Merchants and migrants Aliko Dangote: cementing Africa Africa’s future Kenya’s beer queen Madagascar: weaving its way in back in The Journal ofFact Good Governance Africa

Risky business

Issue 23 | June 2014 | www.gga.org Set the leopards free

Entrepreneurs boost economies through innovation that creates jobs and turns a profit. In developing countries, small businesses can contribute 50% and more to a country’s GDP, according to a 2013 report by the Global Entrepreneurship Monitor, a research venture between the London Business School and Babson College in the United States.

True entrepreneurs are the leopards of the business ecosystem—rare and pow- erful. They have the unusual ability to think big and the force of will to convince others of their vision. When they succeed, they often shake up an entire industry. African countries that make business easier—such as Côte d’Ivoire, Mauritius and Rwanda—are reaping the benefits. They have removed red tape that acts as a bar- rier to starting and running companies; they have recognised the importance of profit as a motivator for ingenuity and hard work. The goal is not only to encourage start-ups, but also to move businesses out of the informal economy and into the system of officially registered companies. This al- lows governments to tax them, and also permits a more accurate picture of a country’s business activity. Formalisation gives companies the space to grow: they can find more funding, such as bank loans and equity investors. This has a positive impact on political governance, too. Governments that want to boost their state revenues will have to create a favourable environment—with better infrastructure, more reliable government services and less onerous regulation. Small and medium businesses play an important social role. Whereas oil and mining companies tend to make a few people very wealthy, small companies help many more people escape poverty. They reward creativity and permit people to change their lives through hard work instead of relying on state handouts. Such citizens are more likely to demand accountability and better government performance. National economies also benefit from strong small businesses. They produce more diverse products and services than monolithic mining and petroleum companies. Mixed economies are more resilient to shocks and more responsive to consumer needs, and create more jobs requiring a wider range of skills and knowledge. Small businesses cannot be created by government fiat. An example such as South Africa’s attempt to create an electric car industry show that the state’s heavy hand, even when it liberally dispenses subsidies, stifles creativity and growth. Instead, businesses need a stable regulatory environment that promotes competition, strong property rights and reliable infrastructure. Given the right conditions, businesses grow of their own accord, and societies reap the benefits.

John Endres CEO of Good Governance Africa

2 | Africa in Fact | Issue 23 | June 2014 | www.gga.org CONTENTS

2 Set the leopards free 21 Working miracles by Richard Poplak 4 About our contributors The telecommunications tycoon triumphs with the law and God on his side 5 Weaving its way back in by Brian Klaas 25 Slings and arrows The island nation may regain membership of by Omondi Oloo an important trade club after internationally- approved elections last December Tabitha Karanja: a classic “David and Goliath” tale

29 Counting beans 9 A matter of interest by Marc-André Boisvert by Adeyeye Joseph The government is focusing on small business to High interest rates are strangling small business diversify the economy development in Africa’s largest economy. Insufficient electricity and broken infrastructure are other hindrances 33 Merchants and migrants by Bruce Whitehouse Being “distinct” is at once their strength and their 13 Cementing Africa’s future greatest vulnerability by Simon Allison He began by marketing salt, then flour, sugar and cement, the big money-spinner. Playing politics 37 Skirting the real issue has helped Aliko Dangote build by Terence Corrigan his business empire Make legislation gender-blind to bring African women into the economy 18 Futile attraction 41 Heart and sole by Ivo Vegter by Matthew Newsome Ambitious bureaucrats think they can replicate Bethlehem Alemu is making great strides in Silicon Valley, but history proves otherwise creating jobs and maintaining artisanal skills

Africa in Fact John Endres CEO Constanza Montana Editor Daniel Browde Deputy editor Parshotam, James Stent Kate van Niekerk Researcher Leith Davis Cover design

Opinions expressed are those of the individual authors and not necessarily of Good Governance [email protected].

Africa in Fact | Issue 23 | June 2014 | www.gga.org | 3

Simon Allison is the Africa correspondent for the Daily Maverick, based in Johannes- burg. He has previously reported from Egypt, Palestine and Somalia for the Asia Times Online and Agence France Presse.

Marc-André Boisvert is a freelance journalist, photographer and researcher who lives in Abidjan, Côte d’Ivoire. He has written for Canadian newspapers La Presse and Le Soleil as well as for the Associated Press and the Inter Press Service news agencies.

Terence Corrigan is a political consultant and a research fellow at the South African Institute of International Affairs. He has written widely on South African and African political affairs for a variety of local and international organisations.

Adeyeye Joseph is the editor of The Punch, Nigeria’s biggest daily newspaper. He won the Nigerian Media Merit Award for editor of the year in 2011 and 2012 and newspa- per columnist of the year in 2011.

Brian Klaas is a Clarendon scholar at Oxford University. His research focuses on improv- ing elections and preventing violent conflict in Africa. His work has been featured in Foreign Policy, the Los Angeles Times and the Minneapolis Star Tribune.

Matthew Newsome, a journalist based in Ethiopia, freelances for the BBC World Service and Radio France International. He has also written for the Guardian, the Observer and New Internationalist magazine.

Omondi Oloo, a freelance journalist based in Nairobi, has worked for Kenya’s Nation Media Group and the Tallahassee Democrat in Florida, US. He is an alumnus of the Thomson Reuters Foundation and the International Institute for Journalism in Berlin.

Richard Poplak is an award-winning freelance journalist and author who has worked extensively in Africa and the Middle East. He is currently writing a book and starring in a documentary series on Africa rising, called “Continental Shift”.

Ivo Vegter is a South African columnist writing on economics, politics, law and the en- vironment. He is the author of “Extreme Environment”, a book on how environmental exaggeration harms emerging economies.

Bruce Whitehouse teaches anthropology at Lehigh University in Pennsylvania, US. He has conducted field research in Mali, Nigeria and the Republic of Congo. His 2012 book “Migrants and Strangers in an African City” is a study of west African entrepreneurs.

4 | Africa in Fact | Issue 23 | June 2014 | www.gga.org Madagascar: textiles in tatters

With internationally-approved elections last December, the island nation may regain membership into an important trade club

by Brian Klaas

Madagascar’s capital, Antananarivo, is teeming with entrepreneurs. The official market stalls are overcrowded and hand-painted rickety wooden stalls spill into the streets. Even in off-limits areas around government buildings, vendors still hawk their goods aggressively. On a recent trip, a man approached me while I was walking. He was carrying a baby car seat under his arm. “Would you like to buy this car seat?” he asked. “I don’t have a car,” I replied. “That’s okay,” he assured me, “you could use it in your house.” “Well, I’m afraid I don’t have a baby either.” He paused. Then, with a hopeful smile, he asked: “Do you have a small girlfriend?” Such comical persistence is common in Madagascar, where entrepreneurship is a way of carving out a living in a devastatingly impoverished environment. Antana- narivo’s markets are overrun with sellers. But this is not a sign of a booming economy. Instead, it is exactly the opposite. Madagascar’s economy is in shambles, forged partly by the loss of a vital trade programme: the United States’ African Growth and Opportu- nity Act, or AGOA. Vendors who previously exported their goods to the US through this programme have lost access to that market. They are now flooding the domestic market with their wares, driving competition up and prices and profits down.

Source: AGOA.info

Africa in Fact | Issue 23 | June 2014 | www.gga.org | 5 Weaving its way back in

In May 2000 the United States Congress enacted AGOA, which gave preferential trade status to participating countries in sub-Saharan Africa. This legislation completely changed the playing field for African entrepreneurs trying to break into the American market. Suddenly, tariffs (that in some cases approached 40%) completely disappeared for thousands of products. To become AGOA participants, countries “must demonstrate progress towards developing a market-based economy, protection of human and labour rights, and ef- forts to combat corruption and enhance rule of law”, according to the US State De- partment. Almost overnight, it became profitable for even small producers throughout eligible countries in sub-Saharan Africa to sell to the United States. Today, 39 countries on the continent participate in AGOA. The programme has spurred African trade development. Since 2001 total trade between the United States and participating countries has tripled, reaching a peak in 2008 when total trade flows were valued at nearly $100 billion, according to the Trade Law Centre, a South African-based policy group. While critics point out that much of the increase has come from natural resource exports, no one denies that the programme has had a massive impact on other impor- tant industries, notably in textile and apparel production. Madagascar had been an exemplar of this effect, with a meteoric ascent in earn- ings owing to the programme. By 2008, Madagascar’s textile industry was the sec- ond-largest beneficiary of the AGOA programme, trailing only Lesotho’s. With that boost, Madagascar became one of the fastest-growing economies in the world, reach- ing a peak of 7.1% annual GDP growth in 2008, according to the World Bank. Yet just as a pen stroke in Washington created hundreds of thousands of new

US-SADC AGOA trade, 2000-2012

Source: AGOA.info

6 | Africa in Fact | Issue 23 | June 2014 | www.gga.org Weaving its way back in

jobs in Madagascar with AGOA’s adoption, strongman politics in Antananarivo elimi- nated those jobs just as fast. In early January and February 2009 President Marc Ravalomanana—an entre- preneur who had risen from selling yogurt from a cart to building a national dairy em- pire and being elected president twice—was under political fire. Corruption allegations swirled through the capital, followed by bloody protests that saw tens of thousands take to the streets and a government-led massacre of about 50 protestors. The military staged a coup in mid-March and transferred the presidency to Andry Rajoelina, a for- mer disc jockey who was then mayor of Antananarivo. The coup brought an immediate and biting backlash to Madagascar. The inter- national community united against the non-democratic transfer of power and cut off foreign aid, slashing 40% of Madagascar’s government budget. In December 2009, the US suspended Madagascar from the AGOA programme, forcing any entrepreneurs hoping to sell their products in the United States to cope with high tariffs. In effect, this barred Malagasy textiles from entering American markets.

