Jan 27

Developing Markets: The Fortune to Be Found in Africa


Analyzing the African Landscape

Last week, Morgan Stanley’s New York Environment and Social Forum hosted an event focused on analyzing the investment opportunities found in Africa. The open panel discussion was led by two prominent figures in this field: Margot Brandenburg of the Rockefeller foundation and Jeffrey Leonard of the Global Environment Fund. Their discussion covered a wide range of topics the highlights of which are summarized below.


Banana, Wood and Other Staple Agricultural Goods


While many focus on Africa’s large mineral supplies, both Margot and Jeffrey centered the discussion on the role of agricultural investments in bringing change and achieving long-term profits. Margo referenced a series of banana farms that the Rockefeller foundation has helped finance and bring to the market in East Africa. Initially banks were weary in making loans to these farmers. With no collateral the farmers were unable to initially attain money to make the needed investments in their own farms. The Foundation saw the opportunity and chance to make a difference in the lives of these farmers and personally backed the loans. The result years later is a burgeoning industry, as these farms have created wealth and a stable livelihood for the farmers in the region.


Jeffrey told an interesting tale of a woodcutting and packing plant in South Africa that he had invested in as part of his fund. The plant had excellent wood supplies and cultivation methods, but its operation processes and market focus were lacking. This was the result of monopolization and lack of education and management skills in the area. When Jeffrey and his team came in, they realized that to bring about needed changes to this plant more than just operations management optimization was required. It required an investment in the village and surroundings. Jeffrey’s firm put in new teachers at local schools, educated the local population on AID’s prevention and STD’s, employed senior managers from North America, and also provided classes on how employees could manage their money. Despite cutting the work force by a significant percentage and retraining the workforce to optimize their production and distribution methods, the village and its residents still experienced a positive and lasting change. In addition, upon exiting the venture, the Global Environment Fund had made a significant profit.


In both these examples the vision, faith, and execution in these ventures proved to be the impetus needed to bring about positive change and highly profitable conditions to these African markets. Without these investments both the outside investors and the local people in the villages would not have experienced the same magnitude of prosperity and wealth.


Not All Horses Are Thoroughbred’s: Growing Pains and Lessons Learned


If all investments in Africa were as profitable and had the same execution and results as the stories categorized below, Africa would already be seen by investors in a different light. The reality of the situation is one can make many mistakes with investments. Both Margot and Jeff discussed this aspect as well. Jeff talked about an investment with a large multinational for a production plant that encountered unforeseeable difficulties and financial woes. What seemed like a safe slam-dunk investment suddenly turned into a nightmare. Margot referenced several programs that had been started to spur industry but had turned into large inefficient subsidy programs.


The key to both Margot and Jeff’s overall long-term success in Africa has been learning from their mistakes. In some cases, this has meant exiting investments that will never bring about sustained change. In others, it is funding investments that may not have immediate profit but will provide the needed cocoon environment to spur future innovation and investment. As Margo clearly stated: “There is a fine balance between being patient with investments and throwing good money after bad.” In all cases, the investment and development process has been a dynamic and consistent learning experience.


The New Colonials: China’s Role in Africa


The largest investor and country currently involved in Africa is China. With billions of dollars invested across Africa, China holds many deeds and rights to lands and natural resources across Africa. While, the presence of Chinese investment has spurred the construction of needed infrastructure in Africa, it has come at a great cost.  These investors have been viewed by many as rapacious in their actions employing only Chinese workers, extracting, and reaping the maximum profit possible while ignoring country laws and international restrictions. Neither Margot nor Jeff has collaborated with Chinese investors, but both are anxious to see how the role of China will dictate future international investments in Africa.


What the Future Holds


Margot and Jeffrey were both quite optimistic on the future of Africa. Investments in downstream agriculture and food processing will continue to be a growing market in Africa. Apart from those Margot and Jeff noted other industries such as mobile technologies. The continued development of mobile has opened all sorts of doors for innovation that many thought were not even possible. The mobile sector will continue to be a key part of the investment and enablement mix for the future.


With a very young population, the primary driver to long termed sustained success in Africa will be dependent on developing and training the right workforce. Right now there is a dearth of management talent in the region which makes all investors both local and foreign to have to invest a significant amount of time and patience in training and development.  This is an issue that many local governments and world organizations are still trying to solve. The hope being that in the not-so-far future Africa’s workforce will be empowered with the needed skills to build and grow their industries. If this happens the African future can be as bright as the African sun.


Leave a Reply

Your email address will not be published. Required fields are marked *


You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>