Africa_entrepreneurs_FT Report 2015 July

FT SPECIAL REPORT

African Entrepreneurswww.ft.com/reports | @ftreportsFriday July 17 2015

Inside

Ventures look towider horizonsThe retail sector is aclear example ofpan-African expansionPage 3

Start-ups need helpThere is little supportfor Ivory Coast’smicro-entrepreneursPage 4

Seed fundingInvestors are beginningto recognise thepotential of backingsmaller venturesPage 4

Mobile technologywidens its reachRapidly growing retailplatforms have potentialfor developmentPage 5

A s ever-increasing numbersof cars clog the streets ofAfrican cities, trade flour-ishes along congested high-ways. Vendors, touting

anything from newspapers, to colddrinks, rat poison, mobile phone air-time and cigarettes, weave among thevehicles seeking to catch the eye ofmotorists inching their way to their des-tinations.

In city centres and surroundingneighbourhoods, makeshift street stallsoffer a wider variety of products —clothes, fresh fruit, rice, sugar, smallpackets of washing power and othergoods.

Such ubiquitous scenes have becomethe most conspicuous face of business inAfrica and of the African entrepreneur.The majority of trade on the continenttakes place in the informal sector andtraders are often one-man-bands, usingtheir wits to eke out a living in the bestwaytheycan.

“People have generally underesti-mated the amount of entrepreneurshipthat happens in Africa,” says SolomonAsamoah, a vice-president at the Afri-can Development Bank. “It’s extremelyhigh, basically because there’s no socialnet, or very limited social net in mostcountries, so people have to find ways tosurvive.”

The key to developing these micro-entrepreneurs, however, is persuadingmore of them to move from informal

businesses into the formal sector, hesays. “Then they can get access tofinancing, employ more people andbecome more sustainable. So that’s thechallenge.”

While the informal sector still domi-nates, growing numbers of formal busi-nesses have sprouted and flourishedover the last decade as African nationshave boomed on the back of soaring

commodity prices and the rapid expan-sion of consumer goods and serviceindustries.

These growing businesses havethrown a new generation of successfulAfrican entrepreneurs into the spot-light. Among the best known are Nigeri-ans Aliko Dangote — Africa’s richestman, who has built his industrial con-glomerate across cement, sugar and

flour milling companies — and TonyElumelu, whose business interestsincludefinancial servicesandpower.

In east Africa, Kenyans includingChris Kirubi, the chairman of HacoTiger Brands, a manufacturer of con-sumer goods, and Vimal Shah, who isthe chief executive of Bidco, a manufac-turer of edible oils, animal feeds anddetergents,areprominentexamples.

A new generation leads the wayStart-ups are thrivingand helping to changeperceptions of business,writesAndrew England

In the technology field there is a grow-ing number of entrepreneurs who arehitting the big time, such as Sim Sha-gaya, chief executive of Konga, Nigeria’slargestonlinesalesportal.

A younger generation has also cometo the fore, such as Ashish Thakkar, theUgandan entrepreneur who is a partnerof Bob Diamond, the former chief exec-utive of Barclays, at Atlas Mara, aninvestment firm, and Swaady Martin-Leke, a former executive at GE who hasset up a boutique tea business in Johan-nesburg.

Eric Kacou, an Ivorian who is chiefexecutive and co-founder of Entrepre-neurial Solutions Partners, a consul-tancy, says these entrepreneurs havecreated a pool of role models for youngAfricans that is helping to change theirperceptionsofbusiness.

“It’s actually cool to be an entrepre-neur—thereusedtobeatimewhenkidswanted to become civil servants,” MrKacou says. “[Now] they want to bebusiness people and that is a veryimportantbreakthrough.”

He says governments and develop-mental institutions are increasinglycoming to appreciate the role of the pri-vate sector in driving development andgrowth, rather than depending on thestate and aid. While much focus is puton technology, Mr Kacou says the mostexciting developments are traditionalsectorssuchasagricultureandindustry.

“Those stories are not covered asmuch but they matter more becausethis is where 80-90 per cent of the popu-lation isemployed,”hesays.

Still, the picture is “far from rosy”, MrKacoucautions.

“A very large number of businessesare still stuck in survival mode,” he says.

Continuedonpage4

South Africa’s bumpyroad to global growthCompanies have learntfrom history and showntheir mature approachPage 5

Change of pace: growing numbers of young Africans have flourishing businesses —Bloomberg

2 ★ FINANCIAL TIMES Friday 17 July 2015

Friday 17 July 2015 ★ FINANCIAL TIMES 3

ContributorsJohn AglionbySenior reporter, Live news desk

Andrew EnglandSouthern Africa bureau chief

Maggie FickWest Africa correspondent

Sophia GreneFTfm reporter

Siona JenkinsMiddle East and Africa news editor

Fred SwanikerFounder of African Leadership Group

Linda AndersonCommissioning editor

Steven BirdDesigner

For advertising details, contact:Larry Kenney, (44) 20 7873 4835, [email protected]

All editorial content in this supplement isproduced by the FT.

