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Growth in Africa: How private equity replaced aid

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Growth in Africa: How private equity replaced aid

Ocorian Regional CEO for the AMEA region, Richard Arlove tells Nigerian business newspaper, Business Day, how the shift from aid to private equity by developed countries creates opportunities for business growth in Nigeria and other African countries.

Questions: Isaac Anyaogu

What is your philosophy at Ocorian, what do you set out to achieve?

Ocorian is present in international financial centres with the objective of adding value to our clients through innovation. Our sense of purpose is in how we enhance enterprise value and protect investor value for our clients through the use of financial centres.

Secondly, we help to facilitate the flow of funds in and out of emerging markets. When you think of the development of the African continent, it is my view that a lot of development rests on how we facilitate the flow of funds. It is about intra-Africa, helping to make funds flow to entrepreneurs. When they go outside the market and expand, we think of how to protect and enhance their value.

What practical things do you do to enhance and protect value for your clients?

First of all, we listen to the entrepreneurs. Let’s say an entrepreneur has developed a mobile platform capable of providing mobile banking and it is quite successful in his country. Now he realises that there are many other countries that require such products and he wants to expand into those nations. But as soon as he goes international, he can have a number of issues. So when we talk to the entrepreneur, we understand what his business model is and what we call the component of value, because when you do business, you may not have profit yet but you can still have a lot of value.

If you look at Facebook, they did not have profit for a long time but they still had value. So what are these components of value and how do you think about the structure to open up your value? The value might be intellectual, because you have to develop the platform.

So let's say you have developed the mobile money business and then fast forward ten years and the value has risen to say $100 million. We can structure a mergers and acquisition deal, and the sale can happen through a structure we have created to facilitate it. This is where an international financial centre comes in.

It might also be that you need your central procurement to be somewhere because you are buying many things from different countries. So maybe Nigeria is not the best place for such central procurement, maybe in Dubai and maybe for the protection of your I.P., you need to be in a country like Mauritius, or London. Now if you put it in London, where is your server? Where do you recognise your revenue, do you start to recognise your revenue online? These are the questions that we ask the entrepreneur as we look for how best to structure it.

You recently launched your platform in Nigeria, what are your plans for the market?

Well you see Ocorian, previously called ABAX, has been working with many companies in Nigeria – very large companies, entrepreneurial types, people who need the structure of a financial centre. So we already have a history with Nigerian clients; on one hand those that are within Nigeria and on the other hand, those coming into Nigeria.

A lot of business in Africa is now through private equity funds. Years ago a lot of African countries were receiving aid from richer countries but many have realised that aid money effectively goes into the pockets of politicians and does not end up in projects it was first intended for. So there has been a shift from aid towards the setting up of private equity funds and development financial institutions investing in projects in Africa.

These private equity funds need to be domiciled somewhere andover the past ten years or so, Mauritius has emerged as the prominent place where private equity funds for Africa are domiciled because it is an African financial centre with an ecosystem that works. So a lot of private equity funds are in Mauritius and we administer a number of these funds.

Having travelled to many countries in Africa, what is your assessment of corporate governance in the continent since this is an important factor for private equity firms, how does it compare with other western countries?

I do not think it is deeply rooted in Africa yet. I think this is often the situation. We have this entrepreneur who has started his business from savings or capital from family or friends. Soon he wants to expand. He will turn to a bank or private equity firm for finance. Then comes the problem of corporate governance because he will be told to produce his books and he may have several. Obviously, the financier will be hesitant providing capital.

So this is the main problem with corporate governance in Africa. Many businesses have grown a family business and the methodology of business was good 10 or 20 years ago but it is not appropriate today.

When you want grow an international business and access financial capital and be sustainable, governance is essential. But obviously governance is a pain. Many prefer to do their business their way. Yet, if you want to grow and be sustainable, you need sound corporate governance, and this is where we come in.

If you want your business to be part of an international finance centre, then you need to have an independent board, you need to have audited financial reports, you need transparency and all these is what corporate governance entails. It is not just about board composition, it is how an investor can trace his money from everything in your business, right down to where it goes and how it comes back to him, without leakages. That is what corporate governance is all about and this is where we come in to advise and help execute this flow of funds in and out of the business.

So in my view, with better corporate governance practices in Africa, more funds will flow into businesses here. Many private equity firms today have money lined up and are eager for good projects to invest in, and you have many people needing these funds, but there is no match. At Ocorian, we call this a financial gap. We tell people that if you want to access financial capital, you need governance capital.

Speaking of capital, do you think Chinese debt is actually a threat to the development in Africa?

It is a threat if we don’t make it an opportunity. The continent is very attractive to others because of its numbers. There is huge infrastructure required and it has vast resources. Hence, we must ensure we benefit from business with China because we are in a strong position.

I believe the Chinese have been pragmatic; they have their own way of doing business, different from the European approach. The Europeans colonised our countries and we must be aware that there are a lot of bad things that came out of colonisation’s however, there has also been some good things. We don’t want to be colonised again, we have been through that, we need to make the most of the position we are in and effectively, play the Chinese, the Indians, the Europeans and Americans against one another to gain from their interest. We can do that by playing according to our rules, allowing China to help develop our countries, but we must always play by our own rules.

I will give you an example of Mauritius, which is where I come from. In the late 70s and early 80s, the Chinese were looking for a place to build their textile factories. This was when Mauritius now said why not? We had the free trade agreement with Europe, electricity, cheap labour, and the unemployment rate was at about 20 percent, so we said come over. They came, we learnt from them and today there is no Chinese doing textiles anymore, the textiles are now designed by Mauritians and sold in Europe, the UK, the US and South Africa.

So what we did was to allow the Chinese in, learn from them whilst they made their profit and all the while we created a new breed of entrepreneurs and stimulated industrialisation. Now we are doing our own good business. So that is a small example of what can be done and if you think about the development of China, and in many countries, this is what they have done.

Through the use of International Financial Centres, we provide governance and board services to companies wishing to build enterprise and shareholder value. You can learn more about those services here.

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