Getting off the Koutoukou

Guinness in Africa

I asked a friend today what the top three markets for Guineess beer are. He pretty quickly came up with the UK and Ireland, but then guessed China, Germany, USA, Japan and France before I had to tell him Nigeria is No 2 as per an article entitled Nigeria set to overtake UK as largest market for Guinness  on

Unlike in developed markets, commercial beers like Guinness are a bit of a luxury product in sub-saharan Africa:

“The breweries sector in Sub-Saharan Africa is very attractive,” says Nothando Ndebele, Head of Research, Sub-Saharan Africa (SSA) at Renaissance Capital. “While per-capita consumption of alcohol is as high in SSA as in most developed markets, consumption of commercial beverages remains low relative to home-brewed alternatives. With rising income levels and increasing rates of urbanisation, we expect commercial beverages to continue gaining market share. This should support strong volume growth for the sector.”

It looks commercial beer consumption could be a leading indicator for increased discretionary spending, and worth following. The questions is, when Nigerians or Ivorians for the first time have some money to spend beyond basic needs, what do they spend it on?   I would guess nicer clothes and cellphones, but beer is probably up there too.

UPDATE: I forgot, marriages, funerals and religious events (like going to Mecca) are very likely at the top of the spending list too.

I did a quick search, but did not find any non-gated data on commercial beer consumption in the Ivory Coast.  Would have been interesting to see.

Office Space

Another datapoint that supports the Macro Case for the Ivory Coast also comes from How we made it in Africa. It’s about office space provider Regus setting up business in Abidjan:

“Africa is a key part of the world where the economy is expanding . . . and our offices are particularly well adapted to emerging markets to allow companies to get a foothold and test the water”, vice-president, Olivier de Lavalette told How we made it in Africa.

The company will be hoping demand in Ivory Coast matches that in neighbouring Ghana.

After the opening of an office in Accra in April 2010, occupancy rates are at 95%, far beyond initial forecasts.

The Macro Case for the Ivory Coast

Opportunities everywhere

Despite the negative picture in the last post, I actually think that this is a great time to invest and start a business in the Ivory Coast, and that there are opportunities everywhere.  Here’s why:

In one sentence:

It’s a bit like in the 1950s in Europe, it’s after a war, there are lots of undeveloped sectors, the economy is generally not dominated by large companies, the population is young and, it seems we are in the beginning of several positive long term trends.

And in further detail:

Post crisis bounce-back
Reversion to the mean after a decade of wars and crisis.  Ouattara doesn’t need to do a good job, just not be a disaster for the economy to bounce back.

A competent government
I’m cautiously optimistic that the Ouattara administration will do a good job though. I hope/think they will strengthen rule of law, have a reasonable economic policy, stop the decade-long decay of the infrastructure, and not put too much tax and aid money in their own pockets.

African growth trends
Strong economic growth in both Africa as a whole and regionally in West Africa, which has been going on for a while and is likely to continue  (at least according to IMF projections below). And natural resources is only a part of the story.  I would actually guess that commodity prices will go down in the near future (except agricultural commodities and possibly oil), but that Africa’s growth will keep up reasonably thanks the non-commodity exporting part of the economy.

Unique Ivorian factors
If Ouattara doesn’t disappoint I would estimate that the Ivory Coast will grow faster than the Africa average even after the post-crisis rebound, due to having a good mix of main commodity exports (agricultural products and oil), a by African standards relatively varied economy, a major port, better infrastructure than other west African countries (despite the neglect) and – this will depend on the Ouattara administration – a relatively benign institutional framework, protected property rights, openness for investments and a for Africa high degree of economic freedom.

Favourable demographic trends
A young and growing population, urbanisation, increasing labour force. The graphs say it all:

Abidjan, population. Source: Wolfram Alpha

Africa’s and Ivory Coast’s weight in the world is set to increase, and with it values of markets, businesses and most likely properties. And the problems the western world has right now with not enough young people having to support too many old people, are not going to hit Africa in the foreseeable future.

Emerging Middle Class
With both per capita economic growth and population growth, that essentially means a swelling middle class. (Just the ultra-rich getting richer cannot cause the growth numbers projected by the IMF above). And a swelling middle class means a growing demand for all kinds of goods and services above basic needs, opening up for businesses serving those needs.