Our advertisers have no influence over orprior sight of the articles or onlinematerial.

African Entrepreneurs

KwameNkrumah, JuliusNyerereandKennethKaundaarepartofagenerationof leadersknownasthe“foundingfathersofAfrica”. Sixtyyearsago, they ledamovementto liberate thecontinent fromtheshacklesofcolonialism.

Today,as I seeprojectionsbyMcKinseyshowingAfricawillhavethelargestworkforce intheworldby2040,andyetmorethan60percentof thepopulationstill survivesonless than$2aday, I realisehowurgentlyweneedadifferent typeof liberation—this timefrompoverty,notcolonialism.

Unlesswegenerateourownwealthasacontinent,wewillneverbeable tostandonourowntwofeetandwillforeverremaindependentonothers.Onlywithourownwealthwillwebeable topaveourroads,educateourchildren, feedourfamiliesandprovidedecenthealthcare, sanitationandhousing.

Sowhohasthecourageto leadthisnewfight foreconomicfreedom?Ibelievethere isonlyonetypeofherowhocanliberateustoday: theindigenousAfricanentrepreneur.

Throughouthistory, theonlywaycountrieshavebeenable toeradicatepoverty is throughtherelentlesspursuitofentrepreneurship.Noamountofgovernmentspendingor foreignaidhasledtoserious, sustainablepovertyeradication.

EveninChina,wherethestatehasbeenheavily involved, itwasentrepreneurshipbystate-ownedcompanies—producinggoodsandservicesandsellingthemaggressivelyacross theworld—thatcreated jobsandlifted millionsofpeopleoutofpoverty.

WedonothaveenoughentrepreneursinAfrica.Toomanypeoplearewaitingfor jobsandthoseentrepreneurswhodoexistareusually“accidental”whofellintotheroleasameansofsurvival,or“buy-and-sell”entrepreneurswhobuyandselleverythingunderthesun(oftenmadeinChinaorthewest),butdonotproduceanythingnewinafocusedway.This isnothowtoachieveeconomicliberation.

Weneedanewbreedofentrepreneur:the“strategicentrepreneur”.Strategy isaboutmakingchoicesandsettingpriorities.Strategicentrepreneurschoosetobecomeentrepreneursbecausetheyseeopportunityandtheyprioritisewhichproductsandservices

to focuson.Thesearetheentrepreneurswhowillproduceworld-class,innovativeAfricangoodsandservicesthatcanbesoldtothegrowingAfricanmarketandeventually totherestof theworld.Theywillbuildenduringcompanies thatwill create the jobsneededonthecontinent.

Whyaretheresofewstrategicentrepreneurs inAfrica? Itcanbeanarduousundertakingtostartabusiness.Barriers includeexcessiveredtape,

corruption,complicated labour lawsandtheperennial favourite—lackofaccess to finance.

Anentrepreneurwillalwayshaveobstacles,butheorshemust findawayaroundthem.Becomingastrategicentrepreneur inAfrica ispossible,because inthesesame,difficultconditionsChinese, Indian,LebaneseandEuropeanentrepreneursarealsobuildingsuccessfulbusinesses.

Ihaveexperiencedhowfulfilling itcanbetobeaneconomic ‘freedomfighter’.At theageof27,withnocapitalofmyown, I leftmyjobtocreateanorganisationthatwould identifyandtrainanewgenerationof leadersandentrepreneurs forAfrica.Today,11years later,wehaveraisedalmost$100minfinancingtoprovideeducationandleadershipdevelopment.Wehavecreated200jobsandtrainedthousandsof entrepreneurswhowilleachcreatemanymore jobs.

Ourteamis nowembarkingonanotherentrepreneurialadventure:wearebuildingaseriesof large-scaletertiary institutionsthatwill train3mAfricansoverthenext50years tobecomeentrepreneurial leaders. Ifwearesuccessful,wewill createmorethan10,000jobsdirectlyandseveralthousandmore indirectly.

Joinmeinthis fight. Ifyouareeducatedandtalented, thecontinentneedsyoutoapplyyourcreativity toproducegoodsandservices thatcanbesoldworldwide.Standupandbecounted.Economic liberation is thebestwaytohonourthehopes,dreams,blood,sweatandtearsofourforefathers.

Theauthor is the founderof theAfricanLeadershipGroup

‘Onlywith our ownwealthwillwe pave roads and feed families’OPINION

FredSwaniker

W hen Choppies openedits first store in Lobatse,a small town in Bot-swana, its ambition waslimited to becoming a

retailer of substance in its domesticmarket.

