If you are reading this, take one minute and ask yourself, ‘what will it take to create a rapid fire economic success for Africa?’ Note it and read on.
Looking back to move forward, let us examine very briefly, some historical aspects and profile of Africa
Africa’s economic History –
Africa is the longest and oldest economy historically. Dating back to 5200 BC Africa engaged in agriculture, engaged in trade, built successful cities and developed technology. What some may or may not know is that a great deal of that vibrant trade was with China and South East Asia, India and the Arabian Peninsula.
Africa traded robustly intra Africa and across the Indian Ocean, trading in iron, gold, crops, in addition to creating currencies of cowries, iron, copper and gold bars. Kingdoms of the Nilotic (indigenous to the Nile River, including Sudan, Ethiopia, South Sudan, Uganda, Rwanda etc) and Nuer (Greater Upper Nile region of South Sudan) peoples as well as in Chad, Niger, Mali etc. were highly developed and highly functional. Hydraulic engineering and irrigation farming methods, iron and copper tools and oil refineries were home/Africa grown.
When Mansa Musa of Mali went to hajj in Mecca, he did so with a 60,000-people delegation and 1,200 servants. He spent and gave away so much gold that he depressed and ruined his kingdom’s economy. Many African kingdoms like Benin, Yoruba, Mali, Ghana, Nri and others, emerged as self-sustaining and were thriving for centuries.
Unfortunately, through Trans-Atlantic slave trade, colonisation and debilitating national debt (facilitated by IMF + World bank), an economy that promoted an extractive raw materials culture was born. Africa folded, exasperated by great loss, saddled with massive debt, and abused by bad governance and corruption, The once rich, self-sufficient economic and innovation engine became the world’s poorest and was simultaneously branded as backward!
Africa’s Unity History –
Africa’s history of a united people has a historical genesis in that, it galvanised around a rallying need that resulted in big progressive outcomes for Africa. A unity order of sorts that no matter how rudimentary had always culminated in significant progress for the people and region.
In pre-colonial Africa, it was the ethnic institutions that united, found common ground and built thriving socio-political self-directed, self-sufficient communities that traded, travelled, innovated and survived centuries.
In colonial Africa it was the anti-colonial and anti-apartheid framework to eradicate the suffocating colonial power that was the rallying agenda out of which emerged the defunct Organisation of African Unity (OAU).
In post-colonial Africa something shifted drastically. The magic of a rallying need was cleverly evacuated and the ability to unite followed suit. The demise of both were achieved through various unflattering tactics in the aftermath of colonisation. Following “the scramble for Africa’s resources” (with or without the participation of African leaders), the power of Africa’s shared values rapidly devolved and was summarily replaced by the “invisible hands” of lopsided dependency on foreign engagement. African countries by regions or countries now travelled “solo”.
Our new question can be framed as, what essential ingredients constitute a rallying need (or Unity Order) to a post-colonial Africa’s success?
Before we delve into it – let us recount Africa’s “happy place” in Facts and Status
Facts / Figures on Africa: All graphics were accessed via the internet.
- 2nd largest continent with >20% of earth’s land mass (3x China, 3.2x USA)
- 80-90% of earth’s platinum, 10% its oil
- By 2020, a 1.3B people continent = 19% of world population and capacity to contribute >50% of young workforce by volume assuming they were sufficiently employed
- Africa’s GDP grew from $1.6T – 2013 to $3.3T 2017 and expected to be $29T by 2050 (6x faster than ROW in the same time period)!
- Showed great promise with 6 of 12 (2014-2017) fastest growing world economies (inc. Rwanda, Mozambique, Cote d’Ivoire, Ethiopia, DRC – formally major problem spots) > 6.5% CAGR
- 128M Households (HH) now with spend of $1.4T or $11K/HH in discretionary income
- Sustainable Cities and structural Transformations springing up in many countries!
- Flaunts pockets of impressive globally competitive capacity – Companies like Jumia (a poster child of the trust of Africa vulnerability – when Andrew Left of Citron discredited Jumia as untrustworthy and the stocks tumbled to $7, he changed his position and all was well again with Jumia) , Andela, Flutterwave, M_Pesa, Full Circle Wellness Solutions, Vconnect, Printivo, WaysToCap (chili peppers, mackeral), The Sun Echange etc
- 2010 and beyond saw Silicon Valley companies coming to Kenya to learn about its homegrown ICT revolution
- Led the globe in a few sectors- mobile money/Fintech (unleashing Africa’s huge shadow economy and bringing more participants to its economic table!)
- Africa’s young – if trained adequately could be its most formidable weapon – A growing large cadre of young problem solvers in diverse tech/non tech sectors are potential global difference makers!
