Crossing Pont Félix Houphouët-Boigny in Abidjan, you get to see Côte d’Ivoire’s dichotomy clearly. In front of you, mid-rise buildings glow with neon lights through the darkness: Pepsi, Mitsubishi, MTN create a mask that hints at prosperity. But the queues of young men waiting on street corners and the cranes pecking at the drifts of garbage on the water’s edge tell a different story.
Once the region’s most sophisticated economy, Côte d’Ivoire is now a case study for the economic impact of conflict and political paralysis. But even though its election descended into violence and the country teetered on the brink of another civil war, the much-delayed completion of the transition from post-war junta to democratic state has put Côte d’Ivoire back on the path to regaining some of its former glory.
A shaky cease-fire, signed in 2003 to hold the country together after an attempted coup, led to a government that controlled the south—under Laurent Gbagbo—and a north run by Forces Nouvelles rebels.
During that limbo, investors talked about the country’s potential and the build up of money that was waiting to be released once the election finally passed. But it was delayed, then delayed again, until it seemed as though the delay would be interminable. While regional neighbors, such as Ghana, saw their economies boom and attract international investment, Côte d’Ivoire was in stasis.
In November 2010, there was one last twist. The incumbent old warhorse Gbagbo refused to yield, leading to a violent standoff. The victor, Alassane Ouattara, formed a government within the compound of the Golf Hotel in Abidjan, protected by a ring of UN peacekeepers while militias fought in the city around them.
Escalating international pressure and financial sanctions eventually led to the collapse of Gbagbo’s support. Ouattara, a former International Monetary Fund official, took over in April last year but not before the country had defaulted on its bonds by failing to make coupon payments to international creditors London Club, while its assets were frozen.
His early achievements—in reassuring investors that the arrears would be repaid and getting backing for debt relief from France—were encouraging, and today in Abidjan there is a cautious optimism. The city is not visibly transformed from two years ago, but construction projects are restarting and traffic is building. Though the change has not been dramatic, the lifting of the deadlock means that companies can finally plan beyond the short term.
“There’s a sense that a lot of things are possible,” says the director of the private equity firm Emerging Capital Partners’ (ECP) Abidjan office, Brice Lodugnon. The security situation has improved and there’s some certainty over the direction of the government, which has pledged to increase spending on infrastructure and agriculture.
The good news is that at least around Abidjan, infrastructure and utilities still function. There are good companies in many sectors and a relatively strong system of governance. Key industries, including financial services, are competitive and the country is still the world’s largest exporter of cocoa. But while Côte d’Ivoire has some of the political risk of a post-conflict environment, it does not have an abundance of underpriced opportunities. That’s a problem for investors.
Even before the crisis, there were tentative expansions into previously politicized industries, including cement making and flour milling, with companies from North Africa, as well as the country’s large French and Lebanese expat communities, moving into manufacturing and processing. Agribusiness group Olam has pledged a further $200 million in investments, while ECP is expanding its portfolio in the power sector. Rather than looking for a new cohort of investors, Ouattara’s government might find more support from those existing players, now free to make long-term plans.
Many businesses were battered by the 2011 crisis but now stoically downplay the human cost of that period, talking instead of the relief at their newfound ability to plan beyond the short term. Still, the scars are there. At the height of the violence, pro-Gbagbo forces executed one of the country’s largest foreign investors—Yves Lambelin, the former president and patriarch of Sifca. That story gets told regularly.
International investors speak highly of Ouattara. One CEO of a multinational operating across the continent said that the president—while his ability to create a government is unproven—is one of the most accomplished leaders in economic planning in Africa.
Politics are bound to be difficult. An hour’s flight north of Abidjan is Ouattara’s hometown of Bouaké, until recently the headquarters of the Forces Nouvelles. There, the difference in development is marked. The roads are in worse condition and the security presence, in the form of UN peacekeepers from Pakistan, are far more visible. People living there refer to the country’s “reconstruction”.
Further up country the situation is worse, with an entire generation denied access to education after the southern government abandoned schools. An executive in a cotton company, with an extensive presence in the north, called the state of some areas “appalling”.
Making sure that the country’s redevelopment is even and that the government—headed by a northerner—does not re-open divisions that are still fresh, will be a massive task for the new president.

