexible around their objectives. Impact funds tend to be small relative to mainstream private equity. Because many invest in small companies in frontier markets, their transaction costs are relatively high in proportion to their total fund size. The World Economic Forum’s report noted that the industry is still characterised by small, specialist boutiques. When it comes to institutional investors, these are significant barriers. As Simon Merchant, CEO of Jacana Partners, a social impact fund that invests in small- and medium-sized enterprises in Africa, says: “Pension funds want to write large cheques to private equity funds – they don’t want to be doing $10 million investments into a $50 million fund. When you’ve got a multi-billion dollar balance sheet it doesn’t make sense from a cost and time point of view to be making small investments.” Jacana invests in African markets, using strictly commercial measures for its investors - mainly development finance institutions. The firm believes in the potential of the markets, Merchant says, and hopes to prove that to larger, more mainstream investors.

“We believe that the best way, ultimately to have impact, is to do good business, make successful investments, help SMEs to grow and make returns for our investors,” he says.“Because only then can we and our investors go to commercial

investors like pension funds and insurance companies and say look at what we’ve achieved, look at what is possible in these markets, you really should think about allocating a portion of your capital to these markets.”

“We believe that the best way, ultimately to have impact, is to do good business, make successful investments, help SMEs to grow and make returns for our investors,” Simon Merchant, CEO of Jacana Partners

The impact investment model Impact investments are investments made into companies, organisations, and funds with the intention to generate measurable development impact alongside a financial return. This impact investing approach, in its broadest

Global Impact Investment

2011 2013

$1b

definition, is one that has been attracting a great deal of interest from high net-worth individuals and family firms. However, to truly reach scale, it may need to evolve to meet the needs of large, institutional investors.

Impact Investment Global Projections 2013 – 2020

$1b

While still nascent, the asset class has grown dramatically since the term started to be widely used in the mid-2000s. Research from the Global Impact Investing Network (GIIN), suggests that there is $9 billion in planned impact investments in 2013 up from around $8 billion in 2012 and $4 billion in 2011. To come close to the forecast, impact investing would need to start attracting capital from mainstream investors and move beyond its associations with philanthropy. The double bottom line does not sit well with some purely profit-driven investors. Some institutional investors say

theafricapitalist | 14

= $400 Billion

Trillion

Some projections, including a 2013 JPMorgan report, Impact Investments: an emerging asset class, put the total size of the industry at between $400 billion and $1 trillion by 2020. Even at the conservative end of this estimate, it would need to grow by more than 50 per cent each year to reach that point. they struggle to understand how they would be able to integrate the social measures into their existing portfolio management. They also often assume that attaching social obligations creates a performance drag, something that impact investment companies strenuously deny.

Focus | Energy resources

Power to the

People

West Africa’s Power Sector is slowly meeting the demand of its citizens. But can the infrastructure keep up with population growth asks Kissy Agyeman-Tobogo. According to the African Development Bank (AfDB), total installed power capacity on the continent is 147 GW. This is the equivalent to the installed capacity of Belgium and what China installs every 2 years. By 2030 the AfDB forecasts that only half of Africa’s population will be covered. Currently, only 42 per cent of the West African population can access electricity; the global average is 82 per cent. Presently, the lion’s share of power generation across the continent comes from fossil fuels, with which West Africa is well-endowed. Meanwhile, an estimated 40 per cent of the Africa’s population is in West Africa and growing by 2.65 per cent annually, the highest population growth rate in the world. If wellmanaged, expanding human capital could be the region’s most precious resource. But failure to provide matching infrastructure will only add to the strain around access to basic rights, not least of all to power. In terms of consumption levels, it is generally much lower per head in sub-Saharan Africa than globally, at an average of 50 MW as opposed to 300 MW. However, the present low demand – largely the result of a fledgling industrial base – is set to rise across the continent, the likely result of continued robust economic growth, population expansion and maturing economies with a greater emphasis on manufacturing and services. Clearly, the need for robust solutions to the continent’s energy needs has never been more pressing and the AfDB considers that the continent needs to install 250 GW between now and 2030, which translates into a hefty investment of US$40 billion annually.