Source: World Bank

The suspension was devastating. The island’s textile industry had grown into a $600m-a-year behemoth by 2008, according to the Integrated Regional Information Networks, a UN humanitarian news service. Right before the coup, roughly half of all Malagasy textile production, $278.8m worth, was bound for the United States, accord- ing to the Madagascar Export Processing Zone Association, a public-private partner- ship. Annual GDP growth in 2008 before the coup was 7.1% but post-coup it plummet- ed to -4.1% in 2009 and grew to an anaemic 0.5% in 2010. Today, nine out of ten of the island’s 22m people subsist on less than $2 per day. Washington’s decision to suspend Madagascar from AGOA effectively eliminat- ed 50,000 jobs directly, and prompted a further 100,000 layoffs indirectly, according

Africa in Fact | Issue 23 | June 2014 | www.gga.org | 7 Weaving its way back in

to a January 2013 report by Chatham House, a London-based think-tank. Most of the island’s factories supplied American stores such as Wal-Mart and Bloomingdale’s, or sports brands like Puma and Adidas. But by early 2010 those companies needed to seek new suppliers and Madagascar’s entrepreneurs needed to seek new markets. Madagascar’s AGOA suspension had knock-on effects in the region, affecting raw materials providers to Malagasy facto- ries. In particular, regional suppliers such as Lesotho, Mauritius, South Africa and Swazi- land suddenly lost an important market and saw their profits plunge. This is often the price of government takeovers in Africa. The US government and international community adopted a seemingly admirable stance: coup governments will not be re- warded with aid and preferential trade deals. However, the human cost for those already struggling to make ends meet in Madagascar was severe. For five long years, stagnation has dominated Antananarivo’s markets under the shadow of international isolation. Mr Rajoelina’s transitional regime scheduled, re-scheduled, and cancelled elections repeatedly between 2009 and December 2013, when they finally took place. Today, in the wake of elections that transferred power to a new president, Hery Rajaonarimampianina, the international community is slowly threading Mada- gascar back into its fold. Many donors, notably the IMF and World Bank, have an- nounced that they are once again disbursing aid. Yet Madagascar’s suspension from AGOA persists. It may continue for some time, as an annual review of AGOA eligibility typically takes place in December each year. Its return to AGOA membership will depend on Madagascar’s success with rein- stating the rule of law and securing post-election national reconciliation, according to press reports quoting Samantha Power, America’s ambassador to the UN. She reas- sured Mr Rajaonarimampianina that readmission would be considered this year. If Madagascar is swiftly reinstated into AGOA, the Malagasy entrepreneurial spirit will be ready to pick up the pieces; and that persistent baby car seat vendor will at least have the choice to sell his goods in the aisles of Wal-Mart instead of wandering the streets of Antananarivo. Madagascar’s last five years teach a simultaneously uplifting and sobering les- son about the role of sub-Saharan African entrepreneurs in international markets. On the one hand, avid entrepreneurs and workers throughout the continent are eager and ready to work hard, produce quality goods and lift their economies to high levels of growth. On the other hand, a simple rule change in Washington can collapse an entire industry a world away, devastating hundreds of thousands of entrepreneurs with just a signature.

8 | Africa in Fact | Issue 23 | June 2014 | www.gga.org Nigeria: banks and other barriers to business

High interest rates are strangling small businesses in Africa’s largest economy

by Adeyeye Joseph

The elation in Nigeria at the news, released last April, that the country had overtaken South Africa as the continent’s largest economy, was largely confined to government circles. Many Nigerians have refused to get caught up in the excitement. Abiodun Ay- inde, 69, who owns a small waste management company in Lagos, Nigeria’s largest city and economic capital, is one. Mr Ayinde does not care about the rivalry between Nigeria and South Africa. Topmost in his mind is the quest that has given him sleepless nights in the last five years: Mr Ayinde’s clientele is growing and his expanding business urgently requires more staff and one more mobile waste compactor. “Business is not doing badly at all,” he says. “But the problem I have is that I am unable to raise funds to further expand the business. I need to buy a compactor and I also want to employ more hands.” On paper, there are several funding options available to a Nigerian business person who wants to set up a new business or expand an existing one. The country has 21 commercial and two spe- cialised government banks set Commercial banks’ lending rates for businesses up to fund large-scale industry Prime Maximum projects, as well as 871 microf- inance firms authorised to lend Access Bank 14% 30% to small-scale businesses and en- Citibank Nigeria 16% 21% trepreneurs. Ecobank Nigeria 15% 33% But in practice it is not Enterprise Bank Ltd 25% 29% easy for small companies to se- Fidelity Bank 17% 24% cure loans. Mr Ayinde’s efforts Guaranty Trust Bank 7% 25% to raise a 2m naira ($12,500) Standard Chartered 13% 16% bank loan to buy a used waste Sterling Bank 24% 29% compactor and hire new staff United Bank for Africa 24% 24% have been unsuccessful. His is a Unity Bank 24% 32% typical story. Source: Central Bank of Nigeria Most Nigerian entrepre- neurs and small-scale businessmen do not start companies by borrowing from a bank. Official numbers on bank borrowing are lacking, but from years of talking to small busi- ness owners, this writer has learned that most Nigerian entrepreneurs turn to banks only when they need funds to expand an already successful business.

Africa in Fact | Issue 23 | June 2014 | www.gga.org | 9 A matter of interest

This is because banks and microfinance institutions charge prohibitively high interest rates and attach onerous requirements to loans. Funding challenges are spanners in the works of many small businesses in Ni- geria, according to Femi Egbesola, the president of the Association of Small Business Owners of Nigeria, a trade group. “Most of the financial institutions are requesting for conditions that are difficult for small companies to meet, [especially] collateral,” he told Leadership, a Nigerian daily, last April. “The banks charge about 27% interest rate per year and everybody is complaining that it is on the high side.” Some Nigerians question why interest rates have remained high despite a recent fall in the country’s inflation. A bank “must be a commercially viable enterprise, but why must they charge 20%?” asked Ngozi Okonjo-Iweala, Nigeria’s finance minister. Inflation in the first eight months of 2013 diminished from 12% in January to 8.7% in August, she added, “meaning interest rates can also go down”. As of March 2014, Nigeria’s inflation rate was 7.8%, according to the national statistics bureau. Commercial banks borrow from the Central Bank of Nigeria (CBN), which offers money to banks at a rate called the monetary policy rate (MPR). The CBN considers the country’s prevalent inflation rate while setting the MPR. The idea is to help banks lend to businesses at non-prohibitive rates. Figures from www.cbrates.com, a website that compiles world interest rates, show that Nigeria’s interest rate is one of the highest of Africa’s large economies. Nigeria’s current MPR of 12% is higher than the prevailing rates of 3% in Morocco, 4.5% in Tunisia, 5.5% in South Africa, 8.25% in Egypt and 9.25% in Angola.

Source: www.cbrates.com

Trade groups, such as the Lagos-based Manufacturers Association of Nigeria (MAN), have campaigned for lower rates for decades. The organisation’s 2013 report claimed that some Nigerian banks are charging borrowers as much as 35% on loans, a rate so high that businesses cannot survive. “In the last ten years, interest rates charged MAN members by banks have been at an average of 19.9% for most of the manufac- turing sub-sectors,” according to the report. These high rates are just one facet of Nigeria’s crippling commercial environ- ment. The World Bank’s 2014 “Ease of Doing Business” index places Nigeria at a lowly

10 | Africa in Fact | Issue 23 | June 2014 | www.gga.org A matter of interest

147 of 183 countries. Many of the problems stem from Nigeria’s broken infrastructure. Entrepreneurs have to generate electricity from private generators, dig industrial boreholes to ensure a reliable water supply, and must also pay private security companies to secure prem- ises and assets.

*

The US-based Omidyar Network, a philanthropic investment firm started by eBay founder Pierre Omidyar, released a study in 2013 on entrepreneurship in six African countries: Ethiopia, Ghana, Kenya, Nigeria, South Africa and Tanzania. Nigeri- an entrepreneurs lament that “inconsistent infrastructure electricity supply across the country has resulted in backup generators forming a key part of any business’s assets, albeit at a significant additional operational expense,” the report noted. “Nigerian re- spondents cited access to finance as a key challenge for starting and growing small businesses. In particular, the requirements for obtaining capital are prohibitive.” Collateral of up to 120% is often required for debt financing, according to the interviews with the Nigerian participants in the Omidyar study. Collateral is high be- cause banks fear that borrowers may default. As a result, 67% of respondents believe that bank lending policies for newer companies are more challenging than for well- established firms. Bank executives, however, argue that high interest rates are forced on them by Nigeria’s challenging business environment. “I also want a lower rate,” said Philips Oduoza, the managing director of one of Nigeria’s biggest lenders, the United Bank for Africa (UBA), at a meeting with newspaper editors last January. “But when you look at it, you find that banks are an integral part of the economy. One of the reasons why [the] interest rate is very high in Nigeria is because of the infrastructure challenge,” he said. Banks, like other businesses in Nigeria, pay a high price for the country’s infra- structure deficiencies, he added. For example, UBA has to generate the electricity that it uses at its headquarters and in its branches, Mr Oduoza explained. “UBA has about four generators at its head office that run simultaneously. It’s a mini-power station. Diesel consumption alone is extremely high. This is one of the reasons [the] interest rate

Africa in Fact | Issue 23 | June 2014 | www.gga.org | 11 A matter of interest

is very high.” The way forward, according to Mr Oduoza, is for government to fix Nigeria’s infrastructure problems. “If you compare the financials of the Nigerian banks with those of other emerging and frontier markets, the cost-to-income ratio [a rough guide to how good a bank is at reining in costs] of Nigerian banks is in the 60s,” he said. “Some extreme ones are in the 70s. In all the other emerging markets like Turkey, Malaysia, India, etc, their cost-to-income ratios are in the 40s. So if we are able to deal with all these cost elements, I can tell you that the interest rate can come down to a single digit.”

Sources: OECD; central banks

Nigeria’s suspended central bank chief, Lamido Sanusi, agrees that the business environment and the country’s high interest rate are linked. Mr Sanusi, however, looks at the same problem from a different angle. “It is not about moving the interest rate down or up. Most of the small- and medium-scale enterprises (SMEs) that do not have access to credit do not have access to credit because the environment does not allow businesses to thrive,” Mr Sanusi said during a public session with federal legislators in July 2013. “How low do you have to bring down interest rates for banks to lend to a manufacturer that does not have power, or for a bank to lend to a company that operates in an environment that does not have security, or where there is no infrastructure?” he asked. “At what rate of interest would a bank loan to a tomato farmer who is going to lose 50% of his output between the farm and the market because there is no investment in storage facilities or cold rooms? These problems are infrastructure.” Is there any government plan to fix infrastructure in Nigeria? Yes, a grand plan: the Nigerian Infrastructure Master Plan, projected to cost $2.9 trillion and last 20 years. But many Nigerians, such as Mr Ayinde, are not hopeful that it will yield im- mediate benefits. The country’s infrastructure has fallen into disrepair, he complains, because successive governments rarely keep promises to overhaul the system.