Progress was slow. It took seven yearsafter the first supermarket opened itsdoors in 1986 for the family-ownedcompany to open its second — again inLobatse.By1999, thegroupwasstill lim-ited to the two outlets. But in the yearssince, its expansion has been rapid andthe contrast with its current operations— and its ambitions — is stark. Today,Choppies boasts 126 stores across threecountries, including South Africa andZimbabwe. It has recently announcedan agreement with a Kenyan company,Ukwala, to acquire 10 stores in the eastAfrican nation; and it is working ongreenfield expansions in Zambia andTanzania.

“If you want to be a real player youhave to play beyond Botswana,” saysRamachandran Ottapathu, Choppies’chiefexecutive.

The Botswana market — whereChoppies claims to have a share of morethan 40 per cent — is tiny. The southern

African nation, best known for its dia-mond riches, covers more than 600,000sq km, but has a population of just 2m.Yet Choppies’ expansion reflects abroader trend of increasingly ambitiousAfrican companies looking to growbeyond their borders with the goal ofbecomingpan-Africanbusinesses.

Choppies — which has a turnover ofaround $700m and recently listed onthe Johannesburg Stock Exchange —wants to have 200 stores by the end ofnext year and sales of a “couple of bil-lions of dollars” in five years, Mr Ottap-athusays.

“There are opportunities for everyretailer in Africa and now is the righttime for expansion across the conti-nent,” he says. “The reliance on theinformalmarket is shifting to the formalmarket and the level of aspiration ischanging.”

The retail sector is one of the clearestexamples of the trend, particularlySouth African retailers, including Sho-prite, Pick n Pay, Massmart and Wool-worths, wanting to build on their conti-nental footprints. Shoprite has morethan 280 corporate and almost 40 fran-chise stores in 14 countries outsideSouthAfrica.

Banks, insurers, construction compa-nies and others are following suit asgroups look to tap into Africa’s fast-growing economies and its young andincreasinglyurbanpopulation.

Many of the companies leading thecharge are South African, as the countryhas by far the continent’s most sophisti-cated corporate sector. The South Afri-can economy is also more mature thanitscontinentalpeersandhasbeenstrug-gling with lacklustre growth, whileother African nations, such as Kenyaand Nigeria, boast some of the world’sfastestexpandingeconomies.

However, companies in other parts ofthe continent are also thinking beyondtheir home borders. In the west, Nige-rian companies are to the fore, withNigerian banks beginning to competewith South African groups, such asStandard Bank, Africa’s largest byassets, and Barclays Africa. Lagos-basedUnited Bank for Africa has a presence in19 African states, from Tanzania in theeast, toMozambique inthesouth.

Ecobank, which began life in Togo inthe 1980s, has an even broader foot-print,withoperationsacross36nations.

In other sectors, the standout is theDangote conglomerate, owned by Aliko

Dangote, the Nigerian tycoon who isAfrica’s richest man. The manufactur-ing group’s interests include sugar, saltand pasta, but it is in cement where itspresence has taken off. Dangote is thebiggest investor in the cement industryin sub-Saharan Africa and has cementplantsdottingthecontinent.

IneastAfrica,groups—mainly incon-sumer industries — have been establish-ing themselves, including Kenyan com-panies such as Nakumatt, a regionalretailer, and Bidco, which is a manufac-turer of edible oils and soaps. There arealso Tanzanian examples, most notablyMeTL Group, a conglomerate with apresence inadozenAfricanstates.

Helmut Engelbrecht, head of invest-ment banking for Africa at StandardBank, says it is a trend that will continueas groups look for economies of scale.But he adds that in Nigeria many com-panies are still focusing on buildingtheir business in the domestic economy— Africa’s largest — because of the sizeand potential of that market, with thewest African nation boasting a popula-tionof170m.

On the other side of the continent,the effectiveness of a regional tradebloc, the East African Community, has

fostered greater cross-border growth,he says. But for now, the attention islargely on the region rather than furtherexpansionacross thecontinent.

“East Africa, if you include Ethiopia,is about 200m people, so sorting out thelogistics and getting the market share isstill a big task and there’s a risk theyoverextend themselves if they go fur-ther,” says Mr Engelbrecht. “So the nexttask is tobeddownineastAfrica.”

For other African companies, thenotion of expanding beyond their ownborders is still in its nascent stages. Andprogresscanbeslow.

“Everybody is excited about Africabut it’s a situation where a lot of peopleare chasing businesses in the same terri-tories,” says Miles Dally, chief executiveofRCLFoods,aSouthAfricangroup.

RCL, which has revenue of R23bn($1.9bn), has joint ventures with Zam-beef, a Zambian company, and Botswa-na-based Senn Foods Logistics, while ithas been exploring opportunities inGhana,NigeriaandeastAfrica.

But the momentum behind the shift isclear. “You go to any of the countries Iwas talking about and walk into the air-port and the hotels and you just bumpintoSouthAfricans,”MrDallysays.

