Africa: Invest in Ourselves for Profit and Social Good - Elumelu

Tony Elumelu
15 July 2013

When President Barack Obama announced his administration's US$7 billion 'Power Africa' initiative in Tanzania this month, Nigerian businessman and philanthropist Tony Elumelu was at his side. His Heirs Holdings investment firm pledged $2.5 billion towards an estimated $9 billion private-sector fund to boost the electrification project.

 A few weeks earlier, he stood with Rockefeller Foundation President Judith Rodin in Cape Town to announce the Tony Elumelu Foundation's partnership with Rockefeller to launch the Impact Economy Investment Fund. The new fund, administered by the Global Impact Investing Network, is competitively funding 12-month projects by seven or eight applicants that demonstrate potential to create jobs and social impact. Elumelu sees both the for-profit and the philanthropic engagements as part of his commitment to the philosophy of 'Africapitalism' – a prescription for private-sector investment in Africa's future. Africans with the means to do so, he says, should commit to "long-term investment in key sectors that will create economic prosperity while addressing society's needs, producing both profits and social worth". It is a model he pioneered as a 34-year-old, investing $5 million to purchase a small Nigerian bank that became UBA - United Bank for Africa – a financial services group employing 25,000 people in 19 African countries, the UK, France and the United States. Before joining the Obama delegation, he sat down at his headquarters in Lagos to discuss his views on business, philanthropy and Africa's development.

There is a major debate about whether Africa needs international assistance to move forward or whether aid should be curbed in favor of trade and investment. Are you promoting a sort of 'third way'?

First you must accept the fact that philanthropies, like the Bill and Melinda Gates Foundation, have done and continue to do a lot for Africa. Aid intervention also helps in situations as we experienced in Nigeria last year, when we had the flood disaster. Some of us were called upon to assist. Some of us also volunteered on our own to support the victims. I donated a billion Naira, which is about $6 million dollars, in addition to visiting the relief sites and talking to the people, trying to create hope for them.

At the same time, we need private-sector solutions to development issues. Personally, I believe that the best form of charity for Africa is aid for business. We need to fight, preach and believe that aid intervention should help businesses to do well. The private sector holds the key to sustainable development.

You think the private sector can create a sustainable solution in areas traditionally supported by governments or international aid, such as health?

Charity can be productively allocated to business solutions. Look at the issue of pharmaceutical breakthroughs. Additional approaches to society's health problems will come through research. If you donate to research institutes and give them tax breaks and let them innovate, they will come up with solutions that can help address society's health issues. And look at delivery of preventive health services. Sometimes there is local resistance from suspicion, lack of understanding. But if it is a for-profit intervention that engages the people from that area, they will interact with their own people - selling it - saying, "We need this." So the question becomes: What can we do to break the dependency system, affect the health ecosystem and save lives in a way that's sustainable?

How did 'impact investing' become a particular interest of yours?

For the same reason we started the Tony Elumelu Foundation - from past experience. We realized how a little investment we made when we took over a distressed financial institution – an investment of $5 million - has helped to create over 25,000 jobs across Africa, direct jobs. If you go with the established fact that one African worker has, say, five to 10 dependents, then you can imagine the size and magnitude. Today, for instance, that experiment has created a thousand branches, which has economic implications for the respective local economies where they're operating. Plus there's the fact they pay tax in each of the local economies. Then, they have also been able to facilitate trade – intra-Africa trade – helping to facilitate intra-Africa payment and, to some extent, helping to facilitate movement of people and helping to develop a crop of business managers for Africa. Some of these managers are ending up in the public sector, helping to change and shape policies and economies.

Looking at all of these things, I say, "This is actually impactful; this is something significant." So when we started the foundation we said that we should have as one of our pillars an area that will help to drive impact investment. Let's have, as a foundation, the objective to help make investments that have economic and social impact.

That's hard.

It is. It's hard work. But the key thing, if you're going to make donations - say a million dollar donation - you can split that to back 100 business ideas. If 10 succeed, it could have significant impact. The whole idea of impact investment to address challenges in Africa was driven by our past experience. Before you get to an end, you have to have a means to an end. Before you get companies and businesses you want to invest in by way of impact investment, at times you need to create them. So that's all part of it, creating the ecosystem and the infrastructure to make private impact investment work.

