Part 2: US/China perceptions. Electricity. Shifting into finished products.
Part two of our three-part series, with Dr. Komi Klu.
Where can foreign investors earn 10x the ROI than in the US and have immediate access to 400 million people in one part alone? A. Africa, the “virgin territory,” is ripe for all kinds of investments. Dr. Komi Klu, President of EMIGROUP [Emerging Markets Invest Group] which operates in 30 markets, presents little-known opportunities in a young and vibrant continent and explodes many common business myths. For example, online registrations in 24 hours are replacing bureaucratic hurdles in many countries, and corruption is reducing due to the US Foreign Corrupt Practices Act and the risk of audits. He also explores positive perceptions of the US vs. China, ways for power-generation companies to prosper, cultural etiquette across the continent, Francophone / Anglophone differences, product packaging to reach the mass market, and lots more.
China’s image and bringing its workers into Africa
Is there a shortage of electricity in Africa?
Africans selling raw materials and now making finished products
Dr. Komi S. Klu is currently the Chairman and Chief Risk Officer of EMIGROUP [Emerging Markets Invest Group] which works in 30 African markets. He is a well-respected Financial Services Executive and investment facilitator with over 20 years of proven success in promoting financial and operational efficiency for large global financial institutions. These include Capital One Finance and HSBC Bank where he has held management positions overseeing Corporate Due Diligence, Risk Management, and Claims Processing Operations. Concurrently, as Chief Investment & Risk Officer of EMIGROUP, Komi is providing leadership and consulting services, assisting African companies in building solutions for large-scale, complex business challenges to mitigate risks and drive investment and growth opportunities.
Komi has earned a reputation for the innovative and strategic leadership he brings to the financial services industry, as well as to global humanitarian initiatives. He is currently the board chairman of WAFI CAPITAL, SA a private Equity firm operating in West Africa, raising funds from investors in North America and Europe.
Komi is based in Dover, Delaware, and makes frequent trips to his native Ghana. He is also an active member of the Global Chamber®, both in Anglophone and Francophone countries.
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Since today’s guest comes from Africa, I’d like to reprise a blooper that I gave in the early part of our podcast series, which is an article that appeared in a Nairobi newspaper, and it said, very simply, a new swimming pool is rapidly taking shape since the contractors have thrown in the bulk of their workers.
With that and as illustrating the misuse of words there, I’d like to introduce today’s guest who is Dr. Komi S. Klu.
Dr. Komi S. Klu is currently the Chairman and Chief Risk Officer of EMI GROUP [Emerging Markets Invest Group] which works in 30 African markets. He is a well-respected Financial Services Executive and investment facilitator with over 20 years of proven success in promoting financial and operational efficiency for large global financial institutions. These include Capital One Finance and HSBC Bank where he has held management positions overseeing Corporate Due Diligence, Risk Management, and Claims Processing Operations. Concurrently, as Chief Investment & Risk Officer of EMIGROUP, Komi is providing leadership and consulting services, assisting African companies in building solutions for large-scale, complex business challenges to mitigate risks and drive investment and growth opportunities.
Komi has earned a reputation for the innovative and strategic leadership he brings to the financial services industry, as well as to global humanitarian initiatives.
He is currently the board chairman of WAFI CAPITAL, SA a Private Equity firm operating in West Africa, raising funds from investors in North America and Europe.
Welcome Komi. I’m delighted that you can join us.
A pleasure to join you today.
Thank you so much. The Chinese are also known for not hiring African locals on the infrastructure projects they build. They bring in their own workers, their own people, of course, and that doesn’t benefit Africa in the long run. It benefits in the short term of course, but in the long run, there is no training of people in the skills that they would need to advance.
Do you find that the Turkish companies, the Russian companies, and other foreign investors do the same practice? Do they also import their nationals, or do they hire local Africans?
No, that practice, it’s just prevalent with Chinese companies. Yeah, mostly not the Russians. I don’t see them doing any business for that much except in the mining industry. Russians don’t do that much business in Africa. I think they are there to do some military contracts which I don’t know much about. But as far as business is concerned, the Russians are not present. Yes, but the Turks are doing some soft diplomacy. And they are building their footprints across the continent. They are mostly into infrastructure and exports to Africa. They are not bringing the same tools. They are not bringing their nationals to work on the projects they have.
So, the Turks would hire local Africans to implement their projects. And that of course gives them the skills and the training so they can take their training elsewhere when there are other future projects from other companies.
Yes. I have a good friend. She represents the Turkish government in the furniture business in Ghana. But if this were a Chinese business project, you would have seen that the Chinese will have expatriated one of their own and relocated them to Ghana to represent their interests. So, this is the difference between China and the other foreign investors who come to Africa.
