There is a distinct difference between tax evasion and avoidance – the latter is a legal form of arranging one’s financial and other assets in such a way as to reduce one’s tax liability. Though it is a perfectly legal practise it is often not considered moral. Tax evasion is illegal and unethical.
Tax mitigation on the other hand is a more aggressive approach to tax avoidance that falls within a grey area of tax avoidance and tax evasion. Tax experts estimate that, over the past 20 years, tax mitigation schemes have been used to transfer trillions of dollars into tax havens. The leak of the Panama Papers has brought tax mitigation under the spotlight and whether there is a need for tax authorities throughout the world to come together to create legal certainty around the issue.
Around the world, private companies and individuals devise creative ways to reduce their tax liability in a bid to minimize what they think is an excess tax burden. They do this by studying the tax laws of that particular region and finding loopholes to exploit. Thus, tax avoidance is becoming increasingly prevalent in South Africa as more and more individuals move up the income ladder – primarily among the growing black middle class. These individuals are realizing that marginal tax increases come with moving up several income tax brackets, this apparently is giving rise to more tax avoidance schemes.
In many countries, the avoidance of personal income tax is more common among the more affluent individuals who have access to professional services such as tax law practitioners and private bankers.
Is it fair that wealthy people have the ability to circumvent the true cost of their tax liability when the same luxury isn’t available to the working class majority? The so-called rich will argue that it is fair because of the progressive personal income tax system South Africa employs, which has one of the highest income tax rates in the world. Whether or not they are justified in this view is contentious and often depends on one’s income bracket or social class. On the other hand, the progressive tax system had to be addressed due to the levels of income in South Africa being vastly skewed.
One concern, often not raised in the tax debate, is the blatant lack of accountability of the government when it comes to the blatant and intolerable waste of public revenue through pervasive corrupt behavior. I view these actions by government as an indirect contributor to tax avoidance schemes. Subconsciously, many are asking themselves: “Why should I be paying excessively high taxes if government perpetually squanders public funds?” And this is just one of the reasons people employ tax consultants to explore creative ways of reducing their income tax.
Can you blame them? I am not entirely sure. If I was taxed at a marginal tax rate of 41% of my income above the highest personal income threshold, I too would consider the possibility of reducing my tax liability – within the provisions of the law of course.
Going forward, I think that reducing government wastage could have a positive impact on the willingness of the rich to pay their full tax liability without apprehension. You never know, stranger things have happened.

Should Tax Avoidance Be Legal?

The sixth edition of the Credit Suisse Global Wealth Report 2015 offers a portrait of the world’s wealth. Besides affirming that global inequality has grown, the study had some interesting findings about the regions it covered, especially in Africa. Since 2000, the rate of growth of millionaires in Africa was faster than the global average, by a factor of four to 126,000 behind only India and China, which grew to 185,000 and 1.3 million millionaires respectively. The findings are supported by a similar report by Capgemini and RBC Wealth Management. In World Wealth Report 2015, Africans with at least $1 million of investable assets are reported to have climbed to 150,000 in 2014, up by 5.2%, while their combined wealth increased by 7% to $1.44 trillion.
Between 2000 and 2015, the Credit Suisse report noted that the wealth of those above the lower-middle-class threshold in Africa had grown by 140% compared to a global average of 113%. It states that adults with wealth beyond the middle class threshold accounted for a further $793 billion, bringing the total wealth of the middle class and beyond to $1.6 trillion, or 0.7% of global wealth. Such detailed and insightful revelations are rare. More importantly, they suggest that the continent’s recent gains are not a myth. Africa rising is real.
That said, the emerging wealth comes with the need for good advice. For that reason, I believe the time is now for private banking, wealth management and asset management in Africa. Although it is less understood than traditional methods of investing, wealth managers should prepare to deliver guidance to these freshly minted high-net-worth individuals (HNWIs). This is necessary. As the proverb says: Wisdom is a shelter as money is a shelter. Well, wisdom and knowledge will be needed. The opportunity is for wealth managers to serve as trusted investment advisors and as educators.
Just as important, these advisors will provide guidance on meaningful social impact activities, like giving back to society and creating entrepreneurial opportunities. This is vital in Africa where wealth inequality is so high. Credit Suisse reports that some Africans are among the top global wealth decile, and even among the top percentile. In fact, the region is more concentrated in the bottom end of the global wealth spectrum, with more than 40% of African adults belonging to the two lowest global wealth deciles. Seychelles, for instance, has a Gini index of 94.8 or near perfect inequality. Libya, South Africa, Botswana, Nigeria and Egypt are among the top 10 most unequal states in the region. In all, wealth managers have a critical role to play.
It is critical that policymakers fast track legislation allowing African funds to invest across the continent, as a means to provide investment channels for African wealth managers spread the risk. There is urgent need to deepen the roughly 30 recognized stock exchanges in the region for HNWIs to gain local financial markets exposure. In the past, Africa’s HNWIs dealt with bankers in New York, the Channel Islands, Geneva or London and invested abroad. This is likely to change soon. It is good to note that some international operators have already seen the opportunity. Specialist wealth managers, such as Pictet Asset Management and UBS, are notable examples. Locally, firms such as Stanlib and Ecobank are leading the way.
There is no doubt that significant wealth creation has occurred in Africa. This is a new dawn, wealth managers need to dump the pessimism and jump in.

Africa’s Rise Is Not  A Myth

Most of Africa is currently engulfed in an energy emergency.
For a continent blessed with some of the largest power generating potential in the world, it’s an ironic tragedy, at par with any epidemic Africans have ever experienced. As things stand, the prospects for prosperity are bleak.
This has been Africa’s sour story for too long. Without power, social and intellectual fecundity and creativity is hobbled; innovation, doomed. From Cape Town through Calabar to Casablanca and Cairo, failed power projects litter the land. Africa now reportedly generates less power than many European nations.
In view of the contending economic, ecological and social priorities, Africa’s humungous power deficit must now be viewed as a crisis, and an opportunity. A crisis in desperate need of modern energy solutions, fresh investments and political will. This variegated mindset is essential if Africa is to find its way out of the dark maze.
The use of off-grid, renewable technologies, for instance, will attenuate some of the darkness, create opportunities to increase agricultural productivity, improve Africa’s resilience to climate change, and contribute to long-term reductions in dangerous carbon emissions across the African landscape.
At stake is the global relevance, social progress and economic productivity of Africa’s nearly 1 billion people. Universal access to power is the goal. But how do you measure the compounded return on development initiatives brought about by lighting up an entire city or village? Experts say an estimated $850 billion will be required to achieve universal power access for Africa by 2030.
Depending on which book you’re reading, between 1 billion and 1.5 billion people lack access to modern forms of electricity worldwide, and three billion cook on smoky, soot-stained stoves and outdoor fires. Chances are (no marks for guessing) many of these folks are in Africa.
Analysts at McKinsey &amp; Co. say Africa has 13% of the world’s population, but 48% of the share of the global population without electricity. The only other region with a similar imbalance is South Asia, with 23% of the world’s population and 34% of the people without access to electricity.
Only seven countries in Africa – Cameroon, Côte d’Ivoire, Gabon, Ghana, Namibia, Senegal and South Africa – have electricity access rates exceeding 50%.
The International Energy Agency (IEA) says 55% of Nigerians, 70% of Ivorians, 76% of Ethiopians and 85% of residents of the Democratic Republic of Congo do not have access to electricity. A 2015 report by the Africa Progress Panel, People, Power, Planet, confirms this dark reality: 621 million Africans have no access to electricity. That’s two out of every three Africans.
The report warns that global demand for modern energy is set to surge, fueled by economic growth, demographic change and urbanization. “As the costs of low-carbon energy fall, Africa could leapfrog into a new era of power generation. Utility reforms, new technologies and new business models could be as transformative in energy as the mobile phone has been in telecommunications.”
The World Bank says Africa’s power consumption, at 124 kilowatt-hours per capita per year and falling, is only a tenth of that found elsewhere in the developing world, barely enough to power one 100-watt light bulb per person for three hours a day.
Thankfully, Africa does not suffer from a dearth of energy resources. Kenya is currently ranked the seventh-highest producer of geothermal power globally, as the second phase of the Olkaria geothermal plant comes on stream.
South Africa’s Medupi power station, the fourth largest coal plant in the southern hemisphere, recently received a $2.1 billion loan from the African Development Bank (AfDB).
Morocco, Africa’s poster child for clean energy, spends over $3 billion annually on fuel and electricity imports. The country aims to generate 42% of its energy from renewable sources by 2020.
Most multinationals and manufacturing firms in Nigeria disengaged from the national grid years ago. Investing in captive power plants to remain competitive, they now generate about 1,600MW of power off-grid.
Power firms, like Cummins Incorporated and Clarke Energy, working with General Electirc and local players like CET Power, are mostly behind these efforts, designing, constructing, operating as well as maintaining gas-fueled power plants across the country.
Power proposals for Africa abound. We have the Britain’s Energy Africa, United States President Barack Obama’s Power Africa and the AfDB’s New Deal on Energy.
We now need to switch on these plans.