Healing The  Divide Will Be  No Easy Task

Gluttony and chocolate drive birthday parties, Valentine’s Day, Easter, Christmas and Halloween.
“All of our great celebrations of life are associated with chocolate,” says Carol Off, author of Bitter Chocolate: Investigating the Dark Side of the World’s Most Seductive Sweet.
Even three million tons of chocolate a year is not enough to satisfy the world’s voracious appetite. More than two thirds of it comes from Africa.
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The chocolate craze began with the harvesting of cocoa by 16th-century Spanish settlers in Central America, where it was discovered. Five hundred years later, West Africa grows 70% of the world’s cocoa. The industry is valued at $105 billion. The Ivory Coast, Ghana and Nigeria are the world’s three largest producers. The Ivory Coast produces 41% of the world’s cocoa. It grows around $1 billion worth annually.
For more than two million small-holder African cocoa farmers—90% of which are family-owned farms no bigger than 5 hectares—cocoa is life. Aside from this, the chocolate industry is fragile. Small farms often struggle against bad weather conditions, pests and disease, which can cut yields by 40% annually, according to the International Cocoa Organization (ICCO). Ecobank predicts that this year’s delayed, but good, rains in the Ivory Coast will boost mid-crop yield to 350,000 tons: a 10% increase compared to the last 10 years. Despite this good fortune, the people who grow the cocoa complain they are being squeezed.
“Cocoa farmers in West Africa receive between 3.5% and 6.4% of the final value of a chocolate bar (depending on the percentage cocoa content), whereas the manufacturer’s share has increased from 56% to 70% and the retailer’s share from 12% to 17%,” according to the Fairtrade Foundation. It campaigns for a bigger share for the growers.
The World Cocoa Foundation (WCF) launched the African Cocoa Initiative (ACI) in mid-March. It encourages profitable sustainability by equipping 100,000 cocoa famers, over five years, with farming and management skills. The ACI increases farmers’ revenues and helps to raise low yields. The foundation’s member companies—Barry Callebaut, Ferrero, Kraft Foods, Lindt &amp; Sprüngli, Mars and Nestlé—pay for it.
While the cocoa industry is lucrative, farmers in the Ivory Coast are being wooed by rubber. Cocoa farmers are replacing ageing plantations with rubber seedlings. Rubber—after around seven years—produces a monthly income, whereas the average cocoa tree bears 30 pods over two annual crops.  This is nearly enough to produce 1kg of dark chocolate, according to the Hershey Company.
Ghana, which meets 18% of the global demand, is the second-biggest supplier of cocoa. Author Carol Off traveled to Ghana to investigate the cocoa industry. She wrote of falling abusive labor practices and better healthcare. On the other side of the coin, cocoa farmers are also accused of reporting lower yields and hiding beans to raise the market price. Illegal smuggling between cocoa producing countries is also rumored.
The Ghanaian cocoa industry is regulated by Cocobod, which ensures a fixed price at the beginning of each season. If prices fluctuate during the season, farmers are paid the difference. Farmers sell their cocoa beans to licensed buying companies. This regulation ensures that high-quality Ghanaian cocoa beans are highly sought after.
There’s an apparent paradox: Africa is the world’s leading cocoa supplier, yet the top 10 confectionary companies are outside Africa; most are based in Europe and the United States. While the challenges of producing in Africa are plenty, so are the opportunities.
Afrotropic Cocoa Processing, a Ghanaian manufacturing company, grinds over 6,000 metric tons of local cocoa beans annually. It sells its products—cocoa liquor, cocoa butter and cocoa powder—to international food manufacturers. A large percentage of European chocolate is made from Ghanaian cocoa. Switzerland eats the most chocolate. World-famous companies like Cailler-Néstle, Toblerone, Lindt, Teuscher and Sprüngli call it home.
Kraft Foods is the world’s largest chocolate manufacturer, and has manufacturing plants in South Africa, Swaziland, Botswana, Kenya and Namibia. It is leading by example with commitments of $150 million towards investment in manufacturing facilities in the Southern Africa region over the next three years. Cadbury, owned by Kraft Foods, buys its cocoa beans from Ghana and Nigeria and manufactures in South Africa and Namibia. By 2015, Nestlé, the third largest manufacturer, will add five African factories to its already existing 28. A two-fold increase in its products, in the last few years, has made it more competitive.
