Time for some Afro-optimism

The Remarkable Part of the Chicken Republic Story

Regarding Nigerian entrepreneur Deji Akinjanju’s story two posts ago, there quite a few things that hit home and/or are signs of the time, like that he was about my age when he started, that he did consulting work in London (which I’ve also done), that he believes strongly in investing in Africa, and that he left a good paying job in Western Europe to become an entrepreneur in West Africa.

However, the most remarkable thing about Akinjanju’s story is that something like this didn’t happen:

Part of Uzbekistan is also ideal for growing tea. Interspan, a US company, invested heavily. But by 2006, Karimov’s daughter, Harvard graduate and international jet setter, Gulnora Karimova, had taken an interest in this market. Gulnora is a woman of many talents as you can see from her webpage: http://gulnarakarimova.com/en/.

For example she hangs out with rock stars like Sting and even duets with Julio Iglesias: http://www.youtube.com/watch?v=oFDVWJ0N89U

Gulnora’s interest meant taking over Interspan’s assets and business. And this was not going to be by making an attractive offer. The company reports that men with machine guns, allegedly working for the Uzbek intelligence services, entered its offices and warehouses, and seized its assets and inventory. Its personnel were arrested and tortured. By August 2006, the company pulled out of Uzbekistan, and tea was now a Karimov family monopoly.

From: http://whynationsfail.com/blog/2012/2/24/extractive-institutions-in-action-uzbekistan.html

Or something like this, from the bad (hopefully/probably) old days in the Ivory Coast:

Washington, DC 27 October 2003 — The American owners of a cellular telephone operator in Côte d’Ivoire that was shut down earlier this month are preparing a claim for damages. They charge the Ivorian government with failing to protect their investment.

The expropriation claim is being prepared by lawyers for Western Wireless, a Bellevue, Washington-based communications services provider, and Modern Africa, a $110 million fund with investments in nine African-based companies. Together, Western Wireless and Modern Africa report they have invested about $40 million in the mobile phone firm, known as Cora de Comstar.

On Friday the Bush administration weighed in with diplomatic backing for the American firms. Assistant Secretary of Commerce William H. Lash, III delivered what he termed “a very harsh demarche” to an official of the Ivorian embassy in Washington.

“This is the worst treatment of an investor and the worst example of state-sponsored thuggery I have seen anywhere,” Lash said he told the Ivorian official summoned to the Commerce Department, standing in for Ambassador Youssoufou Damba, who was recalled to Abidjan last week for consultations. He said the treatment of Cora de Comstar could turn Cote d’Ivoire into a “poster child” for negative investment climates.

[…]

Although a legal dispute over ownership of Cora de Comstar has been brewing for more than two years, the current crisis was prompted by the takeover of the company’s offices on October 9 by Alexander Galley, accompanied by 25 policemen who forcibly evicted the company’s management and staff, according to the U.S. owners. They said Galley based his action on a decision by an Ivorian judge, whose order was subsequently cancelled by the Ivorian Supreme Court.

[…]

According to Brad Horwitz, president of Western Wireless International, the government of President Laurent Gbagbo is to blame for what has happened to the cellular company. “The government clearly had a choice to make: it could deal with a convicted criminal or it could protect a U.S. investment,” he said. “We have given them numerous opportunities,” adding that negotiations on the matter have dragged on for more than two years.

For the past several months, the investors operated Cora de Comstar on a cash basis, because a court had handed control over company bank accounts to Galley. But after the October 9 incursion, they shut the network down, cutting off service to some 33,000 customers, Horwitz said: “We have furloughed 200 employees. We have lost all revenues. Our offices have been systematically looted and trashed, safes wrenched out of the walls and stolen, all this with the complicity of the government. It comes to a point where enough is enough.”

From: http://allafrica.com/stories/200310270023.html

Pretty Cool

For most African states (and some central Asian ones too) that’s how it’s been most of the time since independence. You have had, and I quote from the excellent http://whynationsfail.com/blog/   “extractive economic institutions — economic institutions designed to extract resources from the population and businesses for the benefit of a narrow elite.”  