Power, Pain  And Progress

Standing in a long queue of pedestrians in Surulere on the mainland of Lagos, Nigeria, Austin Somefun is waiting for an okada (motorcycle taxi). He is on his way to view a new flat for his family, which currently stands at five children and two wives.
“My second wife just had her third child and so we need a bigger space. I have been looking at properties all week but so far, I have not found the right size for my family,” says Somefun.
He is part of the growing population in a country, which according to Reuters, will increase from 188 million to 300 million people by 2030.
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“Population explosion definitely creates a demand for residential property. The Lagos State commissioner for budget and planning estimates that Lagos alone needs to spend $50 billion in the next couple of years to keep up with the 23 million residents in the state and a significant amount of that budget will go towards housing,” says Steven Brown, an economist working with Britain-based Integra Consulting.
According to the Real Estate Developer’s Agency of Nigeria, the country is lacking about 17 million houses with about 60-70% living in slums and informal settlements. The Centre for Affordable Housing and Finance in Africa, estimates that 700,000 more homes are needed each year to keep pace with the population explosion.
Kennedy Okonkwo is founder of Nedcomoaks, an indigenous real estate company vying for this growing market. The company focuses on Nigeria’s middle class who, according to Okonkwo, is underserved. Okonkwo had a brief stint in the IT and human resources sector before a missed opportunity changed his life.
“I was working as a strategic adviser for a company and my part time job in real estate had a deal that was worth N18 million ($90,000). The deal meant I was going to provide accommodation for expatriates and the company issuing the contract was waiting for me to come and see them but I was busy doing a strategy session so I lost the deal to a competitor. I said to myself it’s time to focus on the property business and I resigned from the job,” says Okonkwo.
His love affair with bricks and mortar began when he brokered his first deal as an estate agent worth N260,000 ($1,300). Okonkwo started from scratch; scraping together money for construction while selling Hawes &amp; Curtis shirts to tide him over.
“The landowners had signed over the land for 30 years and most of the families did not have money to build on the land and time was running out. So I approached them and got the land on leases. I got about 22 of them and started building four units of room and parlour self contains and doing resettlement schemes,” says Okonkwo.
Things were looking up for Okonkwo until the global recession hit him in 2008. Most of his clients who invested in the properties could no longer afford the monthly repayments and the banks clamped down on all credit to business. Luckily for Okonkwo, he secured a loan of N100,000,000 ($500,000), which added to the company’s working capital and proved a lifeline.
“Initially, we would look for money to develop one property and once we sold that, we would build three more properties because we would market and get other people to buy more. Once we got the loan from the bank, we were able to expand very rapidly.”
Part of the Nedcomoaks property portfolio is a 92-unit construction of three-bedroom terraces and a new build of 28 units of four-bedroom houses with average prices for his developments at N25 million ($125,000).
Similar to Brown, Okonkwo believes there are massive opportunities within the property market in Nigeria. The Nigerian property sector is valued at $39 billion according to a recent report by CBO Capital, an investment advisory firm based in Lagos.
“I went into the property business because I felt there is a real need for it. For everybody, when you look at your needs, it’s probably food first and then you think of shelter. So there is no way anybody that is providing shelter will get it wrong. I think there are enormous opportunities to tap into in the Nigerian property market today and the reputation of the developer matters a whole lot,” says Okonkwo.
The industry still has a long way to go to satisfy the growing demand. Like everywhere in Nigeria, the foreign exchange (FX) restrictions in the country have hit the property market.
“In the operational aspect of construction, it has a tendency to drive up the cost of the construction because most of the finishing materials are imported and so the restrictions of FX make it difficult to import these goods which drives up the price. On the other hand, a property that was selling at $150,000 can now go for $100,000 if the person has FX, so for these people, there is a higher advantage,” says Okonkwo.
As Africa’s largest economy continues to grow, Okonkwo is gearing up to be the go-to property developer for the growing middle class, one home at a time.

The Miss That Led To  A bullseye

What happens when the world’s mighty ratings agencies downgrade your country to a non-investment grade, the dreaded so-called junk status?
High interest rates, slow growth, capital flight and inflation are some of the problems that come with a downgrade; in short, everyone from a street vendor to a corporate executive will feel the pinch.
So how does a downgrade happen?
“Ratings agencies analyse a sovereign’s performance over past economic and political cycles, as well as factors that indicate greater or lesser economic flexibility in future economic cycles, to determine the country’s creditworthiness,” says Gardner Rusike, Sovereign Credit Analyst at Standard &amp; Poor’s, one of the three big agencies.
“Sovereign ratings can improve when a ratings agency takes a forward looking opinion that an individual country has a willingness and ability to service its debt on time and in full.”
Ratings agencies, Standard &amp; Poor’s (S&amp;P) and Fitch have South Africa at BBB–, a notch above sub-investment grade, while Moody’s has the country two notches above.
Most economists say, for South Africa, junk status is a when and not an if. But for now finance minister, Pravin Gordhan, says the country is breathing thanks to Moody’s and its two notches.
“We live in a very volatile world and for us this is coupled by our own structural concerns. We should make the right noises, building consensus and confidence to attract investment from both South Africans and international investors,” he says.
Moody’s issuing South Africa’s Baa2 long-term government bond, in May, says the first driver for the confirmation was the agency’s expectation that South Africa’s economic growth will gradually strengthen after a trough this year, as the various supply-side shocks, that have suppressed economic activity since 2014, recede.
The other two agencies, Fitch and S&amp;P are expected to report on their ratings in June.
Professor Jannie Rossouw, Head of the School of Economic and Business Sciences at the University of the Witwatersrand, says junk status for South Africa was not necessarily inevitable.
“Politicians have a tendency to make reckless statements in an election year. As for South Africa, it matters what will happen in the forthcoming municipal elections and how the Independent Electoral Commission will conduct the August 3 municipal polls. We also need the right policies, such as on immigration, media freedoms, as investors require information to make investment decisions,” says Rossouw.
Hanns Spangenberg, Senior Economist at NKC African Economics, says while a drop to junk status could have significant implications for the South African debt market, much of the damage has already been done.
“In fact, according to our model, South African bonds (rated BBB-) are currently priced between a BB+ and a BB-rated bond (i.e. one to two notches lower than its actual rating). This indicates that a downgrade to junk status has already been priced in,” he says.
He says it may not be that bad.
“While a downgrade will probably have some effects, we do not anticipate massive capital outflows from South Africa if the country’s rating is downgraded to junk status, not as a direct result of the downgrade, and not significantly more than the emerging market sphere is already facing this year.”
Rossouw says South Africa needs decisive government action.
“There has been some actions from the government that could trigger ratings downgrade, this include the cabinet reshuffle of 9 December, 2015 (when the country had three finance ministers in four days). We can’t afford such irresponsible actions. Government should stick to its budget and should not borrow more than what is budgeted for.”
South Africa’s Deputy President, Cyril Ramaphosa, warns of hard times if there is a downgrade.
“South Africans have taken the bull by the horns and they are doing as much as possible to try to move the needle in the right direction. We should not be downgraded. We are very positive and robust, clearly we are doing as much as we can,” Ramaphosa told Eyewitness News.
If downgraded, South Africa will join Russia, Brazil, Bulgaria, Greece, Indonesia, and Turkey. It will mean these countries – facing economic headwinds and struggling to lure investment – will have a new competitor from the southernmost tip of Africa.