But equally important and worthy of mention here is the fact that that's not our first intervention in that space. Like Silicon Valley, in Nigeria there is what we call the Co-Creation Hub. We at the Tony Elumelu Foundation have been supporting them; we give support to people who have brilliant ideas. Nothing too much in dollar terms, but some financial support that will help them prove the ideas. They pitch to a panel. If the idea makes sense, we give them some money, almost like incubator funding – in this case, from our own charity. The projects have certain attributes. They must be sustainable, they must be scalable and they must have the potential to create impact to address some of society's challenges. That's part of what we do in driving our impact investment ideas to scale.

What about your involvement in agriculture, like Matanga Farms in Tanzania, and in the commodity exchange in Rwanda, for example? How do they fit into the impact investing scenario?

So underpinning that investment philosophy is what we call 'Africapitalism', the philosophy that we need private-sector solutions to development issues in Africa and that we need long-term investment in key sectors that will create economic prosperity while addressing society's needs, producing both profits and social worth. Our model is that the private sector is key, so the foundation helps to support people - aspiring entrepreneurs - create successful businesses for the future.

But the foundation doesn't have all the resources on earth. On the for-profit side, we believe that we should not be engaging in businesses that do not accord with our philosophy. We believe that ultimately, in the long term, we are able to create huge value for shareholders and also value for society. That shapes what we're doing on the business side.

So when we look at a certain investment, some opportunities can come through the philanthropy, the Tony Elumelu Foundation. But some investments are huge, and the philanthropy side doesn't have the scale to handle it, so the business side can come in to support.

The case of the commodity exchange in Rwanda, let's look at it. We have a lot of farmers in Africa. Agriculture contributes about 30 to 40 percent of our GDP as a continent. Yet, we do not have viable commodity exchanges across Africa. So we find one way to create significant impact – because we want to create maximum impact in a short period of time – could be to try having commodity exchanges that will help bring transparency to the markets and also help encourage farmers to produce more.

That will help address the issue of food security. It will help make farmers self-reliant. It will help make them fairly compensated. But to set up a commodity exchange you need tens of millions of dollars. And you need an enabling environment of roads, storage facilities…This is where we talk about development partners, about the kind of aid or charity that Africa needs. Because it's still new, it needs assistance. On the business side, we add more money so that this will succeed. As it succeeds, we hope to encourage and attract others—Africans and non-Africans.

In this case, our American partner Nicolas Berggruen invested fifty-fifty. [Berggruen Holdings invested alongside Heirs Holdings, 50 Ventures and Rwandan-led Ngali Holdings.] To me, what he did is wonderful. That is the kind of partnership, the kind of intervention or support, that I think Africa needs. There are thousands of jobs created through that process. And that's also what we've tried to do in Matanga, where the Tony Elumelu Foundation invested. The farm has succeeded in helping to improve the potato seedling and helping the farming population in that area to be more economically empowered.

Here in Nigeria, Minister of Agriculture Akinwumi Adesina, has launched a number of ambitious schemes to make Nigeria food secure. Do you think his goals are achievable?

Achievable and sustainable, yes. Prior to his appointment as minister of agriculture in Nigeria, agriculture was seen as a social service. That means a lot of patronage and government support and subsidies. The agriculture minister is bringing a new mindset to that space. He's saying, "Let's deal with agriculture as a business".

Look at what he's done in the fertilizer space. Before now there was a cabal in the country that was allowed to import fertilizer. It's like another oil allocation! But this guy has come in, and that system is gone. Fertilizer goes straight to the end users. No middle men. And today Nigerians are learning to set up fertilizer plants, because with government out of it, it is a private-sector opportunity. And over time, market forces will push the prices down.

I sit on the presidential agriculture transformation council [where I see] the passion, the vision and the experience the agric minister brings to it. He is leading a great revolution. I think it's sustainable over time. I believe we in business have been encouraged in exploring agricultural opportunities because of his leadership.

Talk about the power sector for a minute. Can you change the power situation in Nigeria? People have been talking about it for a long time.

