The blossoming continent of Africa
The Citywealth Zoo last year generated a peppering of press interest in 2006. A number of enquiries filtered through from people interested in Citywealth and the wealth management market. One of them was from a consultant called Michael Igwe, managing partner of MI & Associates. A lawyer by education and fluent in French, he completed his Masters degree in law at
Durham University, trained as a barrister at a specialist tax set (Head Barry Pinson QC), before going on to work as in-house counsel in financial institutions in the City including Banque Indosuez and spent time covering legal issues for Switzerland.
Born in Nigeria but now with dual British and Nigerian citizenship, Michael’s experience in legal and financial meant he found a natural home as adviser to multinationals and financial institutions wanting to enter African shores. He offers strategic advice, legal and regulatory due diligence, research, and political and economic intelligence for those looking for high level inward bound investment advice and partnering into Africa.
Michael begins “Africa is still a mostly undiscovered business area with three main sectors of interest to business and foreign direct investment.” He says “offshore oil and gas is the leading industry. If you look at areas like Angola and Nigeria and the Gulf of Guinea which sits across Nigeria and Equatorial Guinea, a lot of foreign direct investment into those countries is into assets that aren’t going to be subject to the flux of political instability.” Then adds “When assets are held offshore it is considered less risky for investors.”
Michael continues “The second area of interest in Africa, like many other emerging countries, is the telecom segment which has seen more than $5 billion in GSM and fixed lines put in place all over Africa.” Michael adds “this was from foreign investment and has happened all in the last two years.” Offering helpful advice he adds “The only way to get these licenses is to bid as they come up.” He continues “The global telecoms industry sees mobile usage in Africa as one of the lowest in the world, although its population is one of the highest. At one stage, take-up of mobile phones in Nigeria was said to be as low as 0.9%. Since then large scale corporates like MTN of South Africa have moved into countries like Nigeria and found it very profitable.”
A quick scan on Google supports this. It springs a BBC article from 2002 with commentary from Salomon Smith Barney. The spokesperson was quoted as saying ‘The results for MTN were fantastic, profits rose by 92%, we’d only been expecting a 50% rise.’ Other companies doing well in the region are
Guinness. Guinness (according to Wikipedia) has now got the third largest and fastest growing market in the world in Nigeria.
Michael continues “The final area that’s growing quickly is the banking sector for foreign investors. The reason this happened was because of a shake up by the Central Bank of Nigeria in July 2004. They wanted to bring financial institutions into line with international standards so made it a requirement that banks increase their equity share capital. Michael underlines the point “In Nigeria, there were nearly ninety banks having to increase their share capital from ¬£15 million to ¬£185 million within an eighteen month period. It meant the search for international investment was intense. It caused heavy consolidation and banks having to find investment partners abroad for the first time.
Michael explains “This was brought in because banks were owned by families previously and weren’t really carrying on banking as its known internationally, they didn’t provide banking services to the wider community. Michael adds “This policy change happened in July 2004 with a deadline to comply of December 2005. It eventually reduced institutions down from eighty nine to twenty four.
Michael gives us the background “With interest rates at around twenty four percent it has historically been impossible for local business to borrow. The government wanted banks to assist the real economy like manufacturers and to help local business. Now banks are better capitalised and more commercially minded.
Michael continues “A number of financial institutions and foreign investors within Europe weren’t aware that this was going on but it may not have made a difference, most are wary of Africa and particularly Nigeria. Despite this he says he knows some foreign investors have been pleasantly surprised by the returns made. “The healthy profits over a short time frame in Nigeria would have been unlikely anywhere else in the world.”
Michael believes strongly that Africa as a continent needs some relentless and positive PR and marketing. He comments “We need Western media talking positively about sub Saharan Africa as they do with Asia.” He says until this happens there will continue to be funds who don’t want to invest in proper information flow just avoiding the area and similarly only a select few international companies on the ground dealing with the wealthy in Africa.