But it’s actually looking like it’s changing now – in West Africa at least (Im not sure about Central Asia) – and that’s pretty cool.

Imagining Dominique Ouattara using thugs to steal one’s business in the Ivory Coast feels just as surreal as imagining Filippa Reinfeldt (spouse of Sweden’s Prime Minister) doing it in Sweden.  On the other hand I could maybe imagine the son of Senegal’s President Karim Wade taking over other people’s businesses, but it looks like the good people of Senegal are removing Karim from any position of power now.

Filippa with NY Rangers legendary goalkeeper Henrik Lundqvist. Ice-hockey players are probably ok, but If Filippa starts hanging out with Sting or Julio Iglesias I would start to worry.
Advertisements

Elections in Senegal

Wade is not Gbagbo

I’ve been following the presidential elections in Senegal today.   Senegal’s president Abdoulaye Wade was long the opposition leader and democratic hope, and came to power in year 2000, just like Gbagbo.  Then in power he didn’t quite meet expectations, but in terms of going bad after coming into power Wade was far from the nightmare of Gbagbo.

I supported Wade in year 2000 – along with everybody I knew in Senegal – and was in Dakar to celebrate his victory in the second round runoff on the 19th March 2000.  Somewhere around 2002 I shifted away from Wade seeing some autocratic tendencies like allowing two journalists to be put  in jail (albeit for a short period of time)  for insulting him, and not much improvement on corruption. Some of the top persons of Wade’s party who is running against him now like Idrissa Seck and Macky Sall also left Wade around this time.

Pro Wade election poster in Dakar

Dakar calling

I just talked to a good friend in Senegal who like everybody else supported Wade in 2000. He had seen a bit of the pre-election riots, but said things were calm now. My friend said he voted for Macky Sall. His motivation was that Wade is too old, has given too much power and influence to his son Karim, has allowed too much corruption and said “You know Martin, in this country nothing works.”

I’m actually quite optimistic about Senegal – it looks like the preliminary results are what one would expect from a mature democracy in a first round presidential election, ie no one gets close to 50%.  I think compared to year 2000, there are more people that vote along their convictions as opposed to for example what their village elder tells them to do. Also Senegal has a strong civil society and not the same ethnic tensions and divisions as the Ivory Coast which helps.

It looks like there will be a second round runoff between Abdoulaye Wade and Macky Sall which I guess Sall will win in a landslide as he is the anti-Wade candidate. And that should be good news for Senegal and its democracy.   Sure, Senegal also has a Constitutional Council, but I don’t think Wade will pull a Gbagbo.

UPDATE: Latest figures  WADE : 23,84% – SALL : 20,70% – NIASS : 19,50% – SECK : 7,70% – TANOR : 11,01%   So  Moustapha Niasse has a chance of going to the second round after all.

 

 

Chicken Republic

Can’t tire of African entrepreneurship stories

I just read an unusually interesting and inspiring story in CP-Africa and CNBC Magazine about  Nigerian entrepreneur Deji Akinjanju, who built a multi-million dollar fast-food empire from scratch in 10 years:

Setting up a food-retailing business and moving into what he [Akinjanju] calls “the chicken space” has happened in a roundabout fashion. “It was manufacturing and retailing businesses that initially interested me. But then the idea of fast food came up and it seemed like the obvious thing to do.” His degree in the US and masters in the UK, followed by consultancy experience at Accenture (formerly Andersen Consulting) in London taught him to “analyse and reason” and “learn from mistakes” – and he got practical experience from his first business based out of Johannesburg, supplying UN survival kits in Burundi and Rwanda.

[…]

As he leaves the restaurant to watch his beloved Arsenal football team play Chelsea on TV, he reflects on how far he’s come. “I left Nigeria at 18 and came back at 34. Since then I do believe I’ve created a brand that stands for something strong. It’s not just about number of outlets. I’m chasing happy customers, happy investors and real service quality.”

