SOURCE: The Tony Elumelu Foundation
LAGOS, NIGERIA--(Marketwire - Mar 18, 2013) - Decades of charity have not solved Africa's chronic economic and social problems, but there is a potential solution on the horizon: "Africapitalism," which aims to harness private sector entrepreneurship and investment to create social wealth and ameliorate problems at the local level.
Private sector development, rather than charity or aid, is the fastest, most effective and most sustainable path toward self-reliance for Africa. That is the message of a new white paper by Tony O. Elumelu -- "Africapitalism: The Path to Economic Prosperity and Social Wealth -- Rebuilding and Rebranding Africa as a Land of Investment, Innovation and Entrepreneurship." Mr. Elumelu is the founder of The Tony Elumelu Foundation and Heirs Holdings Limited and the former group chief executive of the United Bank for Africa Plc (UBA).
Only the Right Kind of Private Development Builds Local Economies and Generates Healthy Returns
"As private enterprise and entrepreneurship take root in Africa, they are showing their potential to solve social problems," says Mr. Elumelu. "This is a drastic departure from the old model of centralised governments managing basic industries, supplemented with charity and foreign aid."
The paper points out that United Bank for Africa, a single-country bank that grew into a pan-African financial services institution serving over 7 million customers in 20 countries, "democratized" Africa's banking sector. UBA was able to generate significant returns for investors and also improve individuals' access to financial services, fuel business growth and facilitate trade.
However, conventional development approaches, and conventional business approaches to leveraging Africa's resources, have focused on wealth extraction and often leave local economies in a state of chronic dependency, with little wealth and few resources with which to solve problems. For instance, after 50 years of pumping out billions of dollars of crude oil and natural gas, there is still no indigenous Nigerian oil major. And while Nigeria exports crude, it imports refined petroleum for domestic consumption. All of the value creation in the production chain takes place outside the country, and imported refined products are so expensive they require government subsidies to be affordable.
Africapitalism proposes a very different approach: generating profits through local wealth creation, helping to build economic self-sufficiency. Transnational Corporation of Nigeria (Transcorp) is an example of "self-sufficiency as a solution." The company recently commissioned Nigeria's first fruit juice concentrate plant, in Benue State, where 60 percent of fruit crops have spoiled every year because of a lack of domestic processing capacity or adequate storage. The new plant will help meet domestic demand for fruit juice, which has grown by approximately 10 percent annually since 2002. Transcorp's investment aims to generate a profit by creating jobs, boosting crop yields and farmer incomes, building domestic markets and addressing food security issues.
Realizing the Promise of Africapitalism Depends on New Approaches Across the Board
The concept of Africapitalism amounts to a comprehensive framework for effectively attacking Africa's persistent challenges. It involves a call for wide-scale changes in attitudes and action, some of which are in play now. For instance...
- Governmental reform: The Rwanda Development Board has made significant progress in simplifying regulation, tax laws and administrative processes -- increasing the rate of business formation more than four-fold. It provides a template for other countries to do the same.
- Investor foresight: When Diageo's Guinness brand, and cell phone provider MTN, entered the Nigerian market, they were criticized, and even penalized by financial markets. But they saw what others didn't, a growing consumer class in Africa. Recently Walmart followed their lead in acquiring MassMart of South Africa. Patient long-term capital investment is essential to building African economies, and it can pay handsome rewards to investors.
- Intra-African cooperation: As a trading block, the East African Community provides a valuable example of how to bolster trade and economic growth. In addition to unifying laws and regulations, they are increasing direct cooperation among countries -- e.g., the government of Tanzania was able to shorten the approval process for a seed production company, Mtanga Farms, from five years to just one, by working with regulators in Kenya to share seed trial data.
- A leadership role for investors from Africa: African governments lead the way in promoting private sector development -- from the IT industry in Kenya, to the financial services industry in Nigeria, to the footwear industry in Ethiopia. Domestic investment, however, is lacking. The white paper argues that to solidify Africa's place in the world economy, it needs large, liquid capital markets, and successful businesses with sufficient scale to compete for equity capital from around the world. Getting there hinges on investment by Africans in their own economies and their own markets.
Private Sector Development Holds the Promise of a Bright Future for Africa
"Long-term wealth creation at the local level builds the productive power of Africa's economies and the purchasing power of Africa's growing consumer class," says Mr. Elumelu. "This is an exciting time in Africa, a time to shed preconceptions, raise expectations and recommit to the power of human industry."
"Africapitalism can address many quality-of-life issues -- e.g., food security and healthcare quality -- as well as break a cycle of poverty that limits many Africans' ability to solve their own problems at a local level," he adds.
To receive a copy of "Africapitalism: The Path to Economic Prosperity and Social Wealth -- Rebuilding and Rebranding Africa as a Land of Investment, Innovation and Entrepreneurship" and/or to speak with Tony O. Elumelu, please contact Katarina Wenk-Bodenmiller of Sommerfield Communications, Inc. at +1 (212) 255-8386 or firstname.lastname@example.org.
ABOUT THE TONY ELUMELU FOUNDATION
As a premier pan-African focused not-for-profit institution, The Tony Elumelu Foundation (TEF) is dedicated to the promotion and celebration of excellence in business leadership and entrepreneurship across the continent. TEF strives to deploy its resources to generate solutions to challenges that inhibit the African private sector. Through its commitment to catalytic philanthropy, TEF seeks to achieve its mission by building the capacity of fast-growing African businesses, supporting and driving policies that promote competitiveness, deploying financial capital through impact investments, and educating the public and private sector actors through rigorous research. TEF is guided by global standards, strong governance, and a commitment to accountability.