What is the perception of the Chinese among the African people? You said that there’s respect for American brands. Is there also…Are people looking for bargains? For example, the Chinese build more than infrastructure. I believe they’re exporting their goods and their services as anything else. Furniture, for example. Do Chinese companies have the same reputation?
No, for two reasons. First of all, China has exported a lot of things to Africa, some of the things do not have the same quality as something you may import from the US, for instance.
So, the China brand, as far as exported goods, as far as finished goods are concerned, is not that highly valued or regarded by Africans. So, let’s say you buy a cell phone from China and you bought one from the US, people value the one from the US better than the one from China.
But as far as doing business with foreign governments, you have to face it. The government leaders from Africa, sometimes they feel like doing business with the US. You have to jump through so many hoops and the US process is sometimes too bureaucratic. Whereas China, the Chinese government, they are easy to deal with. According to our government officials, if you need a loan to build the road now, maybe it will take you six months to get that loan closed when you deal with the Chinese Ex-Im [Export-Import] Bank as opposed to if you are dealing with the US Ex-Im Bank.
So, I think that is what is creating the perception that Africa preferred China over the US. Yes, in the procedure and the process when somebody needs some cash infusion urgently and you want them to wait for two or three years to go through the paperwork before you can approve it, the person will prefer the first business partner. China in this instance will be funded already, right? So that’s why they create confusion. It doesn’t mean that Africa prefers China to the US, but yes, it’s easier to do business with China sometimes than to do business with the US.
Very interesting. And just for our viewers, when we mentioned the Ex-Im Bank, many countries have Ex-Im banks which stand for Export-Import banks … banks that finance infrastructure projects and large projects abroad.
One of the other infrastructure barriers is electricity. There’s a shortage of electricity, and even though Africa has an abundance of solar resources, of course connecting to the grid is very hard and very expensive, and therefore a lot of companies and individuals, perhaps, or individual factories have their own generators and that, of course, pushes up the price of goods. How do you address that issue?
I will address that issue on a larger scale. Scheme of things. When I say that, Africa has a PMS problem. This is the poor management system of the problem. That’s how I define it. PMS: Poor Management Systems.
And if you take that concept and you look across. You realize that Africa does not have a lack. In some areas, Africa has even abundance, but it’s the mismanagement that is creating the problem. This brings me to the electricity or the power sector, which I know very well because I have some large clients in that sector.
Africa does not have a problem with the overall power generation problem. Meaning, it’s a misconception that we do not produce enough electricity. That’s why we have the light power, for instance. In some countries, I’m not going to give you any specific names. For obvious reasons. They have over-generation. I mean they have over the capacity of power, but it is the management of the transmission which is creating the problem.
Now if you have, for instance, a history or a culture of poor maintenance of your transmission lines, then your transmission sectors break down like every other day. People have the impression that there is not enough electricity to give because people are always living under the constant power outage, which is not necessarily the case. It’s because sometimes we can have enough power stored in the country where the transmission line is a problem. The way we maintain it is second. Referring to my PMS arguments about every African or most African institutions. When you are a power company, you sell electricity to people, and if you cannot make the time or if you do not have a process in place to collect the revenue, you have a problem.
So that’s the problem of revenue collection for the electricity that we sell to our people, to our citizens. And sometimes the government subsidizes the electricity, the power that goes to the poor. But dealing with the government, sometimes they pay, and sometimes they don’t pay but the power companies need to have the revenue to reinvest in their management. So, we must look at the power problem in Africa holistically.
Yes, of course. In some remote areas, there is a need to increase power generation, and renewable energy solar energy could help. But overall, especially in the capital, most of the time we have enough power. It is the mismanagement of the power company and of the electrical apparatus which is creating the problem.
Yes, that’s fascinating.
So, the problem is both the transmission of the power as well as the revenue collected.
From the bills, of course. Well, it’s good to know that the supply is not the issue.
No, it’s not always the issue, but it could be the issue in some remote areas in some small countries, but for the big countries overall, the supply is not the issue and there’s something also that compounds this situation. There’s another problem that they call illegal connection, meaning there are some people who are connected to the National Grid but whose meters are not running. So, they are not paying for the electricity that they are using.
Now, if you compound all these problems, how could the power company make money to invest in new infrastructure to improve it? It is almost impossible. So that’s the problem we’re dealing with in Africa.
So, if I were an American or European power-generation company and I want to invest in Africa, are you saying that I could still invest, but I would have to ensure that my practices are in keeping with Western standards?
I like that, so yes.