Here are McKinsey’s projections from last year for increased spending power in Africa:

Getting in early
Timing. Valuations and perceptions still tainted by the crisis.  And Africa has a history of disappointing investors. All of this makes the present day a good entry point for investments. Unlike emerging Asian economies great growth is not yet priced in.  Big corporations and large international capital investors have by and large not yet found their way to the Ivorian market.

There is an New York based mutual fund called Nile Capital that makes a similar case in a report from June this year called Africa Investing: The Benefits of a Diverse Continent. They write:

Twenty years ago, far-sighted investors focused on the emerging and frontier markets of Asia –  especially China and the “four Tigers” of Hong Kong, Singapore, South Korea and Taiwan. Most  investors in these markets have been richly rewarded, especially if they bought early and held patiently.

Today, there are signs of comparable opportunity in the emerging and frontier markets of Africa. For example, economists project that several African markets have the potential to approximate the sustained GDP growth rates produced by China and the four Tigers over the past two decades, with Africa as a whole expected to grow by more than 5% over the next ten years.


The real difference between Africa and the rest of the investment world is that we don’t feel crowded by “big money.” Analyst coverage of leading growth companies in Africa remains light, and local investors still create most of the demand for the shares we hold. However, it will not be this way for much longer. Over the next decade, more analysts and big-money global investors will undoubtedly discover what the diverse continent has to offer, and wish they had known to invest now.

Virgin territory
Without large companies dominating the economy (and as is sometimes the case in the west, lobbying politicians to write laws and regulations that benefit them, but makes life harder for smaller competitors and new entrants)  a lot of sectors are virgin territory for entrepreneurs that can try out their ideas without going up against behemoths that have perfected business strategies for decades. Admittedly entrepreneurs have to go up against a slow and corrupt bureaucracy, a weak legal system, an unreliable electric supply, a high crime rate etc, but these are the things that are hopefully improving and the reasons big corporations have stayed away.

In Abidjan last time, I lunched at a place called Castle Fried Chicken in the central plateau district.  Food was actually pretty bad, but the interesting thing is that a long running clone of Kentucky Fried Chicken can be in business. In most of the rest of the world it would have been closed down pretty swiftly. So if someone manages to open a fast food chain in Abidjan with good food, there is a good chance of creating a lasting profitable business – that might be bought up when some of the big multinationals start paying attention to the Ivory Coast.

More unique Ivorian factors
As mentioned several times before on this blog, there aren’t many tourists visiting the Ivory Coast.  That may change, and be a big boost for the economy.  Other potential positive stuff coming up is the relocation of the African Development Bank other international bodies to Abidjan. Before the crisis, Abidjan used to be where organisations and journalists were based because of its – you’ve heard it before – political stability, and well Abidjan was and is a pretty cool city.

Then we have large funds coming to the Ivory Coast from the IMF, the World Bank, the EU and France that hopefully will be used wisely.  Although looking at the Ivorian budget for 2011, an enormous part (some 40% I think) was debt servicing, so all these funds coming in just kind of compensate for that.  With the Ivory Coast being accepted for HIPC debt reduction things should get better.

The Downside

A month ago ivorian newspaper Soir Info ran the following story [in French]:

Ils sont constitués en réseaux. Ils falsifient des documents administratifs dont ils se servent pour exproprier des personnes aussi bien physiques que morales de leurs biens, notamment des parcelles de terrains. Et ces réseaux, entretenus par des hommes d’affaires étrangers puissants et riches qui, pour la plupart, étaient ”amis” à certains barons de l’ancien régime, ont fait chuter de nombreuses entreprises. Mais comment ces bandes de faussaires procédaient-elles concrètement ?

