2015 Conference Theme: Innovative Strategies For Sustainable Growth In An Evolving Market
By Rakesh Wahi
It is indeed an honor for me to be back here at the Lagos Business School; my third talk in 16 months. In fact it is more times than I have been asked to speak at my own universities. It’s a matter of pride and joy for me to come and share my experiences with all of you. Most of these experiences are not unique. Most entrepreneurs face these at some stage or the other. Perhaps it will give you a different perspective; particularly if you see it from the eyes of a foreigner who came into Africa 10 years ago.
To put some context I think it’s perhaps important to give you a quick overview of our business. Our family investments are into three industry verticals. The first is IT; we are the Microsoft partner in about 7 countries in South and SE Asia to include Sri Lanka, Nepal, Bangladesh, Bhutan, Maldives, Brunei and the Philippines. We are now entering Laos, Vietnam and Myanmar.
The second is Education. We own two universities. The first is in Dubai in academic collaboration with Murdoch University from Perth and the second is in Ghana, in academic collaboration with Lancaster University from the UK. In the medium term we plan to establish 10 universities in Africa.
The third vertical and perhaps the most interesting is media. We own CNBC Africa and Forbes Africa and have a presence in 12 countries and 15 cities in Sub Sahara Africa.
The group is in 22 countries all of which are emerging economies and we employ over 1000 people. This wide portfolio has given us some valuable insights of operating and navigating businesses in emerging economies.
Before I get into our journey into Africa, I would like to share a few overriding changes that have taken place over the last decade. I have been a great believer in the science of evolution and therefore, have a fundamental belief that everything that is once on top, whether a corporate or a country will never be there in perpetuity. Market dynamics will through a process of attrition cause a realignment of economic positioning. This has seen the emergence of China and India as two global superpowers and in the context of Africa, Nigeria replaced South Africa as the largest economy. This realignment will continue over the next few decades and unless developed countries make radical changes towards their engagement with emerging markets, they will face consequences that they are currently unprepared for.
The second major marco indicator is demographics. The global population is expected to reach 8 billion over the next 30 years. It is expected that 50% of the population growth in the world over this period will come from Africa. This means that one in every fourth person on the planet will be African. One each will originate from India and China and one from the other approximately 150 countries. What is significantly interesting from this statistic is that Africa will have the largest population of youth and therefore the largest work force and consumer market in the world. This illustrates a market that will be at a scale that we cannot comprehend and therefore are not factoring or even preparing for.
On a personal note, this year, I completed 10 years in Africa. There have been significant changes during this decade. These changes are all for the better. The most distinct change of all is how the outside word is now paying attention to what’s happening on our continent. It’s not that we lacked attention before. It is now for the right reasons.
The days are gone where people discussed the negative aspects of Africa or only focused on taking resources out from the continent. Today they are lining up to be a part of an unprecedented growth story. The models of development and participation are changing.
The first message that I have is that in light of these changes we must change our methodology of engagement. Our leaders must capitalize on this by realizing that the continent is still giving away a lot more than what it gets back in return. What Governments have to look at, is this coming wave of opportunities and take bold and sometimes unpopular decisions to put in place policies and structures, so that investments are made looking into the future and not in the past; and being made for the development of the larger population and not for just for a few. Governments, companies and leaders that are able to look ahead at what is coming will be able to take advantage of the future. As I said before, the historic positioning of countries is no indication of their indefinite success. Those that do not adapt will perish to their own detriment.
It is also true that Governments cannot invest in everything. They need to increasingly look at sharing developmental responsibilities with the private sector. Those that adapt new models of inclusive growth and make their countries investor friendly will pave their way to high growth and consequently lower unemployment.
To illustrate this point, let me draw your attention to a small country in the Arabian Peninsula; the United Arab Emirates, in particular Dubai. I am sure everyone in this room has passed through this glorious country that has also been home to my family for 25 years. For a city with no money or natural resources, Dubai has become the business capital of the Middle East. It’s a case study for leadership and consistent policies. For this reason, every major corporate in the world has a base there.