12 | Africa in Fact | Issue 23 | June 2014 | www.gga.org Nigeria: Africa’s richest man bets on the continent’s prospects

Playing politics has helped Aliko Dangote build his business empire

by Simon Allison

At age 57, Aliko Dangote is Africa’s richest man, and by quite some margin. Forbes estimates his net worth to be $20.8 billion; the wealth of his nearest competitor, South Africa’s Johann Rupert, is valued at $7.9 billion. Mr Dangote is known as a soft- ly-spoken workaholic, with all the trappings of wealth, including the luxury yacht and the private plane. But it is not the size of his fortune that matters. More important is how he made it—not through resource extraction or milking state coffers, but by gambling repeated- ly on the future of both Nigeria and Africa. The risk has paid off, spectacularly, making Mr Dangote a living embodiment of the “Africa rising” narrative, and his company one of the key drivers of Africa’s economic development. It all started in 1977, when 21-year-old Mr Dangote—fresh from a business de- gree from Egypt’s Al-Azhar University—begged his uncle for a 500,000 Nigerian naira loan (then worth about $325,000). Mr Dangote’s family were wealthy Muslims from northern Nigeria. His father Mohammed was a prosperous commodities trader, but the real money was made by his maternal grandfather, Alhaji Sanusi Dantata, whose groundnut empire made him the wealthiest man in west Africa. Mr Dantata’s son, Abdulkadir, was the uncle who gave Mr Dangote his first start in business—and, before his death in 2012, was also one of the richest men in Nigeria. Mr Dangote could have gone into business with either his father or his uncle. Instead, he chose to strike out on his own, using the loan to start a general trading company, importing bulk com- modities like sugar and rice. Business was good, but he soon discovered a gap in the market: why was Nigeria importing sugar when it could be pro- ducing its own? Why was the country bringing in expensive cement when it sits atop one of the ©WEF 1 world’s largest lime deposits? Africa’s cement czar The answers to these questions—conflict, corruption, incapacity, uncertainty— lie at the heart of Africa’s decades of stunted development. Mr Dangote, however, was undeterred and resolved to move into manufacturing: first salt, then flour and sugar and then cement, which turned out to be the really big money-spinner.

Africa in Fact | Issue 23 | June 2014 | www.gga.org | 13 Cementing Africa’s future

Mr Dangote’s philosophy is known as “backward integration”. Backward inte- gration is when a company acquires its own raw materials or component suppliers. In Nigeria it means import substitution: it encourages Nigerians to make their own ma- terials instead of using foreign supplies and equipment. This stimulates the economy through more employment and investment, keeping Nigerian money in Nigeria. Thanks largely to Mr Dangote’s success in the cement sector, backward integration has become official government policy, included as a central plank of President Goodluck Jonathan’s Nigeria Industrial Revolution Plan, which was introduced last February. At the same time, Mr Dangote is politically astute: he has carefully navigated his way through changing governments and regulations, emerging unscathed and with bigger profits, every time. His political connections proved crucial to the scale of his suc- cess, especially his relationship with former Nigerian President Olusegun Obasanjo. Mr Dangote funded Mr Obasanjo’s 1999 and 2003 election campaigns and Mr Obasanjo returned the favour by introducing restrictions on imported cement in 2001, among other items. “Dangote is counted among President Obasanjo’s inner circle of business advi- sors,” observed Brian Browne, former US consul-general in Lagos, in a 2007 diplomatic cable released by Wikileaks in 2010. “It is no coincidence that many products on Nige- ria’s import prohibition lists are items in which Dangote has major interests.” Besides cement, sugar and rice receive protection from external competition—and the Dangote business has significant interests in both. In fact, the Dangote Group has substantial shares in just about every major sector of the Nigerian economy. It makes salt, sugar, rice, pasta, flour and fruit juices; it supplies steel, cement and packaging; it buys and sells property, and holds a 3G telecommunications licence; it manages ports; it operates a 5,000-truck-strong haulage fleet. If you can think of it, the Dangote Group is probably doing it, and making plenty of money in the process. Last year, the Dangote Group claimed that its annual turnover was in excess of $3 billion, or about 30% of the Nigerian stock exchange. It is, by some distance, Nigeria’s biggest company, and ambitious expansion plans mean that it is only going to get bigger. “Dangote is going to go haywire now,” observed Lyal White, director of the Johannesburg-based Centre for Dynamic Markets, an economics think-tank. The Dangote Group has almost no debt, giving it the perfect foundation for the planned expansion, Mr White added. Another crucial factor in the Dangote Group’s success has been the steady growth of the Nigerian economy, which has expanded an average 7% every year for the last decade. This growth is often dismissed as a resource bubble, fuelled by Nige- ria’s vast oil reserves. But driving these impressive figures are other factors: increased agricultural output, significant enlargement of the manufacturing sector (7.7% in 2013 according to the World Bank) and booming retail and construction sectors. This growth has benefited Mr Dangote’s businesses.

14 | Africa in Fact | Issue 23 | June 2014 | www.gga.org Cementing Africa’s future

“[Mr Dangote] is intimately entwined with the rise of Nigeria,” Mr White said. “If Nigeria does well, so does he.” Given the size of the Dangote Group and the sheer breadth of its operations, the reverse is just as true: Nigeria needs Mr Dangote to keep doing well, to keep creating jobs and to keep re-investing in the country. In this, Mr Dangote is something of an anomaly. In bestowing him with its 2013 Man of the Year Award, Nigeria’s Daily Independent noted in January 2013 that Mr Dangote is “one Nigerian who makes his money in Nigeria and also spends it in Nigeria for the benefit of the country’s economy; unlike several other Nigerians who spend their wealth buying houses and other choice properties abroad, or stacking them into foreign banks to the detriment of the growth of their own country’s economy, Dangote is always at home with his busi- ness.” Indeed, Mr Dangote—who appears just as comfortable in a loose traditional kaftan as he is in a business suit—spends at least half his time in Nigeria. He divides the rest between London, where he is prepping Source: Dangote Group to list Dangote Group on the London Stock Exchange, and other countries, mostly in Africa but also abroad, where he is looking for or exploiting new opportunities. Home is a mansion on Lagos’s Victoria Island, which he shares with the younger of his 15 children from four different marriages. Mr Dangote is currently unmarried and still smarting from the public rejection of his advances by the daughter of the late president, Umaru Yar’Adua, according to press reports. The list of new projects, for which Dangote plans to invest around $16 billion, is enormous. Within Africa, five new cement plants will come online this year, in Gabon, Republic of Congo, South Africa, Tanzania and Zambia. (In South Africa, the Dangote Group’s acquisition of 64% of local company Sephaku Cement is the largest single foreign direct investment in South Africa by an African company.) More are planned in Cameroon, Ethiopia, Ghana, Senegal and Sierra Leone. These will complement the export terminals already in place in Côte d’Ivoire, Ghana, Liberia and Sierra Leone. Dangote Sugar, meanwhile, will start exporting to Liberia, Mauritania and Senegal. Outside of Africa, Mr Dangote has plans to work in Myanmar and Iraq, and has obtained all-important limestone mining rights in Indonesia and Nepal. He is also looking across the Atlantic Ocean. In January, Devakumar Edwin, Dangote Cement CEO, announced that the company had signed a joint venture agreement with an un- disclosed company to tackle the South American market. Nigeria has not been overlooked. On the home front, Mr Dangote is planning to invest in a natural gas power plant to boost the country’s power supply, and to ap- ply his “backward integration” to rice. “We think Nigeria can be self-sufficient in rice

Africa in Fact | Issue 23 | June 2014 | www.gga.org | 15 Cementing Africa’s future

in the next three to four years,” Mr Dangote said in a December 2013 interview with Bloomberg. His biggest project, however, is a $9 billion investment in a huge new oil refinery in the Olokola Free Trade Zone, located 45km east of Lagos, which could turn Nigeria from a net importer of petrol (absurd for Africa’s largest oil producer) into a net exporter. Accompanying this will be Africa’s largest fertiliser plant and a polypropylene plant, to take advantage of the chemical by-products of the refining process. So far, Mr Dangote’s rapid expansion has been relatively smooth. Aware that he brings jobs and deep pockets with him, African governments in particular have wel- comed his attention. Presidents clear time in their schedules to meet him. Mr Dangote knows the importance of these interactions. “He understands the value of commercial diplomacy more than anyone I’ve ever seen,” Mr White said. Nonetheless, it has not all been plain sailing. In the Senegalese town of Pout, 40km west of Dakar, the shiny new Dangote Cement plant lies dormant as the group battles legal action from competitors who say the new plant was built in violation of safety standards and without a proper environmental impact assessment. This, the competitors allege, will allow Dangote to undercut the market. And during construc- tion, a court found that the same plant encroached on a sacred forest owned by the descendants of a famous Sufi mystic. Construction could only continue once Dangote had appeased the family with a $12.6m pay-off, AFP reported in March 2014. Other, potentially more serious obstacles may block Mr Dangote’s path to con- tinental—and, he hopes, global—dominance. One is simply that the company is ex- panding too far and too fast. Managing this growth effectively is a major challenge. Can the group recruit enough skilled managers, especially as it has previously preferred to recruit from Nigeria, where high-level skills are in short supply? Can it find enough re- liable power, particularly in other African countries, to run its energy-intensive plants? Can it set up continent-wide supply chains that successfully negotiate the hazards (and associated costs) of border crossings and changing regulations? Another barrier is the man himself. Mr Dangote is a notorious micro-manager, involved in the smallest decisions. This quality, coupled with an exceptionally strong work ethic, has underpinned his fortune. As the company gets bigger, however, Mr Dangote simply cannot maintain the same level of control. How he devolves responsi- bility, and whether he is able to properly corporatise the company, will determine its future, Mr White said. A third potential hurdle is Mr Dangote’s close political connections, which he has repeatedly parlayed to his advantage. Mr Dangote is very close with Nigeria’s ruling People’s Democratic Party (PDP), having funded the election campaigns of three presi- dents: Obasanjo, Yar’Adua and Jonathan. Going into the 2015 elections, however, the PDP is facing an unprecedented threat from a new opposition coalition, the All Progressive Congress (APC). Dozens of high-profile PDP members, including governors, parliamentarians and even former vice-president Atiku Abubakar, have defected to the new party. The APC is likely to provide the PDP with its toughest ever electoral challenge. A chance exists, albeit a

16 | Africa in Fact | Issue 23 | June 2014 | www.gga.org Cementing Africa’s future

slight one, that the APC may even triumph. If it does, where does this leave Dangote? Will a new government undo some of the legal protection his business enjoys? Perhaps not. Given the sheer size of the Dan- gote Group’s contribution to the Nigerian economy, most politicians would probably conclude that they need Mr Dangote more than he needs them. Still, it is a concern for a company that is so invested in the prevailing political currents. For Mr Dangote, however, these are but minor obstacles. He knows that with a proven track record in Nigeria, a huge cash surplus and almost no debt, his company is ideally positioned to become a global player. This is particularly true in the cement sector, which is by far the biggest part of the business. In terms of market capitalisation, Dangote Cement ($24.5 billion) is behind only cement behemoth Holcim, despite producing only a tenth of the output generated by the Swiss-based building materials giant. But Holcim is drowning in debt, forcing it into an uneasy merger with LaFarge, another struggling cement giant based in France. Should regulators approve the deal, Holcim-LaFarge would be the world’s largest ce- ment producer by some distance. The problem with producing so much cement, how- ever, is finding customers to buy it; and the future of the merged company is hugely dependent on finding a foothold in developing economies, particularly in Africa. Unfortunately for Holcim-LaFarge, Dangote is already well on his way to sewing up the continent. The investments detailed above give the company a huge head start in what is certain to be an exceptionally lucrative race to provide, quite literally, the build- ing blocks for African development. Every house, every office, every road, every dam and every power station—everything that Africa must and will build over the coming dec- ades to address the infrastructure deficit—will require cement and tonnes of it. Supplying much of this Source: Dangote Group demand will turn the Dangote Group into one of the world’s biggest companies. “We are targeted now to be one of the 100, in terms of ranking, global companies by 2017,” Mr Dangote said in an interview with Bloomberg last January. Aliko Dangote made his fortune by gambling on Nigeria’s success when others would not dare. The risk paid off, both for him and Nigeria. Now he is looking to make another wager, this time with even bigger stakes. For it to stick, he needs Africa to keep developing. For Africa to keep expanding, it needs people like Mr Dangote to keep sinking big money into the continent—and then re-investing the profits. So far, it is less of a long shot and more like a sure bet.