The Junk Dunk

They dig profitably the desert soil of Botswana searching for stones – that say more than words &#8211; for fingers from Belgium and China to New York. They are so tiny that according to diamond experts, all the diamonds mined in the world, since 1870, would not fill a London double-decker bus.
This is the 44-year story of Botswana’s diamonds. An industry that has overcome hurdles that have tripped many in a string of African countries: ownership laws; competition; land battles and the threat of blood diamonds.
This is also the story of the world’s richest and largest diamond mine, Jwaneng, a huge hole in the desert, ringed by roads, 200 kilometers north of the capital Gaborone.
Diamondfacts.org says diamonds earn approximately $8.4 billion a year for Africa and most come from Botswana. In Botswana, diamonds contribute 33% of GDP and are mined by a joint venture, between the government and De Beers, called Debswana. The venture also means life.
“For our people, every diamond purchase represents food on the table; better living conditions; better healthcare; safe drinking water; more roads to connect our remote communities and much more,” the former President, Festus Mogae, once said.
As a market leader, Debswana can defend itself by holding on to diamonds to keep prices up. This is one reason why production fell in 2015.
According to the General Manager of Jwaneng, Albert Milton, the mine produced about 11.3 million carats in 2014.
“This number went down by 14 percent in 2015 to nine million carats due to market related conditions. We invested about $2.2 billion in 2010 and we are positive about the outlook.”
The mine aims to more than double diamond production to 20 million carats this year.
The big threat that could dull Botswana’s sparkle comes from competition elsewhere.
The bosses at Jwaneng fear that miners from Zimbabwe, Angola, Namibia, Liberia, Canada and Russia will find more and more. This could loosen Botswana’s grip on supply and with it power over price.
A geological survey found that Russia could supply the world market for the next 3,000 years as there are trillions of carats lying beneath a 35-million-year-old asteroid crater in Siberia, in the east of the country – it has more than 10 times the global stockpile.
Hanns Spangenberg, a Senior Economist at NKC African Economics, says Botswana’s single largest rating constraint is the country’s dependence on the diamonds, which exposes the economy to external shocks.
“Depressed external demand for diamonds has had extreme consequences for the landlocked country, with real GDP contracting by 0.3 percent in 2015, while the government has been forced to record a fiscal deficit in 2015/16 after recording surpluses the previous three fiscal years,” he says.
Spangenberg adds that authorities are well aware of Botswana’s exposure to the diamond sector, and have tried to diversify the economy – the most significant being the Economic Diversification Drive (EDD). They are pouring state coffers into the dairy, textiles and clothing sectors with the hope of creating jobs.
Ahmed Bin Sulayem, the Chair of the Kimberley Process – an organization fighting to stem the flow of conflict diamonds – warned in a statement in February, that the outlook was not convincing for the diamond sales industry.
“[It] will be a challenging year for our industry with continuing oversupply, low commodity prices and tightening liquidity. The social impact of these combining factors is likely to be severe and felt across large parts of the world’s diamond producing regions.”
It seems the story of diamonds, that started with discoveries in 1870, in Kimberly, is far from over.

Diamonds  May Not Be  Forever

Despite preconceptions, you will find women in powerful roles are more than capable of outperforming their male counterparts across the infrastructure value chain.
As a sponsor of Woman in the Built Environment initiatives and training and career development, my former company, Group Five, led from the front. But it’s the girl power that we unearthed and nurtured that was an inspiration to me.
We committed ourselves to targeted recruitment at student level to attract ladies in all the engineering disciplines, quantity surveyors, construction management, finance and HR, to drive gender and racial transformation. Dedicated gender orientated programs followed.
The success stories are legendary. The 14,000-employee Group Five created an environment where women rose to the highest ranks, including board level and divisional unit directors, through to technical and support roles.
The most incredible stories came from the construction divisions. We placed newly graduated female students to fast track local-based programs and then deployed them to participate on an equal footing with the guys in some of the most remote sites across Africa.
One young lady was a construction management graduate who was bored with building another Sandton office block. So, we sent her to a mine construction site in Ghana. A few years later, she rose to become the successful multidisciplinary construction manager responsible for the complete mine construction project in a remote site in Mali, with a workforce of over 300. She did this while in her twenties!
HR is often a female-dominated field, but not historically in construction, given the robust male-dominated manpower, and remote location, challenges. Group Five changed that and after only a few years many of the most senior human and industrial relations posts were occupied by a group of tough, confident ladies. They dealt with violent labor disputes at home and in Southern and West Africa, but were able to stand as role models for the young recruits and we started to see long-term careers being nurtured across the group after many years of countering the notion that construction is not sexy or rewarding. For the next generation, particularly for females, we changed that perception.
The group won the right to construct the iconic Nelson Mandela Children’s Hospital as a direct result of the strong female and demographically representative team that inspired the trustees of the Children’s Fund. The team delivered on every promise made in the execution of the project, which included tough social and transformative targets.
Female leadership in finance and commercial law is an inspiration to the construction industry, from gender activists and shareholders to the many aspirant female accounting graduates who rapidly rose to manage the finances of a suite of highly complex businesses. From basic construction to the securing of turnkey power plant and transport projects across Africa, where the group took an equity stake and executed the turnkey engineering design and construction, or led the debt and equity strategies with financial services partners, females led the way.
Group Five’s CFO won the 2014 Business Woman of the Year award for her leadership in driving business systems re-engineering, transformation, shareholder relationships and women in construction initiatives within the industry, and raised two kids at the same time. How many men can follow that?
In African construction, “if the mossies don’t get you, the taxman will” – some may recall this amusing tale from an earlier column. We nurtured another young star from the finance team who became an industry authority on African tax, the law, and what coercion one might find at a site when the taxman arrives with his own militia. Our team knew more about their tax laws than the taxman himself.
Our protégé was so successful that she became the tax lead for a big branded legal firm.
We attracted and developed skilled females across Africa and beyond – our brand had become synonymous with enlightened attitudes, was recognized as a socially responsible organization in many countries. To drive our geographic strategy, we needed skills from across the target countries. This gave us technical, construction, finance and HR skills from as far afield as the Philippines, India, the Democratic Republic of Congo and Zimbabwe.
Fast forward to 2016 and look at which construction companies are surviving, if not thriving, amid an industry in deep recession. I wonder if it’s the female touch that has made the difference?

A Woman’s TOUCH

Retail and consumer markets are buoyant in developing countries throughout the globe. Personal incomes in many of these regions have increased steadily over the years, prompting the emergence of a growing middle class. Africa is no different. According to World Bank estimates, our continent is home to more than a billion people, a figure expected to increase to more than 2.5 billion by 2050. Perhaps, more crucially Africa has one of the fastest growing youth populations in the world.
PwC recently released a report, So Much in Store, which is an in-depth study into sub-Saharan Africa retail and consumer goods industries. The findings are compelling. The report provides a five-year outlook by focusing on 10 African economies that PwC believes offer substantial opportunities for retail and consumer businesses looking to expand into African markets. These countries include: Cameroon, Ethiopia, Kenya, Nigeria, Tanzania, Zambia and Côte d’Ivoire. Despite a slowing Chinese economy, and subsequent lower commodity prices, having a knock-on effect on real GDP growth in a number of African economies, there appears to be a silver lining. African economies predominantly reliant on commodities are beginning to diversify.
The growing consumption of the middle class in Africa has been driven by several key factors, such as: an increase in internet usage and accessibility; ubiquitous use of social media; private healthcare; and budding retail property developments (malls). Consumers in sub-Saharan Africa in particular are becoming more brand conscious and aspirational; they are willing to satisfy their needs and wants at a whim provided they can afford it.
“Africans are becoming more connected to global trends than ever before as a result of growth in internet penetration and travel,” says Anton Hugo, PwC Africa Retail and Consumer Industry Leader.
There’s been a spike in the level of consumer discernment when it comes to their purchasing decisions, thereby stimulating retailers to create new products to meet this demand.
One issue highlighted by PwC is that there are several misconceptions about doing business in Africa. Like going into any new business venture, there’s no such thing as a one-size-fits-all approach. Firstly, Africa is home to more than 50 countries, with even more languages, including indigenous dialects. It’s integral that companies seeking to enter African markets get their hands dirty, on the ground, to gain an understanding of the region. A business can ill-afford going into any part of Africa with preconceived notions. Instead, firms should take the approach of immersing themselves into the culture of the local people to understand the dynamics of business in that country.
In addition, having the right strategy cannot be over-emphasized. Strategy can strengthen or decimate a business in an instant. Some firms fail to recognize a strategy that has been successful in South Africa, for example, does not necessarily translate to success in other African countries. Firms must formulate a unique and well-thought strategy for the different markets it aims to enter to avoid becoming another casualty, similar to Woolworths in Nigeria.
Despite the varying challenges that are slowing growth in the retail and consumer businesses in Africa, the PwC report assures companies that the opportunities far outweigh the impediments. There are enormous opportunities yet to be realized: retail trade in Africa is still largely concentrated in informal markets; the online retail industry is still in its infancy and intra-African trade is incredibly low.
“Each country in Africa has its own value proposition. Smart investing in Africa means investors need to understand key regions and local markets. Furthermore, investors need to note that there are specific risk factors underlying the development of Africa. Despite these risks, investors and retailers will continue to see the African market as a huge opportunity,” says Hugo.
When opportunities aren’t realized, they remain idle. Development in Africa and expanding African retail and consumer businesses in Africa will require collective action from business and governments. Governments need to invest in infrastructure, such as transport networks, in order to open more markets.
It will be interesting to witness the progress of the African retail and consumer business sector in the next five years. The odds are in its favor; now let’s see whether it can thrive.

