Is Africa risky for investors? Some thoughts


Africa is a fascinating topic. Obviously to take the whole of Africa is a gross generalization, but the eyes of the world’s investment community appear – at least from my discussions and meetings – to start to turn towards Africa and not just on the classic play of commodities and infrastructure.

As I said, obviously Africa is too big a pot to generalise, but my experience has been exceptionally positive. There is a lot of noise so that the gap between reality and perception is very wide.  That doesn’t mean that there are no risks… but they are risks like in many other regions. If you are a hands off investor (i.e. just investing and have no-one on the ground looking after the investment) the chances that you will get ripped off are high… but then they are similar to any country (we lost a lot of money in Italy and Germany through fraudsters).  As far as land investments are concerned… I am a bit biased as I do not like land related investments (I am thinking commercial properties). There are enormous investments going on in agriculture at present. Mining to me is a no-go area as you are competing with a LOT of other people with big wallets and bigger agendas). The stories I have heard around land related investments have been very good, but these are almost without exception associated with my advice above: have someone on the ground look after your investment! As far as safety of the asset… hmmm… how much value did you lose in a real estate investment in the US in the last years? How safe was that asset class? I think you get my point… perception and reality.

You will find (on the whole) that Africa is a really exciting place to consider, and not just on the returns side. The people are hungry to learn. The work ethic (on the whole) is different from the Asian or European or US one so come to Africa as a respectful, interested and involved guest and you will be VERY pleasantly surprised. Come to Africa as an economic hit man and you will find things going badly very quickly. People all over the world appreciate if you treat them with respect and as partners. This applies to Africa as well.

The days where Africa was just a commodities platform filled with poverty and hunger and ignorance are sometime still in the press but the reality is much more fascinating and amazing (did you know that Ghana is emerging as a real techno power house? A sort of silicon valley of Africa?). There will always be stories about corruption (and indeed there still is a lot of it!) but it is about knowing the landscape where you operate. I guess I would ask the question about other countries… What are lobbyists for in some of the Western countries? NRA in the USA?

On the noise surrounding land redistribution… I think farms and agricultural land is always subject to political whims if the state’s interest conflict with your own. Property developments are usually relatively safe but it depends very much on what country you are looking at. There is a lot of coverage (understandably so) about land repossessions relating to farms but they are usually headline news hiding a lot of detail and background info which would diminish the power of the headlines.

My gut feel is to look at what investments there are in the country. Very few politicians are prepared to cause a flight of capital just to satisfy a small constituency. The more and diversified the investments in the country, especially by foreigners, the less likely the risk of appropriation. But as with all things, I would always suggest that you approach with caution. Don’t put all your eggs in one basket…

As an aside… On continuing education in business. I did my MBA in South Africa (moved to Africa to take advantage of the current interest in the continent) 2 years ago when I was 36. Perhaps there is some value out of my experience: I did the MBA in South Africa because that’s where I wanted my network to be and also because I wanted to learn about business by people who do business there. Hence my recommendation is to forget the brands and aim for the B-school that teaches what you want to learn and attracts like-minded people. So HBS for me is a no-go (assuming they even would want me J) because I am an entrepreneur (hence my choosing an entrepreneurship MBA). Choose the school that offers an entrepreneurship programme and ideally one with a focus on the business areas you know (e.g. Stanford for technology?).

With regards to the age and MBAs… One thing that always put me off doing an MBA in the USA was the median age of the partecipants (with a couple of exceptions of course). In my experience (and it is really subjective) the real value of an MBA programme lies 20% in the academic curriculum and 80% in the experiences that fellow students share during classes. Thus I prefer more experienced business people to young people with just a little experience. That is not to say I don’t value enthusiasm and passion – but I prefer to learn the tricks of the trade of how others do it on the ground. Hence my preference for the likes of Insead and Wharton (generally speaking).

As an entrepreneur I did the MBA not for the MBA title but to fill the (many) gaps I had in my knowledge. Was it worth it? Absolutely -but to the risk of repeating – the biggest value I derived was the learning from my fellow students. And this is to me one of the most under-considered platforms to do due diligence in Africa: business schools. They know the students, the networks. They know what works and what doesn’t.

As a way of background, I was in big corporate for some 13 years before deciding to become an entrepreneur (my last post was at Goldman). While I enjoyed it working in big corporate, my view is that the experience is a tad overrated (but then I wasn’t the greatest employee so my angle is a little biased 🙂

Here are a couple of articles that might be of interest to those interested in understanding the potential and risks with Africa:

http://bit.ly/j2eOvT  (from my previous employer, Goldman Sachs)

http://www.investmentnews.com/article/20110522/REG/305229983/-1/INIssueAlert01  ( nice overview but take it with a pinch of salt as these guys are trying to attract capital to invest)

http://bit.ly/lF3qBG  (ernst & Young discussing the perceptions around Africa)

http://bit.ly/jSbVJR  (a nice and short article – good overview)

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