2012 Business in Africa Conference
Unlocking Value in Frontier Africa Cambridge Judge Business School, University of Cambridge Saturday 28th April 2012
Unlocking Value in Frontier Africa: Lessons from the Inaugural Cambridge Africa Business Network Business in Africa Conference
Dear Friends, The Cambridge Africa Business Network would like to thank you all for attending the Business in Africa Conference on Saturday 28th April 2012 and making our inaugural event such a success. The Network was founded with the intention of providing a platform for the leading voices on African business from the commercial, financial, political and academic spheres to share knowledge and foster partnerships that contribute towards driving Africa’s economic growth. To that end, and based on your very welcome feedback, we feel we have put down an impressive first marker from which to build on in the years to come. We would like to thank our panelists, moderators and sponsors - especially the Leventis Foundation, the Cambridge Political Economy Society Trust and Google - and all of you for your support. To commemorate the event and to provide you with a source of inspiration and recall of the day's events, we have developed this post-conference report. Feel free to look over the summaries of the panels you enjoyed and to forward the report on to those in your network who you feel would benefit from it. We look forward to seeing you back in Cambridge for future events. Best wishes, The CABN Team 2
Opening Keynote Remarks His Excellency, Olusegun Obasanjo (GCFR), Former President of the Federal Republic of Nigeria
Moderator: Lanre Akinola, Editor, This is Africa magazine a publication of the Financial Times. President Obasanjo, in conversation with Lanre Akinola, gave the conference his thoughts on a wide range of contemporary African issues, including politics, macroeconomics and business. Mr Obasanjo provided an assessment of the perception gap that exists between outside investors and the situation on the ground. While acknowledging that Africans, and Nigerians in particular cannot pretend that there are no challenges focusing on positive stories related to education and awareness can be an effective means of engagement over the short term.
“It is important to acknowledge challenges and use positive stories to engage foreign investors” Olusegun Obasanjo, Former President of the Federal Republic of Nigeria
Taking a historical perspective on economic growth in Africa, Mr Obasanjo noted that post-war growth rates were in many cases as spectacular as they are today. The problem was that such growth did not trickle down to the populations. Today there is reason to be much more optimistic in part because the actors – both within Africa and from abroad – have a clearer commitment to sustainable growth and have a better appreciation of what works best across the continent. Mr Obsanajo also addressed the issue of the resource curse, stressing that the proper use of resources depends on institutional strength and stability. He pointed to the example of the Democratic Republic of Congo, a nation plagued by wars often fuelled by access to resources, where over one billion dollars was spent on free and fair elections but institutional development has been largely ignored.
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Unlocking Value in Frontier Africa Panel managers: Stephen Hamm, 2012 MBA candidate and CABN founding member; Queen Chinyere Nworisara Quinn, 2014 PhD candidate and CABN founding member Panelists: Razia Khan, Head of Research, Standard Chartered Zain Latif, Founder and Principal, TLG Capital Gavin McGillivray, Head of Private Sector Department, DFID Karima Ola, Managing Director, African Development Corporation Moderator: Lanre Akinola, Editor, This is Africa magazine a publication of the Financial Times.
The opening panel set the tone for the day by exploring a range of macro issues confronting the continent and putting African investment and business within a wider context. There were many reasons to be optimistic: as Razia Khan, Head of Research at Standard Chartered pointed out, intermediary credit lending had doubled across Africa in the past decade. The continent escaped significant damage from the financial crisis and new trading partnerships have pumped new money into African businesses with the latest figures showing $166 billion in trade between China and Africa. Karima Ola, Managing Director of the African Development Corporation pointed to growing consumer demand and Zain Latif, founder of TLG Capital outlined some recent investments in the healthcare sector, investments that have delivered significant social and commercial returns by addressing growing African needs. However, while the optimism around the continent is well-founded, there were words of caution as well. DFID’s Head of Private Sector Development, Gavin McGillivray, highlighted the continuing shortfall in energy production which continues to serve as a drag on the growth of small and medium sized businesses. Karima Ola and Razia Khan also pointed to the necessity of providing more reliable and secure financial institutions capable of lending more to SMEs in unleashing further growth.