Opportunities must be seized

Nigerians are currently hard at work. What sort of work, you might ask? Economic reconstruction and the quest for social and political rebirth. The new sheriff in town seeks to sweep the dregs of a shattered polity into the cesspit of history. Clearing the skeletons and cobwebs of the past is, however, proving to be a delicate dilemma for the good people and managers of the Nigerian nation.
Grappling with sluggish growth, dwindling external revenues, double-digit inflation and a prolonged currency constipation, Nigerians must now wrestle with the seen and unseen forces of corruption and ineptitude, the gods of inertia and impunity, and the innumerable anti-development demons in its social democratic space.
A nation which was once embroiled in a two-and-a-half-year civil war in the 1960s, without borrowing a dime and without experiencing a run on its national currency, now finds it difficult to maintain a healthy balance sheet in peace time. No doubt, Nigeria has earned its spot in global economics by virtue of its position as Africa’s largest economy. This status will, however, not produce social harmony, wealth and economic growth for Nigerians.
Nigeria’s one-year-old government continues its search for the Chibok girls (#BringBackOurGirls), abducted two years ago from their school in the north east of the country. President Muhammadu Buhari has embarked on a global search for the country’s missing money, embezzled by past leaders and cronies of previous governments. Currently struggling to wean itself off crude oil addiction and diversify its productive base, it’s taken almost a year for the president and his All Progressives Congress (APC) party to begin to translate their social and economic agenda into a “SMART Framework”.
In what seems to be a blueprint and agenda-setting address to selected private and public sector leaders during a National Economic Council (NEC) retreat in March, the president listed agriculture, solid minerals and infrastructure investments as the fulcrum of his agenda, with national targets for self-sufficiency in tomato paste production by 2016; rice production and milling by 2018; and wheat by 2019. He also introduced a new phrase into the lexicon of governance: “import competition”, where states focus on growing selected crops in which they have natural comparative advantage.
These confidence boosting steps notwithstanding, Nigerians are increasingly wary of the future. They have come to terms with that fact that the path to the future is riddled with dead promises.
On the political rostrum, campaigning for votes between 2014 and February 2015, APC big wigs made numerous promises to Nigerians. Granted this was all done in the heat of politicking, Nigerians now want the current Lords of Aso Villa to quit blaming previous administrations and simply execute their well-intentioned strategies.
The president has been blamed for not ‘radicalizing governance’ fast enough, which was one of the reasons Nigerians voted for his party. He has also been blamed for reneging on a campaign promise to provide a monthly allowance for unemployed youths. The APC’s manifesto also promises to: “create additional middle-class of at least two million new homeowners in our first year in government and one million annually thereafter; by enacting a national mortgage system that will lend at single digit interest rates for purchase of owner occupier houses.”
Good idea. But have two million new homes been built in the last year?
In just one year, the national mood has swung from politically-induced hope to a calm and unnerving anxiety about “personal survival in a regressive system” as it becomes increasingly clear that things will get worse – for much longer – before they become better. Thankfully, Buhari has also said this much, as he pleads for patience against the growing wave of disappointment and despondency.
So, El Nino has finally caught up with the nation’s 2016 fiscal budget, as GDP growth for the 2016-2017 period is likely to remain below 3%, according to the IMF, unless of course global crude oil prices shoot up to $100 per barrel.
This is very unlikely, observes Bismarck Rewane, renowned economist and CEO of Financial Derivatives Ltd.
“That era is gone for good. The chickens (of decades of economic profligacy) have come home to roost. We are now going into a likely prolonged phase of belt tightening,” he told members of the Harvard Business School Association of Nigeria recently.
The smart, hard, work must go on.

Recalibrating Expectations

It’s a hot summer’s day in Sandton, Johannesburg. As we meet, the sun blazes bright like Titan’s fiery wheels. Brightness has played a big part in Johan Botes’ journey to entrepreneurship. On this day, the future is even brighter; he has just opened an office in Fourways, Johannesburg, 254 kilometers away from Mokopane, in northern Limpopo, where he took his first breath in 1962.
“I am so happy that the company is growing from strength to strength and most importantly providing jobs for young people who deserve every opportunity,” he says.
Botes employs 55 permanent staff and 12 contractors in five countries. The average age is 27. The company merges accounting and IT to make businesses quicker and reliant on fewer staff.
“The drive and energy of our team is one reason we’re growing so fast. We recruit entrepreneurial, self-motivated people at a young age and embed them into our business. They’re adaptable, quick to learn and ready to work overseas independently. We’re very strategic in our recruitment process – we’ll only take people with the right cultural fit, business acumen, and energy level to succeed in a global workplace,” he says.
Building a successful business was hard and sweaty. For three years after high school, Botes came face to face with rifles and drill in the army as a conscript.
With teachers for parents, he was inspired to save for university fees. Hard work earned him a career as a chartered accountant, working for Deloitte, before going into private practice as an auditor and then returning to Deloitte for a five-year stint. Here he learned about the enterprise resource planning (ERP) market. Botes swapped his well-paid job to start Consilia Technology Investments – a company that provides technology for business – in 2012.
“First we started the business as Consilia Consult; after a year, we realized we are not a consulting company but a technology business and we changed it to Consilia Technology. We can take all your database services; optimize it to make the business work,” he says.
According to Botes, the management information system integrates areas such as planning, purchasing, inventory, sales, marketing, finance and human resources. He started the business after realizing that clients in South Africa were finding the existing high-end ERP packages expensive and complicated. He decided to build a business around Sage ERP X3 software – a solution designed to be more flexible and affordable.
“Our view is that accountants are a dying breed. Systems are taking over. You can automate almost all the accounting systems in a business today through, for example, barcoding and scanning. It changes the fundamentals of business completely. One of our clients is a logistics company that requires daily costs per vehicle everyday per component such as tyres, fuel and maintenance. We give them a report per vehicle in different categories so they can see which vehicles are making profit, without having to capture one thing. Everything is available on a phone, iPad or computer. You can sit in front of a TV and authorize payments,” he says.
Botes says that the immediate priority for Consilia is to bed down its businesses in its new offshore territories before looking at other markets.
“We’ve been cash-generative since the start and have not had to take on debt to grow our business. We believe that if we offer a skill that is in demand worldwide, and do good work at a good price, we’ll continue to grow strongly in the years to come.”
He says there is a market for businesses like his in the continent and entrepreneurs should take note and keep employees smiling.
“As a young person, to start up a business and get funding is difficult. Since we started, 21 people have gotten shares. They haven’t paid for them yet but they pay from dividends. They have three years to pay up. We give them a discount of 80 percent. If you show someone that you trust them and you give them something, they become involved and want to see the business grow. One of the young guys said to me no one in his life has ever given him anything,” he says.
The future seems bright for Botes.

