Posted by: beninmwangi | April 24, 2007

Thomas Friedman’s Theory-Are There Any African Examples?

Recently, I came across another article from the acclaimed Thomas Friedman that dealt with the economic plight of African nations. If it had not been for Angel Africa, I would not have had a chance to read the article because I do not currently have a subscription to NY Times. Because I am not sure whether you have on-line access to the NY Times, I have uploaded a .PDF copy of Thomas Friedman, NY Times (click it again on the page that opens).

In the short span of 13 small paragraphs, Mr. Friedman covered quite a bit of ground through vivid examples and follow up analysis.

But, what I took out of his article was his emphasis on how much Africa seriously needs more entrepreneurs. OK, easier said than done is what you might be thinking, right? Well, fortunately he goes a step further and says that in order for entrepreneurs in Africa to really flourish and thrive. I mean really thrive…at the levels required to make a very concrete impact on local economies, there must be a more practical source of funding for these entrepreneurs.

I strongly agree with Mr. Friedman on this too. And the way that he explained this concept of patient capital sort of reminded me of something called social investment. He basically says that patient capital has a smaller expectation of return-like 5% to 10% over a longer period of time than conventional financing sources.

After reading this article, I began asking myself are there any financial organizations out there that really fit this mold. As we write, I am still not sure. There are some that come to mind which might be the type of thing that Thomas Friedman talks about. This is the closest that I have come to saying that maybe patient capital does exist in practice and possibly is already at work in Africa.

Social Investment Organizations

Investment Clubs

Hybrid Online Groups

Alright, so my question for you is…based on what you have read in Thomas Friedman’s article I’ve got three questions for you:

  1. Is this topic relevant to entrepreneurs in Africa?
  2. Do you think that the links above represent patient capital?
  3. If the links above don’t sound like what Mr. Friedman was talking about, then does a practical version concept exist, today?

I am really curious to hear your thoughts, so please speak your mind…

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Responses

  1. Thomas Friedman’s article for the New York Times is a perfect example of what I have been saying for years, particularly his focus on the small Kenyan company that is manufacturing base products for the pharmaceutical industry from plants grown by 1000’s of small-scale farmers. Africa’s future does not lie beneath the ground in the form of minerals and oil and gas, but above the ground in the form of unique and precious biospheres and the diversity of its flora and fauna. Africa’s future is Green, not gold or diamonds.

    Have a look at the Social Entrepreneurship foundation Ashoka.org, setup 25 years ago and headed by the renowned Professor Bill Drayton, winner of the 2007 CASE Leadership in Social Entrepreneurship Award. They’ve recently started an Ashoka Venture Fund to help entrepreneurs get a start in developing nations where Ashoka is active.

  2. Less emphasis needs to be on the funding aspect of entrepreneurs of whom there are too many to mention here (just look at a Naiorbi phonebook)

    As a banker, I see many of their funding requests at the latter stage (i.e. they are well established at this point after several years of profitable trading) and one notable thing is that they don’t start out with bank borrowing – they grow through reinvestment, seeking new opportunities, and sound decision making.

  3. BRE:

    Thank you so much my friend. I really, really appreciate that you stopped by and spoke your mind. You really could be a university professor. I am even educated by reading your posts on jewels in the jungle.

    Also, its funny how there can be so many ways to interpret someone else’s writing. That has gotta be the real beauty in life-diversity! Thanks for showing me a knew way to look at this article. And now that I have had a chance to get your point of view, I would have to agree with you 110% Namely because the stuff underground is just a bunch of commodoties that usually don’t find their end value until processed somewhere else outside of Africa’s shores. Whereas the “Green” resources usually receive some value added processing whilst still on the continent. Plus, on top of that they are in very heavy rotation which means someone producing them is more likely to be a price maker, than a price taker.

    Thanks again BRE, by the way your posts on the election in Naija were off the charts in the amount of clarity that you brought to the situation. As always, excellent work!

    Bankelele:

    Thank You! Thanks for keeping things in perspective. Very on target. As a banker you are reminded every day that funding is only one piece of the production puzzle. But entrepreneurs must also add to the tool kit (otherwise known in Econ. as factors of production) creativity or that entrepreneurial mindset, labor, product inputs, process, AND capital to make it work. Often when starting out most entrepreneurs are heavier on the creativity and processes side and if able to show a profitable model with primarily those two ingredients, then an investor will believe what they are hearing.

    Thanks, Bankelele , truly you and Black River Eagle have helped to make this post more enjoyable and more multifaceted.

  4. Just downloaded the article I will read it right away. I am missing from the blogroll, I would very much love to be on it. Haha.

  5. Geez, A blue book exam!

    1. Yes.

    2. This seems like a trick or loaded question.

    Clearly the nine organizations you link to provide or facilitate investment in Africa.

    Friedman seems dismissive of micro-credit: “See India.” Friedman’s pompousness appalls me; as if the story of India is so easily understood. Business depends on infrastructure, which is seriously deficient in many African communities. Ethan Zuckerman posted an interesting article today A talk at the World Bank, and the meeting I almost (accidentally) crashed that touches on too facile generalizations about the Indian economy.

    Microlending is patient investing, but not the sort that Friedman approves.

    Not surprising that Friedman was such a vigorous supporter of the USA invading Iraq. For him the free-market Utopia planned for Iraq was a slam dunk. But it hasn’t turned out that way.

