A guide in Africa
Why investors in frontier markets need someone to show them around
CARDBOARD BOXES are not sexy. But they are useful: imagine trying to shift a lorryload of eggs from farm to shop without packaging. Because boxes make it easier to move things around, they allow shops to stock a wider variety of goods at lower prices. So to run a cardboard-box factory in Africa is to put more and better food on African plates.
The Riley Packaging plant in Uganda is quite a sight. From wall to wall and floor to ceiling, it is crammed with vast rolls of paper. A visitor feels like an ant gazing at stacks of toilet rolls. A management consultant might ask: why does Riley need to keep so much inventory—three months’ worth—heaped idly on the floor? Surely there are better uses for the firm’s capital?
Actually, no. The paper has to be imported. Uganda is landlocked. The nearest port, at Mombasa in Kenya, is more than 1,000km (620 miles) away on iffy roads. Containers passing through customs there face long and unpredictable delays. The factory keeps masses of inventory because it cannot rely on supplies to arrive just-in-time. And “we can’t ever let customers down,” says Ashish Thakkar, a part-owner of the firm.
Ignorant investors beware
Global investors are salivating over Africa. They know the continent is growing fast and they want a piece of the action. But how? There are not enough listed African firms to absorb even a fraction of the ignorant money itching to flow south of the Sahara.
The real money in Africa is in selling stuff to the emerging middle class. Plenty of foreign firms know how to make things that Africans want to buy. But they don’t know their way around Africa. They need a guide. That is where Mr Thakkar comes in. He is the founder of the Mara Group, a conglomerate that helps outsiders do business in Africa. Mara has fingers in pies of every flavour. Its joint ventures not only make boxes in Uganda; they also make glass, build hotels and operate call centres all over Africa.
Mr Thakkar is no expert in any of these businesses. Ask him what exactly Mara does for IBM to help it fulfil its IT contract for Bharti Airtel, a mobile-phone firm, and he puts the man in charge on speakerphone to explain. In a typical Mara venture, the foreign partner provides the technical expertise. Mara offers local knowledge: how to buy land, cope with red tape, promote the business, manage relations with suppliers and so on.
This is a potent business model. For all the current optimism about Africa, it is still a tough place to do business. Mr Thakkar knows this only too well. His family arrived in Uganda (from India) in 1890. They lost everything in 1972, when Idi Amin, a dunce of a despot, kicked out Uganda’s Asians and grabbed their shops. The Thakkars returned to Africa in 1993: to Rwanda, shortly before the genocide. They lost everything again. Mr Thakkar, who was a schoolboy at the time, saw bodies strewn in the streets as he was evacuated. Undeterred, he started his first business when he was 15. Every weekend he flew from Entebbe to Dubai to fill a suitcase with electronic gizmos, which he took back to Uganda and sold. The Mara Group now employs 7,000 people. Since it is privately held, it is impossible to say how profitable it is, but Mr Thakkar says margins are “decent”.
Mara is different from other African fixers in two ways. First, it is pan-African. Most fixers only have contacts in one country; Mara has operations in 19. This is crucial. Many African countries are small. Multinationals would rather sign a single pan-African contract than lots of small ones. Starting in Uganda, where his family knows everyone, Mr Thakkar has forged ties with bigwigs across the continent. It helps that his family knows the other Gujarati business families in east Africa. It helps even more that Mr Thakkar gets invited to shindigs like Davos, where African presidents are plentiful and far more approachable than at home.
Second, Mara has a brand: a reputation for integrity, and for getting the job done. This was hard-earned. Once, when the operator of a box-making machine was sick, Mr Thakkar grabbed the instruction manual, took charge and stayed up all night so as not to be late delivering an order to Unilever. Potential partners know Mr Thakkar will do anything to avoid tarnishing the Mara brand, so they trust him. In countries where the rule of law is weak and contracts hard to enforce, that matters.
There is money to be made in Africa by getting the basics right. For example, in Kampala, the Ugandan capital, Mara is building a hotel with shops attached. One selling point will be: enough parking spaces. At the shopping centre across the road, you need a driver to drop you off. If you have no driver, tough.
Mr Thakkar brims with ideas for new businesses. Microfinance via mobile phones in east Africa. Growing sugar in Nigeria. And even, via his non-profit foundation, a pan-African social-networking site. He is also adept at Richard Branson-style public relations. He is planning to be an astronaut, and to take the flags of the nations where he operates into space.
Mara is a family concern—Mr Thakkar’s father is the chairman—and has wealthy backers in the Gulf (it is based in Dubai). But its growth has been powered by one restless individual. That may be a weakness: a conglomerate that relies on the charm and dealmaking skills of one man may struggle to outlive him. An obvious parallel is Lonrho, a pan-African conglomerate built up by the late “Tiny” Rowland, a swashbuckling British entrepreneur. Lonrho fell apart after Rowland retired, and is now only a fragment of its former glory. The Mara Group “is just one really driven guy”, warns another African entrepreneur. Maybe so; but Mr Thakkar is only 31, and has plenty of drive left.
Correction: An earlier version of this article said that t
soiurce : Economist.com/blogs/schumpeter