‘Accountants  Are A Dying Breed

Table mountain, the striking mesa above Cape Town, lords over another impressive African monument: the multistory Golden Acre shopping center. Lunchtime crowds pour into the glassy, brightly lit structure, and from within it is impossible not to notice the dominance of South Africa’s second-richest man, Christo Wiese. His bargain-bin clothier, PEP, pulls foot traffic to the basement. Above it, you’ll find his more upscale Ackermans chain. Around the corner is his OK Furniture and his grocery chain, Shoprite, which takes up two floors.
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By and large, they all carry the same message. PEP’s window ads, accented in canary yellow, proclaim it the home of the “Lowest Price in South Africa.” Brightly colored bunting in OK Furniture heralds a similar promise. Shoprite (among its many slogans: “Lower prices, that’s our promise”) will even play moneylender, fronting customers up to R7,500 (roughly $470).
“The business has basically been built on one slogan: Low prices you can trust. Just very, very low everyday prices,” says Wiese (whose name, fittingly, is pronounced VEE-sa, like the credit card). “I suppose we could be described as the Wal-Mart of Africa.” Underscoring the cost-conscious philosophy, the 74-year-old is telling me this at his company headquarters, in an industrial area that abuts a composter and Adult World, which sells what you think it does.
His offices, like his stores, are decidedly spare: drab beige enlivened only by some hotel- quality art (a portrait of an elephant herd hangs outside the door of the conference room he uses as an office). “People have very limited budgets,” continues Wiese, clad in a capitalist’s power uniform – blue suit, blue shirt – the very picture of the lily-white executive that still controls most of South African business. “They have to get extremely good value for their money.” His hunch – that value trumps everything – led him to create the largest retail business in Africa. Publicly traded Shoprite does revenue of $9.9 billion a year, while PEP’s parent company, Steinhoff, brings in $11.8 billion (some of it from selling cellphones and home furnishings). Combined, they net almost $2 billion in annual profits, operate more than 9,000 stores in 30 countries and employ over 200,000 people. No other African retailer comes close to rivaling their breadth and depth, and Wiese controls both.
Those stakes are largely what makes Wiese one of the planet’s richest people, with a $5.8 billion fortune. More than 60% of his wealth is in Shoprite and Steinhoff, while another 30% or so comes from his shares of Brait, an investment vehicle Wiese uses to buy other companies, many of them outside South Africa. His stock in Tradehold, a real estate firm, accounts for much of the remaining 10%.
But if Wiese is to continue his expansion he must move outside of his African comfort zone. The continent isn’t booming the way it once was. Economic growth across Africa has slid from close to 7% in 2007 to about 4% in 2014, the last year for which data are available. In coming years it isn’t likely to much surpass that figure. South Africa, still Wiese’s most important market, is emblematic of the larger trend – stuck at sub-2% growth for the foreseeable future. The slowdown gravely threatens Wiese’s ambitions. He can shut his eyes and picture his empire twice as big as it is today, but for it to grow that large, he must look beyond Africa.
And he’s already started. PEP is expanding rapidly in Europe, while Wiese is snapping up all sorts of companies through Brait, including majority stakes in British discount retailer (sound familiar?) New Look for $1.2 billion last June and Richard Branson’s fitness center chain, Virgin Active, for $1 billion a month later. Put broadly, Wiese is a little Sam Walton, in terms of his focus, and a little Warren Buffett, in terms of amalgamating a portfolio. As a matter of fact, he’s beaten Buffett handily lately. His holding company, Brait, has trounced Berkshire Hathaway in total returns over three years (160% versus 31%), five years (230% to 51%) and ten years (314% to 121%).
<div id="attachment_4832" style="width: 210px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-4832" class="size-medium wp-image-4832" src="/wp-content/uploads/2017/05/0000171388-200x300.jpg" alt="" width="200" height="300" />JOHANNESBURG, SOUTH AFRICA – APRIL 22: Billionaire businessman Dr. Christo Wiese on April 22, 2009 in Johannesburg, South Africa. (Photo by Gallo Images / Foto24 / Sharief Jaffer)</div>
“Christo has been a massive risk taker his whole life,” says Syd Vianello, a retail analyst in Johannesburg, who has observed Wiese over many decades. “Africa is not a place for sissies. You’ve got to have nerves of steel. In Africa they see him as a genius.”
The breathtaking views of Cape Town, where land and sea dramatically converge to produce vistas of green mountains towering above deep blue water, can be quickly forgotten on a nine-hour drive north to the dry, hot savanna city of Upington, an unsightly provincial town alongside the Orange River, close to the Kalahari Desert. Upington does possess one unique site: a statue of a donkey, a rare tribute to the quintessential beast of burden. It is not undeserved. Starting in the 1880s, farmers, employing donkeys to pump water, tamed this rough part of the country with an almost puritanical determination.
Wiese’s father was one of those men. He owned a sheep and cattle farm, as well as a car dealership in town. “People in Upington were hardworking, very neat, very orderly – disciplined,” says Wiese. “People who were not neat always stood out like a sore thumb.” For college, Wiese attended Stellenbosch University, one of South Africa’s better schools, situated in a sleepy area awash in wine and vineyards. He studied law and became head student of his residence hall and an active member of a progressive student organization.
After graduating in 1967, he decided he’d rather return home and join the small retail business owned by his cousin’s husband than become an attorney. The company had around ten discount stores near Upington, which were called PEP. With Wiese on board and helping guide expansion, sales went from 4 million rand in 1970 to 29 million rand (around $100 million today) four years later. Fast growth, but Wiese lost interest after a moment of self-discovery.
“I had worked out for myself that I’m not really” – he trails off, as if about to utter a dirty word – “a number-two man.” There was another concern, too. “I started thinking about getting married,” he says. “And the way I lived in those days, I was away from home 20 days a month. That’s no way to build a marriage. So I thought if I go and practice law, at least I’ll be home much more.”
While working as a barrister in criminal and commercial law in Cape Town, Wiese, restless still, made a futile run for parliament in 1977 on the opposition party ticket, partly inspired by his new father-in-law, a controversial member of parliament expelled from the ruling, pro-apartheid party for dissension. Wiese also grew interested in something that has always attracted the ambitious in South Africa – diamonds. He found a mine nearer his hometown, in Richtersveld. (“The area has a stark beauty, like a moon landscape. Very sparse vegetation, very little rainfall.”) He bought it for about $20 million in today’s currency and began mining and trading diamonds.
<div id="attachment_4830" style="width: 310px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-4830" class="size-medium wp-image-4830" src="/wp-content/uploads/2017/05/AV_00022953-300x199.jpg" alt="" width="300" height="199" />JOHANNESBURG, SOUTH AFRICA – JUNE 12: Billionare businessman Christo Wiese on June 12, 2012 in Johannesburg, South Africa. (Photo by Gallo Images / Financial Mail / Hetty Zantman)</div>
Five years after purchasing it, in 1981, he sold it, and looking for his next chapter, he turned to his cousin and PEP, which by then had 450 locations, including a grocery business, Shoprite, it had added a few years earlier. In taking a check (worth roughly $100 million in current terms) for his successful, middling business, the cousin was set for life. Wiese, no longer number two, pictured something much grander. “Maybe I was more ambitious,” he says, quietly, eyebrows arched.
What Wiese envisioned was retail at its rawest, and he understood how attractive it could be. In modest, unadorned storefronts, PEP sold only the simplest kinds of clothes (“underwear, schoolwear, very basic stuff”). The choice between a white shirt and a blue one was often the most complicated one in the store. Shoprite did the same with groceries. All that mattered to Wiese’s target market – poor whites and a black population kept systematically impoverished – was price.