- Africa is home to 22 MICs (23 including South Sudan) – MIC (Middle Income Country status – puts them in same class as China and Indonesia – countries that today can access global capital markets!) – NOTABLE: SSA composite MIC status is $1550 GDP per capita (2017)
For those who get concerned when lines of positive light is shone on Africa, don’t worry, I have you covered – Africa’s issues persist and its problems abound! This well circulated internet-based graphic though rampant with gross exaggeration, gives us that view at a glance:
Now that we have set the tone on both sides of Africa, I must re-emphasise that in spite of her problems, Africa has had a number of positive and important outcomes- including, GDP growth, discretionary income growth, sustainable cities, tech/non-tech startups, emergence of young and effective problem solvers etc.
Yet, there is so much more at stake, so much more progress is required and so much more success must be had. To this end, Africa must unleash its secret weapon, which is invariably in finding its rallying need or unity order.
In this season, that rallying need must incorporate plans that harness the region’s many facets into one giant offering capable of attending first to the needs of Africa and secondly provide solutions to the world. Given how long, Africa has been disenfranchised in its many parts is this even possible? The answer is yes, the framework for Africa’s unity is already in place, Africa’s Free Trade Agreement is that framework. It is Africa’s “neo-OAU-esque” mission, one that must remain big, ambitious and not fail. Let’s delve deeper.
Africa’s Unity for the Future
Many lines of text before, I listed the many important and positive milestones of Africa, so why have these milestones not organically unified Africa? It is because the listed successes though real and important, exist in siloed pockets, zoned away in regions, typically not rapidly repeatable and not fastidiously sustainable. At a macro level, these gains are at best secured in fragile, disparate ecosystems that are completely reliant on the political climate and the personality of leadership in each given season. This is hardly the “fertile soil” to create the larger African macro economy that can leverage its massive size, exploit its long market and stand the test of time. The reality though is that Africa must fix this or be doomed for generations to come!
While unity does not mean uniformity or conformity, it does translate to the ability to fully exercise all assets, which in Africa’s case include its size, people and products.
Economic growth for the future
To close the gaps, both internal and external, Africa as a market must be fully realised. Africa needs to succeed and become a market force to be reckoned with – it has the capacity, mass, natural wealth and manpower. We hear this over and over.
Africa as a whole still lacks the enabling environment and infrastructure to make this a reality. It is notable that there are pockets of great successes and countries that have made significant strides in tackling this head on.
Another question emerges, what should Africa do with what it has, to put its economic engine vis-à-vis its people and market to rapid motion?
Essential Ingredients to Unity and Economic Growth
The first essential ingredient for Africa’s unity and economic growth that sustainably creates a resilient economy, exploits Africa’s scale and harnesses its composite power – is available now – an “effective, non-leaky” fully capitalised, effective Africa-wide free trade enablement. The AfCFTA (Africa Continental Free Trade Agreement) is the crucial catalyst! It must be “effective, and non-leaky” (meaning it can have best practices coming in the “front door” but neutralised through a back door saboteur such as corruption). I, like many, have written and given talks including one at Yale University in 2018 about the merits of the AfCTA. A number of articles are readily available online.
The second essential ingredient is the right investment capital. With the rise of a neo private sector that assimilates innovation and technology, and neo “africapitalists” (the few, the brave, the africapitalists) at the helm, the right investment in the right hands is extremely important to creating paths to a future that is fully realisable. The capital tools and investment that Africa needs is not a shoe in what exits in the West today but must be rooted in a thesis that is developed with Africa in mind.
For example, one of Africa’s fundamental issues is the lack of a bona fide consistent tax base in most regions. This is sorely needed to boost capital infusion and attract large pool of private capital. Many African countries and states resorting to the Public Private Partnership (PPP) or Build Operate Transfer (BOT) models that fast tracked India, Singapore and even China (though China uses mostly government mandates) to economic success, stagnate. This is because of the lack of a a consistent tax base, so government and the public sector cannot come to the bargaining table with sufficient contribution to an important deal. Many investors fearing the higher risk, flee. African countries plagued by this issue fall prey to the shaky ground between ill defined benevolent development capital and “capital rich foreign sharks” with the same extractive mindset towards Africa that plunged it into the very state of limitations, it is digging itself out of.
Every Capital is not the same – The Rocky Road of the wrong Foreign Investment into Africa
The road of foreign investment into Africa has been very rocky – between 2007 to 2014 Africa saw record investor engagement estimated at a target of $30bn. It was exciting and appeared to bring the solution to the massive under capitalisation of the region. It was as if Africa’s turn had finally come and all it’s issues would be addressable. What followed created shockwaves in the investment sector.