Renewable energy Amadou Kanoute a current member of the prominent Senegalese consumer protection organisation, CICODEV, believes governments should wean themselves off fossil fuels and place greater emphasis on renewable energy. He lauded his government’s plan to ensure 17 per cent of its energy mix comes from renewable sources, although the real test will be in its implementation he said. At the very least there are visible signs of governments exploiting renewable sources. It is not uncommon to see solar-powered street lights in Dakar and Accra, and Gabon’s Ministry of Energy is powered by solar panels in Libreville. Similarly, Ghana’s Energy Ministry has stated that by 2020, 10 per cent of its energy mix is to come from renewable sources, even though presently, renewables

account for only 1 per cent. An official at the directorate at the Ministry said Chinese investments are particular in the Western region of Ghana and the government wants to encourage investment in biogas, and that some recent projects include the use of rice husks for energy. Indeed, we have witnessed increasing interest from UKbased biogas companies looking to Ghana and other countries in the Greater region to source coconut husks for energy needs in the UK and Europe.While the dialogue around renewables is becoming more animated, this strategy for responding to energy needs plays second fiddle to fossil fuels – particularly gas – for power generation. This is likely to shift attention back on the West Africa Gas Pipeline (WAGP), a 691km onshore and offshore pipeline stretching from the Escravos-Lagos pipeline in Itoki, Nigeria to Takoradi in Ghana, with gas delivery laterals in Cotonou, Benin and Lome in Togo. Liquified natural gas is also another option, though is more costly and less immediate given the high costs and time involved in establishing re-gasification terminals. Governments in the region will be forced to develop new strategies to ensure affordable and accessible power to all, to keep pace with the rapid changes on the ground, as citizens continue to expect governments to keep their social contract. But the task ahead is herculean.

It is not uncommon to see solar-powered street lights in Dakar and Accra theafricapitalist | 15

country profile | Liberia

n August, Liberia marked 10 years of peace with church services, prayers and celebrations. This once troubled West African nation, which began life as a republic for liberated slaves, suffered the harshest conflicts in Africa - as well as the worst governance - under the governments of Samuel Doe and Charles Taylor. When the conflicts ended in 2003, all aspects of the country were run into the ground. The infrastructure was wrecked, the government’s fiscal buffers nearly dry, and the country was politically and economically isolated. When the first elections were held, Ellen Johnson Sirleaf was the victor. She recalls the challenges on arrival. “We had to start with the need to address peace and security, and so we started with security sector reform,” she says. “We dismantled the entire army to build a new army, to start a process of training the rest of our security forces”. Fast forward to today, and the difference is palpable. No longer viewed as an off-limits war zone, Liberia is now hosting investment forums around the world, seeking to attract foreign companies to set up long term in the country. The Monrovia road network has been completely redone. “There is an enormous difference in Liberia today compared to 2005 when I first arrived,” says Steven Radelet,

a US economist, and long-term adviser to the government. “Then, there were very few institutional rules”. Problem solving Liberia slowly moved from the deployment of peacekeepers, to a programme of disarmament, demobilisation and reintegration. The security environment, as with nearby Sierra Leone, is vastly improved. A recent Liberia study found that police-society relations are ‘cordial’, with increasing engagement between the police and community members in solving problems. But the strength, funding and visibility of the Liberian Police Force is low and the Justice Minister is under pressure to strengthen the judicial system. A 2013 report by Human Rights Watch alleged that the police force is still ‘riddled with corruption’. But security has at least improved enough to support the economy. In 2012, GDP growth hit close to 11 per cent. Rubber and timber exports have shown growth, and a flurry of FDI agreements have seen increased inflows into palm oil, iron ore and offshore crude. Many companies with both regional and global presence, including Ecobank, Access Bank, BHP Billiton, China Union and ArcelorMittal, are now present. Higher net capital inflows have in turn stabilised the Liberian dollar and led to an increase in official reserves.

Liberia has transformed from a failed state to a burgeoning continental economic power. Adam Green assesses the country’s progress.

