Chicago Booth Focuses On Investing In Africa

 

Africa is hot on the lips of many business leaders, and the Investing in Africa discussion hosted by Chicago Booth in London last night offered insider views on opportunities in the continent.

 

The Chicago Conversations is a forum that brings together distinguished experts from Chicago Booth's network of alumni and corporate partners to discuss industry specific issues in cities around the world. The most recent discussion was held on Tuesday October 22 at Booth's London campus. 

 

Despite concerns over the quality of growth, income distribution, and sustainability, the panel presented Africa as a positive place to do business. The session was moderated by Lanre Akinola, Editor of This is Africa magazine, a publication of the Financial Times Ltd.

 

The panel consisted of  Justin Abbott, managing partner of Satya Capital, a private equity fund focused on Africa; Kola Karim, Group Managing Director and CEO of Shoreline Energy International, a leading energy and infrastructure company; Marc Nahum, a Chicago Booth alum and Director of Investor Development at Actis, a private equity firm investing primarity in Africa; and Ekwunife N. Okoli, Managing Director, Diageo Africa Regional Markets, the world's leading premium drinks business. 

 

We put together highlights from last night's discussion for those who are itching to get involved in business in Africa!

 

Firstly, Africa is not a country. They are huge economic, political and social disparities between and within regions. There are barely any hard set rules for doing things and there are no blueprints to follow where business is concerned. Nahum advised thinking twice about the local people and taking the time to find your way around first. You need to be patient in terms of accessing deals because things take longer than they do than in other developed regions. However, there are many ways to circumvent these difficulties. 

 

Karim advised getting a local partner.  His company recently bought into a logistics firm in Angola but they did this by partnering with an Angolan company. He told the audience that they had been trying to break into the Angolan market for a long time but language also proved a barrier to his company. Partnering with local companies made it easier to get into such markets. Shoreline provides the capital and technical expertise while the local company has the ground expertise. 

 

For Okoli, his company's problems were not those of finding opporutnities but of prioritizing them. Diageo has been in Africa for decades now and many of the brands are seen as national ones. Okoli says that they aren’t operating on a ‘hit-and-run’ basis but are in for the long haul. Their brands have been "Africanized" and the company sees itself as an African business. 

 

Venture capital and private equity seemed to be the most popular but we were assured that there's more. Abbott said that private equity is only a small slice on what’s going on (although he’s made a personal bet on it so he certainly hopes its pays out!). The opportunity for venture capital and private equity can be explained in terms of the fast growing economies.  Several African economies are growing at rates anything from five to eight per cent per annum. Companies are crying out for capital but the traditional banking institutions are not sophisticated enough to do things like financing buyouts or providing access to intensive growth capital. 

 

As for where these markets are situated, Karim uses something he calls the "Chinese principle" to identify exciting markets. Large markets are an obvious one since they have more people who can pay.  A second principle is that simple businesses that add value to daily life will be successful. Establishing a good restaurant chain with quick service was an area highlighted for providing fantastic margins and returns. 

 

Okoli offered a different model that was applied by BGI, a beverage company dominant in French-speaking West African countries. BGI went into countries where they felt they had a competitive advantage. They focused on the smaller markets. A smaller site meant less competitors for them.

 

Nahum also pointed out sectors like telecoms, finance and healthcare that are exciting sectors to enter.  He mentioned that Africa is quickly moving from a cash-based system to electronic payments so there is huge potential for technological services. 

 

In geographical terms, the most exciting markets for the panel were Nigeria, Ghana, Kenya, South Africa, and Tanzania. 

 

Each year, the World Bank publishes a list of economies ranked by ease of doing business. This year, Mauritius and South Africa were the only two sub-Saharan African countries in the top 50 slots. 

The panel agreed that there are still huge barriers standing in the way of doing business.

 

Government policies need to be more friendly, there's too much corruption and bureaucracy, it's difficult to find data - someone needs to start collecting it, and infrastructure needs to catch up. But, they do maintain that it can be done. If you were curious about whether there are start-up friendly zones on the continent, the answer was a definite yes!