After 16 years in the United Kingdom, Deji Akinyanju returned home to found one of Nigeria’s most successful food retailers.“I felt driven to go back and make an impact,” he said on his decision to return home.”It was at the time of transition from military rule to democracy and I wanted to help build an entrepreneurial private sector.”

Today, 42 year old Akinyanju heads one of Nigeria’s fastest growing retail chains valued at about $120 million. With about $2 million (N320 million) in seed funding raised from family and friends, he initially had a franchise deal with Chicken Licken, South Africa but quickly established his own brand Chicken Republic.

But he admits he has learnt most on the job, drawing on his own doggedness to carry him through the tough times. “When I started, I didn’t have much experience. If you have passion, the rest is easy to learn, but you can’t teach somebody to be passionate.”

When reading this, my first reaction is Hey, I can do this in the Ivory Coast!   Akinjaju was at about the same age as me when he started, and just like Nigeria a decade ago the Ivory Coast has recently seen a big improvement in governance.  Though, I’ll admit the $2 million seed fund from friends and family is tough to match, and there are many smart people who have tried to set up fast-food retailers in Africa and failed:

From an article about KFC in http://www.howwemadeitinafrica.com:

“We have seen a number [of our] competitors go into markets in Africa and loose a bunch of money and withdraw. Some of the bigger South African brands have gone in, paid some very significant schools fees, and then had to either withdraw or scale down their operations … The potential in Africa is enormous, but you got to be very thoughtful, and go about it the right way.”

It seems to be working out for KFC though:

Around 2007, KFC earnestly started to consider opportunities in the rest of the continent. Keith Warren  [Managing Director of KFC Africa] says that Nigeria, with its population of over 150 million people, was a natural choice. And in December 2009, KFC opened its first branch in Lagos.

According to Warren, KFC was very well received in Nigeria. “Our original development plans for Nigeria were quite conservative, and within six weeks, I was [in discussion] with the franchisees, and they were saying, ‘Forget that, we are now going to build as many stores as we possibly can’. We are finding that the only limiting factor we’ve got in Nigeria right now is actually chicken supply, and finding suppliers who are able to meet our global quality standards in sufficient quantity.”

Chicken Farming

The chicken supply issue is very interesting indeed. Akinjanju and his Chicken Republic is having the same problem, and is now setting up a large chicken farm in Nigeria:

Akinyanju turned supply challenges into opportunity and, in a business epiphany, the company has just invested in its first production capacity, opening a chicken farm 200km south of Lagos.

The plant will supply his restaurants as well as supermarkets and such is the demand for chicken in Nigeria, Akinyanju is focused on becoming the country’s largest poultry distributor, supplying cheap chicken to the masses. Demand – which is growing as national eating habits shift and more poor people climb the economic ladder – way outstrips supply because of strict import restrictions designed to help nurture a domestic industry. “There is an unbelievable shortage of chicken in the country,” he says. “The Nigerian market is three times as big as South Africa’s yet South Africa’s largest chicken factories produce 3 million birds a week. In Nigeria it is just 100,000.”

The Ivory Coast is lowering import duties on chickens, but it’s the same story there with small scale producers, and an increasing demand from a growing economy and a growing population.  The fast food space isn’t as developed in the Ivory Coast as in Nigeria, but it seems set to inevitably follow suit.

Akinjanju says he  sees demand to open maybe 300-500 outlets in Nigeria and expand in other African countries. He says he sees a cultural change happening daily with a large and growing younger population eating out more and more.

Hear him speak in this video:

Shipping and Chickens

Off the Coast of Guinea Bissau

It’s taken a while, but Car #2 and Car #3 – two Toyotas I’m sending to the Ivory Coast to become taxis – have reached West Africa and should be in Abidjan in a couple of days.   I’m tracking the container ship “Grande Argentina” that carries the cars on http://www.marinetraffic.com:

So, right now,  it’s off the coast of Guinea Bissau doing 17.5 knots which is slow for a container ship, but at least faster than 19th century clipper ships.

