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Into Africa

12/14/2009 --

Business opportunities, investment options abound on the continent, experts tell students.

ANN ARBOR, Mich. — African nations soon could surpass India and China to form the next hub for low-cost labor, resources, and production, said experts at the first Africa Business Seminar at Ross. In addition, the opportunity to make money on the continent — and make a difference — is huge right now, they agreed.

It's all part of the global "value-creation migration," which began in the U.S., moved to the "four Asian tigers" of Singapore, South Korea, Taiwan, and Hong Kong, and then shifted to China and India, said Allan Afuah, associate professor of strategy at Ross. Afuah moderated the seminar, which was a companion to the 34th Annual Alfred L. Edwards Black Business Students Association Conference in early December.

"Because their populations are so large, when China and India become too expensive for low-cost production, the effect will be tremendous," said Afuah. "Industry will quickly have to find a new home for low-cost labor, and the next logical place is Africa because it has the people and the resources. From the gasoline in your car to the coffee you drink, many products in our lives have something to do with Africa. The Sahara Desert in Niger alone could provide enough solar energy to power all of Europe."

Africa also is home to an expanding middle class, which demonstrates a growing desire for jobs and an increasing capacity to purchase consumer goods. In fact, Africa is richer than most people think, said private equity investor Ugo Ikemba, MBA '93. He is managing partner at Vectis Capital, a €32 million fund in Nigeria. Ikemba noted that 12 African countries have a higher gross national income per capita than China and "people in those 12 African countries have more capacity to buy goods and services than the Chinese do."

Tal Dehtiar, founder of Oliberté Footwear, is looking to meet that capacity — and more. Oliberté is the first premium shoe company to create product exclusively in Africa. Dehtiar also is co-founder of MBAs without Borders, an international charity that supports socially minded businesses across 25 countries in Africa, Asia, and Latin America.

"In the G8 countries, 60 percent of businesses are small businesses, and 90 percent of the population is employed by those businesses," he said. "But that's not the case in Africa. The idea of Oliberté is not just to be a shoe company, but also to create middle-class jobs."

Panelist Forrest Branch has more than 20 years of business development experience in sub-Saharan Africa. He said executive talent based there also is starting to see better jobs and salaries on the horizon as more multinationals open their doors in the region. Branch is an equity partner for Imaging Solutions Pty. Ltd. based in Namibia.

"Everyone is there — Dow Chemical, Levi's, Sara Lee, Siemens, Ford, GM, Toyota. Even Google just opened an office in Capetown," he said. "People are having trouble finding jobs in the U.S. right now, but if you lived in Africa and were coming out of a business school program, you'd have no problem finding a high-paying job that could compete with salaries in New York, Washington, D.C., etc. That's because there are tremendous resources in Africa. To name just one, in southern Africa, we have 52 of the 53 strategic minerals the U.S. uses in defense operations."

The news may be encouraging, but Branch still advised potential investors to practice restraint when seeking new revenue streams in Africa."The only investments you should make are those where the value proposition is very clear and where it has an advantage over others," he said. "But you'll find to the extent that you can identify a value proposition and create a competitive advantage, there are significant opportunities on the continent."

Vectis Capital's Ikemba concurred. "Returns on African investments are usually higher than in Europe, and definitely higher than in the U.S," he said.

With six years of private equity experience in West Africa, Ikemba has lectured in various aspects of the business, including fundraising, deal sourcing, deal development, portfolio analysis and management, valuation, and private equity sustainability in Africa.

"I've done six deals in Nigeria, and my internal rate of return is 70 percent," Ikemba said. "Emerging markets' role in private equity has been growing over the past four or five years. Twenty-three major deals have occurred this year alone in sub-Saharan Africa. You would have never seen a number like that a decade ago."

The raw materials are in place, Ikemba said. Now it's time for the skill sets and leadership to take Africa to the next economic level. "Africa is the only place with so much virgin and latent opportunity," he said.

In addition to the Africa Business Seminar, the Black Business Students Association Conference featured career-oriented panel discussions and a case competition. Keynote speakers included Warren Brown, owner of CakeLove and former host of "Sugar Rush" on the Food Network, and Ralph Johnson, MBA '92, director of operations and administration for McKinsey & Co.'s social sector office.

—Leah Sipher-Mann



For more information, contact:
Bernie DeGroat, (734) 936-1015 or 647-1847, bernied@umich.edu