In a perverse twist, apartheid ensured him a gigantic customer base of some 20 million nonwhites, who made up more than 70% of the population. They were incapable of climbing the ladder or earning more money – or shopping elsewhere. And the heavy economic sanctions against South Africa meant little in the way of foreign competition. It was a perfect market: massive and artificially protected.
“Wiese saw the opportunity faster than anybody else,” says retail analyst Vianello. “He targeted the bottom end of the market, and nobody could argue his business had any element of waste. He cut out all the extravagance and gave people what they wanted at the lowest possible price.” The concept proved popular enough for Wiese to begin expanding aggressively, sometimes opening as many as 100 new stores a year. While other retailers concentrated on stores in large markets, he eagerly plunged into rural and poorer areas. He’d rather his customers spend their money in his stores than spend it traveling to them.
Wiese was maniacal about costs, a business necessity in lowmargin retailing and perfectly fitting with his personality – a billionaire who keeps spare change neatly stashed in a tiny bottle inside his Lexus SUV. “Christo is stingy,” says James “Whitey” Basson, Wiese’s right-hand man at Shoprite since day one and an old buddy from Stellenbosch University. “He’ll give me the nicest bottle of champagne as a present, and I’ll open it up, and I’ll see he forgot to take out the message: It’s a bottle from Lord So-and-So. He’s a regifter.”
To guard against corporate expenses, PEP manufactured many of its clothes in 11 factories; one was situated next to the company’s modest offices in Parow Industria. Most important, from almost the start PEP relied on a central distribution system with warehouses to store goods, a total departure from how most South African retailers operated (with many deliveries from many suppliers to each shop). “That was a no-brainer,” Basson says. “Getting one truckload to a store is substantially cheaper than getting 30 trucks to wait outside the store and offload 30 different times.”
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In 1986 Wiese spun off Shoprite and PEP into separate public companies while maintaining control of both. Good timing. Four years later Nelson Mandela was freed after spending almost three decades in prison. Apartheid was ending. South African companies were no longer pariahs, and Wiese began to expand elsewhere in Africa. A year after Mandela ascended to the presidency in 1994, Shoprite opened its first store in central Africa, in Zambia, followed by Mozambique, Swaziland, Botswana, Zimbabwe and Uganda. PEP had a similar trajectory. Their stores’ simple model made them easily exportable.
“Wiese and Basson sat down and took a view that they could conquer Africa, and they went out and conquered Africa,” says Vianello. Shoprite’s size ($2 billion in 1996 sales with about $120 million in cash flow and little debt) allowed it to move more quickly than local rivals. “How long does it take to clear a container in Angola or Nigeria? What bribes do you have to pay to get supplies in? Who on earth would finance them to put up stores? They had to build their own stores themselves. No one else would.” (Wiese insists he has spent not one rand on bribery.)
Other growth came through acquisitions. By the 1990s he had already made six purchases to expand both Shoprite and PEP, pushing PEP’s operations as far as Britain and its sales to more than $2 billion. In 1997 he bought OK Bazaars (and its nearly 300 grocery and furniture stores) from South African Breweries for just one rand. The catch? OK Bazaars was losing around $40 million annually, which was just about how much Shoprite was booking in annual profits. It could be kept on life support for just so long.
“We bet the farm,” says Wiese. He reached for a familiar page from the playbook: “cutting frills, lowering overhead,” including renegotiating several onerous leases. As it turns out, OK Bazaars had good bones and had simply been mismanaged. “Christo is a fantastic corporate deal thinker,” says Basson. “He always makes me think: What would the alternative be if I didn’t make a deal? What happens if the opposition buys the company?”
Wiese didn’t really develop a profile outside of Africa until recently, and to his annoyance, his arrival was trumpeted not by a cunning deal but by something more ignoble. It came after U.K. customs officials detained him at London City Airport in 2009 with two suitcases filled with nearly $1 million in cash. They seized it, suspecting illicit origins. The British and South African press merrily picked up on the incident – apparently suspecting Wiese had been nabbed for money laundering – and were further emboldened by Wiese’s stubbornness in fighting for the funds’ return and his insistence that the amount was “insignificant.” (The Daily Mail’s gleeful headline: “It’s Just Peanuts To Me.”) The government ended up returning the money – interest attached – but the damage was done. He still won’t talk publicly about the incident, and until recently, it was pretty much the extent of his reputation in the West.
That’s now beginning to change, and much of his activity is still in Britain. When his holding company, Brait, first showed an interest in stretching beyond South Africa in 2012, it invested in British supermarket business Iceland Foods and added to its position in November 2015, when it paid about $275 million to increase its position from 19% to 57%. Two more deals came last year: the stakes purchased in discount retailer New Look and gym chain Virgin Active. A second Wiese company, Invicta, has put its capital into industrial companies: unsexy firms with predictable, recurring revenue streams, like Singapore-based Kian Ann Engineering, a distributor of heavy machinery parts. And a third Wiese vehicle, Tradehold, watched the value of its U.K. property portfolio increase by about 50% to roughly $120 million in February 2015 (the latest full-year results available), driven substantially by new investments in the British real estate market, where it owns residential, industrial and office space.
PEP has charged into eastern Europe, too. After its initial move into this part of the continent in 2005 (Poland mostly but also the Czech Republic and Slovakia), PEP has proven its model successful there. Its eastern European stores do about $1,800 per square meter, a 60% increase from 2012 and roughly double what a comparable competitor might do. The region is now 11% of PEP’s $2.9 billion in annual revenue (up from 5% in 2012).
As PEP broadens its store expansion into Britain it will likely run up against the most entrenched competition, including venerable discount retailer Primark. Considering this, Wiese blithely expresses a malapropism: “There’s the old American saying that only three things are certain: death, taxes and competition. You can’t shy away from competition. You’ve just got to go meet them.” And besides, Primark tries to be fashionable, while PEP proudly does not. “We don’t have fashion. You can’t come into our stores and expect a wide selection of colors and pattern,” says Steinhoff CEO Markus Jooste. “Our stuff is for people who have to have it, not want to have it. It offers value to the bottom-end customer and gives them some dignity in what they wear.”
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Last December expansion-minded Steinhoff began trading on the Frankfurt Stock Exchange in addition to its long-standing listing in Johannesburg. But not before Wiese got slapped with a reminder that his international ambitions wouldn’t proceed without a false step. A few days before its Frankfurt debut German tax authorities raided local Steinhoff offices as part of an investigation into its accounting. Steinhoff dismisses the investigation as baseless, but it certainly spooked the company’s investors. The stock dropped about 15% in a month – wiping away almost $600 million from Wiese’s personal fortune.
Having long parried advances from those interested in buying his companies – including a visit by Wal-Mart heir and then chairman Rob Walton several years ago – Wiese sees himself firmly in command of his empire for the foreseeable future. Ahead, there’s one obvious final frontier for Africa’s retail pioneer: America. “We’ve been hesitant to plunge into the retail industry there. What can we teach them?” he says. “But we’re looking at getting involved there – one or two opportunities.
“In a decade I’m hoping you’ll find the business has grown, hopefully at the same pace as the previous decade. That will require a lot of thinking, a lot of commitment and a lot of energy – and I’m hoping that you’ll find me right here still.”