As a foundation, we believe in promoting entrepreneurship. But we believe the operating environment has to be right. Again, one of the key requirements for an enabling environment for the private sector to do well is the availability of basic infrastructure. And power is a key sector of the economy.

If you go back to the philosophy that underpins our philanthropic and commercial engagements, this concept of Africapitalism is about making long-term investments in strategic sectors that have the potential for creating economic value and social worth.  If we have power - electricity - in Nigeria, the economy will significantly change. Now it's a problem. So when government decided to privatize the power sector, we thought it presented a great opportunity to practice what we preach. It is an opportunity to invest long term in a key sector that has huge potential for changing the economy.

We decided to go for the biggest thermal plant in the country, and so what we have got now is the Ughelli power plant, which could be generating about a thousand megawatts of electricity. As of this morning – I get a daily report – it is generating less than 300 megawatts a day.

So it has the capacity to do a thousand?

A thousand. So we've done a couple of things. We have signed a cooperation agreement with General Electric. GE Chairman and CEO Jeffrey Immelt came to Nigeria, and we signed the agreement to work together over a period of five years and beyond to move the capacity to 1500, to 2000, and ultimately to a lot more. So that, we're pursuing. I have a meeting later today to take a full briefing on the turnaround plan.

We also want to acquire some independent power plants to further support our play in this sector. I think government has done quite a lot in creating the right environment for the transformation of the power sector in Nigeria. I think the responsibility is now on us, the private sector, to take advantage of the opportunities the government has created to improve the supply of electricity in the country.

We have the generation companies, the transmission companies and the distribution companies. We need all the three chains for it to work. We will produce, and the transmission companies should transmit what we produce, and the distribution company should be the finishing mark, the last post.

And because in the power private sector we are driven by the need to create economic value for owners, rational investors will make sure we produce - because we know the market is there. We are driven also by the need to produce not just economic value but to also have social impact, which in turn helps all of us. Our businesses can't grow without power.

The distribution companies – they, too, are private-sector driven. It is in their interest to supply the power we produce. If they don't supply electricity to the homes, to the user, they don't make money. They are going to be putting pressure on everybody: "Generating company, you're not generating enough!" "Distribution company, I'm not seeing it! I'm not getting it!" So they put pressure on everyone to deliver. That is the power of private-sector solution.

If you wanted to give aid to Africa or Nigeria, you could say, "Okay, I'm going to help you capacitize - build your capacity - to help you create the right environment for the power sector." That, in my view, is a more productive form of aid to Nigeria as a country. In two years' time, we will see the contrast between a sector that government controlled for decades and one that has just transferred to the private sector.

Can the Nigerian private sector solve the transmission issue?

Private sector could. I think government hasn't given private sector a chance. They gave a contract to a Canadian company to handle the transmission – and I hope the incentive system is right. And even if it's not right, the generator companies and the distribution companies will expect government to do the right thing.

I'm very sure we will begin to see a difference. If we don't produce, we don't have money. And if we produce and the end users don't get it, the distribution companies don't get money. So there's going to be a natural, rational pressure on everyone to perform. And the end users also know that if they get it and don't pay, the suppliers will disconnect their electricity. No government involvement anywhere. It will work.

You mentioned scale earlier, in reference to impact investing. The power sector requires investment on a massive scale. Yet you're also making very small investments.

Jim Collins in his book Good to Great talks about "the genius of 'and' the tyranny of 'or'". I like that; it is not one or the other, it's a combination. We started as a small business and grew to a national level and then a pan-African level.

To create a thousand pan-African businesses - they must come from somewhere. Like the Silicon Valley example I gave – first, we support ideas. It's just ideas, but we support them. Others have grown past that level, and the support they need is access to capital. And they might need other things like business education or mentoring.

We also have those who transition from SMEs (small and medium enterprises). Maybe they need networking platforms. For instance, we did the "Nigeria 50" where we identified the fastest-growing 50 Nigerian companies, and we celebrate them. We give them mentoring, support and exposure to get to the next level.

So it must start from somewhere. At every level we try to create value, both in terms of employment and in terms of wealth across so many platforms, shareholder and society. The end point is to create iconic pan-African institutions - the next UBAs. But we realize they must start from somewhere, and we are involved all along the chain. The world is binary!

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