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“Trade between China and Africa has reached $166 billion” - Razia Khan, Head of Research, Standard Chartered
Capturing Value: Innovation, ICT and the Rise of the Consumer Class Panel Managers: CABN Steering Committee Members Mara-Tafadzwa Makoni, 2012 MPhil Candidate in Engineering for Sustainable Development and Imoh Ilevbare, 2012 PhD Candidate in Strategic Technology Management Panelists: Linet Kwamboka, Project Lead, Kenya Open Data Initiative Greg Marchand, Founder & Managing Director, Gizmos Solutions Zambia Ltd Ken Oyolla, Global Head of Marketing Activations Nokia Moderator: Wadzanai Madziva, Business Development, Google Africa In 2010, McKinsey estimated that the number of African households earning US$5,000 will have grown by 80 percent between 2000 and 2014. The consumer market, currently at US$160 billion, will grow to about US$1.8 trillion by 2020; while the labour force is expected to surpass China’s by 2040. Given the rapid growth of mobile penetration and ICT, the panellists discussed how businesses operating on the continent can capture this value and innovate for the growing consumer demand driven by a young and vibrant population of one billion.
“There is a generation that is coming where, how they will connect on the internet, will be on a mobile phone” - Ken Oyolla, Global Head of Marketing Activations Nokia
The panellists noted how ICT in Africa is now becoming a rapidly growing sector and is increasingly being used as a platform to leapfrog on to other services and innovations. Presently, 60 percent of Africans have access to internet services. Given that ICT can serve as a way of overcoming some of the continent’s physical and institutional infrastructure limitations, many companies and governments have taken note. Kenya marks a good example - Linet Kwamboka of the Kenya Open Data Initiative outlined how the Kenyan Government has established a number of technology related development grants of $50,000 each and how the Government of Kenya is working with the private sector to help ease the cost of doing business in the country. The technology in Kenya is largely mobile based, indicating how progress is being made in improving the capability of individuals to freely communicate with each other. To sustain this growth and overcome the barriers to ICT development on the continent, Greg Marchand, Founder of Gizmos Solutions Ltd, stressed the need for greater competition in the sector. In his view, if more companies were to come into Africa and innovate then investment, alongside the increased technical sophistication and quality of African technology, would improve for the betterment of the people.
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The New Captains of Industry? How BRICs are Reshaping Business and Value on the Continent Panel Managers: CABN Steering Committee Members Nkiruka Chiemelu, 2012 MPhil Candidate in Development Studies and Bobak Tavangar, 2012 MPhil Management Candidate
““Africa today is where China was ten or eleven years ago.” – Charles Robertson, Chief Economist, Renaissance Capital
Panelists: Stephen Murphy, Managing Director, Citadel Capital Alastair Newton, Managing Director & Senior Political Analyst, Nomura international Charles Robertson, Chief Economist and Head of Macro-Strategy, Renaissance Capital Moderator: Professor Jaideep Prabhu, Jawaharlal Nehru Professor of Indian Business & Enterprise, Cambridge Judge Business School Undoubtedly, the BRICs are reshaping the dynamics of business on the continent. The panellists discussed the FDI flow into Africa from the BRIC countries; namely Brazil, India and China, while noting the minimal influence of Russia on the continent. Stephen Murphy of Citadel Capital kicked off the discussion, addressing the controversial topic of Chinese investment in Africa. He acknowledged the influence of the Chinese Investment Corporation (CIC), which is armed with over $2 trillion worth of reserve funds to disperse into investment opportunities all over the world. With a minimum investment target of $200 million; the CIC plans to fully take advantage of their vast resources and cash flow to identify viable investments in Africa. He also noted the role of the China-Africa Development Fund which recently earmarked $4 billion for the purposes of providing African entrepreneurs with support to capitalise on the investment and growth opportunity on the continent. Drawing on Citadel’s experience on the ground, Stephen highlighted how most of the Chinese investment in Africa seems to be coming in the form of various infrastructure projects with fewer complications and constraints relative to western counterparts.
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Charles Robertson, Global Chief Economist of Renaissance Capital, underscored the progress African governments had made over the last 10 years and how this has resulted in low levels of public debt relative to other regions. He emphasised how these low levels of public debt will help to drive down borrowing costs which will ensure that African countries can borrow at the competitive rates needed to invest in infrastructure. Charles stressed that “if things were to go wrong in China, the government finances in Africa are in an extremely good place”. In his view, “Africa today is where China was 10 or 11 years ago.” The continent is in a unique position as one of the fastest growing economic regions in the world and a competitive investment destination for global firms.
Alastair Newton of Nomura offered a contrasting opinion on the influence of Chinese investment in Africa. He argued that the relationship between China and Africa is increasingly complex given that much of the investment is coming from Chinese state-owned companies who espouse both business and national objectives. Alastair reasoned that not only are BRIC countries such as China helping to reshape business and value in the region; over time they may shape the cultural and ethnic composition of Africa as well. Alastair quoted for the audience a staggering statistic, stating that by 2030 over 100 million ethnic Chinese will be staying in Africa. If anything close to this figure were to be realised then it could have an undeniable impact on the business and cultural environment of the continent. He also commented on how other BRIC nations such as India seem to invest in diverse sectors and countries, while most of Brazil’s investment is restricted to Lusophone countries like Angola and Mozambique. To conclude, Alastair underscored that “it was up to individual African countries to make themselves the most attractive investment destinations in what remains a beauty contest for FDI and portfolio investments.”