    From The New York Times: “Omar Hussein Ahmed, an olive oil exporter in Mogadishu, the capital, said he and a group of fellow traders recently bought missiles to shoot at government soldiers.”

    “’Taxes are annoying,’ he explained.”

    The Neo-Con plan for Iraq and the Somali Traders are opposite sides of the same coin when it comes to hubris about the power of capital. Investments of attention are often seen as meaningless, especially so to those who believe that a little more capitalism will solve every problem.

    My point is not to denigrate business, far from it. But to suggest that social investment organizations and organizations who work to provide economic inputs to develop markets are not in opposition to business rather are part of creating a climate where business investment can prosper. The significance of Kiva and C4-World are not limited to the money; they involve the attention of a network of people. Most Kiva investors invest less than $500, but they also roll that money into new businesses as their loans are repaid. They are paying attention.

    Novartis investing in ABE was certainly calculated with returns in mind. But as the malaria crisis escalated in Africa during the 1980’s pharmaceutical companies were not rushing to invest in research for medicines. They still aren’t. The Global Initiative creates good reasons for Novartis investment in ABE, and the Global Initiative hasn’t frown out of market forces but political involvement.

    Ethos Water was recently purchased by Starbucks. There’s been a lot of hand wringing about the Starbucks brand lately. Now that Starbucks sells food and a McDonalds sells a decent cup of coffee for $.30 less how can Starbucks still remain so profitable? Perhaps the Ethos Water purchase is similar to Novartis’s investment in that both companies recognize that the attention economy isn’t so easily measured as the money economy but both are significant to their financial bottom lines.

    A very interesting article at World Changing Footwear for Humanity covering two shoe companies plowing a furrow in the field of social entrepreneurship. Particularly significant is the Ethiopian company SoleRebels. “Our operational philosophy includes the principle plus provision — of an honorable and proud wage for artisans — a wage that honors their skill, dedication and outputs.” The compensation also includes many benefits.

    Social entrepreneurship is becoming mainstream. The investment by Novartis has to be understood in a political context that is influenced by the attention economy. I think patient capital in Africa entails more than simply a willingness to wait for returns. It evolves a willingness to take as a measure of success the social impact of their endeavors. Patient investors in Africa will benefit from this shift in thinking. The same goes for investments in the USA, or else we truly are in a race to the bottom.

    Freidman can mock the $50 sewing machine, but Kiva is on track to provide $2M in loan in April of this year alone. That’s not huge, but hardly insignificant.

    3. Black River Eagle is right to point to Ashoka and Acumen Fund, both represent practical versions of patient investments; but probably not the sort of thing Friedman had in mind.

  6. Zopa – Money Making Potential?

    Zopa is a social lending and borrowing website that allows you to exchange with other people in the community. The site was founded through consumer research showing people were fed up with borrowing money from banks who make huge profits and that cert…

  7. this article raises a good point African entrepreneurs need acces to more capital wether they are heading a start-up, a well established medium sized company or a corporation.
    the article should have highlighted the lending patterns of banks and other lendind institutions in Africa. Who and why do they lend money ? How insightful and objectif the executives at these banks are ?
    We often ( at least in Ivory Coast ) realize a clear disconnect and lack of trust between the old guard and the new school, will it be because they do not share the same aspirations,desires,needs,wants,cultural references ?

    Another aspect the article could have covered was the informal source of funding, what Zoper and the others are doing is nothing new, that is how the mafia, jews and trade inclined ethnic groups in Africa raise funds( see mandiguo,Igbo,Bamileke ,Libanese) .
    To facilitate lending and borrowing of money amonf individuals outside of the banking system has always existed. It is true that these applications allow individuals not connected by ethnicity,religion,race or geography to interact.

    How can we encourage the same to done so that a senegalese can lend directly to a zimbabween or a south African to lend directly to an Ivorian ? The answer lies with forward thinking Panafrican banks . They could create the platform,the filtering process,the foreclosure methodology etc…
    They can set a maximun amount that can be loaned thru the system so not to compete with their own products.

    Another option could be the creation of investment funds by existing entrepreneurs in an industry, a bigger industry will benefit them in long run. Financing other companies brings more brains,smarts,know-how,labor,technologies,invention etc..
    they will create clustering,concentration of know-how and they win regardless by either being the best in their industry or having equity interest in the best company.

    As a conclusion, while we wait for the two options mentioned above to become the norm,let’s encourage young professionals to invest in Africa’s real estate,securities,businesses that are not their own,

  8. Frederic:

    Thanks for the comments. You spoken plenty of insight.

    I bet someone who could answer your question on how African banks lend is Bankelele, whose blog you may goto by clicking on his name in one of the earlier comments on this post.

    Oh, my friend, you are too right about the informal lending networks-they abound in Africa. They typically work around small groups of merchants who take a portion of their proceeds to anotther merchant and then that merchant inturn lends it to another member of the group and the process keeps repeating itself. This is one solution to finding money, especially for micro-enterprises. Although, beyond micro-enterprises it may not be as viable.

    Pan African banks, I agree. In fact within smaller regions of AFrica, there are already some banks that are doing this-Nigeria seems to be home to a large number of them who have spread their wings into Ghana and Cameroon.

    What do you think that it would take for larger numbers of young professionals to invest in African industries and companies?


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