These companies understand that this investment is a stepping-stone into African markets. What if chocolate brands like CÔte d’Or and Toblerone, both owned by Kraft Foods, were being made in Africa? This development of skilled jobs would help to alleviate poverty and possibly decrease the cost of production.
During the last decade, Africa has boasted a 5% annual growth. While the continent is open to industrial growth, it only accounts for 1% of global manufacturing. Africa is a fertile terrain for private-sector investments in industry and manufacturing, with small manufacturers going where multinationals fear to tread. Africa has the capacity to become a manufacturing powerhouse.
Madécasse chocolate is the proof. It has created jobs by producing chocolate in Madagascar. While problems with electricity and water persist, the company is training up a skilled workforce. Maybe investing in chocolate is as simple as spotting the obvious that everyone else misses.

The World Eats:  Africa Misses Out

Africa has experienced stellar growth over the last decade. This growth has been supported by improved political stability, prudent macroeconomic policies, robust commodity demand and a growing consumer base. These factors are set to continue propelling African growth in years.
In the next couple of years, Africa is expected to be a key driver of global growth. The International Monetary Fund (IMF) expects sub-Saharan Africa to grow by an average of 5.4% between 2012 and 2013, compared to average growth of 1.6% in advanced nations over the same period.
Africa’s contribution to global growth is not going unnoticed. Cash-laden investors, benefitting from developed economies’ loose monetary policies, are looking towards the continent for investment opportunities as markets in developed economies offer less attractive returns.
Many reckon that Africa can capitalize on the economic and fiscal woes of the developed world to claim a bigger share of global growth. This argument is highly plausible. Europe, given its fiscal austerity measures which will constrain growth, is expected to remain in the doldrums for the next decade.
<div id="attachment_617" style="width: 310px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-617" class="wp-image-617 size-medium" src="/wp-content/uploads/2017/04/Kofi-Anan-300x182.jpg" alt="" width="300" height="182" />CAPE TOWN SOUTH AFRICA, 05MAY11 &#8211; Kofi Annan, Secretary-General, United Nations (1997 &#8211; 2006)</div>
The opportunity is undeniable for Africa, but with opportunity comes responsibility. As such, WEF’s theme this year could not be more appropriate. Africa is on the brink of major transformation and how this transformation is handled will shape the future of millions of hopeful Africans.
To attain the aspirations of the continent will require out-of-the-box thinking; generating creative ideas that can propel Africa to greater heights. However, ideas, no matter how grand, will remain just ideas if not coupled with bold and visionary leadership. There is no better time than the present for Africans to become doers as opposed to merely talkers.
With the flood of ideas, it is up to African leadership to come to the fore—only when African leaders realize this fact and accept the honor and responsibility of leadership, will these ideas translate into tangible results on the ground.
Unfortunately, Africa leaves a lot to be desired in the leadership category. Political developments in some parts of the continent are evidence of this. This mentality could change with the memories of the Arab Spring still fresh. Recently, the masses in Mauritania protested against President Abdelaziz and his government’s ‘anti-democratic policies’. There is a real risk for unrest in sub-Saharan Africa as people grow increasingly frustrated with poor leadership, which perpetuates underdevelopment and poverty.
Strong leadership is the foundation of Africa’s transformation. Africa needs to invest heavily in both social and economic infrastructure. In terms of social infrastructure, Africa needs to direct significant resources towards health and education. Growth and development will only occur in conjunction with a healthy and skilled population.
According to the World Bank the number of people living in extreme poverty halved in 2010. But more needs to be done, especially in Africa where the challenges are greatest. Robust investment in health and education will go a long way to achieving the United Nations Millennium Development Goals (MDGs).
Equally important to social investment is investment in capital infrastructure. Africa needs to direct enormous resources towards infrastructure development to ensure economic growth in years to come.
Regional economic integration has also been highlighted as key to the growth of the continent. According to a 2010 McKinsey &amp; Co. report, intra-African trade accounts for just 12% of the continent’s total exports. By comparison, regional trade in Western Europe accounts for 61% of exports. African leaders need to take the opportunity to boost economic ties between their counterparts and work towards enhancing trade networks to take advantage of the continent’s growing consumer market, thought to be worth at least $860 billion.