Back from the brink 16 | theafricapitalist

country profile | Liberia

Reform But there is further to go. Liberia’s key trade sectors are vulnerable to commodity price fluctuations. And corruption remains a challenge. A recent report by the Liberian branch of the Extractives Industry Transparency Initiative found major governance lapses. Court reform is set. “We’ve changed the jury law with less chance that jurors can be compromised. We’ve changed all the magistrates, because they were not qualified lawyers. And we put graduates from the law school through special training and they are now manning all the courts,” says President Johnson Sirleaf. “Corruption became a way of life, we are changing that now. [Because corruption has been] the talk of the town it gives us an opportunity to continue to forcefully address it. [As a result] the courts are now beginning to win cases”. External donors have been essential in Liberia’s ambitious reform programme, both in the early stages of its recovery by providing balanceof-payments support, and later through debt relief. The President believes external partners, notably the IMF and World Bank, were critical in rescuing Liberia from the edge. But she also believes the relationship needs to be carefully managed, and agendas harmonised and better

coordinated. “We do share the view that we must take our destiny into our own hands, we must own our agenda and our processes, but we don’t see that to the exclusion of partners. We’ve already established a Liberian Development Alliance in which a coordinating mechanism, which I chair, brings all the partners around the table”. The demands of reform appear dizzying. But President Johnson Sirleaf, now in her 70’s, has only one more term to run. Having spent decades trying to shape Liberia’s fortunes, she does not plan on going quietly when she hands over the presidency as a constitutional requirement. “I’ll never retire from anything, except the presidency. I intend to be active in Liberia. I will be there to work with organisations that are promoting development.”

Liberia’s rise in figures President Johnson Sirleaf with economics and public policy degrees from three US universities - is well placed to oversee a deepening of the economic reforms.

African ranked 149 From being perhaps the most difficult environment in the world to do business 10 years ago - especially for small and medium sized enterprises – Liberia is now ranked 149, with the Greater African (sub-Saharan) average at 140.

Global rank 38 Its best performance metrics are in starting a business and paying taxes, at which it ranks 38 and 45 globally. For ease of business formation, it ranks higher than Ghana and Kenya. The most challenging areas are reinforcing contracts and registering property, ranked at 163 and 178 respectively.

theafricapitalist | 17

city guide | nairobi

A whistle-stop

Nairobi weekend Jackson Biko plans a weekend for busy people who want fun, spice and culture in the capital. Finally. Freedom. The meetings, gloomy suits, and the windy slideshows are over. Time to see Nairobi. But first, lose the suit. Get into something that doesn’t shout “corporate hack!” Sure, those chinos will do. Crescendo Bar & Karen Blixen museum Tel: +254 720 745374

It’s Friday, so you have to head south 1 west to Karen. It’s bit of a drive, yes, but it will be worth the trip. The Likonga Band plays rhumba at Crescendo Bar - a stone’s throw from the world famous Karen Blixen museum. It’s a riot. The mood is Afro-chic. The crowd is all grown up. Have a dance, everybody else will be anyway.

Diamond Plaza 4th Parklands Avenue

Leave shortly after 11pm and drive straight to Diamond Plaza on 4th Parklands Av. You have to try the shawarma - it’s served hot, have it at the back of your cab as you head back to your hotel. It’s okay if the sauce drips on your shirt, that’s your motif for the night. Life is short.

Rangers Restaurant & Nairobi National Park

David Sheldrick Wildlife Trust Tel: +254 20 2301396

Now your good deed for the day is done, head down the road to Rangers Restaurant for lunch. Spend an hour and then at 2pm drive into the Nairobi National Park, for a game drive. You might see the big predators, or 400 species of birdlife. Stop at the historic ivory burning site monument and bow your head.

You wake up fresh the next day 3 because you drink like a prince. So you fed your shirt sauce last night, now you have to go feed the baby elephants at David Sheldrick Wildlife Trust at Bogan Gate, Magadi Road. It’s open only between 11-12am, and it’s a committed cause to save the elephant

Maasai Market (Law Courts parking lot)

Red Chilli To book call: +254 706 241 021

From the park, drive into the city centre and get that special someone a beaded accessory at the Maasai Market at the Law Courts parking lot. Evening, just before they close, is the best time to get a bargain.

Later, freshen up back at your hotel and go for dinner at Red Chilli, the new Nigerian eatery at Muthaiga Mini Market. Great ambience. Even better cuisine washed down by one of their fine cognacs, soft Nigerian music and a forest of risqué Nigerian artwork on the walls.