Bien organisés, ces réseaux déploie sur toute l’étendue du territoire, principalement à Abidjan, ces agents chargés de détecter des terrains exploités ou non, susceptibles de faire leur affaire. Selon nos investigations, une fois ces parcelles répertoriées, des contacts sont pris au niveau du ministère de la construction et à la conservation où ces réseaux bénéficient de complicité. Un membre de ce réseau est choisi pour en être le propriétaire. Des (faux) documents : titre foncier, permis de construire, etc. sont établis en son nom et font de lui le nouvel acquéreur des terrains, qu’il met ensuite, moyennant une forte somme d’argent, à la disposition de ces hommes d’affaires ivoiriens ou étrangers complices, intouchables. Toutes les manigances sont financées par ces derniers qui se targuaient de leurs accointances avec des barons de l’ancien régime. Quand les vrais propriétaires de ces terrains, qui les ont acquis en bonne et due forme, décident de les exploiter, ils sont contrariés par ces réseaux de faussaires qui, au préalable, ont pris le soin de se faire établir, au niveau de la justice où ils bénéficient également de la complicité de magistrats, des ordonnances qui les autorisent à expulser tout autre personne qui s’aventurerait sur ” leurs” terrains. Si ces parcelles sont déjà exploitées, les faussaires usent de menaces de toutes sortes, emploient la force grâce à leurs appuis aussi bien au niveau de la police qu’au niveau de la Justice pour déloger les occupants légaux et légitimes de ces parcelles de terrains.

Menaces et usage de la force

Ces derniers n’avaient aucune chance de gagner les procès qu’ils intentaient contre ces véreux, d’autant plus que ceux-ci avaient avec eux des éléments de la police et de la justice. C’est ainsi que plusieurs constructions qui abritaient des entreprises et autres bâtiments servant d’habitations ont été détruits par ces faussaires. Les responsables de ces entreprises ont acquis, il y a plusieurs années, leur bien sur lequel ils ont bâti leur business. Ils disposent d’ailleurs, à ce propos, de tous les documents légaux. Un matin, alors que ces entreprises exercent tranquillement leurs activités, elles reçoivent des menaces de déguerpissement. Par voie d’huissiers complices, des personnes se disant maîtres des lieux signifient aux responsables des sociétés de plier bagages. Une cohorte de loubards est lancée à leurs trousses avec pour besogne de tout détruire sur leur passage. ” Quand ils sont arrivés chez nous, ils ont cassé des véhicules, volé des ordinateurs et téléphones portables. Le matériel de bureau a été saccagé et volé, des employés brutalisés, d’autres emprisonnés ”, a expliqué Jean-Pierre Kassi, directeur d’une société de vente de véhicules et de pièces détachées.

Briefly, it’s about criminal networks with connections to higher ups in Gbagbo’s regime, that selected plots of land – empty or used by an existing business – and simply took them over with the help of false title documents and co-conspirators in the Ministry of Construction, the judiciary system and in the police.  There is an example of a car parts business where the rightful owners one morning were told by complicit bailiffs that the property was no longer theirs, and then thugs were sent in to attack employees, destroy and steal goods.

So, not great at all.   And I guess this is a risk one takes when investing in a country with weak rule of law, and one reason for risk premiums to be high.

It’s a good thing media covers these type of issues, and I guess it’s not a coincidence that this story appeared after the fall of Gbagbo. I would assume that for a journalist there are few stories more dangerous to cover than lucrative criminal endeavours with links to the top of a non-democratic state. Hopefully, under Ouattara rule these type of criminal operations will decrease or stop altogether, and not just continue but with Ouattara-linked people instead of Gbagbo-linked people benefitting.

Fragility and Robustness

The fragility of a salary

A common perception would be that the salary as an employee at a large, developed-world company is safer than income from scattered investments in a small West African country.  I’m not so sure.

The developed world salary, (like mine), always comes on time and is always of a known amount, which on the face of it feels quite reassuring.  However, it can go to zero quite abruptly, as as companies, even large ones, have a nasty habit of failing quite frequently. For more on that I’d recommend Paul Ormerod’s book Why Most Things Fail where among other things the extinction of species for the last 250 million years is shown to have the same type of probability distribution (power law) as companies going out of business since 1912.

It can be argued that one’s safety as an employee doesn’t lie with the employer, but with one’s skill set and ability to get another job based on these skills.  On the other hand, with technological advances and well, stuff happening, whole sectors can decline and even disappear and with them the demand for whole ranges of skills can also disappear. And a fixed regular salary can give the impression that everything is fine and that there’s no need to change anything (like learning new skills) until just before a crash.