African governments have already taken heed. Almost each and every country on the continent has earmarked significant resources in their budget for infrastructure development. South Africa, the continent’s biggest economy, has budgeted R845bn ($108 billion) over the next three years for capital expenditure.
Infrastructure development will be wasted if not accompanied by regulatory enhancements that improve the ease of doing business on the continent. Africa lags behind the rest of the world in terms of the ease of doing business and governments need to eliminate red tape to ensure that their economies are conducive for business. This will ensure that business invests in that economy, which will translate into job creation, in turn denting the continent’s worryingly high youth unemployment.
The fact that 2012’s WEF on Africa being held in Addis Ababa, Ethiopia, is in itself significant. Ethiopia is the second most populous country in sub-Saharan and a prime example of Africa’s fastest growing economies—according to Ernst &amp; Young, Ethiopia is set to grow an average of 7% over the next decade; well above the average growth of 5% predicted for the rest of the continent. WEF Africa will attract global and pan-African leaders who will help shape Africa’s transformation to ensure that the continent takes its rightful place in the global economy.

The Time For Africa To  Cash In Is Now

The South African Reserve Bank (SARB) has admitted that not all required quality criteria were met in the production of krugerrands by the South African Mint—which is wholly owned by SARB.
Tests on certified krugerrands have been carried out in the presence of FORBES AFRICA journalists. The results show that some contain less than the required amount of gold. The highly-valued collector’s items make up an industry worth billions of dollars. Depending on the gold price a one ounce, proof krugerrand is worth around $2,000.
<div id="attachment_613" style="width: 484px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-613" class="size-large wp-image-613" src="/wp-content/uploads/2017/04/IMG_2917-1024x683.jpg" alt="" width="474" height="316" />Patrick Willis</div>
Patrick Willis, a South African gold investor of 12 years, is behind the claim. He noticed that a number of his krugerrands were losing their lustre—often a sign of too much copper and zinc. These are base metals used to strengthen the gold and decrease wear and tear.
“The issue is that they are under spec. I made the discovery about the colour. It has not happened anywhere in the world, where a national mint produced coins for sale that are under spec,” said Willis.
Tests on several krugerrands found that some were “under specification”—as they say in the trade. By law each krugerrand has to contain at least 91.7% gold. This measure is so important that international gold mints often include a small amount of ‘extra’ gold to ensure they reach the stipulated requirement. A gold assay test proved that one of the coins in question had merely 87% gold. That is nearly 5% less than it should be.
“If I see such a result, I will panic. I’m not pointing any fingers. This is quite anomalous [referring to the 87% result]. I’ve never seen something like that on a coin before. It cannot be explained by sample prep [the margin is too large]. That is a big red flag right there,” says Jaco le Roux.
He is an employee of Spectromed—a company which sells and conducts tests using Niton XRF analyzer guns—who tested multiple krugerrands using the Niton analyzer in front of FORBES AFRICA journalists to verify the results.
The disgruntled krugerrand owner took up the issue with SARB. Natanya van Niekerk, acting head of numismatic coins, at the SA Mint replied:
“As the krugerrand is the flagship of the South African gold industry and has reputational value to South Africa, we will leave no stone unturned to rectify the situation. I am of the opinion that the coins in question are now strictly speaking illegal and that the Reserve Bank has the right to demand all the coins to be returned.”
Hlengani Mathebula, head of group strategy and communications at SARB released an updated media statement on April 13, claiming: “…investigations into the matter have revealed that some of the proof krugerrand coins casted between April 2011 and May 2011 may not meet all the required quality specifications.” Early investigations show that of the 1,500 krugerrands minted in this time only six have, so far, have been found to be under spec.
The SA Mint called a meeting with a number of local and international dealers. They explained that the April and May 2011 batches were under spec. In his most-recent statement Mathebula continued, “…should any of the dealers have reasonable concerns that some proof krugerrand coins may not comply with all required quality criteria, they could return such coins to the SA Mint.”
At stake is the reputation of the gilt-edged SA Mint which created an optimum way in which to market South Africa’s gold. Kruggerrands are one of the safest and most effective ways to secure assets against uncertain markets. They are called ‘liquid gold’ since there’s never a shortage of buyers who can easily turn them into cash.