Africa’s Sam Walton

Nigeria is a nation that knows all too well what damage dictatorships can do. Between 1966 and 1999, the country saw several military coups, culminating in Sani Abacha seizing power. From 1993 to 1998, Abacha’s rule marked a period of oppression, inflation and poverty. As a business owner, the main objective was to stay afloat.
For those brave enough to speak out against the regime, the punishment was either death by hanging or prison. Atrocities were commonplace in an atmosphere of desolation. In 1998, when Abacha died, Tonye Cole, the Co-Founder of Sahara Group, remembers it like yesterday.
“I remember exactly where I was when Abacha died. I remember people jubilating and singing and it was as if an air of relief had happened. I remember my partner had just got married and we were closing a major transaction so he delayed his honeymoon and stayed in Lagos. It is one of those moments in life where you remember key places you were. And the first expression was that of relief from everybody and then the next day reality set in,” says Cole.
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Tonye ColeFor the first time in years, hope dispelled despair. Cole was invested and happy.
“My partners and I had been working for three years and pushing ourselves really hard. We just got to the point where we were establishing ourselves as a business. Everything seemed to be going right. We had been working on an oil transaction and collected our allocation to load the products. At that point, all the brokers who we collected our oil allocation from had been paid by us. This is what you call betting on the horse. We had taken everything we owned and put it on this single deal,” says Cole.
Cole believed there was nothing more to be done but wait for the return on investment. Then the new government cancelled every contract that was issued by the Abacha administration.
The three young men had pumped everything they had earned for the past two years into the deal. Overnight, Cole and his partners went bankrupt. The trio had invested $400,000 of their savings in the supply and distribution of oil contracts from their new venture. For Cole, this was not the first time he lost everything. The first time was the catalyst for him to take control of his own fate. Ironically, he was hitting rock bottom again.
“If you are an entrepreneur, you are going to get bad days and if you are a successful one you are going to get even more bad days. As young people, this was all we had. People had collected their commission and nobody wanted to help us. We knew we had nothing to lose. Everything was gone. The good thing was that we had records and payment to brokers and their assignments they had given us. So we put the files together and walked into the office of a man we had never met before. We waited until we had an opportunity to speak to him and we locked the door,” says Cole.
It was 2PM on a Monday. The drive to the office of Mallam Lawan Buba, Group Executive Director, Commercial and Investment, Nigerian National Petroleum Company (NNPC), was a quiet one with all three men contemplating the gravity of what had just happened. Cole remembered advice his father, Patrick, had given him years ago. He told his son to spend five years working and learning from different companies before embarking on his own business venture. Cole had already served the five years but, in hindsight, he wondered if an additional five years could have saved him from this catastrophe.
Cole and his partners spent weeks trying to secure an appointment with the man seated in front of them that day. As Cole stood in Buba’s office, a fleeting fear gripped him. They had leveraged their one good relationship with the company’s secretary to get this appointment and if things did not go according to plan, not only would they still be bankrupt but the secretary could lose her job as well. Cole tried to read the expression on the face of Buba and drew a blank. He then regained his composure and approached the man who had the power to change their destiny.
The trio made their impassioned plea to Buba, the man responsible for the allocation of oil contracts. They showed him their legitimate contracts, payments made and financial records for the past three years. Cole took a cue from his father’s days running for president of Nigeria and gave a fervent speech on why they believed they could make a difference by creating employment and establishing an indigenous oil business, one of the first of its kind.
Buba listened to their plea and told them to wait. That was the end of the journey; there was nothing more the young entrepreneurs could do. As they left, it occurred to Cole that this could be the end of a lifetime of hard work.
“Failure teaches you a lot. As an entrepreneur I am not afraid of failure but I must learn from it,” says Cole.
During the two-hour trip back home, Cole’s life flashed before him.
Cole had three major influences growing up. His creative side was nourished by his mother, who was a journalist for one of the leading publications in Nigeria. From his father, Cole learned the skills of diplomacy and how to be a mediator on account of his role as an ambassador to Brazil. From his stepmother, Cole was given the foundations of the Christian faith upon which he built his life principles. Born in January 1967 in Port Harcourt, the capital of Rivers State, Cole and his family relocated to Anambra State during the civil war. Cole had a nomadic existence, shuffling between guardians. He learned to be self-sufficient and stumbled into his career by what he calls divine intervention.
“I ended up studying architecture because the subjects I had taken for O-levels in secondary school aligned more with the profession. I went to the University of Lagos to study architecture and then found that it was something that was perfectly suited for me. It rewards extreme hard work and punishes laziness to a fault. You had to imagine things and create it in your mind long before it comes on paper,” says Cole.
After university, Cole joined Brazilian architectural firm Grupo Quattro SA where he oversaw the construction of the new Palmas city developments in Tocantins, Brazil. This was a slight deviation from his plan to work for himself.
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“When I was in university, we had already set up a business where I created architectural drawings and designs for different companies and teachers, as well as perfecting their existing designs,” he says.
Cole’s father influenced his decision to go to Brazil and leave.
“I have this belief and patriotic zeal in Nigeria and I believe we all have a role to play. My father had decided to run for the presidency in Nigeria and I decided to relocate to help him with his campaign,” he says.
Back in Nigeria, Cole Joined EMSA S.A. – one of Brazil’s largest engineering firms. He was the head of operations and business development in the country.
“They needed someone in Nigeria who could speak Portuguese and someone they could trust to implement a World Bank project. I now had this job, which was an engineering job, and it involved traveling around the country meeting government officials and business development. I had a wonderful salary at an expatriate rate, a company car and all the corporate perks. I had no interest at this point to do anything entrepreneurial. I was very comfortable,” says Cole.
Nigeria had just fallen under Abacha’s military regime. The initial hope and excitement turned to gloom. Almost overnight, the military started throwing people in jail. Riots ensued all over the country, leading to the exit of foreign businesses, like EMSA, from the Nigerian economy. The company signed off all the contracts and instructed Cole to liquidate everything.
“I said to myself ‘I am never leaving my fate in another person’s hands again,’” says Cole.
Prior to this, Tope Shonubi and Ade Odunsi had teamed up to start a new business venture in the burgeoning oil industry. Cole had turned down the offer to join the team in favour of his hefty salary and company perks. The offer was made once again, and now finding himself unemployed, Cole accepted. It was the birth of the Sahara Group, a leading private power, energy, gas and infrastructure conglomerate established two years before the end of Abacha’s rule in 1998.
All of this led to Cole walking out of the office of Buba, the man with their oil contracts. A week later, they got a call promising to reinstate their cancelled contracts over one year. Cole learned a valuable lesson.
“Don’t rely on one product and one country. In 1998, we got some of our contracts back and by 1999 we were in Ghana and then subsequently in Côte d’Ivoire, the United Kingdom, Switzerland, Singapore and the UAE.”
Today, the Group has around 20 operations across the energy sector with 660 employees. Sahara began as a facilitator in the oil sector, acting as a middleman between producers, marketers and traders. This year marks their 20-year anniversary and there is a lot to celebrate. The company has diversified into utilities, real estate, farming and infrastructure. Among its many developments is the $400-million Lekki power project in Lagos.
“When we came in there were not a lot of people in the business of trading and exploration of oil. When you talk about someone in the oil business back then, the most they would be were petrol station owners. We were the first pioneers to come into this aspect of the business,” says Cole.
Being trailblazers served the company well. The first major break happened about a year and a half after the company started. A major tool in the oil trade is the ability to have a letter of credit, popularly known as an LC. This is a guarantee taken on by a bank to make payments on behalf of the client, provided certain terms are met.
As brokers, Cole and his team will get allocations and trade them off to those who had an LC and then get their commission from the deal and plough it back into the business. For the initial period, Sahara could not open an LC, which was a major stumbling block for its growth.
“We couldn’t even open a dollar account in the beginning because the banks did not trust Nigerian businesses and this is a dollar denominated business. So we had to use a lot of innovation to get LCs. We asked our international clients to open an account for us so we could receive the payments, which they did with ease and secondly, we made sure that any LCs our clients opened, was done in our name,” says Cole.
Another major breakthrough happened when financial giant BNP Paribas approached the firm after two years of trading and helped them to finally open an LC in the company’s name.
As Cole turns 49 this year, he is slightly nostalgic when asked about his success in the oil business. He takes a deep breath and, for the first time during his interview, the charismatic and energetic entrepreneur assumes an almost vulnerable disposition as he talks of his multimillion-dollar empire.
“I am not sure I will be anywhere I am without my wife. She has allowed me to work and to be able to do what I do. I travel a lot and the ability to come in and go out without anybody being as clingy and commanding has been very helpful. Family wise, she makes me look good with everybody in my family because she is the one who keeps in touch with everyone. She is my perfect complement,” he says.
Cole met the love of his life 22 years ago at university. She was 16 going on 17 and he was in his third year of studies at the age of 18. Cole spent two years trying to convince his wife that he was the perfect match for her and years later, with three children, he calls her the glue that holds everything together.
Success can be fleeting. It has been a number of years since the company almost went bankrupt. In those days, the focus was on staying afloat as a business. Today, the Sahara Group has set up a foundation with a mandate of helping 12 million people in the next four years. The company contributes 5% of its profit to the foundation, which has worked with international not-for-profit organizations to eradicate Guinea worm disease, cataracts and cleft palates.
Faced with a global drop in oil prices, a resurgence of Boko Haram in the north of Nigeria and conflict in the Niger Delta, the West African nation’s economy is facing economic and social challenges. For Cole, his fate is firmly back in his hands. He has a much better understanding of the industry he operates in.
“We are in a boom and bust business, so these challenges are all part of life. We know when it is high and when it is low. Once oil prices are low you adjust immediately as an organization. You look at waste and how to cut it. We try as much as possible not to cut staff, we talk to them and let them understand that they need to be a lot more efficient in the things they do. It is all about planning ahead,” he says.
As Cole looks to the future, he sums up the strategy that has served him well so far.
“Let people think you have 10, act like you have only one but make sure you have 100.”