Opportunitiesmultiply andventures look towider horizons

GrowthLocal companies are aiming to entermarkets across Africa, writesAndrew England

‘Reliance onthe informalmarket isshifting tothe formalmarket andthe level ofaspiration ischanging’

Economic liberation is thebest way to honour thedreams of our forefathers

Hyperactive:supermarketgroupChoppieswants to have200 stores bythe end ofnext year

4 ★ FINANCIAL TIMES Friday 17 July 2015

African Entrepreneurs

S amson Abioye found himselfin what is familiar territoryfor most African entrepre-neurs towards the second halfof last year: he was struggling

to find anyone to finance his “greatidea”. Banks would not touch pass.ng,hismobileapptohelpNigerianstudentscramforanimportantuniversityexam.

Then in October he secured $20,000from 400ng, a joint venture betweenAfrica-focusedseedfundersL5LabfromLagosandNairobi-based88mph.400ngtook a 25 per cent stake in pass.ng,which charges students the equivalentof $1 a week or $2.50 a month for accesstorevisionmaterials.

Luckily Mr Abioye’s operation waslean — he is both chief executive and thede facto chief technical officer — and sothe funds kept pass.ng afloat until thebeginning of this year when L5Labawarded him a further $25,000, thistime in return for another 10 per cent oftheequity.

The financing helped pass.ng to beprepared for the crucial February-to-Marchperiodaheadofuniversityexamsin Nigeria. “So we managed to break

even in February and in March we made$60,000 in revenue,” says Mr Abioye.“In April, after the revision peak we stillmade $30,000 and since we didn’t wantto have down time we started develop-ingotherproducts.”

Mr Abioye appears to be set on theroad to success. “We’re in partnershipwith a telephone company, AirtelNigeria, which is promoting us and wehave plans to go international — toexpand to Ghana, Togo and IvoryCoast,”hesays.

“Next year we’ll probably be lookingfor $1m, ” he adds, to help finance fur-therexpansion.

In May of this year, Kenya-basedChloé Spoerry was arguably in evenmore dire straits. With help from88mph she had restarted HiviSasa.com,a twice-failed local-level news service,and was having to finance the companyusingherownmoney.

She was willing to take such a riskystep because she had two interestedinvestors: Novastar Ventures, a Nairobi-based venture capital company, and theOmidyar Network, a philanthropicinvestment firm set up by eBay founder

Pierre Omidyar, but the due diligencewastakingmonths.

“We ran out of money at the end ofJanuary but I decided to keep goingbecause we never got the red light fromthe investors, the process was just longandslow,”shesays.

Her perseverance was repaid when, atthe beginning of June, the investorssigned off on $450,000 of funding inreturn for a 40 per cent stake in thecompany.

Until recently, many of the successfulstart-ups, such as iCow, an app, whichconnects farmers with agricultural,market and meteorological data, oftenrelied on organisations such as foreigngovernments’ aid departments or chari-ties such as the Bill and Melinda GatesFoundation.

But that is changing. Kresten Buch, aco-founder of 88mph, says that whilethe amount of corporate venture seedfunding available to the many Africanstart-ups emerging almost everyday is “tiny” compared with elsewhere in theworld, it isnonetheless increasing.

“There’s a realisation that there are somany programmes and businesses out

Perseverancepays off forthose with the‘great idea’

Seed fundingVentures no longer depend oncharities and aid programmes, says John Aglionby

Hands on: thestart-up iCowsupplies Kenyandairy farmerswith agriculturaland market dataBloomberg

In African cities such as Lagos andAccra, striving entrepreneurs andshrewd young professionals head to oneofagrowingnumberofbusiness incuba-tors to exchange ideas and draft busi-ness plans. In Nairobi specialist centreshave opened in the past five years toencourage technological growth andinnovation.

But there are no such centres for theyoung entrepreneurs of Abidjan, thecommercial capital of Ivory Coast infrancophone west Africa. Instead, theymeet after work and at weekends at fastfood outlets and coffee shops to giveeachotherencouragement.

“There is no ecosystem for entrepre-

neurs here,” says 27-year-old BacelyYorobi. He is trying to launch a mobileapp that would track and store free WiFilocations in Ivory Coast and abroadfor his fellow citizens, looking toget online for free wherever theyare.

“To advance your start-up idea,you need to learn, to discuss withother entrepreneurs, to benefitfrom their perspective. Thestart-up’s mindset starts with edu-cation and with an ecosys-tem, with mentors. Withthat kind of help, youcan’t fail, you know howtosucceed,”hesays.

But given the lack ofopportunities for thissupport at home, MrYorobi has so farspent more time onapplications toattend conferencesand programmes,mainly in the US andLatin America, than he

has on developing his business plan.While access to finance and advice is

often hard to come by for fledglingentrepreneurs in other emerging mar-kets on the continent, it is almost non-existent in Ivory Coast. The country hasemerged from nearly a decade of con-flict, that ended in 2011, to become oneof the continent’s leading economic per-formers. The government aims to makeIvory Coast an emerging market, ratherthanafrontiermarket, by2020.