Africa in Fact | Issue 23 | June 2014 | www.gga.org | 17 Growing entrepreneurs: not government’s business

Ambitious bureaucrats think they can replicate Silicon Valley, but history proves otherwise

by Ivo Vegter

Historians credit Frederick Terman, the former provost of Stanford University and dean of its engineering department, as one of the major founders of Silicon Valley in northern California. In the mid-1960s, a consortium of high-tech companies in the US state of New Jersey hired Mr Terman to replicate this hugely successful strip of innovation and entrepreneurship. The attempt failed. The culture of cooperation that Mr Terman had established between the science and engineering departments at Stanford in California and the industries nearby simply did not happen in New Jersey. Companies wanted to keep their own research close to their chests. The only nearby university, Princeton, turned its nose up at applied, industry-oriented research. Discouraged, Mr Terman moved to Dallas, Texas, where he tried again. He failed again. The story is told in an academic paper published in the 1996 winter issue of Business History Review, written by Stuart Leslie and Robert Kargon, Johns Hopkins University professors in the history of science and technology. After discussing the emergence of the Stanford-Silicon Valley effort, their study examines in detail other disappointing efforts, some of which enlisted the aid of Mr Terman and his protégés. Most flopped, too. Last March, Scientific American ran yet another story on why it is so hard to replicate Silicon Valley. The magazine based its article on a 2012 study by Barry Jaruzelski, a partner at Booz & Company (which has since been renamed Strategy&), and Matthew Le Merle, of the same firm. Silicon Valley succeeds because of the close cooperation between academia and industry, a rich venture capital ecosystem, a corporate culture that is particularly receptive to innovation and risk-taking, and high institutional tolerance of failure, according to their study. What distinguishes it from many international efforts to copy it, however, is its relative freedom from state interference. This makes any attempt by governments to replicate it oxymoronic. The very attempt will likely ensure its failure. If even the godfather of Silicon Valley cannot duplicate this California marvel in a country that can throw the most money, skill and education in the world at the problem, what hope do politicians in Africa have? Instead of actively trying to stimulate particular industries, the true role of government is non-interference. “That government is best which governs least,” wrote Henry David Thoreau in “Civil Disobedience”, the 1849 essay that was perhaps his most influential. “Government never of itself furthered any enterprise, but by the alacrity

18 | Africa in Fact | Issue 23 | June 2014 | www.gga.org Futile attraction

with which it got out of its way.” According to Elizabeth Charnock, a technology entrepreneur and author writing for Bloomberg in 2011, many countries have laws that inhibit entrepreneurship. “Whether it is taxation rules on stock options in Norway, the law in Germany that bars chief executive officers of companies that have gone bankrupt from ever making another attempt, or the giant amount of personal liability that founders have in most European countries, the potential upside is curbed and the downside almost draconian,” she wrote. Politicians, like most businesspeople, follow the herd. They wrongly think that they are visionary thought-leaders when, for example, preaching the virtues of “leap- frogging”, the ability of developing countries to adopt new technologies that remove the need for adopting older alternatives. History proves that they cannot foresee entrepreneurial successes, nor make them happen. An example can be found in South Africa. Mobile technology can indeed be used to skip the need to bring wired telephony to every chicken shack in town. But the government’s policy never predicted this and enabled it unintentionally by getting out of the way. When the first mobile licences were contemplated in the early 1990s, neither politicians nor prospective mobile operators themselves thought of the devices as any- thing other than toys for the wealthy. Government was happy to leave cell phones to the profit-seeking private sector, while keeping tight control over landline infrastructure. Contrary to everyone’s expectation, including that of the mobile operators, handset sales did not peak at a million or so rich people. They extended to every corner of society, and prepaid plans made cell phones affordable to almost everyone. According to the International Telecommunication Union, there are 6.8 billion mobile subscriptions in the world and 89% of all people in developing nations have access to a mobile telephone. Fewer people have access to clean drinking water and sanitation, the most basic of government-provided services. This technology penetration has led to direct improvements in people’s lives, without government intervention. One famous case study published in 2007 by the journal Information Technologies and International Development documented the use of mobile phones by 187 of the poorest people from the fishing industry in Kerala state, southern India (see chart on next page). Mobile phones enabled the industry to better match fishing boats to under-supplied markets, according to the paper written by Reuben Abraham, at the Indian School of Business in Hyderabad. Consumer prices declined, but more efficient transport and less wastage of highly perishable fresh fish led to lower costs, more stable prices and higher profits. No politician would have said (or indeed did say) they were going to help make fishers more profitable by making prices go down. No bureaucrat could plan the innovation that made this happen. It all came from the people who had a specific domestic need and the entrepreneurs that supplied it. All the government did was get out of the way and permit it to happen.

Africa in Fact | Issue 23 | June 2014 | www.gga.org | 19 Futile attraction

Conversely, South Africa’s government liberally subsidised an effort to develop an electric vehicle called the Joule. The plan was not only to compete in the global market for such cars, but also to develop a lithium ion battery industry that would support it. The concept was sound; after all, battery technology is in dire need of a breakthrough. But it is not something that will happen just because government throws barrels of money at the problem. The product was late to market, uncompetitive, and failed. The putative battery factory never even got to the sod-turning ceremony.

Source: R. Abraham, 2008

Factors such as a healthy venture capital ecosystem with a high-risk appetite can stimulate entrepreneurship. An attractive environment for living and raising children is another. This is why the Silicon Cape initiative, a technology networking group in South Africa’s Western Cape province, founded by entrepreneurs Vinny Lingham and Justin Stanford, is showing some success: the region appeals to wealthy investors and aspiring entrepreneurs alike. But core to its success is that it is not government-led. No politician can afford to take a high degree of risk with enough public money to replicate Silicon Valley’s success. They would be hounded out of town after “wasting” money on failures like the Joule. The view that entrepreneurship can be controlled, planned and stimulated is deeply mistaken. It wastes political energy and fiscal resources. Africa cannot afford grandiose plans by politicians to create the next Silicon Valley in every likely-looking hot spot. Just as in Silicon Valley, Africa can only rely on its people, their unique needs, the connections between them and private capital with a high-risk tolerance. Entrepreneurship is not something that a smart bureaucrat with enough political will and deep pockets can create. Free people can, but only if bureaucrats get out of the way and stop punishing them for their business failures.

20 | Africa in Fact | Issue 23 | June 2014 | www.gga.org Zimbabwe: Strive Masiyiwa

The telecommunications tycoon wins with the law and God on his side

by Richard Poplak

“What Can Be Done Should Be Done And What Can’t Be Done...Must Be Done.” So reads part of the mission statement for the South African-based, Zimbabwean telecommunications mega-outfit Econet Wireless, a global e-buffet in which subscribers, along with making phone calls, may consume a “holistic” array of services including, according to the official website, the “core areas of internet, fixed wireless, fibre cable, satellite transmission, transaction processing services, mobile assurance and money transfer”, that make up this telecoms giant. Zimbabwe is not a rich country. Its GDP barely reached $7.7 billion in 2013, ac- cording to the World Bank. With a population of 12.9m, it is a small country. But it has long functioned as a springboard for southern African ingenuity. It is certainly a hard country, an impossible country—every road leads through the intransigence of ZANU- PF and its vast patronage network. Therefore the man responsible for its “holistic” telecommunications services, the man for whom Econet is not just a vector for earning many hundreds of millions of dol- lars, but also a statement of ethical and spiritual intent, is admired worldwide. And Strive Masiyiwa, the 53-year-old at the helm of Econet Wireless, is certainly one of the more respected businessmen in Africa. As of this writing, his Facebook page has acquired 321,954 likes—not Lindsay Lohan numbers, but virtually unheard of for the founder of a phone company. (His 19,800 Twitter followers are less impressive.) Strive—his first name—sums up the man. Since the early 1990s he has been on the radar of such luminaries as Bill Clinton. In 1995, the then US president called Mr Masiyiwa to the board of the Southern Afri- can Enterprise D e v e l o p m e n t Fund, an ap- pointment that served as his debut in interna- © WEF1 tional circles. Mr

Africa in Fact | Issue 23 | June 2014 | www.gga.org | 21 Struggling for the impossible

Masiyiwa’s first global moment was a result of his precocious rise in Zimbabwean busi- ness circles, back in the days when Zimbabwe was considered an African success story, and Mr Masiyiwa its favourite, if most litigious, son. He was born in 1961, in a Rhodesia restive with the first rumbles of the Bush War that would eventually unseat Ian Smith’s supremacist regime. When publications de- scribe a businessperson as “self-made”, they are often leaving out an important chunk of biographical data. In Mr Masiyiwa’s case it is his remarkable mother who forms the bedrock of his entrepreneurial esprit. After his war-weary family moved to Kitwe, a town on today’s Zambian copper belt, Mrs Masiyiwa worked on the cusp of that coun- try’s liberation era building a modest empire from retail sales, transportation services and small-scale farming. With the proceeds from these businesses, the Masiyiwas were able to send their son abroad to school in Europe, where he attended a private institu- tion in Edinburgh, Scotland. The young Masiyiwa, however, had liberation in Rhodesia on the brain. He wanted to return to fight following his graduation in 1978, but was urged not to. “One of the senior officers told me, ‘Look, we’re about to win anyway, and what we really need is people like you to help rebuild the country,’” he informed Time magazine in 2002. Mr Masiyiwa listened to this advice and earned an electrical and electronic en- gineering degree from the University of Wales, cum laude, in 1983. A year later, he returned to a liberated Zimbabwe. Some context: Zimbabwe in 1984 was a surging African state. While Robert Mugabe was prosecuting the Gukurahundi campaign that resulted in the deaths of many thousands of Ndebele in the country’s western regions, a commitment to educa- tion and a solid infrastructural base made it a hotspot for African entrepreneurialism. But it was not, by any means, Shangri-La. In 1986, when Mr Masiyiwa was looking to make good on his own promise, he found this out the expensive way: in court. He raised $75 from friends and family and started a small electrical contracting business. But as an entrepreneur in the tech field, he faced a problem: across Africa, state after state had a stranglehold on the telecom- munications sector, a hangover from the days of post-independence nationalisation, and one of the last bastions of state ownership in an era of structural adjustment- imposed liberalisation. Mr Masiyiwa went after the Zimbabwean government in court, arguing that the state monopoly was unconstitutional. This was a vicious battle: the state issued arrest warrants on charges of illegally holding telecommunications equipment. When in December 1996 Econet won a ruling ordering the telecoms minister to break up the state-owned monopoly, the resulting open tender process was considered fraudulent, and Econet went back to court to protest it. “Masiyiwa’s Dream Crumbles” screamed a newspaper headline that described the soap-operatic quality of the case and defined Zimbabwe’s shaky coming-of-age in the 1990s. It was only after the intervention of the late Joshua Nkomo, then vice-president, that the legal and political persecution stopped. “This one is not a sell out. He is [a] true