The MILLIONAIRE Of Oil And Toil

I have seen entrepreneurs mess up relationships with key people because of ignorance and the need for immediate gratification.
There are three types of relationships you will develop when you take the entrepreneurship journey. The first is personal relationships, mostly with your family and friends. The second is relationships with key people who help you get things done, such as colleagues, business partners and associates.  The third are strategic relationships with people who have experienced the success that you are aiming to achieve. These are the people that usually take the role of mentors and coaches; they will show you the ropes in business.
The third relationship is probably the most interesting and the most important. These are the people who you can have coffee with and bounce  ideas off of. They can give you advice on deals you are involved in, and if you’re lucky they will pick up a phone and call their golfing buddy to assist you. Basically, they will provide a link for you with people that will make your business more successful.
When you meet one of these people, you must be careful not to jeopardize the relationship. One of the biggest mistakes you can make is to ask for money from the offset. This is a subject that should be avoided by all means in the first meeting, unless the meeting was called for the specific purpose of funding.
The truth is the best financiers are often mentors. It is likely they will have known you for some time, and will have observed your progress. If they are impressed by your business, they will want to fund your company.
An open secret is that if a businessman admires your business, and you ask them for advice, you will eventually emerge with funding if that is what you need.
Almost everyone that meets a successful person is looking to get something out of them. You need to take a different approach to the majority of other people they meet. You need to stand out; they are more likely to help you if they can remember you and your ideas. Remember that most successful people are happy to talk freely about their story and give advice to anyone willing to listen.
My call to fellow African entrepreneurs is to build relationships before you try to extract value out of them. It’s would be even better if you are able to first to offer value to the would-be-mentor before you ask them for favours.
This is the secret that has the ability to take businesses to the next level. This is the reason that large corporations hire a professional who is responsible for managing relationships. Some companies even have what is called an entertainment budget, to cater to potential clients and the established clients. This money will look after them and in turn it will look after your income.
Daniel Jacobs, the Co-Founder and CEO of Avanoo, a revolutionary training company, was 21 years old when he moved to San Francisco with no money or connections. He decided to email C-level executives of Fortune 500 companies. Jacobs highlighted specific work he admired and expressed an interest in learning from them.
You might think that the people at these companies are hard to reach. Jacobs received responses, with proposed meeting dates, from many of them. That was the beginning of him forming relationships with leaders from huge corporations, like Coca Cola and Morgan Stanley.
Jacobs went on to start a number of companies and used those relationships to make them a success. At a board meeting of one of his companies, where some of those mentors were board members, the President of NBC said that he responded to Jacob’s cold e-mail approach because, unlike others who usually ask for a job or something else from him, Jacobs only asked for advice. Amazingly, all the other mentors agreed that’s why they helped him as well.
It wasn’t luck either. The Co-Founder and CEO of Instagram, Kevin Systrom, also has the ideology of asking for advice before expecting anything else.
Until an entrepreneur learns this simple networking trick, they will struggle to form meaningful business relationships with those that will benefit them the most.

Advice More Valuable Than Money

Building nuclear power stations in South Africa could benefit other industries that are in dire need of a leg-up.
South Africa’s cabinet has kicked off the Nuclear New Build Programme (NNBP) to get an initial 9,600MW of nuclear power which, according to President Jacob Zuma and Finance Minster Pravin Gordhan, “will be built on a scale and at a rate the country can afford”.
The cost of obtaining this much power will be around $40 billion to $50 billion over 15 years.
Contrary to the view of naysayers, the nuclear power lifetime cost is lower than most technologies. It is also the leading global baseload renewable energy source, topped up with hydro, clean coal independent power producers (IPPs), wind and solar.
The Department of Energy’s strategy has been to engage with nuclear vendor countries, and not only nuclear power plant (NPP) original equipment manufacturers, as they did in the failed 2007 process. Agreements have now been signed with five nuclear vendor countries – France, Russia, South Korea, China and USA/Japan.
These countries are able to supply modern pressurized water reactor (PWR) NPP technology, funding, construction and localization development strategies. Some offer fuel supply and fuel waste management support. These partnerships will last 100 years if you consider the full cradle-to-grave lifecycle of the modern NPP.
Government intends following a transparent procurement process, which will be placed into the IPP Office. This office is currently responsible for the successful renewable energy, baseload coal, and gas to power IPP programs.
“Only once nuclear vendors had entered their bids would South Africa have an understanding of what are the different cost levels [and] what type of technology is available… So it’s going to be a year, or two, or more before we can definitely say how long, how much and over what period of time we are going to be managing this program,” says Gordhan.
The principle vendor countries, and their own domestic technology companies, will look to share risk through international alliances and to embed a strong local content into their offering. This will provide support and funding for broad-based black economic empowerment (BBBEE), the construction and manufacturing sectors, and black industrialists.
Such Sino-Franco partnerships have been successful in building the Taishan NPP in China and the Hinkley Point C NPP in Britain, so watch this space.
South Africa’s nuclear readiness and localisation is an important issue for the initial 9600MW and could range anywhere from 20% to 40%, depending on how advanced the country’s readiness strategy is and its intentions for developing a flourishing nuclear knowledge economy.
South Africa has a proud heritage in power generation construction across all the primary energy technologies, but is now coming off a 2010 construction boom, with a big coal build now rapidly tailing off. The country’s embattled construction sector will be challenged to prepare for a nuclear build program without a well-thought-out and structured national strategy. We need to keep the momentum gained for the foreseeable future.
An early dialogue between the engineering and construction fraternity, the manufacturing sector, government and labor is therefore crucial to devise an incorporated plan for the NNBP. This plan will need to give South Africa about five years to ready itself to ramp-up into the investment and localization of the NNBP and will have to be sustained for at least the following 10 years.
The potential is for over 20,000 construction jobs to be created and a similar amount in the manufacturing and supply to the NNBP. Without a plan, the opportunity will be lost to foreign jobs and higher imported content for the NNBP.
Many industry players could be activated when the NNBP is announced. Supporting infrastructures will be a great stimulus for the local communities near the selected NNBP sites in the Eastern and Western Cape provinces. Currently the local talent pool is small. Group Five and Lesedi Nuclear Services are the only private sector companies currently fully active in the nuclear industry.
In the public sector, the South African Nuclear Energy Corporation (NECSA), Denel, Eskom and the National Nuclear Regulator (NNR) will have major roles in the establishment of the NNBP and in the supply to and execution of the projects.

Can Nuclear Power Up Other Industries?

As international investors became more familiar with the continent, international listings and debt offerings by African companies increased as the need for capital to power investments intensified. Record low interest rates globally created an issuer-friendly debt market over the past five years, while foreign equity markets also made it easy for African companies to list. By 2013, over 100 sub-Saharan focused entities were represented on the London Stock Exchange (LSE), with a total market capitalization of $70 billion which accounted for roughly 5% of Africa’s total market capitalization.
This year, the much anticipated listing of Dangote Cement on the LSE is expected to be the latest African-based issuer. As a result of this trend, many emerging market equity players have come to prefer gaining exposure to African companies via developed world exchanges as opposed to investing via the issuer’s local bourse.
Nonetheless, due to the increase in interest rates in the United States (US) and subsequent weakening of local currencies relative to the US dollar and other major funding currencies, this trend is likely to dissipate this year as repayment of foreign currency denominated bonds has become more expensive. Moreover, the implosion of developed equity markets means investor appetite for international listings may not be sufficient. For this reason, since raising capital is a continuous process, this could the perfect opportunity for Africa’s capital markets to rise up and lure more African companies from the grip of international bourses. London has remained a leading destination for African companies listing abroad for over 60 years, according to LSE. Needless to say, work is clearly cut out for the more than 23 African stock exchanges to improve their platforms to succeed in this.
Perhaps the place to start is solving the challenges of illiquidity, high trading costs and small-sized markets. In my view, the last two require the integration of regional stock exchanges, such as what has been done successfully by the BRVM in West Africa and what the East African Community (EAC) is seeking to do. In this regard, the Johannesburg Stock Exchange (JSE) could consider relaunching the Africa Board, implementing the lessons learned from the initial failed attempt in 2009. Considering the economic size of many African nations, it’ll be very expensive to operate such an exchange.
On illiquidity, there will be need for more investor education and more listings for change to occur. Surely, something is not right when the second biggest equity market in sub-Saharan Africa, Nigeria’s stock market, has a daily turnover of less than $30 million. The Nairobi Securities Exchange has 61 listings, but just 10 of those constitute roughly 90% of its annual markets liquidity. Further progress would also require African countries to harmonize their trading laws and accounting standards, set up convertible currencies and establish free trade among members.
Despite this, African capital markets have been growing and gaining recognition over the years. At the end of 2015, total market capitalisation stood at $1 trillion, up from $113 billion in 1992. African equities are now included in emerging frontier indices and Africa-focused benchmarks indices, such as the Russell Frontier Index (RFI), MSCI Emerging Markets Africa (excluding South Africa) Index, S&amp;P Africa Frontier, S&amp;P Pan Africa, and FTSE ASEA Pan Africa Index. According to PwC’s recent 2015 Africa Capital Markets Watch, over the past five years alone, there were more than 100 initial public offers (IPOs) and 336 further offers (FOs), raising a total of $41.3 billion. Furthermore, African equity markets have seen a surge in Africa-focused equity funds, such as JPMorgan’s Africa Equity Fund and the Old Mutual African Frontiers Fund, which invest directly in equity and equity-related securities of companies domiciled or listed on an African exchange.
Given Africa’s economic prospects and volatility in global capital markets, now is the time for Africa to establish its exchanges in order to offer its home-grown enterprises the services that they need, while also tapping into the growing portfolio allocations toward the continent. For Africa to emerge as an important player in the world of capital markets, a well-established capital market is necessary to provide a better alternative to its well-known rivals.
They say a journey of thousand miles start with a step – thankfully Africa has already made several steps and is closer to its destination.

Category: Investment Guide

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