By 2014, Blackstone (Black Rhino acquisition), a large private equity firm planned to invest billions in energy and infrastructure projects in Ethiopia and Nigeria – but could not close the large deals they desired and by 2017 they were looking to divest and get out. KKR another large investor, followed suit, disbanding after one investment of $200m into Afriflora to cultivate roses – which is now sold. Carlyle closed its $698m Africa fund after its $147m investment into Diamond Bank turned disastrous as shares fell by 90%. By 2017 90% of Africa-focused private equity fund sizes were over $100m, yet less than 15% of African companies had revenues over that number. It was a clear mismatch in strategy!
The truth is that by 2015 the private equity capital flight from Africa had started, investments seemed to have grounded to a halt. The $4.7bn invested was the peak, by 2016 it had fallen to $2.3bn and $0.7bn in 2017, and nine months into 2018 only seven had raised $0.4bn. The largest fund ever closed on the continent was $1bn, and since 2016 only one fund closed up to $300m. The rest are smaller domestically managed funds with smaller targets
The Rush on Africa by western (especially US based) private capital and why it failed –
The initial droves of investors approached Africa with the same extractive mindset of engaging in raw materials – they brought large sums of money to throw at projects they were interested in. Sums that would guarantee large swathes of ownership with commensurate returns. The long term economic development benefits to the region, typical in well-structured investment deals would be realised as an ancillary consequence versus germane to the deal. Essentially, using the same principles of the blueprint West to Africa engagements that hauled Africa into the debt crisis it is still reeling from and trying to dig out of! In most countries around the world, a large base of venture capital of fund sizes raging from $1m to $20m are the majority and then larger deals over $50m were reserved for big capital projects in energy, healthcare, drug development, logistics / transportation, many of which received infusions of capital at varying stages. Very large $100m and over deals drug development, sub infrastructure deals, like clean energy, smart power grids, smart transportation (like road networks, rail etc.) and cities, mining, very large scale manufacturing etc. They may also involve partnership with governments. These deals outside of drug discovery are few in number even in the most developed economies.
When very large deals come to smaller economies, the lines blur between the role of private capital and public infrastructure. They tend to seek access to large public infrastructure ownership at terms designed to hamstring a country’s long-term economic success. It is essentially akin to the age old tactic of foreign government sectors (like happened with oil, energy, mining, road networks, air carriers, freight etc) buying up infrastructure in African economies, except that this time, the capital originates from very large private capital investors.
What changed to create the capital flight versus a hostile take-over reminiscent of historical engagements?
So why did this proven tactic not work this time – well for one, times are a little different in many of Africa’s lucrative regions.
First, Africa as it were, is no longer easily for sale – many regulatory mandates make it so. Provisions like mandatory local content, or local context, bounded PPP/ BOT/BOOT clauses that include African participation (by partnership or by asset contribution) have tightened the loopholes that quickly devalued the contributed assets from the Africa side.
Secondly – the few $100m plays were relegated strictly to large infrastructure play that required long range, long-term commitments with uncertainties that were sometimes as delicate as the flavour of the government of the day. In order to reap the long term, investors were now required to commit to play, ride the risk curves and go all the way! They could no longer set the terms of their deal with clauses to pull out at will.
Thirdly it was competitive – China, Africa’s age-old trading partner, was back, not necessarily because of its good intentions towards the region, but simply because of the recognition that there is no future market growth of any length without Africa’s significant participation. China is dogged and aggressive and anyone contending for Africa’s market had to also contend with China for Africa’s business. China exercises staying power, riding out favourable and unfavourable governments. It is important to remember that China traded with Africa since the BCs and early ADs and might have learnt a thing or two.
On the other end of the spectrum are the Development Finance Institutions (DFI’s), who fund more development focused private equity companies. DFI’s like the World Bank’s International Finance Corporation (IFC), the European Investment Bank, Africa Development Bank and UK’s CDC etc. have invested $18.7bn in the period between 2014 to 2019. These engagements require long term commitments with long time horizons on ROI. To join this “party”, an investor needed to be fully committed at the onset. Sort of like committing to a long-term marriage to someone you were not even sure you could love!
So, it made absolute sense that there would be a resultant capital flight by the firms that left.
What is ironic and refreshing all at once, is that the demands that Africa is slowly but surely making on investors is aligning closer and closer to the demands that established economies make on their investors to ensure a long term sustainable economic win–win.
To invest in Africa today, investors have to be in for the long haul – an investor in Africa has to be tough, Africa tough!
Now, then what? Africa is still in need of investors without which there will be no rapid growth.
The Right Path to investing in Africa – Private Patient Investment Capital (Home Grown and Foreign) –
The advantage of the 2017/2018 capital flight is that it gave Africa the opportunity to more robustly build out its ecosystem to allow it compete for reasonable investments by removing the false hopes of easy access to quick capital. Startups and SMEs are properly subjected to the right amounts of due diligence that help PE/VC firms evaluate them properly. This is resulting in higher volumes of high quality startups that have a higher propensity to raise patient capital.