22 | Africa in Fact | Issue 23 | June 2014 | www.gga.org Struggling for the impossible

son of Zimbabwe,” Mr Masiyiwa blogged Mr Nkomo as saying of him. And by Decem- ber 1997, Econet won its licence and Mr Masiyiwa his landmark case. This assured his legend as an African trailblazer. Still, the company needed money, and not Zimbabwean money, but foreign exchange. The idea was to raise capital internationally. A Zimbabwean tech start-up, however, was not exactly a mermaid song for touchy investors. Besides, Econet was lit- erally selling air. In 1998, the notion of Africans carrying cell phones was preposterous, and Mr Masiyiwa was selling the company on an innovation called “prepaid”, which no one in the US, Europe or Africa could understand. But the Econet team persisted. After an international roadshow, they returned to Zimbabwe in 1998 oversubscribed. They raised enough capital to move forward. Part of what has always made Mr Masiyiwa irresistible to a species of American and European investor is his devout commitment to born-again Christianity. The way Mr Masiyiwa tells it, he fully turned to the Lord when several gunmen abducted him during a trip to Mozambique in 1990. He describes on his blog how he kneeled and prayed for deliverance. When he was set free, he emerged into the light of Maputo as born again. His Facebook page and blog, to say nothing of his speeches, are peppered with references to the scriptures. And while this may seem like a cynical business ploy when trying to raise cash from evangelical oilmen in Louisiana, Mr Masiyiwa is not faking it: he is Christian to his very core. This almost entirely explains the parallel tracks that his career as a tech entrepre- neur and global philanthropist have taken since he turned Econet into one of the first African telecoms giants. By 2000, while Zimbabwe was teetering on the brink of land reform collapse, Mr Masiyiwa made the move to Johannesburg. He set up his flagship, Econet Wireless International. The company quickly diversified into solar energy and

Source: Econet Wireless Zimbabwe

Africa in Fact | Issue 23 | June 2014 | www.gga.org | 23 Struggling for the impossible

fibre optic cables (his Liquid Telecom cable network is the largest in Africa). Its services spread rapidly to 15 countries, including a partnership with South Africa’s MTN in Botswana. In 2000 he took ownership of the then only independent newspaper in Zim- babwe, the Daily News, which was shuttered under government pressure in 2003. And while Forbes claims that Mr Masiyiwa has amassed a personal fortune of $600m, he is not the spendthrift African mogul we have come to know and love. Along with his wife Tsitsi, with whom he has four sons, he started the Higher Life Foundation, which is responsible for the continued welfare of 40,000 Aids orphans. He sucks up commendations like a vacuum cleaner: in 2003, a Time/CNN poll cited him as one of the 15 Global Influentials of the Year; in 2011 The Times of London named him one of the 25 leaders of Africa’s renaissance; Forbes called him one of the 20 most pow- erful leaders in African business in 2011. US President Barack Obama invited him to the G8 summit at Camp David in 2012. He has Bill Gates on speed dial and is a Rockefeller Foundation trustee. He founded the eHealth programme with Desmond Tutu and the Carbon War Room with Virgin’s Richard Branson. Mr Masiyiwa is as connected as it is possible to be. One remarkable episode in Mr Masiyiwa’s journey illustrates how his direct line to heaven would appear to be an advantage. In 2000, when Zimbabwe’s economy im- ploded due to the land reform/farm invasion saga, Econet was on the brink of disaster. There was no money to pay staff, no money to invest in equipment. Inflation hit what economists estimate was around 500 billion percent, give or take a percentage point or two. But when Mr Masiyiwa looked at the books closely, he identified one astonishing trend: “I noticed that the share price of the Zimbabwe company was tracking the hyper inflation! I ‘knew’ then what to do to save the company!” he wrote on his blog. Mr Masiyiwa and Econet started to use the share price as an “inflation proof” cur- rency. They minted coins, using airtime as a denomination and bought up everything they could—stock, equipment, people, businesses. Then, when Zimbabwe dollarised in 2008 and the economy became stabler, Econet began the process of divestment. “Between 2008-2014,” he wrote, “we had invested over $1.2 billion in Zimba- bwe. This is the largest single investment by any organisation in the country’s history. As a result of this investment, cell phone penetration in the country rose from 14% (the second lowest in Africa), to one of the highest at 103%.” This is an astonishing African business tale. An analyst can attribute it to celestial intervention or pure business nous. But one thing is certain: Mr Masiyiwa is one of the richest, most powerful and connected businessmen on the continent. While Econet can- not sustain its growth in Zimbabwe—note that 103% penetration—the global business is not listed and does not publish revenues. It is therefore not subject to the vicissitudes of activist shareholders and other meddlers; its future is likewise difficult to predict. But Mr Masiyiwa strives ever forward, building, innovating and quoting kings. With a war chest of over half a billion dollars, he is likely to remain a presence on the continent for some time to come. After all, “what can’t be done…must be done.” And Mr Masiyiwa appears to be doing it.

24 | Africa in Fact | Issue 23 | June 2014 | www.gga.org Kenya’s beer queen

Tabitha Karanja’s success is a classic “David and Goliath” tale

by Omondi Oloo

Tabitha Mukami Karanja chats with her senior managers in her spacious office in Naivasha, 70km west of Kenya’s capital, Nairobi. Behind her stands a chest of draw- ers stacked with green and brown bottles bearing the labels of her company’s liquor brands. Against another wall is a wooden cabinet with files and several trophies. The soft-spoken Ms Karanja, 49, is the founder and CEO of Keroche Brewer- ies, Kenya’s first locally owned beer manufacturer. Despite her calm demeanour, Ms Karanja is unrelenting in her quest to expand Keroche’s share of Kenya’s lucrative liquor trade beyond its current 5%. Her target is to command a 30% share within a decade, she says. Ms Karanja’s story is a classic “David and Goliath” tale. The company, which she founded in 1989, was the first local firm to challenge East African Breweries Limited (EABL), the powerful company that has domi- nated the Kenyan alcohol trade for 92 years. UK-based Diageo now controls EABL, which started out as Kenya Breweries, founded by the British Hurst brothers in 1922. With its flagship Tusker beer, Johnnie Walker whisky and Snapp apple-flavoured alcoholic drink, EABL commands 90% of the liquor market, but Keroche is making inroads, especially outside Nairobi, where Ms Karanja markets her brands aggressively. Ms Karanja’s story began in 1965, when she was born to middle-class parents in Kijabe, 41km west of Naivasha. She was the first of ten children, a role that prepared Ms Karanja for her future leadership responsibil- ities. “I played a key role in bringing up my siblings,” she boasts. “I walked from one class to another just to know how they performed.” After finishing high school, she worked for three years as an assistant librarian in the tourism ministry. In 1987, at the age of 22, she earned a diploma in business manage- © WEF1 ment at the University of Nairobi. Two years Taking the bull by the horns

Africa in Fact | Issue 23 | June 2014 | www.gga.org | 25 Slings and arrows

later she married Joseph Karanja, who ran a hardware shop in Naivasha. Together they opened a small alcohol factory in 1992 that specialised in fortified wine—wine with an added distilled spirit, usually brandy. When the winery started making profits, Ms Karanja stepped forward to be the face of the business, trusting her ability and resilience in the high-margin industry. She named the business Keroche in honour of her father-in-law, Karanja Mwangi, whose friends call him “Keroche”. The new business faced a challenge in 1993, when banks refused to advance it capital to expand, she says. This is relatively typical in Kenya. Formal financial institu- tions have extended credit to fewer than 20% of small to medium-sized enterprises in the country, according to FSD Kenya, an independent trust established to support the development of financial markets.

Source: World Bank

Like many other small-business owners in her position, Ms Karanja turned to her family for help. She does not disclose the exact sum, but she speaks of having mobilised “little family resources”. Her next challenge was exorbitant taxation. Between 1992 and 2006, Ms Karan- ja says, taxes on bottled alcohol products in Kenya rose by nearly 300%. This harsh taxation reduced formal alcohol consumption in Kenya from 400m litres in 1991 to 200m litres by 2006, according to an internal survey by Keroche—a situation that dried up some of the fledgling brewer’s profit margins. Then the brewer’s Keroche and Viena fortified wines started gaining popularity in 1997 and exposed the businesswoman to further headaches: in 2003 the Kenya Revenue Authority (KRA) accused her of withholding 1 billion shillings ($11m) in taxes. Ms Karanja denied this. The stand-off dragged on until 2006, when the KRA ordered Keroche to pay up within two weeks or face closure. Ms Karanja stood firm, sued the KRA and won.

26 | Africa in Fact | Issue 23 | June 2014 | www.gga.org Slings and arrows

Taxes were not only too high, they were unfair, she says. In Kenya’s 2006-2007 budget, the finance minister did not levy a value-added tax on EABL’s Senator beer, but doubled the tax on fortified wines, which were Keroche’s mainstay. This made the ground uneven, Ms Karanja says. But it was harassment by state officials, who demanded bribes of as much as 1 billion Kenyan shillings ($11m) for licences, that almost destroyed her young business, she says. She refused to pay these kickbacks. “For more than ten years, I fought tough battles against intimidation from state officials as well as multinationals,” she says. “At times, they would shut our processing plant, but we never gave up. This is my country and I had to fight on.”

