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    Africa 2002 - Emerging Opportunities in Africa

     
    3/25/2002
    Business opportunity in Africa abounds—if you can navigate around the developing infrastructure and political instability. The real challenge: How to change people's ideas about what is possible on the continent.
    by Julia Hanna

    Emerging Opportunities in Africa

    Despite the challenges posed by a developing infrastructure and bouts of political instability, opportunities in Africa abound. The difficulty lies in expanding the world's understanding of a culturally diverse continent that is in the earliest stages of exploring high-tech sectors such as e-commerce and telecom.

    "Africa is a blank canvas where anything can be done," declared Segun Agbaje, an executive director at Guaranty Trust Bank. Less than 2 percent of the population has access to telephone lines, he said, leaving the door wide open for those who want to enter the wireless market. The banking industry is virgin territory, too. "There isn't the same card culture in Africa yet," Agbaje said. "People don't use ATM, debit, or credit cards."

    Olukunle Malomo emphasized the need to foster a stronger entrepreneurial culture in Africa. Malomo, CEO of Trevalon Inc., is a board member of Africa Tech Forum, a nonprofit organization that mentors African entrepreneurs. Technology is not difficult to deploy, Malomo noted, but a more established infrastructure is needed to support these advances.

    "I know someone who is working on an eBay model in Nigeria," he said. "There is a lot of demand for something like that, but DHL—which costs around $12—is the only means of shipping goods reliably."

    Ideological revolution
    "We have arrived at a crossroads in Africa," said Amadou Mahtar Ba, president of AllAfrica Global Media. The only limits lie in preconceived notions that Africa lacks opportunities for growth. "In addition to an information revolution, we need an ideological revolution that will change people's ideas about what is possible here," said Ba.

    In addition to an information revolution we need an ideological revolution that will change people's ideas about what is possible here
    — Amadou Mahtar Ba,
    AllAfrica Global Media

    Part of that change comes when foreign-educated Africans return home, said Ayisi Makatiani, an alumnus of MIT and the founder of Gallium Venture Partners and Africa Online. "It's easy to live a comfortable life in the United States," he said. "But there's a huge need for all of you—and you're well positioned to exploit the opportunities that are available in Africa now."

    Technology will play an increasingly important role in Africa's economy, Makatiani continued, highlighting telecom and software as two sectors with particularly bright futures. Investors based in New York, Washington, D.C., and London need the specialized, local knowledge required to succeed in Africa.

    "They need to know people like you," Makatiani said. "It takes a little courage to go back, but doing business in Africa is fulfilling. It makes you feel good inside."

    Integration and risk
    What will it take to stimulate further growth in the region? Is it necessary to create a pan-African organization to attract big-league investors?

    "There are 300 languages and dialects in Nigeria alone," said Malomo. "An organization that involves the regional clustering of countries seems most realistic."

    "Any one country is not large enough to attract the capital needed for big projects," said Makatiani. It depends on the business in question, he added, and how dependent it is on economies of scale. Laying fiber optic cable, for example, requires a $1 billion to $2 billion investment and demands the cooperation of more than one country.

    "Theoretically, integration makes sense," said Agbaje, particularly for Internet-related ventures. Perhaps some form of organization will be realized eventually, but it will take time. "Look at Europe!" he said.

    What about the issues of political stability and investment risk, asked an audience member. How can these perceptions—some based on unfortunate realities—be turned around?

    It's important to get away from the idea of an "Africa risk," said Makatiani. "A lot of that comes from expatriates who couldn't succeed for cultural reasons. There are risks in Africa, just are there are anywhere, but we just need to explain and quantify them better and demonstrate the high returns associated with them."

    "I work with a VC firm in San Francisco, and the biggest issue we discuss is the rule of law," said Malomo. There's nothing like an FDIC yet, and there probably won't be in the future—but there needs to be some sort of investment support."

    "Unfortunately I don't think that's going to happen for a while," said Agbaje. "One way to mitigate risk is by having credible local partners."

    Change from within
    Making progress in Africa—particularly when it comes to building successful high-tech businesses—requires on-the-job management experience, said Makatiani. "We say that you need the fleas of elephants," he laughed, explaining that many of the best managers come from giant MNCs in Africa such as Shell and Unilever.

    Creativity and the ability to share resources are key assets as well, said Ba. "It's also important to expand the concept of ‘education' to include a local dimension," he added, reminding the audience that many successful African businesses are run by people who have never been to school or were schooled inside the country.

    Whatever progress has been made in Africa, most investors and multinational organizations remain too wary to invest in any but the safest sectors, such as oil, said Agbaje. FDI is all well and good, but real change will occur from within the country. "Africans," he said, "have to build Africa."

    · · · ·

    Julia Hanna is the Associate Editor of the HBS Bulletin.

    Related stories in HBS Working Knowledge:
    2001 Africa Business Conference

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