Willis risked devaluing his investments by performing Niton XRF tests and destructive fire assays on proof krugerrands. The SARB is threatening FORBES AFRICA’s anonymous source with legal action for “destroying legal tender” in order to conduct the fire assays. During a fire assay test, the metal object is smelted to determine its composition. However the concentration of gold would not be accurately proven, without such procedures. This is because the Niton analyzer is not a certifiable method of testing gold quantity. It is not as accurate as a fire assay. However results can be proved against known certified materials.
“The Niton analyzer gives a chemical analysis within a couple of seconds. It quantifies content and concentration in metallic objects. The results are shown onscreen. Its limiting factor is that it depends on the sample prep. If the sample is not clean, or flat or contains impurities on the surface, the results may be misleading,” says le Roux.
The same sample underwent a fire assay at two independent refineries. The results from First Refinery showed it was 87.40% gold while the results from Rand Refineries showed 87.46% of gold concentration. These results prove that the Niton analyzer was fairly accurate in comparison to the fire assay. When the SA Mint was alerted to the results on October 25, it collected the samples and test results to conduct their own investigation.
“Our assay indicated that this batch was in spec when we casted this. If we are at fault, we will make it good to the customer as we followed our procedures and something could have happened. We want to know what happened to ensure it is not repeated in the future,” wrote Tom Davel—while he was still in office—in correspondence with our source.
There is no proof that this is linked to the suspension of both the managing director, Andile Mvinjelwa, and the general manager of Numismatic Coins, Tom Davel on December 8. Their press release stated: “The board has become aware of certain technical issues within the operations of the South African Mint Company. Investigations into the matter have been instituted and are ongoing.” No results from the pending investigation have been produced.
In the statement related to the two suspensions at the SA Mint last year, Mathebula said, “The Mint is a high-security area for SA and I cannot reveal any details of the operations. There are no irregularities. Technical operational issues are being investigated.” He maintained that the suspensions could “never be related to fraud.”
A disappointed Willis said, “Surely, that kind of company would want to be transparent with everybody, seeing as it is a touchy subject and a worldwide distributed product from South Africa. If I were a dealer in South Africa or any other country, and I had coins which were part of the batch that is said to be under spec, I would certainly want to return them to the SA Mint and say ‘give me back my dough.’”

All That Glitters  May Not Be Gold

In Aliko Dangote’s new book, Dangote’s Ten Commandements on Money: Lessons on How to Make Money from one of the World’s Richest Men, Nigeria’s richest man pays a visit to Kings College, Lagos. While there, signing autographs for a crowd of students, he notices a quiet 12-year-old student called Mike. In a manner reminiscent of Jesus selecting his disciples, Dangote reaches out to the boy and decides to mentor him. Young Mike spends the next four years combining school with keeping up with Dangote’s punishing cross-continental schedule, taking lectures from the billionaire, based on the ten commandments of the book.
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That tale, albeit pure fiction, is an attempt to illustrate something that lies at the core of Dangote’s personality: his strikingly unassuming and down-to-earth nature; as well as his commitment to bettering others.
Those privileged enough to meet Dangote like to trade stories of his self-effacing manner: the billionaire walking unaccompanied from his jet into Abuja Airport’s arrival hall or mingling at the exclusive Ikoyi Club in Lagos.
Dangote is something of a folk hero among the powerful of Nigeria. At a recent event in Lagos, a federal minister spoke in awe of the billionaire; describing Dangote as a man who, if woken in the middle of the night, would effortlessly reel off numbers pertaining to his numerous businesses. The lesson there—this is a man not too big for the boring details of his businesses.
For a man who runs such a large empire, there is no hint of a harried existence. Newspaper and internet images reflect a man with a shy smile, framed by a trimmed salt-and-pepper beard. More often than not, he is dressed in a suit; a rarity among Nigeria’s billionaire-entrepreneur class, who generally tend to favor national dress over the colonial look. He keeps his family life very private.
Dangote is a football lover, a long-time Arsenal supporter. In 2010, it was whispered that he was considering buying a stake in the London club, but Dangote denied this.
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It is tempting to believe that his acquisition, in 2010, of a $45 million Bombardier jet to celebrate his 53rd birthday was less an act of ostentation, more a desire to make his frequent long-haul flights more comfortable.