One thing that I am sure of is that this can be done in Africa. Just like Dubai overtook all its powerful neighbors in the GCC, it’s only a matter of time before one of the countries in Africa will outdo others. It is not a matter of size but having the vision and the conviction to see it through.
Just as governments need to make changes, the private sector and all of you in this room should take home an important message. The opportunities today are not in the developed world. As you step out to bring your dreams to fruition, remember that the developed markets are not going to give you the returns you seek. You may get the comforts of living in London or New York, but long term value creation will only come right here in Africa. Stay here and work here.
This journey in Africa is not going to be an easy one. Operating in emerging markets has challenges that range from political volatility, currency fluctuations, lack of infrastructure, lack of adequate financing for greenfield projects, lack of a skilled workforce and many other day to day issues. Of all these challenges, the one that is most critical for long term sustainability is the development of local talent. Bringing best practices is an important consideration but there must be a planned strategy on skills development.
Within our family investment portfolio, we took a decision a long time back that we will focus on local skills development rather than bring expensive cross border expertise. As an example, while setting up CNBC Africa, there was no precedence in Africa of a server based TV station in 2007; technical and financial journalism skills were scarce. Rather than hire expatriates, we brought trainers and in some cases took our staff to Dubai and London and developed the skills we needed in the business. We established strong internship programs and continued relentlessly for 8 years to build capacity bottom up for our business. I am proud to say that almost 100% of our workforce in Africa today is Africans.
The second core value is indigenization. Importing technology and products in the long term will continue to drain resources in the continent. Once again, it critical to bring the best technology money can buy but there must be a strong emphasis on technology transfer and indigenization of production capacity as well as technical support. Let’s take for granted that Africa does not have R&D capability like many other emerging countries and will need to import technology in the foreseeable future. What we can however, ensure is that in phase one, all integration and support is provided by locally trained people and in phase 2 have a process for indigenization of manufacturing. These models have been used by countries like India and we need to follow these practices.
In my travels, people often ask me to share some of our experiences in Africa. I will share a few points that most of you are familiar with but are an important part of our journey in Africa.
The most important lesson of all is to be patient and take a look at investments and returns in the long term. It is important to do comprehensive assessments on matters relating to regulations, tax, transfer pricing and other matters that could impact business in the long term. People that are looking for quick returns or believe that legislation can be manipulated are in for a surprise. The Africa of today and of tomorrow is not for carpet baggers. Value and wealth creation will only come to those that are prepared to take the long road through building sustainable businesses. The journey in Africa is inundated with challenges but with these come great opportunities. You need to take the good and the bad. You cannot get the growth rates of emerging markets and the security or predictability of a developed market.
I took 30 months to establish CNBC Africa and 14 months to establish our university in Ghana. We hired the best consultants and advisors to get the basics right. You can either spend the resources upfront and get everything right or then make mistakes and fix them retroactively at a much higher cost.
The second most important aspect is in understanding the cultural nuances of the countries that you operate in. What are acceptable in South Africa are not the same in Nigeria and definitely not the same in Uganda. Learning to respect the local laws, traditions and practices is critical. This is not an era of colonialization and people must respect local rules if they want to be part of long term development.
The third issue is that any project you set up must have a strong commercial imperative. Business is for profit and nothing else; never forget that. The profit can be used for social good but you cannot turn the order the other way around. To the extent possible, do not ever establish businesses that rely on subsidy; these models are not sustainable and can create major problems as governments change.
The fourth point that I want to give my opinion on is the whole concept of risk. Economists and Analysts who are highly educated and well trained will give you a million reasons why not to do something. If you listen to everything they say, you are unlikely to be an entrepreneur. Business by definition has inherent risks. No one can predict changes in currency or in the macro economics of any country. So in principal you have to rely on your gut on the long term nature of your venture.
In my dictionary there are only two types of risks. Risks that are caused by human beings and then there is everything else. Risks that are caused by human beings can neither be mitigated nor avoided; they have to be managed! This is because humans by nature are fickle and therefore, change their minds, making decisions and policies unpredictable. These risks need a high level of engagement and therefore can at best be managed but cannot be mitigated. All other risks can largely be mitigated or avoided.