With GDP growing at around 9 percent for the past three years, foreign

banks with no history in thecountry, are hustling to apply forlicenses in anticipation ofexpanding infrastructureinvestment by the governmentin partnership with privatecompanies. New restaurants ,

construction projects, exhi-bitions and conferencesareall signsthatAbidjan,acityof4.5misbooming.

But the ability of aspir-ing local entrepreneurs

such as Mr Yorobi to be a part of IvoryCoast’s economic comeback is limited.He points to where he believes the prob-lems begin: “In our schools, we can’tstudy computer science. The govern-ment says it wants to create a cadre ofentrepreneurs, but it doesn’t bother tolookatourneeds.”

Abdourahmane Cissé, the budgetminister, is aware of the problem.“Around 74 per cent of our students inuniversity are in non-scientific areas.We must look at what we need and atexactlywhat isbeingtaught,”hesays.

Jean-Louis Billon, the trade minister,says that the government is concernedabout entrepreneurs. Previously thefocus was on attracting foreign invest-ment, now a Small Business Agency isbeing established to monitor small andmedium-sized companies and there isalso a ministry of entrepreneurship,craftandSMEpromotion.

The World Bank’s 2015 Doing Busi-ness in Ivory Coast report found thatstarting a business is becoming easier,but it defines entrepreneurs as those

running businesses with between 10and 50 employees. Many of IvoryCoast’s new entrepreneurs are eithersoleoperatorsorworkingapartner.

One such sole operator is CynthiaWodié, 33, who has launched VirginBohème, a business selling importedwomen’s accessories from France onlineinIvoryCoast.

“My main problem is not financial, itis more the coaching and the contacts,”she says. Ms Wodié has financed herstart-up using her savings from her dayjob as an accountant. She says it is diffi-cult to secure financing because banksdo not have structures set up specifi-cally formicro-businesses likehers.

“In east Africa and in Ghana andNigeria, there are more opportunitiesfor entrepreneurs, but less so in theFrench-speakingAfricancountries.”

Meanwhile in Abidjan, Mr Yorobi isorganising meetings with otherwould-be entrepreneurs. He hopes tofoster the “start-up mindset” that hehopes more of his fellow citizens willembrace—ifgiventherightsupport.

Young founders are excluded from a booming economyIvory Coast

Despite its recent growth,the country does not havea start-up mindset,writes Maggie Fick

These are “hand-to-mouth” enter-prises. “People still don’t have a verygood understanding of what entrepre-neurship isormeans.”

Often, the struggle to access finance issingled out as the main factor inhibitingthe development of small businesses onthe continent. Mr Kacou says a lack ofbusiness skills and education is also animpediment.

“It’s intelligent capital, it’s about mak-ing sure entrepreneurs have the rightcombination of dollars and sense — theright insight to be able to make theirvisionhappen,”hesays.“People focussomuch on the dollars that even if theyhave the dollars they still fail becausetheskillsandinsightarenot there.”

Mr Asamoah says another challengefacing the development of businesses ischanging the mindset of family-ownedcompanies “with one person at the topwhobelieves thatcontrol iseverything”.

Often those businesses are reluctantto open their books and there is a blur-ring between the finances of the com-panyandthefamily.

“What they really need is equityfinance and guidance to get to the nextlevel, but that clashes with their general

Continued frompage1 approach, which is ‘I need to own every-thing’,” Mr Asamoah says. “Those prac-tices have to stop and that is sometimesdifficult for many entrepreneurs to get[theirminds]around.”

Governments need to do more toimprove the business environment, headds, by removing bureaucratic barri-ers and creating a climate where smallercompaniescanflourish.

But, Mr Asamoah says micro-finan-cial institutions that serve small busi-nesses have learnt from past mistakes

and are putting in place systems toreachpreviously ignoredcompanies.

Some banks, exemplified by EquityBank in Kenya and UT Bank in Ghana,are taking a bolder approach and arelending to smaller businesses, setting atrend that is beginning to influence thelarger,moreestablished,banks.

The macroeconomic environment,boosted by the healthy growth of the

past decade and improved governance,hashelped.

“We are seeing more robust busi-nesses being built and more robustbanksbeingbuiltand . . . generallyoverthe past 10 years you’ve seen animprovement in the macroeconomicenvironment in most African nations,”Mr Asamoah says. “Interest rates andinflation have tended to come down,that’s important because it means thecostofborrowingfalls.”

RaziaKhan,headofAfricamacro-glo-bal research at Standard Chartered,highlights the contrast between coun-tries where entrepreneurship is thriv-ing, such as Nigeria and Kenya, andthose where it is less noticeable, such asEthiopia.

“If you are missing that entrepreneur-ial class, if for some reason it hasn’t beenallowedtodevelop, thenyouaremissinga very important building block intermsof futuredevelopment,”shesays.

“The economies that 20 years agostarted to see a significant increase inthis sort of entrepreneurial behaviourandthe fact that thiskindofactivitywasencouraged”, she adds, are “what todaydistinguishes the frontier market fromthemarkets that lagsomewaybehind.”

