Despite civil unrest in places like Tunisia and Egypt, it's a good time to be setting one's entrepreneurial sites on the African continent, concluded more than two dozen investors, consultants, former government officials, and business people, who shared their views with a Stanford Graduate School of Business audience on Jan. 29.
"Economic indicators all point to the tremendous business opportunities in Africa," said Richard Essex, general partner of East Africa Capital Partners.
Essex was one of several presenters on the "Investing in Africa: Are New Sources of Capital the Key to Growth?" panel that was part of the Stanford Africa Forum 2011 conference, held at Stanford GSB. Panelists discussed in detail various operational and structural challenges to doing business in Africa, covering investing, sourcing, and startups, as well as areas for growth.
One of the greatest challenges to doing business in Africa is the lack of middle-management talent, said Mark Neuman, who is helping West African countries develop their cotton sector, with an emphasis on promoting organic cotton producing cooperatives owned by women in Burkina Faso. "We just don't have enough people to run factories, especially in the textile manufacturing sector," said the counselor for International Trade and Global Strategies for Limited Brands, the parent company of firms such as Victoria's Secret. "That means if your business plan includes a strategy to recruit, train, and maintain good personnel, you'll succeed."
Neuman also pointed to the importance of partnering with local people. "The only successful factories are those that have global teams," he said.
"Recruiting local expertise is definitely critical," echoed Essex, whose firm focuses on investing in technology, media, and telecommunications companies. "You need people on the ground to spot the real opportunities."
When one member of the audience lamented, "There are no traditional investment opportunities in Africa," Essex replied, "I don't think Africa is traditional." There is a need for flexibility in considering business opportunities there. "You have to think about using African, not Silicon Valley models."
The Western model of leveraging land as collateral may not work in Africa, where land ownership is often communal, said Babajide Sodipo, former advisor to Rwanda's Ministry of Trade and Industry. This may be unfamiliar to foreigners wanting to do business in Africa. "There isn't a single economic entity called 'Africa.' You'll find the challenges different in each country," he added.
Sodipo advised that entrepreneurs who aim to solve real social needs will have the most success — and critical governmental support — in Africa. "When you're engaged with a government official, understand his bottom line, which is usually job creation, the development of the country, and the alleviation of poverty," he said. Business people should not see government officials as an impediment to their aspirations, he said, but rather a rich source of information on how to engage in commerce in that country.
The challenge, Sodipo said, is that few investors are interested in the kinds of large infrastructural project that African countries truly require because the return on capital is low — and slow. "It can take 50 years for a railway to offer a return," he acknowledged. Nevertheless, he said, for a company to succeed, "it must address local needs and be sustainable."
The Chinese have been particularly successful in Africa, noted Essex, "because they are willing to look at a much longer payback period."
Neuman said his enterprise has struck a good middle ground by focusing on raising the level of economic empowerment of women, helping them to become cotton farmers and business people. "Creating a formalized career sector for women has been the most rewarding thing for us," he said. "It also ended up saving us $30 million."
Panelists closed by sharing one thing they'd like to see happen to promote business in Africa. Neuman called for the United States to create and maintain appropriate public policies that provide incentives for doing business there. Sodipo said he hoped for African policies that would lower the cost of infrastructure development. Essex said he simply hoped that students would become excited about getting involved in Africa. "Its an amazing life experience to go there," he concluded.