News from the Chicken Front

On the chicken front, the construction is finished, and the first chickens and roosters are in place.  Now the idea is that they are going to reproduce so that their numbers increase to a maximum in about nine months.  Already in a couple months it should turn a profit though, and it will be very interesting to see how far away reality is from the seemingly to-good-to-be-true original budget projections.

One worrying sign is that I have received indications that the construction – while cheap, and roughly in line with budget – shouldn’t have costed as much as it did. This is the type of trust issues that are very hard to avoid – despite precautions – when investing in Africa while not living there.  And the handling of it can be make or break of the whole investment.

Anyhow here’s how the chickens are looking:

Social Capital and Trust

Ending up with Prosperity?

I used to hold the view that if you take any nation-sized group of people and let them be governed by a reasonable political leadership that promotes rule of law, property rights, makes sensible investments with public funds (in areas such as education and infrastructure), upholds a liberal market based economic system, and fights corruption – then you are going to end up with prosperity after a while.

P’J O’Rourke has a good take how the choice of political/economic system trumps which people it’s applied on in “Give War a Chance“:

Personally I missed the old East Berlin. The only thing East Germany ever had going for it was a dramatic and sinister film noir atmosphere. When you passed through Checkpoint Charlie the movie footage seemed to switch to black and white. Steam rose from man-hole covers. Newspapers blew down wet, empty streets. You’d turn your trench coat collar up, hum a few bars of “Lili Marleen” and say to yourself, “This is me in East Berlin.”

That’s gone now and the place is revealed for what it’s really been all along, just a screwed-up poor country with a dictatorship. The dictatorship part is understandable, but how the Commies managed to make a poor country out of a nation full of Germans is a mystery. The huge demonstrations that had shaken East Germany for the past several months had one characteristic which distinguished them from all other huge demonstrations in history—they never began until after work. I went to one of these at Humboldt University. The students were demanding economics courses. It was hard to reconcile this with my own memories of student protest. We were demanding free dope for life.

However, a dozen years or so ago, I read “Make Democracy Work – Civic Traditions in Modern Italy” by Robert Putnam:

Putnam evaluates the institutional performance of twenty Italian regional governments using surveys, interviews and a diverse set of policy indicators. His central finding is that wide variations in the performance of these governments are closely related to the vibrancy of associational life in each region. In northern Italy, where citizens participate actively in sports clubs, literary guilds, service groups and choral societies, regional governments are “efficient in their internal operation, creative in their policy initiatives and effective in implementing those initiatives.”

In southern Italy, by contrast, where patterns of civic engagement are far weaker, regional governments tend to be corrupt and inefficient. Putnam explains this relationship between strong networks of citizen participation and positive institutional performance in terms of “social capital” — the networks, norms of reciprocity and trust that are fostered among the members of community associations by virtue of their experience of social interaction and cooperation.

It’s very hard to dismiss, it’s the same country, same law, same national government, same economic system, and yet two clearly different outcomes in northern and southern Italy.  Putnam has tons of empirical data of associational life and other indicators linked to the somewhat fluffy concept of social capital, and they all show a striking difference between northern and southern Italy.

It managed to convince me at least, that while economic system and policies matter greatly for prosperity, there are other less tangible factors linked to people / culture / trust / social capital that are also important.

Trust

In “Trust” Francis Fukuyama discusses trust and social capital:

Trust is the expectation that arises within a community of regular, honest, and cooperative behaviour, based on commonly shared norms, on the part of other members of that community. Those norms can be about “deep value” questions like the nature of God or justice, but they also encompass secular norms like professional norms and codes of behaviour. That is, we trust the doctor not to do us deliberate injury because we expect him to live by the Hippocratic oath and the standards of the medical profession.