A new generation leads the way

Eric Kacou, head ofEntrepreneurialSolutions Partners,says people do nothave the necessaryskills and insight

there [investors’] business models arechanging,”hesays.

Having said that, most of the moneyinvested in start-ups is from abroad.“There’s some local venture capital inSouth Africa and Nigeria but in Kenyaandelsewhere it’smostly foreign.”

“A lot of people have money to investbut they don’t understand the invest-ment. They like to invest in things theyunderstand. But as more companiestaste success that will change. It’s just amatterof time.”

Aly-Khan Satchu, a Nairobi-basedbusiness adviser, agrees. “African poolsof capital predominantly [come from]tech-type people. But it’s only going totake one of these companies to be soldfor a tipping point to be reached andthatwill change.”

Fundz, which invests in start-upsacross the world, has provided seedfunding to entrepreneurs in Nigeria,Kenya, Cameroon and Togo. DavidMark, the chief executive and founder,believes that there is a big shift going onintermsof finances.

“Traditional financing is going to bedominating the show for the foreseeable

future but democratisation of financingishappening,”hesays.

Mr Buch has noticed that one featureof the new funding models is that ele-ments of the corporate model are creep-ing in, with banks such as Barclays start-ingventurecapitalentities.

Forpeople lookingto invest inAfricanenterprises, Mr Mark believes the key isto keep a strong connection to the ven-ture. “As a start-up owner, you don’t justwant an investor, you want to havesomeone who’s going to have an input aswell,”hesays.

MrBuchsaysanother“critical factor”,in those countries where he has selectedenterprises to invest in, is the deregula-tionof thetelecomssector.

“In South Africa, it has made cheaperphone rates and cheaper smart phones.These countries are investing in infra-structure and that’s where people haveaccess toproducts.”

Mr Abioye hopes to be one of thoseentrepreneurs who will eventually helptrigger thefinancingtippingpoint.

“I see a public listing in about sixyears’ time,” he says, but cautions: “Itwill takea lotofhardwork.”

BacelyYorobi:‘no ecosystem’

for startups

‘A lot ofpeople havemoney toinvest butthey don’tunderstandtheinvestment’

‘In ourschools, wecan’t studycomputerscience. Thegovernment. . . doesn’tlook at ourneeds’

Friday 17 July 2015 ★ † FINANCIAL TIMES 5

As African entrepreneurs expand theirbusinesses, they look not only for capi-tal but also for expertise from theirinvestors to help build their ventures.And,althoughmuchinvestment inAfri-can businesses is domestic or intra-Afri-can, significant flows of money andbusiness guidance are coming from therestof theworld.

Last year saw foreign direct invest-ment into Africa remain constant at$54bn. Increased flows went to sub-Sa-rahan Africa and east and centralregions, offsetting declining funds tonorth Africa and areas of the westaffected by the outbreak of the Ebolavirus.

“There is a vast amount of moneyflowing in from overseas, from Europe,the US and globally,” says DominicLiber, a partner at Leapfrog Invest-ments, a private equity manager spe-cialising in financial services companiesservingpoorercommunities.

Much of this money comes in theform of private equity, not only becauseof the problems of investing throughpublic markets, but also because theinformed knowledge that comes with itisaswelcomeasthecapital.

“Entrepreneurs and businesses inAfrica seeking investors are typicallylooking for more than just money,” saysMr Liber. “They look for specialistexpertise too and the capability of theinvestor to add value well beyond themoney.”

As in many developing markets, pub-licly listed equities are a cause for con-cern as investors fret over corporategovernance standards and struggle tofindsufficient liquidity.

Although there are stock marketsacross the continent, in sub-SaharanAfrica, only the Johannesburg StockExchange has sufficient liquidity forcomfort. Trading volume on the Nige-rian stock exchange, the largest outsideSouth Africa, is just 1 per cent of that ontheJSE,accordingtoMrLiber.

While emerging markets debt is anestablished market, African corporate

debt is a very small part of that. Corpo-rates in Ethiopia, Mozambique,Morocco and Nigeria have issued bondsin recent years, as investors’ thirst foryield leads them to look beyond main-streamemergingmarkets.

So private equity and other directinvestment remain the order of the dayfor most companies seeking capital atall stagesof theirbusiness life.

According to an annual report fromtheUnitedNationsConferenceonTradeand Development, many of the largestinvestments into Africa were privateequity-driven. US specialist KKR madeits first African direct investment lastyear, putting $200m into Afriflora, theEthiopian rose producer. Carlyle,another private equity group, raisednearly $700m for its first sub-SaharanAfrica fund and Blackstone andEdmond de Rothschild, private bank,havemadecommitments totheregion.

The weight of money coming intoAfricanprivateequity iscreatinga chal-lenge — how to put the capital to workquickly inacrowdedfield.