There is a deeper engagement that is beyond the hype –with the establishment of the 4th Industrial Revolution. African innovators can rapidly solve domestic problems but also where necessary, they meet global standards for compatibility and interoperability. This will go a long way to bridge the rich versus poor divide, which the prevailing expectation is that it will boil down to the access to and the use of information and technology versus the lack thereof. Today, people are learning via various forms of technology enabled platforms like the Massive Online Open Courses (MOOC), like Coursera, Udemy etc. The mantra being, what you learn to do, you own regardless of who has a degree in it.
Today the technology gap between Africa and rest of the world is still significant – Africa as a region has the lowest ICT development Index (ITU – International Telecomm Union 2017), Nigeria ranks 143/176 and 15th out of the 38 African countries in the index. Main-One Cable developed by private entities, claims it has invested over $400m in its 10-year existence to combat the digital divide. Facebook which entered Nigeria via a technology workforce development company Andela, has publicly unveiled its plan to invest $1bn in high speed internet across Africa, a plan many believe was Facebook’s real intent for engaging Africa, and will bring Facebook billions of dollars in return
Private Patient Capital brings the right sized investments to Africa –
As alluded earlier, capital infusion is sorely needed in every sector of the African market for economic growth to be achieved. Right sizing capital means that home grown/Africa-focused PE and VC funds like Kuramo Capital, Adlevo, Sawari Ventures, eVentures Africa fund, Trans Sahara Investment Corp (TSIC), Matamba Ananoka Tech Holdings (MATHs) etc. who understand Africa contextually and conceptually can perform and thrive without an artificial layer of competition. In addition to capital, they can nurture the investment environment to develop a sustained thriving and growing ecosystem. Some successful PE funds like Africa Cathay Innovation fund (VC – $168m), and the Partech Africa Fund (125 euro), are right sized to target technology and digital innovation for the space.
The additional good news is there is a continued pipeline development that directly contributes ecosystem development. Some examples include:
Tech hubs rose 40% from 442 in 2018 to 619 in 2019, Nigeria has 85 out of which Lagos has 40.
In 2019, Microsoft targeted $100m to open two technology centres in Africa, Kenya was opened in May 2019 and Microsoft has identified several initiatives in partnering with Nigeria.
Facebook has created development partnerships in Jos, Abuja and Kaduna.
These and more help create the ground swell for home grown and /diaspora investors who can now compete on a level playing field.
In conclusion while Private Patient Capital is the key to unlocking Africa it must come with a social conscience.
With a lopsided population growth that will be further dominated by the young by 2025 (70%), Africa must be focused on investments that are large capacity job creation engines On its face this is the antithesis of private equity or venture capital investments, where efficiency and very high returns dominate, completely at odds with development goals. Africa’s investment thesis with the private equity engagements it encourages must have a social conscience to take care of Africa as it deserves. Here is the kicker, any capital structured properly as patient capital over a long haul has the added benefit functioning with a social conscience. “By fulfilling these needs, they can make money because you’re helping to grow the economy and transform society,” says Doddy, whose firm has raised nearly $3 billion for investment over 15 years in Africa. “It’s a side benefit.” PIC, a South African private equity fund, is Africa’s largest PE fund, and manages $150bn of South African pensions, shared in 2019 that they deploy about 5% ($7.5bn) of their fund to invest in infrastructure, services and products that targets social good.
Africa’s profitability will be borne out of its complementary unity across all its regions, peoples and marekets, the AfCFTA is a great tool for that and it’s economic growth will emerge out of its wisdom in engaging private patient capital that has Africa at its heart!
About Ngozi Bell
Inspiration, Hard Work, Innovation. These three foundational elements anchor Ngozi’s core belief that manifesting the extraordinary is always within reach. Inspired by her mother A.C.Obikwere, a scientist and author, she learned the privilege of living at the edge of important encounters and dedicating herself to robust and perpetual learning. Ngozi’s background is a combination of Physics, Engineering, Venture Capital/Private Equity, regulations and business where she has managed over $1B in cumulative revenue. Ngozi is a speaker, story teller and writer on a diverse set of topics including AI, iDLT, ML, Signal Processing, iOT, women, entrepreneurship and more. She contributes regularly to VOA, has been featured on TEDx and is published on tech and non-tech platforms. She is a champion of STEM, women, youth, art and the “Africa we must engage”. Ngozi is an adjunct professor of Physics with work experience in Asia, Europe, Africa, Middle East and North America. She is a founder of a number of enterprises and host of the podcast Stem, Stocks and Stews (https://anchor.fm/stemstocksstews-podcast).