Total company revenues, 2013

Guinness Ghana 0.04% ($11m) Cervejas de Mozambique 1.2% ($318m) Guinness Nigeria 1.2% ($327m) Tanzania Breweries 2.0% ($543m) SABMiller Delta Breweries Zimbabwe 2.3% 85% ($631m) ($23.3 billion) East African Breweries Ltd. 2.5% ($680m) Nigerian Breweries 6.0% ($1.7 billion)

Source: Company annual reports

A major turning point in Keroche’s story came in February 2008, when Ms Karanja secured a 1 billion shilling ($11m) loan from Barclays Bank. She had proved her mettle as an innovator and a capable business leader and financial institutions were responsive to her credit needs. Ms Karanja used the capital injection to boost her fac- tory’s infrastructure and capacity from three small rooms with five employees to much larger premises of about 4,000 square metres and more than 100 skilled workers. In October 2008, Ms Karanja boldly entered the beer market and launched Summit lager. Kenya is the largest beer market in east Africa, according to a 2012 report by Re- naissance Capital, a Russian investment bank that tracks emerging markets. With GDP growth of 4.6% in 2012 (according to the World Bank) and a fast growing population, its market remains the region’s most robust, according to the report. Breaking into the beer industry in Kenya has historically been difficult, even for

Africa in Fact | Issue 23 | June 2014 | www.gga.org | 27 Slings and arrows

SABMiller. The London-listed beer behemoth opened a brewing plant at Thika, about 35km north-east of Nairobi, in 2008. But after EABL mounted an aggressive advertising campaign and rolled out several cheap products to gain market advantage, SABMiller sold its facilities to EABL in 2010. Keroche’s Summit lager, however, suc- ceeded. The company now sells between 4.2m and 5m bottles of the lager and malt beer per week. Its share of the Kenyan alcohol market moved from 2% in 2008 to the current 5%, according to Keroche’s own market research. What has made the Summit beers and Keroche’s other products thrive? Analyst Paul Okinyi of Nairobi-based Baseline Consulting credits the company’s innovation, its frequent rebranding and repackaging, and its 100% Kenyan ownership. Keroche’s motto, “Truly Kenyan”, has helped endear the company to the country’s beer consumers, he says. Ms Karanja is convinced that her segment of Kenya’s beer market will expand to reflect the rise of the country’s economy. “As people move up the income ladder, per capita spending on beer rises significantly,” according to a 2013 report by KPMG, an advisory firm. Her story is even more remarkable because of the patriarchal barriers that Ms Karanja sidestepped. Women hold only 12% of seats on the boards of Kenya’s top companies, according to a 2013 Kenya Institute of Management report, and only 14 of the 290 seats in Kenya’s National Assembly. Of Kenya’s 47 elected senators in the upper house, none is a woman. Besides leading Keroche, Ms Karanja is also a senior board member of the Ken- ya Association of Manufacturers. In 2013 Ventures magazine rated her as one of the most powerful women to watch in the continent’s corporate sector. Last year Keroche announced a 2.5 billion shilling ($28m) expansion plan that will see its production capacity mushroom to 600,000 bottles a day from the current 60,000 by November 2014. Keroche plans to go regional next year, expanding sales into Burundi, Rwanda, Tanzania and Uganda. Ms Karanja, a mother of four, credits her success to determination. “I am what I am because of hard work,” she says. “To succeed where many failed calls for sacrifice.” She still finds time to spend with her children and her husband, now the company chairman. “We share dinners and celebrate birthdays together.” Ms Karanja wants to make it easier for other entrepreneurs to follow in her foot- steps. She implores the Kenyan authorities to make the playing field fair. “Biased and over-taxation will destroy the industry,” she says. “We would like to see the govern- ment create a conducive business environment that emphasises fairness in word, deed and spirit. Competition is the key to innovative alternatives.”

28 | Africa in Fact | Issue 23 | June 2014 | www.gga.org Côte d’Ivoire’s emerging SMEs

The government is focusing on small business to diversify the economy

by Marc-André Boisvert

Once the economic powerhouse of Francophone west Africa, Côte d’Ivoire has suffered decades of crisis. Now the world’s biggest cocoa producer is turning the tide on more than 30 years of economic hardship caused by conflict, draining structural adjustments, the devaluation of the regional currency and the tumbling cocoa price. From independence in 1960 to the 1980s, Côte d’Ivoire’s economy flourished from its fertile farmlands, which produced cocoa, coffee and palm oil. Those govern- ment-controlled sectors funded gleaming skyscrapers in the capital, Abidjan, and paid the salaries of the civil servants who worked inside. Building a diversified economy, however, was not a government priority during these years. In the last decade, the country’s land has yielded other natural resources: oil, gas and gold. But Alassane Ouattara, who took the presidential reins in 2011 after a six-month post-electoral crisis that left 3,000 dead, is trying to move the country beyond natural resources and agriculture. He is counting on creating a mixed economy that will extinguish political tensions. One of Mr Ouattara’s first moves as president was to apply an emergency stim- ulus package, mostly funded by foreign donors such as the IMF and France. Since then, Côte d’Ivoire’s GDP has expanded, growing 9.8% in 2012, 8.7% in 2013 and an estimated 8.0% in 2014, according to the IMF. This package targeted five priority areas: water, health, education, electricity and sanitation. It included repairing and reconstructing infrastructure that was destroyed during the 2010-2011 post-electoral conflict. It also had a peace-building side that included the education and re-integration of former combatants.

Sources: IMF; World Bank

Africa in Fact | Issue 23 | June 2014 | www.gga.org | 29 Counting beans

But now, economists foresee that GDP growth may slow down unless these quick fixes are replaced by a longer-term strategy tackling the Ivorian economy’s structural flaws. In particular, the country’s dependence on cocoa makes the economy vulnerable to fluctuations in this commodity’s prices. To curb 30 years of growing poverty, one of the main goals of the government’s strategy is to strengthen small and medium en- terprises (SMEs), a unique strategy in a region where economic policies usually favour large corporations and ignore small businesses. So far, development and economic wonks, especially those from the Bretton Woods institutions, have praised the policies of Mr Ouattara, a former IMF director. The country reached 79th place out of 160 countries on the 2014 World Bank’s logistics performance index, the highest ranking of any Francophone African country. Although its business environment still has a long way to go, it is improving. Côte d’Ivoire jumped six places in a year, reaching the 167th position out of 189 countries in the World Bank’s 2014 “Doing Business” report, but still lags behind countries like Afghanistan and Syria.

*

Jean-Louis Billon, president of the Ivorian Chamber of Commerce from 2002 to 2011, knows business challenges. He left the private sector in 2012 and since then has worked as the country’s commerce minister, an expanded portfolio that also includes supervising small business. “An economy can be competitive only if it allows its SMEs to innovate, to supply big companies, to safeguard its exports and to contribute effectively to the GDP,” he told Africa in Fact. “In Côte d’Ivoire we have emphasised plantations and big enter- prises. But 90% of Ivorian businesses are SMEs. This should be the cornerstone of our development,” Mr Billon explained. “Côte d’Ivoire cannot develop and build a solid economy if it does not maintain a large pool of SMEs.” Small companies represent about 98% of Côte d’Ivoire’s formal businesses and

30 | Africa in Fact | Issue 23 | June 2014 | www.gga.org Counting beans

create 23% of the country’s jobs, according to the ministry. This is not to say that small businesses did not emerge under the unchallenged rule of President Felix Houphouët-Boigny from 1960 to 1993. “During the Houphouët- Boigny era, civil servants were encouraged to buy land and, in a way, to start their own small businesses,” explained Marcel Benie Kouadio, an economist and dean at Abidjan Private Univer- sity. “This allowed the rise of a middle class. But it was not formal and more of a hobby. Above all, it was not sustainable. One would employ the broth- er-in-law or the nephew to manage the land. It was additional revenue, but it was not a true generator of employment.” It provided the government with little tax income. Under Mr Billon’s guidance, the Ivorian gov- ernment has launched several initiatives to make SMEs a vital part of the formal economy. It has adopted a law that strengthens SMEs’ legal protections and makes bank loans easier to obtain; updated laws protecting and regulating investments; created a new commerce court which fast tracks disputes at a lower cost than the existing judicial system; slashed fees by 50% for importing tools and production equipment; and introduced several initiatives to connect entrepreneurs to funders, notably an investment forum held in January 2014 that brought pledges of $930m of foreign direct investment into Ivorian businesses. In addition, the government has made massive expenditures in infrastructure, allocating about $6 billion to roads and a second port terminal in Abidjan. Several pro- jects also aim at boosting energy production from 1,391 megawatts (MW) in 2011 to almost 4,000MW by 2020. The Investment Promotion Centre in Côte d’Ivoire (CEPICI, after its initials in French) is the government’s main measure to ease business life for entrepreneurs. This agency, headquartered in Abidjan and with three offices in the economic centres of Bouaké, San Pedro and Yamoussoukro, is a one-stop shop: in a few hours and in a sin- gle place, business owners can fill out documents such as business and tax registration, customs agreements, etc. The government is expected to respond to all applications within a month. These procedures took nearly a year under the previous government. More im- portantly, they provide more transparency to help curb corruption. Last year, 2,535 new businesses, mostly SMEs, were registered, about 18% more than in 2012, accord- ing to CEPICI figures, which are not always reliable. The CEPICI “simplifies everything”, said businesswoman Marie Diongoye Konaté, who has run a grain food-processing company since 1994. Like many busi- nesses begun before Mr Ouattara became president, Ms Konaté’s company, Protein Kissé-La, was not registered and therefore did not exist legally. She took advantage of the new system to register and to raise capital. After spending one hour submitting her

Africa in Fact | Issue 23 | June 2014 | www.gga.org | 31 Counting beans

documents to the CEPICI, the government responded in 21 days, approving the regis- tration of her agro-industrial business. Her case is similar to that of many of the businesses in Côte d’Ivoire that struggled under the corruption and intimidation preva- lent during the previous government. With 71 employees, her firm is an example of how a good business plan and a strong understand- ing of local realities can compete with foreign giants such as Nestlé and Danone. “Business is picking up,” Ms Konaté said. “We have the feeling that things are moving forward after a decade of difficulties. The government has, so far, adopted several measures that make our life easier.” Despite the government’s new policies and the investment forum’s momentum, SME owners still face several difficulties, particularly in raising capital, explained Joseph Amissah, the director of a small-business group. Banks and other funding institutions do not provide enough guidance and are reluctant to take risks, he said. But alternatives to a wary banking system are emerging. Thierry N’Doufou is the CEO of Siregex, a 20-month-old high-tech company with ten employees. In May 2014 it launched an educational tablet for Ivorian classrooms that should be available soon in neighbouring countries. It has succeeded by overcoming major investment obstacles. Finding the funding was the hardest hurdle. “Ivorian bankers did not understand the project,” explained Mr N’Doufou. “We succeeded in earning the trust of certain persons and investment funds to secure the project.” (Mr N’Doufou, however, would not share the names of his investors.) In addition to the difficulty of raising capital, the country’s “heavy fiscal burden” is impeding the development of SMEs, said Jean Kacou Kiagou, president of Côte d’Ivo- ire’s General Business Council, an association of business owners. The government’s taxation policies deter investments and encourage companies to relocate to neighbour- ing countries such as Ghana, with fewer fiscal constraints, he said last March. Businesses represent 90% of the Ivorian government’s tax revenues, while the African average is about 40%, according to the OECD, an intergovernmental think-tank. Fiscal pressure and the absence of funding need to be tackled together, accord- ing to the commerce minister. This is the goal of an upcoming government programme, which plans to improve managerial skills and teach companies how to participate in a competitive environment. “SMEs are crucial to fight against unemployment and pover- ty,” Mr Billon said. “It is a government priority.” Investors in Côte d’Ivoire, for the most part, are still holding their breath: political reconciliation from the bloody post-electoral crisis has yet to become a reality. The next presidential elections are in 2015. Firm economic growth may only take place once the troubles are definitively over.