“The private equity funds have somuch money, they’re venturing out oftheir comfort zones,” says NicolasClavel, founder and chief investmentofficer of Scipion Capital, which special-ises in African trade financing. He hasseen private equity bidding for dealsin competition with Scipion, eventhough trade finance is far removedfrom traditional private equity. He hasalso been asked to manage money onbehalfofprivateequity fundsanxioustoput their money to work as quickly aspossible.

At the other end of the scale, even tinyenterprises need some initial capital orcredit and innovation is creating inter-estingopportunities for investors.

Micro-credit, the investment innova-tion that provides credit to groups tradi-tionally excluded from financial serv-ices to start small businesses, is big busi-ness for investors. Luxembourg hasbeenworkinghardtoestablish itselfasacentre formicrofinancefunds.

However,academicresearchisraisingdoubts about the efficacy of this form ofdevelopment funding, while at the sametime, technological innovation is start-ing to provide alternatives. Mobilemoney, where small amounts of moneycan be transferred using mobile phoneaccounts, provides similar sums tomicrocredit, but on more flexible termsandwithmuchgreaterconvenience.

“For clients this offers great advan-tages,” says Paul Clark of AshburtonInvestments, a South African invest-ment manager. “The convenience ofpaying and receiving paymentsremotely ishuge,”hesays

While friends and family are still theprimary source of start-up capital forsomeone setting up a small business,angel investors are beginning to formnetworks to access the most interestingideas at a level where entrepreneurs arenot yet looking for capital through a for-malprocess.

This widens the pool of capital availa-ble to small-scale entrepreneurs, andgives them access to investors with thebusiness experience they need todeveloptheirenterprises.

With luck, this should begin a cycle ofgrowth and advice that can be repeateduntil the entrepreneur has grown thebusiness and is able to either sell it orhanditontoother familymembers.

Wanted: investors with capital,expertise and experiencePrivate equity

Foreign cash is starting toflow into African enterprise— and it often comes withadvice and know-how,writes Sophia Grene

African Entrepreneurs

F ordecadesSouthAfricancom-panies have been strutting theglobal stage, taking on themultinationalsandoftenhold-ingtheirown.

Among the older generation are SAB-Miller, the brewer, Anglo American, theminer and Old Mutual, the insurer, all ofwhich trace their roots back to SouthAfrica. The trio began their lives morethan a century ago during the colonialera and have evolved over the decadesto become significant in their respectiveindustries. Now a younger generation ofentrepreneurial South African groupsare making their mark far beyondAfrica.

These include the likes of MTN, theworld’s largest emerging marketsmobile phone company, which isregarded as an example of post-apart-heid business success. Set up in 1994,the year South Africa made its historictransition from white minority rule todemocracy, MTN boasts a market valueof about $36bn and a presence in 22countries in Africa, Asia and the MiddleEast.

Another example is Bidvest, the con-glomerate, set up by veteran entrepre-neur Brian Joffe in 1988. With its busi-nesses ranging from food services tologistics, financial services and carrental, it has a turnover of more than$17bn and employs 140,000 people,fromEuropetoAsiaandLatinAmerica.

The international expansion of these

companies can be traced back to the1990s when South Africa was welcomedback into the international fold follow-ing apartheid’s demise. Expansion hasnotalwaysbeensmoothandsomeharshlessonshavebeenlearnt.

South African companies havebecome better at global expansion, saysNazmeera Moola, a strategist atInvestec Asset Management. “Therewas a push throughout the 1990s to doit, and you saw lots of companies losemoney, but you are now seeing compa-niesdoing it successfully.”

South Africa has the continent’s mostmatureandsophisticatedcorporatesec-tor, with a trillion-dollar stock marketthat dwarfs the rest of Africa’s marketscombined.

South African companies have astrong record of corporate governance.The country is ranked first on the list of122 nations for the strength of auditingand reporting standards in the 2014-15World Economic Forum’s Global Com-petitivenessReport.

“In the global markets we work in,there is often an underestimation of justhow sophisticated the corporate sectoris,” saysAdrianGore, thechiefexecutiveof Discovery, South Africa’s largesthealth insurer.

Since Mr Gore founded the group in1992, Discovery has grown to providehealth and life cover to more than 4.5mpeople across South Africa, Britain, theUS,China,SingaporeandAustralia.

Mr Gore says the group has come upwith an offering that is “applicable glo-bally”. It has a flagship brand, Vitality,and a focus on products that encouragehealthier lifestyles.

The company’s first foray overseas,however, proved to be an expensive les-son. In 2000, Discovery attempted toestablish itself in the US market throughthe launch of Destiny Health, its subsid-iary. But towards the end of the decade,and about $100m later, Destiny waswound down after it struggled to com-pete against established US healthcarecompanies.

“The model was quite applicable, butwe could just not get the scale of dis-count that you need from the healthcaresystem,” Mr Gore says. “I think it taughtusa lotofverygoodlessons.”

