Play the Game of Life
Ryan Petersen's Blog

With barely 24 hours advanced notice, more than seventy-five CBSers attended an October 1 talk by Simon Harford, CEO for West Africa of Actis, a pioneer in emerging markets private equity.

Mr. Harford began the discussion of private equity and entrepreneurship in Africa by painting a very rosy picture of the economic outlook for the continent, with particular emphasis on Nigeria, a place he has called home for the last several years. He expressed optimism in the ability of the private sector to succeed in creating progress in places where decades of foreign aid and poor governance have accomplished little.

However, he emphasized that Africa suffers from a shortage of well-trained managers who are prepared to lead the next generation of business ventures on the continent. Mr. Simon concluded by saying that before Africa can ever come close to its potential, it must handle the problem of corruption.

A native of the UK, Mr. Harford first moved to Nigeria three years ago as the founding CEO of Virgin Nigeria, a joint-venture between Virgin Atlantic and Nigerian institutional investors. He joined Actis to run its West Africa arm 1.5 years ago, and is currently helping to raise the group’s next fund. Professors Murray Low and Paul Tierney, Jr. invited Mr. Harford to visit CBS as part of their new master class, Entrepreneurship in Africa.

Mr. Harford pointed out that Nigeria’s economy has averaged +/- 6 percent economic growth for the last several years, and emphasized that if you remove the oil industry from these statistics, growth approaches 8-9 percent. Likewise, foreign direct investment has doubled in recent years to about $6 billion in 2005, while FDI in the non-oil sector have increased from $0.3 billion to $1.7 billion.

Mr. Simon pointed out that investments from foreign companies are already beginning to dwarf aid money from the UN and loans from the World Bank. Similar trends can be seen across the African continent, presenting what may be the greatest investment climate since independence.
Not surprisingly, then, stock markets across the continent are soaring. Indeed, according to Mr. Harford, the stock market in Lagos is arguably approaching levels of “irrational exuberance” comparable with those seen in Shanghai. He attributed the run-up in Nigeria’s markets to three factors: GDP growth and pension reform has lead to greater savings, which are being invested in the markets; government crack-downs on money laundering have made it harder for “dirty” funds to be transferred overseas; and finally, the influx of foreign capital flows.

The country’s burgeoning capital markets ensure that raising money for a business venture in Nigeria is no longer the biggest problem. If an entrepreneur or business person tells that they cannot raise the money they need to grow, one can assume immediately that there is something wrong with the business plan, the management team, or some aspect of the operations themselves.

Rather, the major obstacles to entrepreneurship are corruption and a shortage of management. Mr. Harford said that several of his friends had tried starting businesses in Nigeria but were frustrated by the obstacles and costs of bureaucracy and demands for bribes. He also shared several stories about such challenges he faced as CEO of Virgin Nigeria. Although he says that he maintains a zero-tolerance policy for corruption, and that he has never paid a bribe of any sort—not even in his personal life—he acknowledged that such a policy is both extremely difficult, and vastly easier for one in his position managing a relatively large and high profile business, whereas a small business owner will often face greater challenges.

In addition to endemic corruption, Mr. Harford also pointed that African companies often cite their concerns of insufficient management pool. However, from the looks of enthusiasm in the audience, it appears that at least a dozen or so African CBSers are eager to prove him wrong.

Labels: actis, Africa, corruption, entrepreneurship, private equity, simon harford