As we say in Kenya, Karibu Tena. 18 | theafricapitalist

economics | business in action

Africapitalism E

A new way of thinking about investment has emerged. Could it be the answer to Africa’s challenges? Sarah Rundell assesses how far Africapitalism has come.

very now and again a new era requires a new word or phrase to better encapsulate the changed times. Africapitalism first appeared in the lexicon of African investment in 2010 to describe the role of Africa’s private sector in driving not only economic growth but also social change. Now home to six of the world’s 10 fastest-growing economies, Africa has seen investment pour in over the past decade. The challenge is to ensure this investment does more to engender social wealth – to solve some of the continent’s most pressing problems.

Africapitalism urges investment in strategic economic sectors including agriculture, infrastructure and power, financial services and healthcare – sectors where companies are nurtured and grow to create jobs and entrepreneurs, and which contribute to the creation of resilient and diversified economies. The idea of the private sector leading development isn’t without challenges. Investment in the resource and extractive industries still often fails to nurture domestic wealth, for example. The onus is on the private sector to demonstrate that it is prioritising local social and economic development, alongside its own profits.

“Africapitalism urges investment in strategic economic sectors including agriculture, infrastructure and power, financial services and healthcare”

Governments also need to do more to empower the private sector by creating an enabling business environment. The challenge will be to continue to improve governance through targeted reforms and the introduction of best practice. South Africa’s banks are some of the best regulated in the world and Ghana and Rwanda’s sustained effort to foster their private sectors has won international acclaim. The majority of Africa’s listed companies are now in sectors like telecoms, financial services and consumer goods rather than resources. New national champions have emerged on the corporate landscape like Safaricom’s M-Pesa, proving that the twin themes in Africapitalism of private sector profit and social good can work together. Only one in 10 people have access to financial services in Kenya, where the mobile-payments network, founded with development finance and then pioneered in the private sector by Safaricom, a subsidiary of Vodafone, has over 15 million customers.

Africapitalism is a call to Africans to take responsibility for their continent’s development. Africa’s first generation of business leaders are increasingly giving back. Intra-African cooperation through the increasingly significant trading blocs, as well as regional infrastructure projects like the West African Power Pool, have the potential to bring multiple countries together. The idea that the private sector can solve more of Africa’s social and economic challenges than development-bank initiatives, aid incentives, or relief programmes is increasingly difficult to ignore.

What they are saying about Africapitalism Tweets 27 September, Arabianmoney, tweeted Top Africapitalist explains how to make money investing in African electricity infrastructure

15 August Jendayi E Frazer ‫@‏‬jendayifrazer #Africacapitalism is transforming Africa’s power and agricultural sectors 9 July, Tolu Ogunlesi said @TonyOElumelu says “Power is single biggest obstacle to Africa’s devlpt & most strategic investment anyone can make” Blogs

From the Zanzibar Ni Kwetu Blogspot www.zanzibarnikwetu.blogspot.co.uk “The emotive power of Africapitalism is not necessarily a new phenomenon in economic history. Economic patriotism and nationalism played significant roles in the rebuilding of Western Europe after World War II, for instance. The same could be seen in the contemporary rise of China as an economic world power.” From the Guardian Newspaper, UK www.theguardian.com However, Africapitalism does come with its challenges…the choice and decision to put Africa first should not necessarily be made on the basis of cost and profitability alone.

Business | entrepreneurs in action

Green Innovations

From solar power to cleaning products, four young entrepreneurs tell us about their inspirations and aspirations to improve the environment. Sunny Morgan www.enerlogy.co.za How I got started

Access to energy is the lifeblood of any economy and is an enabler of production, manufacturing and development. Without it, it is simply impossible to talk about growing an economy or meeting the development goals in any society.

Evidence

Country Founder Business

South Africa Sunny Morgan Enerlogy Ltd

Some 600 million Africans lack access to a reliable and sustainable source of energy. It is a travesty that a continent endowed with some of the most valuable strategic resources on the planet, still has over half of its inhabitants without energy. Enerlogy Ltd., based in South Africa but with continental-wide aspirations, aims to offer energy solutions that are affordable, sustainable and scalable.

Patrick E Ngowi www.helvetic-group.com How I got started

I started out as an entrepreneur at 15 and learned that social impact in business remains key. An entrepreneur has to take a hard look at the challenges existing within his society or community and tackle them.

