Why African Philanthropists Seek “Africapitalism”

27 May 2012

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By Steven Barboza

Africa, the second largest continent, is in a fix. It is rich in natural resources. It has a relatively young population, but years after it shook off the last colonialist, it is up to its neck in aid. It still has big problems stemming from a failure of governance, and it has the world’s poorest people.

African philanthropists are working to clean up the mess, using hundreds of millions of dollars of their own money to transform Africa both socially and economically. Some want to develop Africa’s fledgling markets. Others want to strengthen the private sector and work with government agencies to develop business-friendly policies. One wants to use African businesses as a world-class entrepreneurial training ground. If African government leaders play along, economic transformation could ensue.

One African business leader, Tony O. Elumelu, is fond of saying, “Nobody is going to develop Africa except us.” It is his way of saying Africans must control Africa’s financial future — and thus reap Africa’s financial rewards.
“Africa is brimming with talent and innovation, and the continent’s growth and development can best be achieved through private sector investing that creates economic prosperity and social wealth. Africa’s political leaders must urgently focus on creating the enabling environment for business to flourish.”

Elumelu has put his money where his mouth is. The former bank CEO, who is credited for having modernised West African banking, established a foundation (named for him) that seeks to drive Africa’s economic growth from within. The foundation, based in Nigeria, makes what he calls “impact investments” with an aim to turn a profit while focusing on social and environmental problems. Elumelu believes impact investing is a much more sustainable means of capitalisation than direct grants because of the entrepreneurial rigour needed to produce a financial return.

The foundation’s inaugural impact investment went to a farm-livestock business in southern Tanzania, Mtanga Farms. The 2,200-hectare operation that will use the grant to launch a seed potato industry, which will produce new varieties of potatoes in the region, benefiting 125,000 farmers. The deal is the first cross-border impact investment in Africa.

“It’s a great opportunity not only for East African farmers to increase the diversity of crops but to forge partnerships with government and development agencies to further develop the regional economy,” said Sam Nwanze, chief investment officer for Heirs Holdings, a private investment firm that partnered with the foundation to make Mtanga Farms grant. “What makes this different from other investments is the promise to increase sales for farmers, increase their profits from higher yields of a popular crop and overhaul marketing and retail food operations in Tanzania. And then there’s a great opportunity for pan-African innovation transfer to farmers in West Africa.”

Eighty percent of the Tanzania population are farmers, producing 42% of the nation’s GDP. Yet economists predict the country will have one of the world’s 10 fastest growing economies between 2011 and 2015.

Elumelu’s foundation, among the leading African-funded practitioners of impact investing, brings both philanthropy and investing together as a new development model for African business. A 2010 report by JP Morgan Chase and the Rockefeller Foundation suggested that such investments worldwide could grow to $500 billion by 2020, and that the landscape for such philanthropic-minded investments is promising but relatively new in Africa.

The few African institutions engaged in such investments toil away in cultures propped up by foreign aid dependency. Over the past 60 years, rich countries have sent over $1 trillion in development aid to Africa, according to Dambisa Moyo, a former economist at Goldman Sachs and author of “Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa.”

Elumelu has issued a call for “Africapitalism,” which he defines as economic transformation via private sector commitments to generate economic and social wealth. He is not alone in his quest to revamp Africa’s economies. The continent’s richest person, Aliko Dangote, who reportedly has a net worth of $13.5 billion, runs a foundation (named for him, as well) that announced a N5billion naira ($30 million) programme aimed at the creation of one million jobs. Dangote heads an empire that includes the continent’s biggest cement maker. He also has interests in sugar, flour milling, salt processing, textiles, real estate and oil and gas.

In addition, last year, the Nigerian oil magnate Theophilus Danjuma gave $100 million to his foundation to make grants in education, healthcare and the arts. Other huge African donations were made by South Africa’s Francois van Niekerk ($170 million to community-based projects) and Mark Shuttleworth ($40 million to education, the arts and social change projects).
In 2010, Africa had 14 billionaires, according to Forbes: two Nigerians, four South Africans and eight Egyptians.

Perhaps the best-loved African philanthropist is Mohamed Ibrahim, the Sudanese billionaire who made his fortune in mobile phones and who travels the continent advocating for the poor and trying to persuade political leaders not to steal from government coffers. He sponsors the Ibrahim Prize, founded in 2006, which offers $5 million to an African leader who promotes democracy and leaves office peacefully.
Earlier this year, Ibrahim told a reporter that the main purpose of the award is “to encourage leaders to leave,” because otherwise democratically-elected leaders might attempt to change the nation’s constitution to allow them to stay in office.

He also created the Ibrahim Index of African Governance, which ranks Africa’s 53 governments according to how well their policies invest in education, attract private sector investment, and avoid corruption. Ibrahim founded Celtel, which introduced mobile phone technology to Africans. There are about 400 million mobile phones in Africa today.

Some “philanthro-capitalists” are working with governments to push for business-friendly policies that can help drive the economy by dismantling barriers that stall shipments of goods. A few are helping to train entrepreneurs. Elumelu’s African Markets Internship Programme pairs students from elite business schools abroad, such as the Wharton School of the University of Pennsylvania and the London Business School, with students from Africa to work in executive suites of businesses across Africa, a 10-week programme that serves as a pipeline for entrepreneurial talent. The programme could bring “brain gain” to economies that have traditionally seen only brain drain.

“The fate of the African economy rests on the shoulders of a new generation of entrepreneurs and corporate leaders, both of whom are represented in this internship programme,” Elumelu said.

Meanwhile, even Harvard University is getting in on the act. In August, Harvard Business School professor Michael Porter, known as the father of modern business strategy, led workshops for interns and lectured on strategy to Nigerian business and government leaders.

Africa currently has the world’s highest concentration of rapid-growth economies. Such approaches to philanthropy — practised mainly by Africans for Africans — could help rev up Africa’s economies, while touching the lives of hundreds of millions of Africans.

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