There are still a lot of opportunities in the power industry in Africa. But investors beware.
Do not go to Africa and invest in big electricity or a big power company or projects if you do not know how the end-to-end value chain of the power generation revenue collection is going to be managed. Our firm advises you to invest instead in power and electricity advisory services. So, you can help these companies to know how to better run a power company. Then you can invest.
There’s a lot of money to be made in the power industry. In Africa there’s a lot of money to be made. But do not go put your money in a rabbit hole and expect magic to happen. You have to be part of the money, you have to bring some Western standards. Manage your structure to restructure, to shuffle things around before you put your money in.
That’s a fascinating and wonderful insight.
A related question about electricity, which is manufacturing. One of the problems and criticisms that Africans have, and they’re justified, is that they export their raw materials, say to Europe and the United States, and then they must re-import the finished product.
So, for example, furniture is a very easy example. I’m not sure it’s the best example that they might export the wood, but they would import the finished furniture.
And the same way they might export cotton for example, or cloth. But they import the finished clothes. So, I know that there are better examples of much higher levels. Batteries, for example. They may export the bauxite or whatever goes into batteries and then import the final finished batteries.
So how much is the manufacturing center growing? Or how much are the incentives growing to encourage in-continent manufacturing instead of having to re-import the final product?
It is changing now so that is the good news.
For instance, countries like Togo and Benin, have created some large industrial parks where they are starting to manufacture or to add value to the account. So, there’s value-added in the cattle industry. This is happening currently, so that’s the good news.
Now overall on the continent, let me take a step back and explain the genesis of this problem. When Africa was colonized by the Europeans, they built the local economy and the African economy as the raw material reservoir for their own industry. OK? So, everything — the railroads, the roads, everything — was built so that we can extract and export, extract and export.
So, after independence, our governments’ first leaders, some of them, like our Dr. Nkrumah, was a visionary in Ghana. Doctors came from outside before, but they did not last. They did not last in power.
So, after those visionaries, we have had other leaders who did not have the same level of vision, who were not as Africanists or so focused on improving the African population living standards, so they continue the historical colonial economy process which was extracting and exporting so that we can get some revenue.
So, there was nothing done to do value addition or to do any manufacturing and we have lived in that condition for more than 50 years. It’s only now that Africa has a newer generation of leaders who are thinking differently. I mean, I can name them… I mean the President from Ghana, President Kwame Nkrumah, and Akufo-Addo, we now have a new breed of leaders who have come and said enough is enough. Now we are going to start manufacturing our things in Africa before we export them.
I will give you a case study. Botswana used to export a lot of diamonds. It’s a diamond-rich country. But they were exporting diamonds and getting some peanuts for it until the government decided that they were going to do the diamond polishing and the diamond cutting, the value addition, locally.
That’s why the big investor who has these tools …. This changes the mindset. They invested in Botswana now. Botswana has beautiful diamond processing centers where they have hired local Botswana citizens. They have trained them, and they are doing the cutting. They are doing the refining and they are doing work within their own countries, and now Botswana is exporting finished diamonds as opposed to raw diamonds.
This is the shift all African countries must embark on. As I said, the country of Togo. They are now starting to manufacture its cotton and are starting to add value to its cotton. In Ghana, President Nana also said that very soon Ghana will be adding value to the cocoa. You know Ghana is the number one producer of cocoa, which is the raw material used to make chocolate. Why should Ghana be exporting raw cocoa beans? And then if we import chocolate at a high price, it does not make sense.
So, this is the new shift that Africa is undergoing.
That’s wonderfully encouraging. It’s great news. Are countries offering incentives to foreign investors to set up these manufacturing plants or is the initiative coming from the foreign investors with the idea to do it themselves?
I don’t have the details here, but what they’re doing is they’re building what they call industrial parks.
And if you come, you invest in that scheme of the industrial park. You get some tax breaks; you get a lot of incentives.
So, are the industrial parks for specific purposes such as cocoa processing in Ghana and Ivory Coast or diamond processing in Botswana, or are there industrial parks in general like office parks in the United States where you can do whatever business you would want to do?
Yeah, no, they are general. They are general. I mean they are general. And now of course they must fall within what the government calls the National Development Program, or the PND program in French. You must fall within the government’s priorities. But if you have that, if they fall within the government’s priority, yes, the industrial powers will give you the opportunity and some tax breaks.
That’s fascinating also. Thank you so much.
Much thank you for the honor of the opportunity.
This has been a wonderful talk with Dr. Komi Klu and his contact information can be found on the episode on our Global Gurus website (www.auerbach-intl.com/podcasts/). Thank you so much, Komi. It’s been great speaking with you.
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