Doom and gloom

I might be reading too much zerohedge and papers by the Bank for International Settlements (ok, I’ve read precisely one), but I’m thinking that the western world has experienced unusually good times in the last decades, and that going forward things might get rougher. What’s approaching can be described as a flock of grey swans involving the effects of:

  • insolvency of western sovereign states (+ Japan)
  • insolvency of  banks
  • poor demographics in developed countries
  • a potential real estate crash in China
  • and most likely issues I haven’t imagined, ie “unknown unknowns” or true black swans
As for insolvency of banks and systemic international debt crisis, looking back at history, it is a very common phenomenon:

the first true international debt crisis had its roots in loans made by Italian merchants to England starting in the late thirteenth century. In that era, it was Italy that was the developed financial center and England the developing nation rich in natural resources, especially sheep’s wool. As we have already discussed, a sequence of Italian loans helped finance various stages of wars between England and France. When Edward III of England defaulted in 1340 after a series of military failures, the news reached Florence quickly. Because the major banks had lent heavily to Edward, a bank run hit Florence’s economy. The whole affair played out in slow motion by modern standards, but one major Italian lender, the Peruzzi Bank, went bankrupt in 1343, and another, the Bardi Bank, did in 1346.

If England is replaced by Greece, and Italy by France or any country where banks are in trouble for lending to Greece, you kind of get what seems to be happening right now. And with human nature – in an evolutionary sense – not having changed that much since the 14th century, I wouldn’t be too confident that the current crisis will be handled better than that of the 1340s.

An example of confidence that people have learned to handle/avoid financial crisis better than in the past, would be this advertisement that ran in Saturday Evening Post, on September 14, 1929:

when all Europe guessed wrong

The date — Oct. 3, 1719. The scene — Hotel de Nevers, Paris. A wild mob — fighting to be heard.

“Fifty shares!” “I’ll take two hundred!” “Five hundred!” “A thousand here!” “Ten thousand!”

Shrill cries of women. Hoarse shoats of men. Speculators all — exchanging their gold and jewels or a lifetime’s meager savings for magic shares in John Law’s Mississippi Company. Shares that were to make them rich overnight.

Then the bubble burst. Down went the shares. Facing utter ruin, the frenzied populace tried to “sell”. Panic-stricken mobs stormed the Banque Royale. No use! The bank’s coffers were empty. John Law had fled. The great Mississippi Company and its promise of wealth had become but a wretched memory.

Today, you need not guess.

History sometimes repeats itself — but not invariably. In 1719 there was practically no way of finding out the facts about the Mississippi venture. How different the position of the investor in 1929!

Today, it is inexcusable to buy a “bubble” — inexcusable because unnecessary. For now every investor — whether his capital consists of a few thousand or mounts into the millions — has at his disposal facilities for obtaining the facts. Facts which — as far as is humanly possible — eliminate the hazards of speculation and substitute in their place sound principles of investment.

200 Varick St
New York, New York

Source: Also This Time is Different – Eight Centuries of Financial Folly

Robustness of investments in the Ivory Coast

The income from my real estate investments (+taxi) in the Ivory Coast, is very different from a salary.  Even if rents are fixed the income flows are variable as tenants don’t always pay on time (or at all) and move in and out, and in addition there are repair costs from time to time. However, the income flows come from nine relatively independent tenants plus a taxi driver and do, unlike a salary, not depend on one big organisation.  The flows may vary from month to month but are unlikely to go to zero, making them possibly more robust than a salary. The variability comes from the way the business is set up, random events, plus the ebbs and flows of the Ivorian economy, and can in itself provide signals that the business need to be adapted – whereas a fixed salary can lull you into a possible false sense of security.

During the post-electoral crisis, income held up relatively well, and despite two shops being looted and partially destroyed, the business as a whole was far from being destroyed. The business being in one single developing world country is an issue though, as it makes all income flows more correlated. My main worry isn’t another crisis though,  but the business being targeted by some sort of mafia in collusion with, or consisting of corrupt officials.  Now, I don’t think I will have problems of this kind, but it’s the most likely way I can imagine that the whole business will be killed, and it’s unfortunately a reason not to be too specific about the business on the blog.

The Souk and the Office building

This blog post was very much inspired by a chapter called “The Souk and the Office Building” from Nassim Taleb’s next yet unpublished book. It’s a great read, but it seems to unfortunately have been removed from Taleb’s website. I downloaded it before it was removed and any interested reader can drop me a line and I’ll send it!   It might still be available on google cache too.