Social capital is a capability that arises from the prevalence of trust in a society or in certain parts of it. It can be embodied in the smallest and most basic social group, the family, as well as the largest of all groups, the nation, and all other groups in between.

[Social Capital] cannot be acquired, as in the case of other forms of human capital, through a rational investment decision. That is, an individual can decide to “invest” in conventional human capital like a college education, or training to become a machinist or computer programmer, simply by going to the appropriate school. Acquisition of human capital, by contrast, requires habituation to the moral norms of a community and, in this context, the acquisition of virtues like loyalty, honesty and dependability. The group, moreover, has to adopt common norms as a whole before trust can become generalized among its members.

The most useful kind of social capital is often not the ability to work under the authority of a community or group, but the capacity to form new association and to cooperate within the terms of reference they establish.

[…]

For example, in the Chinese parts of East Asia and in much of Latin America, social capital resides largely in families and a rather narrow circle of personal friends.

It is difficult for people to trust those outside of these narrow circles. Strangers fall into a different category than kin; a lower standard of moral behaviour applies when one becomes, for example, a public official. This provides cultural reinforcement for corruption: in such societies, one feels entitled to steal on behalf of one’s family. Corruption, of course, has many causes including, most importantly, the design of public institutions. But even well designed institutions will fail to function properly if the officials and political leaders at the top of judicial hierarchies themselves lack the proper norms of personal behaviour.

Still bullish on the Ivory Coast

I believe the Ivory Coast and most of Africa also are places where social capital largely resides in families, or rather extended families, and where levels of social capital are low overall.  I ‘d say the Ivory Coast’s president Alassane Ouattara’s greatest challenge, is not the security situation,  not how to  deal with Gbagbo supporters, and not how to keep together the PDCI – RDR alliance, but how to deal with the hurdles created by low social capital.

It’s also a major challenge for anyone doing business in the Ivory Coast.   I think it’s not uncommon that trust doesn’t extend much past an Ivorian’s extended family.  Business is done with outsiders, but on a lower level of trust as – not without reason –  deceit is expected from outsiders.    It becomes more difficult (but not impossible) for corporations to grow in such circumstances, as it inevitably involves hiring and working with strangers.

Nevertheless, there are many examples of fast economic growth and flourishing businesses in a low social capital / low trust environment. It’s being well aware of the social capital issue that I’m bullish on the Ivory Coast.

Social capital is after all only one out several important factors for prosperity, and the causality isn’t clear between them. Is low social capital causing dysfunctional institutions and bad governance, or is there an arrow the other way too? What if the Ivory Coast manages to have – by African standards – very good institutions but still low social capital, would that negate negative effects of low social capital?  And exactly how does the Ivory Coast stand in terms of social capital compared to the rest of Africa, and is it changing to the better?  Guess there is no consensus on how to measure it,  and I doubt anybody has tried to measure it in the Ivory Coast, so nobody knows.

Top Guy Syndrome explained

Fukuyama on the advantages of social capital:

The economic function of social capital is to reduce the transaction costs associated with formal co-ordination mechanisms like contracts, hierarchies, bureaucratic rules, and the like. It is of course possible to achieve co-ordinated action among a group of people possessing no social capital, but this would presumably entail additional transaction costs of monitoring, negotiating, litigating, and enforcing formal agreements.

No contract can possibly specify every contingency that may arise between the parties; most presuppose a certain amount of goodwill that prevents the parties from taking advantage of unforeseen loopholes. Contracts that do seek to try to specify all contingencies—like the job-control labour pacts negotiated in the car industry that were as thick as telephone books—end up being in exible and costly to enforce.
[…]

Even in non-hi-tech environments, social capital often leads to greater efficiency than do purely formal co-ordination techniques. Classical Taylorism, which organised workplaces in a highly centralised, bureaucratised manner, created many inefficiencies as decisions were delayed and information distorted while moving up and down hierarchical chains of command.