No doubt, beneath the calm, almost carefree, exterior is a restlessness that drives a relentlessly expansionary business instinct. He has, within the last few years, built the two largest cement plants in Nigeria and is at the moment on a continent-conquering factory construction spree.
Another interest is philanthropy; Dangote is often in the news for doling out sometimes mind-boggling sums of money to governments and charitable causes across Nigeria.
Between September and November 2011 he gave out more than N1 billion ($6.3 million). Six hundred million naira ($4 million) of this went, via the Dangote Foundation, to Nigeria’s north-central state of Kano for its Women Empowerment and Free School Feeding program. Another N500 million went to beneficiaries in at least five states drawn from across Nigeria. In 2011 the Dangote Group donated $6 million to Nigerian universities, as part of its corporate social responsibility initiative.
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He has a knack for building close, intensely beneficial relationships with governments, and the ruling party, yet generally stays away from frontline politics. His closeness to former Nigerian president Olusegun Obasanjo brought many benefits his way, including an honor. Dangote stirs up heated debate in Nigeria. To some, he is a cold-blooded capitalist and ruthless monopolist. To others, including most who work on the Nigerian Stock Exchange, he is the best thing ever to happen to the country’s economy. US diplomatic cables, released by Wikileaks, describe him as having “taken on the aura of an economic folk hero for some, villain for others.”
What everyone agrees on is how significant he is to the Nigerian economy. His cement company single-handedly accounts for a third of Nigeria’s stock market capitalization. Last September, Dangote’s name came up in a statement President Goodluck Jonathan made; one that would become famous.
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“Aliko Dangote told me that by December 2012, we would be exporting cement here. I am quoting him,” the president said, on national television.
Nigerians on social networking sites quickly adopted “Aliko Dangote told me…” as a catchphrase.
In reality Dangote is a man of few words and has little time for flamboyance but when he does speak, we would be foolish not to listen.

The Economic Folk Hero Behind A Shy Smile

He tells his investor relations teams to discourage “the wrong kind of investors”, wants more global environmental regulation and taxes and believes that companies have an overwhelming responsibility to their supply chains. Sunny Verghese has an unusual outlook on business.
The Olam CEO has overseen the remarkable growth of the agricultural producer and processor from a sideline operation in Nigeria to a global business spanning 65 countries. The company’s success has come in part by turning social responsibility into a competitive advantage, making a solid business case for the kind of social investment that is only now finding its way into mainstream corporate culture.
Olam began with modest goals in 1989 as an offshoot of the Kewalram Chanrai Group, which had been operating textile factories and cotton spinning operations in Nigeria since the 1960s. When the oil price slumped in the late 1980s, the country began to suffer from an acute shortage of foreign exchange, and businesses struggled to find hard currency to buy inputs and spare parts. In response, the Kewalram Chanrai Group looked for a sector with quick export potential. They began with cashews, and expanded from there.
“When we looked at what was required for us to win in this business, it became evident that the large players were already very well entrenched and we were late to this game,” Verghese says from the company’s Ivorian headquarters in Abidjan. Despite the fragile political situation in Côte d’Ivoire over the past few years, Olam has continued to invest, opening the world’s largest automated cashew processing factory in February in the northern city of Bouaké.
In the late 1980s and early 1990s, the industry was undergoing huge change, as West African economies liberalized and broke up the state monopolies overseeing their commodity exports. The cocoa and cotton boards disappeared and were replaced by a fragmented, poorly structured industry of traders and license-buying agents, who had previously bought at the farm gate on behalf of the government. The rules of the game were changing, and Verghese saw an opportunity to take on the existing players.
“[Before] they could sit in London or New York or the major commodity trading hubs and source their raw material from the government monopolies, without really having to come here, dirty their hands or manage the emerging market risk,” Verghese said. “When the government monopolies started dismantling and disappearing, they started facing significant counterparty risk issues.”
The new traders were not able to manage pricing risk, so when the markets turned against them, they would default, leaving international customers without supplies.
“It was difficult for the customer overseas to come and enforce his contractual obligations in these markets. So counterparty performance and forward selling premiums became big issues under those circumstances,” Verghese explained.
“That’s when we realised that we had a significant opportunity to develop supply chain infrastructure and build counterparty credibility that was very high, so that in other countries, given the volatile pricing environment, we were still able to deliver reliably on a contract.”
