- The optimism of ‘Africa Rising’ needs to be balanced with reality
- Investors should be paying more attention to smaller African countries which often get overlooked in the scramble for economic opportunity
- If selling African goods abroad was the past, selling to Africans is the future
- Lots of potential in selling to the lower classes, on account of relative size.
- PPP approach to infrastructure is more likely to produce efficiency, and reduce corruption, than direct government spending. Corruption is hardly ever the biggest issue in privately-delivered projects.
The full interview below:
On ‘Africa Rising’
I believe in the general theme of ‘Africa Rising’ and ‘Nigeria Rising’. In some ways Africa Finance Corporation is predicated on the fact that there is going to continue to be progress across Africa. But I also think that should be blended with a dose of reality. Not all African countries are going to rise at the same time. Some are going to misstep. Some will misstep in terms of political violence, what we’re seeing in Central African Republic, some will misstep economically – as we can see Ghana is going through some tough economic times with their currency falling because of the [budget] deficits.
But in the long term Ghana is still going to do well but there are short-term ups and downs. There’s clearly a reason to be optimistic, but that needs to be tempered with a certain degree of realism as well.
On best-kept investment secrets, and overlooked investment opportunities and hotspots across Africa
If you’re a small(er) country you’re less competitive in some respects and therefore there’s a stronger incentive for you to improve your business environment. It’s not surprising that actually the best-rated countries in Africa, for doing business, for credit ratings, tend to be the smaller countries. So Botswana has the best credit rating of an African country. Mauritius is well rated in terms of doing business, Rwanda is well rated in terms of doing business. There are investment opportunities in smaller countries which often get overlooked.
[One] other thing which people are catching on to – but I still think there are opportunities there – is selling things to Africans. For a long time a lot of the investment themes have been revolving around exports. Take African things, and sell them to foreigners. But I think that selling stuff to Africans is actually in some ways more profitable. Certainly those who people have done very well financially – and obviously Aliko Dangote comes straight to mind – generally have done it not through export businesses but actually selling goods to Africans.
Building on that theme, I think that another overlooked market is selling things to middle-class and even below-middle-class Africans. In my previous life when I used to finance hotels in the International Finance Corporation (IFC), you’d get a hundred people come in and want to build a 5-star hotel in Lagos or in Abuja for every one person who comes in and says I want to build a 2-star hotel in Benin City that would cater to salesmen travelling; whereas in reality the latter is actually a much bigger market, and if you can figure out how to address that market profitably you can make a killing.
As I said these are not totally undiscovered things; I think this is essentially the business model that Indomie has, that the mobile phone companies have; they make the bulk of their money from the middle class and lower classes, simply because of numbers. On a per-person basis maybe it’s the rich business-people, but how many of them are there compared with the University students who are scratching N500 recharge cards at a time?
I think financial inclusion is another area. There’s a bank in Kenya called Equity Bank. This bank was a failed or failing mortgage bank. It was taken over by some people and turned around, and its business model was really about financial inclusion, bringing people in who were not part of the banking system. Today this bank is the biggest bank in Kenya, it has overtaken the likes of Barclays who have been well established in that market, and done so by going for a not-so-affluent customer base. To put it in another perspective I’d much rather be selling Alomo Bitters than crude champagne, because the market is just far bigger.
To put it in another perspective I’d much rather be selling Alomo Bitters than crude champagne, because the market is just far bigger.
On corruption in large-scale infrastructure projects
What we in AFC focus on are really private-sector ways of delivering infrastructure; either the private sector just doing it, or Public Private Partnership (PPP) type of structures. To be frank in those there isn’t that much corruption, at least not in the spending of the money. Because at the end of the day, the private company is borrowing the money. Their incentive is to get that infrastructure as cheaply as possible, to a certain standard, because the money is coming out of their pocket, it’s not somebody else’s money.
The other incentive is for the infrastructure to work, because if it doesn’t work they’re not going to get paid, and therefore they’re not going to make any profit. This is quite different from where the government is spending money on infrastructure, where you have civil servants who are essentially spending other people’s money and the incentives are very different. That also is one of the major advantages of private provision of infrastructure.
There are disadvantages of that as well, to be balanced, but I think that as a way of bypassing a large amount of corruption that is a very positive thing. That is not to say that there is no corruption in privately-delivered projects, of course there is, but you don’t find for example that it is the major issue in what we do. It is an issue but it is not the major issue.
On benchmarking infrastructure costs across countries/regions
It is possible to benchmark, obviously, but it does have its complications, and I will give you an example. If you’re building a road in Kano, and you’re building the same road in Yenagoa, the cost in Yenagoa is likely to be a lot higher for two or three reasons. One, the ground is more likely to be swampy, so you may have to do piles [etc], which obviously adds to the cost. Secondly, because it rains more in Yenagoa, the possibility of erosion would be higher and therefore the road may have to be built to a tougher standard than in Kano where it hardly rains and you’re not so bothered by erosion. So while it’s easy to go and compare a kilometer of road in Accra versus a kilometer of road in Lagos, and it does tell you something, you’d also need to be a little bit careful about the differences.
It’s a fact that general price levels in Lagos are higher than the general price levels in Accra. So if you kept everything equal you wouldn’t expect a road in Lagos to cost the same as a road in Accra, if every other price is higher in Lagos.
Tolu Ogunlesi (c) 2014