The group has since enjoyed successin its expansion abroad. In the UK, itowns PruHealth and PruProtect and inChina it has a 25 per cent stake in PingAn Insurance. In April, it announced apartnership with John Hancock, a USinsurer and a division of Manulife. Dis-covery has partnerships with Generali

Group in Europe and AIA in Asia andAustralia.

Ms Moola says South African compa-nieshavegenerallybecomemorestrate-gic in their quest for global growth andare putting more focus on where theircompetitive advantage is — namely inAfricaorotheremergingmarkets.

She cites Aspen, a Durban-basedpharmaceutical company set up byStephen Saad in 1997, as an example. Inits early days it bought brands frommultinationals, but through acquisi-tions and deals with the likes of Glaxo-SmithKline and Merck, it now has apresence across 150 countries on sixcontinents. One of the world’s largestgeneric pharmaceutical producers, theAspen group reported revenue of about$2.5bninthe last financialyear.

Ms Moola expects South African enti-ties to continue to look overseas as theymoveintonewmarkets.

“The volatility of the rand and thepersistent real depreciation over thelong term means that if you are a corpo-rate it makes sense to have some diver-sity inearnings,”shesays.

Harsh lessonslearnt on thebumpy road toglobal growthSouth AfricaMultinationals aremore likely to usetheir competitive advantage, saysAndrew England

Much of Africa is plagued by unreliableelectricity, limited internet coverage,poverty and weak governance, none ofwhich is promising for the developmentof the latest technology.

But where many see obstacles, thecontinent has discovered fertile groundfor innovation.Agrowingpoolofmostlyyoung, successful entrepreneurs arecreating a technological buzz and oftenimproving the lives of millions of Afri-cans—whilemakingatidyprofit, too.

The Africa tech sector provides a richopportunity to build from “GroundZero”, says Ken Njoroge, a Kenyanentrepreneur. With Bolaji Akinboro, hisbusiness partner, he co-founded Cellu-lant, the mobile money transfer com-pany, in2002with“$3,000,acreditcardand a business plan drawn on the backofaserviette”.

The company offers a mobile pay-ment system across 10 countries,including Kenya, Zambia, Botswanaand Gambia, and aims to expand toanother 13 in the next 15 months. Thiswould give it access to more than 500mconsumers in the continent. Profitcomes from a cut of 1-2 per cent takenfrom each transaction. “We estimate[there is] a $25bn opportunity — com-pletely open for us to compete and takemarketshare,”MrNjorogesays.

Payment system companies such asCellulant provide some of African tech-nology’s biggest success stories in mak-ing the most of previously unmetdemand. Mobile phones have allowedAfricans to leapfrog their infrastruc-tural shortcomings. The number of peo-ple with mobile connections across thecontinent is growing: from 778m peoplein 2013 to a projected 1bn by the end ofthis year, according to a 2014 study byInformaTelecoms&Media.

M-Pesa, developed in 2007 by Safari-com, a Kenyan mobile service provider,pioneered mobile money transfers.Allowing even small amounts to betransferred via SMS, it has reached mil-lions who previously had no access tofinancial services. The impact onKenya’s largely cash economy has beenprofound and a number of spin-offshave been developed. Just as importantfor its developers, it has helped to estab-lishAfricaasa leader inmobilebanking.

“Innovation is leading, regulation isfollowing,” says Juliana Rotich, co-founder and executive director of Usha-hidi, a Kenyan-based non-profit techcompany, which has also developedBRCK, a self-powered, brick-shapedmobile WiFi router designed to provideresilient connectivity where power fail-uresandpoor linespeedsarecommon.

Ms Rotich says the continent hasenormous potential for e-commerceand entertainment platforms, withcompanies such as Nigeria’s Jumia — anonlineretailer—growingrapidly.

Governments provide another oppor-

tunity. “In many African countries,there is inefficiency in data gatheringand service provision and tech canhelp,” she says. Education, financialinclusion, agriculture and healthcareare areas where technology has a role tofulfil, she adds. For example, Cellulant’smobile payment technology has beenapplied to Nigerian agriculture, raisingproductivity by delivering subsidyfundsto farmers.

Mr Njoroge and Mr Akinboro aim tomake Cellulant the biggest mobile pay-ments company in Africa, while alsowanting to be “a living example of regu-lar guys that created a billion dollarbusiness”.

This could inspire young Africans,they add, and represent the spirit thecontinent needs to improve its standingintheworld.

Mobile technologywidens its reach

S African cities such as Johannesburg have a mature corporate sector —Bloomberg

Innovation

E-commerce, entertainmentand rapidly growing retailplatforms have enormouspotential for development,reports Siona Jenkins

Collecting roses at a flower farm inOromia, Ethiopia—Bloomberg

TheAfrica tech sectorprovides a rich opportunityto build from ‘Ground Zero’

6 ★ FINANCIAL TIMES Friday 17 July 2015