Frontier Finance: Confronting Challenges and Discovering the Value of Investment in Africa Panel Managers: CABN Steering Committee Members Yakhara Sembene, 2012 Master in Finance Candidate and Kwaku Osei, 2012 MPhil Candidate in International Relations Panelists: Dzika Danha, Managing Director, IH Securities Jubril Enakele, Director, Deutsche Bank AG Eric-Vincent Guichard, CEO, Homestrings Jean-Paul Melaga, Head of Africa, Bank of Tokyo-Mitsubishi Martyn Schouten, Managing Director, Zambia National Commercial Bank Moderator: Mark Florman, CEO, British Venture Capital Association While the last decade has been economically positive for African economies and the world has been slow to catch up; the continent still attracts less than five per cent of global foreign direct investment (FDI). The panellists discussed a range of topics with respect to investment in Africa. They examined how managers are confronting barriers to investment on the continent and discussed how western investors could be convinced about the value of frontier markets. The panellists discussed investor perceptions and how political risk could be approached and actively managed by businesses and investors operating within the continent. Political risk in itself is currently an issue that is not restricted to Africa, as the future of the global economic environment is still very uncertain. Dzika Danha, Managing Director of IH Securities, mentioned that when investing in Africa it’s less of a matter of risk and more of a matter of knowledge. Indeed, intimate knowledge of African markets seems to be a scarce resource to many companies around the world and is valued highly on the continent; knowledge of the situation at hand can go a long way to diminishing the risk associated with an investment. Eric-Vincent Guichard, CEO of Homestrings, believes that signs such as the region’s increasingly liberal media and the growth of a middle class are acting as the necessary forces to help minimise political risk levels in Africa.
“Africa is so young and we (the West) are so old, Africa has no debt and we have too much, Africa has plenty of land and we have none.” - Mark Florman, CEO, British Venture Capital Association Martyn Schouten, Managing Director of the Zambia National Commercial Bank, elaborated on what Africa can do to help turn around its public image. He highlighted how within the top 25 fastest growing economies in the world, 12 of those countries belonged to the African continent. Everything, from the way Africa is depicted on the media to the language people use when speaking about it needs to be changed – “don’t focus on the fact that you’re less developed; focus on how you’re faster growing” – a message that reverberated across the audience, reflecting the need for changing attitudes, globally and within the continent. A popular point of agreement for many of the panellists was on the value of the African Diaspora. Eric-Vincent called on the diaspora to return to Africa given their critical importance for economic growth in the region. He emphasised that the knowledge, experience, business networks and financial resources of the African Diaspora is far too great to ignore and more needs to be done to encourage the globe-trotters of Africa to return home.
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Jean-Paul Melaga, Head of Africa for Bank of Tokyo-Mitsubishi, provided his support for this view but expressed caution, stating that the return of the African Diaspora to Africa does presents the danger of creating a local oligarch, a mere extension of the elitism already present in some parts of the continent. So, when taking the value of the African Diaspora into consideration, one certainly needs to bear in mind the potential risks that can be associated with the movement of a significant number of people from one region to another. On foreign direct investment (FDI) in the continent, the panellists broadly agreed that many African heads of state needed to improve the continent’s marketability as an investment destination. Jubril Enakele, Director of Deutsche Bank AG, also suggested that intra-regional trade in Africa needed to be further developed, indicating how a more integrated Africa would help to serve the continent for the long term.
