2013-02-28 09:16:54
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Schumpeter
Feb 23rd 2013 |From the print edition
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 the combined value of
the stockmarkets in Botswana, Ghana, Kenya, Mauritius, Nigeria, Tunisia and
Zimbabwe was only $24 billion. This was wrong. The stockmarkets in Nigeria and
Kenya alone are worth $84 billion. Sorry.
http://www.Economist.com/blogs/schumpeter
From the print edition: Business