Country Founder Business

Tanzania Patrick E Ngowi Helvetic Group – East Africa

20 | theafricapitalist

At Helvetic Group, we aim to provide an alternative source of power for both urban and rural areas. Urban clients are easy to reach but the greatest demand for power is in rural parts of Tanzania and like most African countries, access to rural areas remains an important challenge.

We are specialists in all types of clean and renewable energy, especially in the solar arena. Enerlogy offers turnkey systems for utilities, industry and commercial. We are currently tendering for solar plants in South Africa and have been approached by two other African countries to provide proposals for solar energy installation.

Human rights Enerlogy firmly believes that access to energy is a basic human right and we will work with stakeholders in government, industry and in the social arena to make a contribution to this important activity. Key to the success of the sector will be close collaboration with other African entrepreneurs and Enerlogy is keenly pursing this.

We took a hard look at our business model to find the best way to reach that market, and we have now succeeded in developing a strong network throughout rural Tanzania. We have agents in all regions and continue to sign up more every day. This allows our brand – ‘East Africa’s Renewable Energy Hub’ - to have local footprint. For me, businesses that have strong social benefits ingrained in their operations tend to be progressive and sustainable.

Business | entrepreneurs in action

“I realised that many of the cleaning products we import into Ghana have very detrimental effects on both our bodies and the environment” Richard Kwame Donkor

Richard Kwame Donkor www.biobaseafrica.com How I got started

Biobase Africa was born following a terrible reaction to my laundry product. I started to investigate what was in the product and others that we use in Ghana and wider Africa. I was amazed to find how harsh some of the ingredients were. I realised that many of the cleaning products we import into Ghana have very detrimental effects on both our bodies and the environment. Country Ghana Co-Founder Richard Kwame Donkor Business Biobase Africa Limited’s

Evans Wadongo www.sdfa-kenya.org

At Biobase Africa, we produce domestic and industrial cleaners from natural biobased products like trees, plants and fruits. Our aim is to promote the use of non-toxic, non-detrimental domestic and industrial products which do not contain corrosive chemicals.

Impact

How I got started

My company, Sustainable Development For All trains young people with an informal education to make the lamps. We then distribute the lamps to rural women’s groups who we train in microenterprise development and help them to set up small businesses from the money they would have otherwise used on kerosene. Our model is a very innovative way to not only provide clean energy, but create opportunities for youth and women in rural Africa.

I was one of the lucky ones. Most homes in my village could not afford kerosene, but my family used the oil lamps for lighting. I learned quickly that lack of lighting can affect education with some children dropping out of school. In 2004, I designed the MwangaBora solar lamp as a simple localised lighting solution. The lamp is made from mostly recycled materials using simple tools; keeping costs low.

So far we have distributed over 35,000 lamps in Kenya and impacted directly over 180,000 people. We have already started working in Malawi where the response has been overwhelming and we hope to continue venturing into other countries in Africa. We shall continue to make designs that are customised to every country, to ensure local ownership of our project.

Country Kenya Founder Evans Wadongo Business Sustainable Development For All-Kenya Project Use Solar, Save Lives

I partnered with my cousin, who was familiar with natural bio-based cleaning products in the United Kingdom, and we set up Biobase Africa to produce alternative cleaning products for Africa

Challenge The main challenge has been the mindset of the market. Many Ghanaians do not understand the concept of bio-based cleaning products. Education and bringing awareness to the market is the key to the success of our business. Our vision is to lead a green revolution in Ghana to preserve our immediate environment, country and continent.

How much is the Bank financing for energy? The World Bank Group committed $8.2 billion to support energy finance in 2012. The Bank Group approved a total of $3.6 billion in financing for renewable energy projects in fiscal year 2012, a record 44% share of its annual energy lending. Looking only at power generation projects approved in 2012, renewables accounted for an even larger share.

theafricapitalist | 21

trade | African in numbers

Realising the dream of intraâ&#x20AC;&#x201C;Africa trade Africa trails the world in trading across its borders. We look at the state of intra-infra trade in 12 Percentage of Imports to African Countries economies across the continent Percentage of Exports from African Countries Imports Percentage of imports to Africa Countries