“Innovation in the west is diametrically opposite to the way it is done in emerging markets....... ” - Jaideep Prabhu, Co-author of the book Jugaad Innovation and Jawaharlal Nehru Professor of Indian Business & Enterprise, Cambridge Judge Business School
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A Conversation about Jugaad Innovation Panel manager: Mobolaji Adewumi, 2012 MBA candidate and CABN founding member Interview with Jaideep Prabhu, Co-author of the book Jugaad Innovation and Jawaharlal Nehru Professor of Indian Business & Enterprise, Cambridge Judge Business School by Adam Green, Senior Reporter, This is Africa, a publication of the Financial Times. Jugaad is a Hindi word which means an innovative fix; an improvised solution born from ingenuity and resourcefulness. This session explored how the tenets of jugaad apply to business and innovation in Africa. Jugaad originated in the farms of Punjab where farmers would make hybrid vehicles (Jugaads) using cobbled together parts from carts and tractor engines, attaching ploughs to them. The word now applies to tangible products and services and intangible ones like business models in India. There are similar terms in other parts of the world such as “Jua kali” in Kenya and “Gambiarra” in Brazil. According to Professor Prabhu, innovation in the west is typically highly structured, top-down and insular, with R&D in large corporations having long-term horizons. Innovation in emerging markets on the other hand is not as structured; it tends to be more frugal, more improvised, more inclusive and democratic as consumers and non-R&D employees are engaged in the innovation process. While Jugaad does not have the scale that the structured approach has, this is not an impossible challenge to overcome. There are examples, such as Bharti Airtel, in which Jugaad entrepreneurs manage to scale on their own or with large companies. Furthermore it is noteworthy that these successful firms are meeting fundamental needs in these countries that the government would normally provide in the west such as health and education coordination services. Demography and governments have an important role to play in the phenomenon of Jugaad. Younger people in emerging economies, including African frontier markets, will be much more willing to come up with ideas and take risks with relatively fewer resources and great ingenuity. Governments can play an important role in fostering innovation by developing the institutions that are necessary to help enable citizens to innovate as well as investing in ideas themselves.
Closing Keynote Address His Honour, Dr Guy Scott, Vice President, Republic of Zambia Moderator: Namukale Chintu, 2013 PhD Candidate and CABN founding member
His Honour, Dr Guy Scott, in conversation with Namukale Chintu, highlighted the main challenges facing investment in Zambia today as the lack of a suitable measurement of risk that results in high financing costs, low productivity and therefore low employment. This challenge is not unique to Zambia and is faced by many other African countries. Dr Scott was accompanied by Zambia’s High Commissioner to the UK H.E Col Bizwayo Nkunika and a delegation from Zambia’s Ministry of Commerce Trade and Industry that included Deputy Minister, Honourable Keith Mukata MP; Permanent Secretary, Mr Stephen Mwansa and Zambia Development Agency Director General, Mr Andrew Chipwende. His Honour stressed that finance costs are exceptionally high to effectively do business in Zambia. The country’s financial institutions work with short payback periods to return loans at high interest rates - an unworkable situation for fostering innovation and a competitive environment. Misperceiving risk in a fundamental way is what has led to these quick return periods and high interest rates. To demonstrate this, the example of Zambia’s Dutch disease was presented. Given high copper prices, the country accumulated foreign exchange and this was associated with carry trades in which funds in the west invested in short term treasury bills. It would be expected that that Zambia’s interest rates and price levels would come down due to the excess capital flowing in. However businesses did not flood into the country to undercut prices as economics would predict. According to Dr Scott, this attests to some misperceived risk which is an unfortunate result of Africa’s negative image in the global economy that needs to be changed. The change starts with projecting all aspects about the continent in forums such as the Cambridge Business in Africa Conference. His Honour is an alumnus of The University of Cambridge, where he read Economics at Trinity Hall College.
“Zambia’s GDP has been growing at 6 to 7 percent in the last decade and with single digit inflation. The international community has hailed us for getting the fundamentals right.... but unemployment persists – that’s not fundamentally right” -His Honour, Dr Guy Scott, Vice President of the Republic of Zambia
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Closing remarks from the Cambridge Africa Business Network
Queen Chinyere Nworisara Quinn, 2014 PhD candidate and CABN founding member Namukale Chintu, 2013 PhD candidate and CABN founding member We would like to thank all the speakers for their generosity and time to share their views and perspectives. We thank our sponsors - the Leventis Foundation and the Cambridge Political Economy Society Trust - without whom our dreams would not be transformed to reality. We would also like to thank our individual benefactors and Circle of Patrons; Jean Paul Melaga of Bank of Tokyo Mitsubishi and Lanre Oloniniyi, Ron Bauer, William Hunnam and Tom Sawyer, all from the Excalibur Africa Mining Group for their generosity and support for the Network. Apart from the tremendous financial support we are also grateful to our partners; This is Africa magazine, Professionals for Africa, the Cambridge Centre for African Studies, the United Nations Economic Commission for Africa and Trinity Hall college for providing their valuable contributions to the conference.
“Cultivating partnerships is critical to realising our goals and vision...� 10
We would like to thank Cambridge Judge Business School for providing the institutional support to make this conference possible. This includes the teams from external affairs, online communications, information technology, facilities, finance and catering. Finally, we would like to thank all of you, our delegates, for your interest in our conference and for coming to join us in starting this journey of dialogue and action towards unlocking value on the continent. Thank you!
Cambridge Judge Business SchoolUniversity of Cambridge Trumpington Street Cambridge CB2 1AG United Kingdom Website: www.africanetwork.jbs.cam.ac.uk Email: cambridge.abn@jbs.cam.ac.uk