In many manufacturing facilities, Taylorism has been replaced by much  flatter management structures which in effect push responsibility down to the factory  floor itself. Workers who are much closer to the sources of local knowledge are authorized to make decisions on their own, rather than referring them up a managerial hierarchy. This often leads to great gains in efficiency, but is totally dependent on the social capital of the workforce. If there is distrust between workers and managers, or widespread opportunism, then the delegation of authority required in a typical ‘lean’ manufacturing system will lead to instant paralysis.

This is in effect what happened to General Motors during the strikes of 1996 and 1998, when a single dissident local (angry, in the Ž first instance, over the outsourcing of brake parts) was able to shut down the company’s entire North American operations.

Ah, it looks like the Top Guy syndrome just got explained; to delegate one needs some social capital to avoid paralysis.

Fukuyama on the downsides of low social capital:

Low levels of social capital lead to a number of political dysfunctions, which have been extensively documented. Following Tocqueville’s analysis of France, many observers have noted how administrative centralisation has led to an excessively rigid and unresponsive political system, one that can be changed only through anti-systemic upsurges such as the evenements of 1968.

Low levels of social capital have been linked to inefficient local government in southern Italy, as well as to the region’s pervasive corruption. In many Latin American societies, a narrow radius of trust produces a two-tier moral system, with good behaviour reserved for family and personal friends, and a decidedly lower standard of behaviour in the public sphere. This serves as a cultural foundation for corruption, which is often regarded as a legitimate way of looking after one’s family.

Much More on Rubber

I’m keeping on reading the story of rubber in the book “1493“. It’s quite fascinating, and by the end possible to link to the Ivory Coast without too much of a stretch. Some very long excerpts:

The importance of rubber and vulcanization

The impact of vulcanization was profound, the inflatable rubber tire – key to the adoption of both the bicycle and the automobile – being the most celebrated example. But rubber also made electrification possible: try to imagine a modern building without insulation on its wiring. Or imagine dishwashers, washing machines, and clothes dryers without the belts that transmit the motion of their engines to the appliance itself. Equally important but less visible, every internal combustion engine contains many pipes and valves that channel, usually under pressure, water, oil gasoline, and exhaust vapor. Unless the parts are manufactured perfectly, engine vibrations will cause liquids or gases to vent dangerously from the joints. Flexible rubber gaskets, washers, O-rings almost invisibly fill the gaps. Without them, every home furnace would be at constant risk of leaking natural gas, heating oil, or coal exhaust – a potential death trap.

“Three fundamental materials were required for the Industrial Revolution,” Hecht, the UCLA geographer told me. “Steel, fossil fuels, and rubber”. The rapidly industrialising nations of Europe and North America had more than adequate access to steel and fossil fuels. Which made it all the more imperative to secure a supply of rubber.

Rubber boom

Even in a time of crazy boom-and-bust cycles the rubber boom stood out. Brazil’s rubber exports grew more than tenfold between 1856 and 1896, then quadrupled again by 1912. Ordinarily such an enormous increase would drive down prices. But instead they kept climbing.

That rubber production went up an order of magnitude while prices tripled is the kind of thing that makes natural-resource economists rub their eyes in bemusement. “It’s pretty amazing,” said Michael C. Lynch, president of Strategic Energy and Economics Research, of Winchester, Massachusetts. “No wonder people were going crazy.”

The financial center of the trade was Belem. Founded in 1616 at the entrance of the world’s greatest river, it had a strategic location – but little ability to take advantage over it. So much sediment washed in from the Amazon that the harbour was shallow and treacherous. Worse, the currents and winds generated by the river’s vast outflow isolated the city from the rest of Brazil – incredibly from Belem it was faster to sail to Lisbon, a distance of 3,700 miles, than to Rio de Janeiro, a distance of 2,500 miles. In consequence the city’s population had never risen much above twenty five thousand. The rubber boom allowed it to become, at last, what Amazonian dreamers had long hoped: the economic capital of a vibrantly growing realm. Continue reading “Much More on Rubber”