TUNISIA MOROCCO 6%

5.6%

11.7%

ALGERIA

Exports Percentage of exports to Africa Countries

3.2%

7.4%

3.1%

LYBYA 2.6%

EGYPT

10.9%

12.2%

3.2%

Top Imports Nation Kenya import the most of goods & services in the continent

6 SUDAN

Top Export Nation Ghana & Ethiopia export the most goods & services in the continent

1.8%

9.2%

7 NIGERIA 9.9%

ETHIOPIA

6.3%

19.4%

4.7%

GHANA 19.4%

4.7%

11.3%

Total intra Africa trade reached $130.1 billion in 2011. This represents 11.3% of Africaâ&#x20AC;&#x2122;s global trade volumes

KENYA 12.9%

ANGOLA 4.0%

8.0%

2.8%

Africa accounts for only 2.8% of world exports and 2.5 % of world imports in the decade from 200 to 2010 22 | theafricapitalist

SOUTH AFRICA

15.5%

6.8%

42.6%

Perspective | yawa hansenâ&#x20AC;&#x201C;Quao

Yawa Hansen-Quao on,

â&#x20AC;&#x153;Getting aheadâ&#x20AC;? T

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theafricapitalist | 23

final word | Michael porter

Nation-building

Blueprint Global business adviser Michael Porter talks to Africapitalist about the opportunities that African states must seek through competitiveness and strategy.

environment, the more the benefits of FDI and other kinds of investment will tend to spread outwards.Countries in difficult situations, such as poor, landlocked countries in Africa, have to start up the ladder of having a productive economy. To do that, you have to start with whatever you have—you have to start with meeting the needs of local citizens. If you just have subsistence agriculture, you could make your small farmers more efficient and effective. Whatever endowments or resources you have, you have to build on those and try to learn how to take advantage of them more effectively or efficiently, and then you build from there.

Competitive countries are the ones that are more productive, they have better skills, therefore the workers’ incomes rise and the currency is able to appreciate. Many people think of competitiveness as zero sum: ‘If I cut wages and I get more market share then I am succeeding.’ That’s not the way we should see competitiveness today. That’s the old-style competitiveness that got us into a lot of trouble.

I’ve been working for more than a decade in Rwanda. The country experienced genocide, and had everything destroyed. Rwanda has no capital, and has very limited natural endowments. But by chipping away at the fundamental things that you need to put in place to have a productive and growing economy, even a tiny, landlocked country like Rwanda is growing at close to 10 per cent per year. They’ve had tremendous improvements in every single metric in terms of education, skills, safety, security, housing, water, electrification, because they’ve had a plan, they’ve been efficient, they’ve used their limited resources efficiently to get at the underlying fundamentals.

“The definition of competitiveness is where you have a business environment that is sufficiently productive that you can support high and rising wages.

Any kind of trade-off between improving competitiveness and the standard of living of the average citizen is a reflection of a mistaken view of what competitiveness really is. Ultimately, prosperity needs to spread to all citizens over time. If you have the wrong rules of the game, the wrong regulatory environment, a very small number of people can end up capturing a disproportionate share of the benefits of improving competitiveness or foreign direct investment (FDI). The more you have an open and transparent legal

Competitiveness and prosperity is not a zero sum game. We see many countries able to improve their competitiveness simultaneously. That has happened in many countries over the past 50 years. Not every country makes it. But the more you can produce local goods and services, improve quality and expand the market, you can win. People’s incomes grow, they can afford more things to meet their needs, demand expands and more opportunities open up. It’s that positive reinforcing cycle that we see at work in many countries. China’s success does not mean that the US doesn’t succeed.” President Kagame addresses Michael Porter’s class on Rwanda’s economic transformation at the Harvard Business School Boston, 11 March 2013.

24 | theafricapitalist

Michael Porter Michael Porter is recognised as a leading authority on competitive strategy: the competitiveness and economic development of nations, states and regions, and applying that strategy to improve social needs. He was born in Michigan, USA and as a boy travelled the world with his army officer father. Porter received a BSE in aerospace and mechanical engineering from Princeton University in 1969, an MBA from the Harvard Business School, 1971, and a Doctorate in business economics from Harvard University in 1973. His ideas are taught on business programmes around the world. Harvard’s Institute for Strategy and Competitiveness was created to further those ideas. He is currently the Bishop William Lawrence University Professor based at Harvard Business School, and advises governments worldwide.