32 | Africa in Fact | Issue 23 | June 2014 | www.gga.org Africa’s immigrant entrepreneurs

Being “distinct” is at once their greatest strength and their greatest vulnerability

by Bruce Whitehouse

Generations of Africans have debated the merits of foreign-controlled enterprise: do these businesses and the people who run them strengthen or undermine local eco- nomic opportunity? Do they benefit or exploit local workers and consumers? Such debates often overlook that a large portion of these foreign-owned firms are small or medium enterprises, and that their owners are not European, North Amer- ican or even Chinese. The commercial success of certain “middleman minority” groups, such as Indians in east Africa or Lebanese in west Africa, is widely known. Far more foreign business owners on the continent, however, originate in other African countries. Their ranks include Somalis in South Africa, Nigerian Hausas in Ghana and Mauritanian Arabs in Senegal. They run a broad spectrum of businesses, from factories to dry goods stores to tailor shops. These African immigrant entrepreneurs’ vital role in host country economies has too often been misunderstood by observers and maligned by overzealous nationalists and cynical politicians. Even after having established themselves, started businesses and learned local languages, immigrants often remain socially and culturally distinct from the host popu- lation. Their linguistic or religious traditions may set them apart. These groups frequently maintain and cultivate enduring ties with their country of origin. Many send their children born in the host country to be raised by relatives back home, the better to instil in them the culture, language and values of their com- munity of origin. When these offspring come of age, they rejoin their parents abroad and eventually take over their businesses and properties, perpetuating their families’ presence in the host country. So although integrated into the host society in fundamental ways, such immi- grants do not fully assimilate into it, even after generations. They are like a highly visible thread woven into, yet discrete from, the social fabric of the host country. The distinct status of these populations—“étranger” (“foreigner” in French) as some call them—is at once their greatest strength and their greatest vulnerability. Immigrants and their descendants can draw important economic benefits from their foreigner status. At home, the imperatives of successful entrepreneurship, such as making a profit and accumulating capital, frequently conflict with the imperatives of dutiful kinship, such as supporting the needy, offering credit, or providing discounts. Abroad, as nominal outsiders, immigrants are not bound by the same webs of recipro- cal obligation: they can afford to scale back their social obligations and invest more in their enterprises than if they had never left home. Although they still rely heavily on their own kin and co-ethnics abroad,

Africa in Fact | Issue 23 | June 2014 | www.gga.org | 33 Merchants and migrants

immigrants stand apart from their clientele. Hence they enjoy more freedom to run their businesses as they see fit. The tightly knit, kin-based nature of foreigner communities also fosters a degree of internal cohesion that the wider host society usually lacks. These migrants’ status as “strangers in a strange land” heightens their sense of shared identity and mutual responsibility. This cohesion gives rise to “enforceable trust”, a mechanism for punishing malfeasance and rewarding good behaviour. Immigrants can ill afford alienation from their own community, and thus must abide by the group’s internal norms. Enforceable trust fills the void left by a dysfunctional formal legal system in settings where state institutions are weak, courts corrupt and contract enforcement uncertain—as is often the case in some African countries. Immigrants also stand to benefit from their transnational connections. This writer studied traders from 2005 to 2006 in Brazzaville, capital of the Republic of Congo. They belonged to networks linking them not only with their villages of origin in the western Sahel—especially Mali, Guinea and Senegal—but with kin and co-ethnics based in Angola, Côte d’Ivoire, Nigeria, South Africa and as far afield as Thailand, the United Arab Emirates and China. Many had previously lived in some of these other cities and countries in their migrant network before coming to Congo. Travel between these nodes was a regular feature of doing business for the more successful entrepreneurs. Even family-owned businesses can manage risk by diversifying operations across multiple countries. A Malian entrepreneur I interviewed operates a metal sheeting plant in the Republic of Congo, has one relative in charge of his Congolese sawmill, another running his plastics factory in Mali and a third managing his export office in south- eastern China. Such transnational networks lower business costs by making it easier to share information and technologies across borders. Small-scale, kin-based firms thrive in impoverished African economies where profit margins are narrow, credit is tight and conditions are risky. Their flexible structure and ability to self-regulate allow them to enter markets which larger, better-capitalised multinational firms find either too marginal or too hazardous to enter. Yet étranger status is a double-edged sword. As members of a distinct and highly visible minority, immigrants are susceptible to abuse by host country citizens and governments. Hosts typically harbour negative stereotypes about foreigners, insulting them as “illegal aliens” and parasites who take advantage of local consumers and expatriate their profits. Such perceptions can fuel xenophobic violence, as happened in May 2008, when mobs attacked immigrants in South African townships, leaving at least 62 dead and thousands homeless. In 2013, two Somali shopkeepers were hacked to death in Limpopo province, and a third stoned to death in Port Elizabeth. A video of the stoning was posted to the internet, a graphic reminder of the perils that accompany foreigners. More often, hosts’ negative perceptions amplify everyday social tensions and discrimination. Congolese public officials levy all manner of bogus fees on foreign

34 | Africa in Fact | Issue 23 | June 2014 | www.gga.org Merchants and migrants

African shopkeepers in Brazzaville, knowing that these immigrants are resigned to such treatment and unlikely to protest. Ordinary Congolese perceived west African merchants as “free riders” who profited from local communities without giving back. Merchants canvassed during my fieldwork, however, felt they paid far more than formal taxation and other legal payments, thanks to routine petty extortion.

Source: B. Whitehouse, 2009

At times, tensions have led to the mass expulsion of foreign Africans. Dozens of such evictions were carried out from the 1950s through the 1990s in countries including Angola, Côte d’Ivoire, Gabon, Uganda and Zambia. Most of these operations entailed a few thousand deportations. The largest—in Nigeria in 1983—uprooted 2m people, mostly from Ghana and other neighbouring countries, according to a 2002 paper by Marc-Antoine Pérouse de Montclos of the Institute of Policy Studies in Paris. Nigerians still use this operation’s unofficial moniker, “Ghana must go”, as a nickname for the type of cheap plastic-fibre bags used by deportees to haul away their belongings. Expulsion orders tend to be politically popular in the short term, as immigrants make convenient scapegoats for high unemployment and rising prices. Yet expulsions never solve host countries’ economic problems. The social factors underlying the for- eigners’ economic success remain unchanged. Nationalised businesses eventually fail. Deportees slowly resume their activities and the whole affair is gradually forgotten. Perhaps African governments have learned from their mistakes, as large-scale deportations have become less frequent over the past two decades. Extensive expulsion operations have continued, however, in a few countries. Over the past two decades, Angola has deported tens of thousands of Congolese and west Africans, according to a 2012 report from the UN Office for the Coordination of Humanitarian Affairs. South Africa deported more than 2.5m Zimbabweans between 1988 and 2010, according- to Department of Home Affairs figures, quoted in “Contemporary Migration to South

Africa in Fact | Issue 23 | June 2014 | www.gga.org | 35 Merchants and migrants

©NJR ZA1

Africa: a Regional Development Issue”, by Aurelia Segatti and Loren Landau. Despite this sometimes sordid history, the relationship between African immi- grants and their hosts is often mutually beneficial. By converting their outsider sta- tus into entrepreneurial success, foreigners provide goods and services for the host country’s consumers, and formal and informal revenue for its public officials. They frequently perform labour their hosts are unwilling to do. In Abidjan in Côte d’Ivoire, for example, locals view driving taxis, pushing hand trucks or any form of manual labour as degrading, suitable only for outsiders, as described in anthropologist Sasha Newell’s 2012 book, “The Modernity Bluff: Crime, Consumption, and Citizenship in Côte d’Ivoire”. Immigrants, coversely, work in jobs they would have been unwilling to do at home: many Malian immigrants in Cameroon, for example, manufacture metal cook- ing pots for local consumption—even though taboos in their villages of origin bar them from working with metal. The ability of étrangers to operate in high-risk environments has helped rein- vigorate stagnant, conflict-ravaged economies, such as in the Republic of Congo or Mozambique, where traders from several west African countries have operated. Governments can strengthen the symbiotic nature of host-immigrant relations by earning foreigners’ confidence. To do this, they must fortify the rule of law: wise entrepreneurs will not invest where they fear losing their property to greedy officials or mob violence, or where their official permits do not prevent extortion against them. As long as migrants feel discriminated against and unable to enjoy equal protection under the law, they and their hosts will view each other with suspicion and the full potential benefits of their interaction will not be realised.

36 | Africa in Fact | Issue 23 | June 2014 | www.gga.org Women’s entrepreneurship in Africa

Is numerical parity natural justice?

by Terence Corrigan

A prosperous future for Africa depends upon a greatly enhanced economic role for women. Women, half of the adult population, represent vastly underutilised human potential. As the bedrock of Africa’s families, they can also bring important social values and insights to the continent’s development. Intrusive laws that impose a 50:50 gender ratio in the business environment are not conducive to expanding women’s participation. A social and legislative environ- ment that supports all entrepreneurs, male and female, would be a more effective path. South Africa’s government is driving the Women Empowerment and Gender Equality Bill, aimed at enforcing “gender equality” across all sectors. Under this draft law, currently winding its way through parliament, the minister for women, children and people with disabilities will select, according to her own discretion, companies that will have to fill half their decision-making positions with women. She will publish her designations in the Government Gazette. Additionally, the law will require “gender mainstreaming”. In other words, all policies and programmes in the public and private sectors will need to be measured against the impact, intentional or not, on women. But the proposed law’s prevailing presumption—numerical parity as natural jus- tice—has little empirical basis. Groups, whether defined by gender, ethnicity, religion, race or any other demographic, seldom distribute themselves proportionally across any activity, no matter how ideal the environment, as American economist Thomas Sowell has exhaustively shown. There is no reason to expect this in South Africa. The bill prescribes crippling penalties for non-compliance: firms may be fined up to 10% of turnover, which many would not survive. The additional regulatory burden will make business more difficult for all and discourage aspirant entrepreneurs, both men and women. By putting obstacles in the way of entrepreneurs, the act could end up inhibiting women’s economic involvement rather than stimulating it. Nothing promises “empowerment” like entrepreneurship. It signifies self-eman- cipation. An entrepreneur consciously takes control of her destiny, relying on her own smarts for a livelihood. Successful women entrepreneurs can set examples that chal- lenge social attitudes. Women represent “a vast untapped source of innovation, job creation and eco- nomic growth in the developing world”, says Carmen Niethammer, a gender specialist with the International Finance Corporation, a division of the World Bank. The entrepreneurial spirit is alive in Africa as nowhere else. Some 27% of sub- Saharan Africa’s workforce is operating an early-stage business (one less than three-

Africa in Fact | Issue 23 | June 2014 | www.gga.org | 37 Skirting the real issue

and-a-half years old) and another 15% an established firm, the Global Entrepreneur- ship Monitor (GEM) estimates in its 2013 report. This is a higher rate than anywhere else by a considerable margin. By comparison, 19% of Latin America’s workforce is operating a young business and 8% an older one. In Asia and the Pacific 12% are operating both types of businesses. Developed countries tend to have even lower rates, with 8% in the European Union operating a fledgling business and 6% a proven business.