Olam thrived in the new African markets, spreading across the continent and into major commodities, such as rice, cocoa and cotton and in niche products, like cashews. To do that, he explained, “we started at the origin and we resorted to buying at the farm gate, or as close to the farm gate as possible.”
But this was only part of the struggle. Creating supply security meant building loyalty and improving the lots of the smallholders that make up the majority of growers.
“Buying from the farmer directly, helping him improve his productivity, providing him [with] microfinance—in terms of loans—or agricultural inputs and market access, helping him to upgrade the quality he was producing, allowed him to dramatically raise his income and his livelihood, and therefore become a loyal supply partner for us.”
Verghese talks in terms that are becoming common in emerging markets and agribusiness. Companies, from brewers to traders, have begun to articulate what the Olam CEO calls “mutuality” to their investors and shareholders.
The reasons, he says, are relatively straightforward. Beyond it simply being “the right thing to do”, being welcomed into a country and being sensitive to its context is fundamental to being able to work there unimpeded.
“We believe in emerging markets it’s relatively easy to get a license to operate from the government but it is tougher to get a license from the community to operate in those markets,” he says. “You can only build a sustainable business in these markets when the community gives you license to operate. If they see you as a foreigner, as an exploiter of their resources, as not adding any value, they don’t want you there.
The growing trend towards consumer activism and responsibility has added momentum to the requirement.
“Our customers, like Nestlé or Unilever, in turn have demand from their consumers who are not satisfied in snacking on a bar of chocolate or drinking a cup of coffee without asking searching questions about where this coffee or cocoa is coming from. Is there any child labor involved? How environmentally sustainable is the supply chain for this product being used in their chocolate or their coffee?”
The company is creating its own “Olam standard” of sustainability, and is in the early stages of an environmental footprinting exercise to work out the carbon impact of its individual products and supply chain.
Verghese can rattle off statistics about the threat that climate change poses to the world’s population, and the links between global energy, water and agricultural supply. He talks about the water requirement per kilogram of meat in the same terms that most CEOs talk about their financial statements. His sense that there is an imperative to act, despite the high cost, is strong, although he acknowledges that to do so alone risks unilaterally imposing a drag on the company. The competition could gain short-term advantage by avoiding unlegislated “obligations”.
“It’s a catch-22 situation,” Verghese says. “We believe that the long-term solution is that carbon should be priced and carbon should be taxed because you cannot influence behaviour if that is free.
“I think stakeholder pressure will intensify to a level where everybody will have to comply with the minimum standard. So we are taking the view that it is the right thing for the sustainability of our business so we should do the right thing here, because if you want a business that is enduring, then we can’t take [that] view.”
The issue of “enduring” business, and the kind of long-term view that encourages corporate responsibility, is difficult in the current funding environment. Olam listed on the Singapore Stock Exchange in 2005 and the demands of “typically transient” shareholders with short-term investment horizons frustrates the strategist in Verghese.
“When we are investing in plantations, say a rubber plantation, the first yield is [after seven years]. The first maturity is [after] 12 years. The cash flow break-even is in 14 years,” he said. “As a CEO there is very little incentive for you to think that far ahead, because analysts are looking at the next quarter and getting upset if you [deliver] below expectations.”
“The problem with the current capital market structures and CEOs and their time horizons persuade people to be very short-term in their outlook.”
Despite this, he has no intention to change tack.
“I tell my team your job is not to go and market the company, your job is to go and de-market the company,” he said. “You have to tell them ‘are you sure you want to invest in us? Because here is the deal: we’re going to be cash flow negative for five years’. Most people would fall off their chair.”
Continuing with the heritage of the company’s early days and trying to improve its footprint “from seed to shelf” is going to become a competitive advantage all over again, as best practice in sustainability becomes more widespread and pervasive.
“One of the reasons why we have succeeded is the way that we have innovated our business model,” he says.
“We feel that benchmarking best practice is an important first step, but is lousy strategy, because at the end of the day, everybody is trying to follow best practice, so if you achieve that goal, you will at best be at the middle of the pack.
“You can never be a leading company, or a very successful company, by just being middle of the pack. If you want to be exceptional, you need to create the next practice.”

Tag: May 2012

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