Risk however, also needs to be looked at in the context of luck. While this is not a scientific conversation, the element of luck has made or broken people. Some people cash their chips just before a calamity. The timing a lot of times was not of their choosing. They just made the call at what would later appear to be the right time. On a lighter note, if you are one of the kids in school that got called out every time you did something wrong, then try to surround yourself with people that have been luckier than you.
As a businessman I meet political leaders in most countries that I travel to. They often ask what we need to set up our business operations. I just have one answer. What we want from government are the two C’s of business: Continuity and Consistency. We are called businessmen because we know how to make money even in the toughest conditions. No one needs to teach us that. So give us a playing field that is predictable and with proper policy frameworks irrespective of which political party is in charge. This is perhaps what is the most critical point of differentiation between the developed world and emerging markets.
Before I end, I would like to say a few words on the theme of today’s conference. Innovation!
The word innovation has now become an integral part of business today. The concept however is not new. In the 80’s a lot of discussions were around the word Kaizen, or continuous improvement. The focus at that time was on systematic improvement of business processes to increase efficiency and productivity without increasing costs for implementing the measures. This was embraced by staff and management and many innovative methods came up to increase efficiencies.
What completely revolutionized businesses was the impact of technology and how we fundamentally started to relate to each other. The Internet was perhaps the greatest driver of this change. Since the 80’s the consumption patterns of consumers has started changing dramatically. This relates to every sector in business. The impact of disruption is so severe that the largest of corporations have started to become irrelevant because they did not change. My son, who leads our digital migration strategy often summarizes that Bankruptcy is a Kodak moment. They did not react fast enough to the onslaught and diversity of mobile devices and their businesses failed.
I was speaking with the Chief Executive of the largest advertising agency in Africa and asked him where he sees their business in 15 years. He had done a lot of introspection and said that agencies over time are going to become consulting companies like Mckinseys etc. mainly because all media related activities will be online and clients will no longer need buying or creative assistance. This radical change needs to be looked carefully because new entrants with younger talent will not carry the traditional overheads. They will be leaner and more efficient and will take out the larger players particularly that do not change their business models.
As a family, we are heavily invested in the education business and one of my greatest concerns is the way in which students are going to study in the future. Education is not about land, buildings and playgrounds anymore. It’s also going to take time before a complete online model is perfected. So the hybrid models are being investigated but universities, particularly the tier 2 and 3 universities are worried about their future. It is therefore imperative that new entrants in the business are investing in the future and not the past.
Another example not so far away from home has been the recently concluded elections in Nigeria. The element of accuracy and transparency coming with technology is absolutely refreshing. This is just the first step for increased transparency that will force governments to become more and more accountable for their decisions.
The most glaring example of all times is Microsoft. Microsoft became the default operating system and over the years a very serious sense of complacency hit the company. In the April 4th issue of Economist, there was an article that said that if anyone even remotely suggested a weakening position of Microsoft in the 80’s only earned the wrath of Bill Gates. This remained consistent through the reign of Steve Balmer. However, as soon as Satya Nadella took over last year he changed the complete strategy to build what people like. The company is now embracing open source software and last October Mr Nadella showed a slide that read “Microsoft Loves Linux”. Ballmer once called open source operating system a cancer.
This is not a case of just Microsoft but Google, Apple, Face Book and all others that are now worried about new technology platforms and are constantly acquiring other companies at significantly high valuations to protect their turf.
What’s important in this landscape is that the eco-system around these giants starts to change quickly to adapt more diverse and neutral offerings so that their businesses are not threatened in the future.
What we therefore have to recognize is that disruption now is a way of life and anyone who gets too complacent will perish to their own detriment.
While innovation, technology and resources will impact everything about business and commerce, the only thing that will remain as a global constant is the consumer and the requirement to serve his or her needs.
The advantage we have in Africa is that the market is still in a stage of infancy and young entrepreneurs must not look at traditional ways in which people are doing business or just copy existing models in the West or developed nations. You need to adapt new technologies to the local market and set up your own standards based on what the local consumers need and how they want to be served. That is what will provide you the cutting edge for the future.
Ladies and Gentlemen, I have finished here and look forward to engaging with you over the duration of this conference. Thank you very much.