Source: Global Entrepreneurship Monitor

Africans are also upbeat about entrepreneurship, holding positive views of the opportunities available and their abilities to make them succeed, according to the GEM report. Women entrepreneurs are advancing strongly in Africa: their presence among early-stage entrepreneurship is virtually on a par with men. Some of the continent’s most successful entrepreneurs are women, such as Ethiopia’s Bethlehem Tilahun Alemu, founder of soleRebels footwear (see page 41), and Nigerian clothing manufacturer Ruff ‘n’ Tumble’s Adenike Ogunlesi. These entrepreneurs are the exceptions, however. Women in Africa are more likely to be operating in the informal sector. Those in the formal sector tend to have firms that are smaller than men’s, according to research conducted for the International Labour Organisation (ILO) between 2002 and 2004. What is preventing Africa’s women from joining the formal sector? Women’s en- trepreneurship must be understood on two distinct levels, argues Professor Teresa Cruz e Silva, a social scientist at the Eduardo Mondlane University in Mozambique. Africa’s “market women” are the continent’s first and dominant face. These small traders operate without business licences and are not registered with the tax authori- ties. They deal in the goods and services familiar to domestic life. They sell consumables, prepare food and make craftwork. They work to survive rather than to prosper. At this level in particular, many barriers are gender-determined. Despite sig- nificant reform over the past three decades, legal equality between men and women

38 | Africa in Fact | Issue 23 | June 2014 | www.gga.org Skirting the real issue

remains incomplete in many countries. Customary law and family codes dating from times when male dominance was uncontroversial remain in force. In places, attempts at reform over the past decade have failed in the teeth of soci- etal objections. Even in countries that have taken economic reform and gender equality seriously (such as Tanzania and South Africa), these barriers linger. Legal guarantees for equality and women’s property rights co-exist with discriminatory customary law and social attitudes. Moreover, social expectations of women’s domestic responsibilities worldwide, no matter the legal environment, impose an additional burden, according to a 2004 ILO report. This leaves limited options for women to move beyond survivalist trade and other employment. Education is one of the major determining factors for successful entrepreneurs. Yet across the continent, women’s adult literacy rate is only 75% that of men, accord- ing to a 2011 UNICEF study. Girls’ enrolment in primary education is near parity with boys’ at 96%, but falls at secondary level to 87%, according to the study. Progress has been made, but much remains undone. The second face of Africa’s women entrepreneurs is the small cadre of women at the helm of prosperous enterprises in the formal sector. They tend to be educated and to have work experience, according to 2013 research by SBP, a South Africa-based research firm.

Source: UNICEF

These successful women engage with the modern world. They buy from and sell to other enterprises, and understand the possibilities of innovation and of exploring new markets. They have also moved beyond the sectors in which women have conven- tionally operated, such as personal services and retailing. Although men and women entrepreneurs are more similar than different in their approach to business, women are more concerned with balancing their careers with family interests, according to Cindy Norcott, a South African businesswoman and phil- anthropist. This is the case even in societies with long traditions of gender equality. The

Africa in Fact | Issue 23| 2014 | www.gga.org | 39 Skirting the real issue

outcome is frequently a greater aversion to risk and a restrained approach to growing firms’ markets, turnover and employee complement. What can be done to encourage more women into entrepreneurship and to support those already there? Legislation is a first step. Rwanda’s prudent reform has eased business bur- dens and helped to spur growth. It outlawed discrimination against women in property rights and streamlined the regulatory burdens over the past two decades, according to the World Bank.

Source: World Bank

But gender-biased policy options can be counter-productive. In Nordic countries, for example, women make up a lacklustre proportion of their entrepreneurial commu- nities, despite gender-sensitive policy environments and a social consensus, according to the GEM study. Generous provisions for maternity leave and childcare are linked to salaried employment. Inadvertently, this policy environment has drawn women away from an entrepreneurial career. Most importantly, African women need to be recognised in all spheres as full citizens. Remaining legal inequalities relating to inheritance, property and labour rights must be reformed. Policymakers need to prioritise girls’ education urgently. Doing business in Africa is generally not for the faint-hearted. Libraries have been written about the continent’s developmental challenges: poor infrastructure, weak governance, onerous regulations and haphazard laws. Perhaps a more pertinent ques- tion is: what needs to be done to improve the prospects for all entrepreneurs, whether male or female? Smaller firms, disproportionately owned by women, are especially vulnerable to red-tape burdens and governance deficiencies. Prudent policy reform aimed at smoothing the environment for business, although not specifically gender-focused, will nevertheless give women greater opportunities to be successful in business.

40 | Africa in Fact | Issue 23 | June 2014 | www.gga.org Ethiopia’s footwear marches on

Bethlehem Alemu is making great strides in creating employment and developing artisanal skills

The flagship soleRebels store in downtown Addis Ababa, Ethiopia’s capital, is a hipster shoe haven. A lilting reggae soundtrack pervades the air. The wooden décor is splashed with Ethiopia’s warm national colours: green, red and yellow. Hundreds of funky shoe designs, their price tags ranging from $40 to $100, festoon the shelves. In its midst sits Bethlehem Alemu, 34, the company’s founder and owner, sip- ping Ethiopian black coffee and boasting breathlessly about the fast rise of her foot- wear empire. “Our business model centres on eco-sensibility and community empower- ment,” she explains with self-confidence. “Our model maximises local development by creating a vibrant local supply chain while creating world-class footwear.” Ms Bethlehem launched soleRebels with only five employees in 2005. She now employs more than 200 people who make shoes from Abyssinian hemp, organic cotton and recycled car tyres. These shoes, a combination of Ethiopian heritage crafts and modern design, are exported to 55 countries and sold in more than 65 stores. Ethiopia’s 20th century anti-colonial fighters, who wore sandals with rubber-tyre soles, inspired the shoes’ design and name.

Today, in addition to the flagship store in Ethiopia, 13 stand-alone soleRebels stores are selling shoes in five countries: Canada, Italy, Japan, Spain and Taiwan. Last year’s company sales reached $2m. Ms Bethlehem says she is expecting $5m in store

Africa in Fact | Issue 23 | June 2014 | www.gga.org | 41 Heart and sole

sales this year as well as more than $6m in online sales over the next 18-36 months. Ms Bethlehem was born and raised in Addis Ababa, the daughter of a cook and an electrician. After gaining a degree in accounting from Unity University in 2001, she worked for three years in the apparel and leather sectors, gaining experience in production, design, marketing and sales. It was during these years, she says, that she developed a strong desire to focus her business skills on helping people from her com- munity to escape poverty. Footwear became her platform to harness the local artisanal workforce. With a $5,000 loan from her family, she opened a workshop in 2005 with five employees on her grandmother’s plot of land on the leafy edge of Addis Ababa. For the first six years soleRebels produced shoes for large online fashion retailers such as Amazon, Endless, Whole Foods and Urban Outfitters. In 2011 Ms Bethlehem opened her first store in Addis Ababa. The next year, the company launched an outlet in Kaohsiung, Taiwan, followed by a shop in Vienna, Austria. Ethiopia is today one of the fastest-growing economies in the world. Since 2004, its GDP has grown at an average of more than 10% a year, according to government figures. Conversely, its per capita income remains one of the world’s lowest and it is also one of the largest recipients of development aid, according to the OECD, an inter- national think-tank.

Source: World Bank

Despite Ethiopia’s impressive economic growth, investors are grappling with a less impressive business environment. In the World Bank’s 2014 “Doing Business” sur- vey, Ethiopia slipped one place to a lowly 125 out of 189 countries. In the bank’s “Ease of Starting a Business” index it fell four places to 166. Graft, corruption, cronyism and a byzantine regulatory environment explain the country’s low ranking. Corruption permeates many of Ethiopia’s major institutions, with energy, tax, financial and transport sectors identified as having the highest levels of sleaze, according to a draft report released last January by the World Bank. “Ethiopia suffers from high corruption risks because of the private sector’s de-

42 | Africa in Fact | Issue 23 | June 2014 | www.gga.org Heart and sole

pendence on the government,” says Ed Hobey, east Africa analyst for Africa Risk Con- sulting, a pan-African consultancy based in London and Nairobi. “Under Ethiopia’s state-led business and fiscal model, close contact with government officials is necessary for big businesses to operate successfully,” Mr Hobey explains. Local investors complain that the government continues to offer favourable treatment to certain ethnic groups. Ms Bethlehem is uncharacteristically silent when asked if the government was a help or a hindrance in starting and maintaining her business.

Source: World Bank

Ethiopia’s textile sector is the nation’s third-largest manufacturing industry after the food and beverage and leather industries, according to Bantihun Gessesse, spokes- man for the Ethiopian Textile Industry Development Institute. Over the last five years the government has offered many incentives to promote textile businesses, he adds. “Ethiopia offers textile investors free factory rent, cheap electricity, duty free im- port of machinery and goods, favourable rules and regulations and cheap air freight,” Mr Bantihun says. By adding value to raw materials and localising production, soleRebels is chal- lenging the overwhelming propensity of African countries to export raw commodities that are manufactured into products overseas. This business ethos is in line with the Ethiopian government’s goal to transform the country to middle-income status by 2025 by boosting private investment, increasing trade and industrialising the agricul- ture-based economy. As a successful retail chain from a developing country, soleRebels is an example of “how grassroots African companies can build successful global powerhouses literally from the ground up”, Ms Bethlehem boasts. For her efforts, CNN named her one of the “female entrepreneurs who changed the way we do business” in 2013 and Forbes mag- azine named her a woman to watch as part of its World’s 100 Most Powerful Women. The Schwab Foundation for Social Entrepreneurship named her as one of Africa’s five leading innovators at the 2012 World Economic Forum on Africa.

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