As a result of this, one problem Michael encounters is locals having limited information on investment outside their home jurisdiction. It means that many remain guided by only a handful of international opinions. Michael believes this limits the scope of the locals to understand the
world outside of Africa. He adds “A lot of African business people want to participate internationally but they don’t have the time to review opportunities – they often have to be approached and pitched. Then we have Western companies who want historic proof to invest and readily available research and contacts to form a view. As this isn’t on offer we are in stalemate.”
Michael compares Nigeria’s situation against another emerging economy China saying “banks have undergone the same process in China but attracted ¬£8billion sterling (foreign investment into bank shares) against the Nigerians who according to the 2005 Banking Supervision Annual Report featured in the The Daily Times of
Michael thinks that all is not lost though and believes that new media is the way forward and will make information flow easier in future. He says “There is also serious regulatory and government impetus to create the right laws and regulations to help encourage inflow of foreign investment.”
Michael does concede that civil war and disorder are still a problem in the region as sometime is corruption at government level, even if as he says “its becoming more subtle.” He knows that people do wonder if despite its promise they can conduct business in such a climate.
His advice is straightforward “I think as long as companies make clear their course of conduct and right intentions like
proper employment, paying taxes and fairness to employees they will make it difficult for governments to interfere.” He adds “there are also international bodies you can call on to assist.”
MI & Associates advises on Western companies and uhnw foreign entrepreneurs wanting to do business in Africa. He also represents local African entrepreneurs with publicly listed and private companies and assists with joint ventures, technical partnerships and business strategy with a view to attracting foreign companies and investment. Michael comments “We are the first port of call for select foreign investment groups prior to embarking on sub Saharan transactions.” As an example of his work, Michael helped one international brewing company who wanted to invest locally. He found a local Nigerian joint venture partner and a company they could acquire. He attended meetings and was present at negotiations. He says “Talks are
dependant on the quality of advisers on the Nigerian side.” Adding “There is generally a problem reaching a deal with local Africans because they have higher financial expectations. Inward bound investors rarely commit as much money in the initial stage of investment as Africans expect. The African entrepreneur doesn’t understand that any venture in the region is seen as high risk which means they generally have to seek investment money locally.”
As well as helping businesses strategically in the region, MI & Associates are mandated by hedge funds and private equity groups to work on legal due diligence on proposed African investment. Michael says there is a real rise in interest from hedge funds and private equity houses but say its not on par with India or China. He says areas of
interest are energy and mineral commodities with a commercial application, telecoms, banking and insurance. I divert our talk for a moment to ask whether Michael has heard of any hedge funds going bust and he comments “my brother says ‘yes a few have collapsed’.”
MI & Associates is essentially a family firm with family members as partners. Their skills encompass European real estate, accountancy, City corporates, financial institutions and high finance. Michael says of the firm “Although European based we have a solid amount of African commercial and political intelligence. We know what governments are thinking, which is what foreign investors need before they plough in.” Finishing Michael adds “Even for us deals can be risky in Africa. To balance this we are developing an expertise in the Middle Eastern, Indian and Chinese markets.”
In terms of the wealth on the ground in Nigeria, Michael comments. “The Nigerians have billions of sterling in private banks around the world and there are families with billions locally.” He continues “Private banks make a lot of money here. One institution regularly flies into Nigeria to market themselves.” He believes that any private bank offering good service could scoop up in the region because there is little or no international competition. In Michaels view the market is completely underdeveloped. Michael comments “its an extraordinarily wealthy continent.”
He does attach a warning saying “There is some unclean money in the region which banks would need to be wary of, again this is where due diligence would reveal whether money was legitimate.” Then adds “on the other side of the coin one client who owns a mobile network is worth several hundred million with business in banking, oil and telecoms and has been doing this for thirty years. You can track his source of earnings easily, which makes him a perfect client for a private wealth operation.” He adds “What has to happen is that global, wealth management operations have to market themselves here, locals don’t switch easily.”
I ask what sort of marketing would be needed with my mind casting back to Credit Suisse, Singapore hiring Bollywood troupes to entertain wealthy clients on private islands. Michael says “nothing exotic is needed, Africans tend to have international tastes. They like exclusivity and cache so treat them well with sophisticated venues and send in top tier management to impress.” He continues “Private banks would have to make an aggressive approach to the rich in the region. A formal approach is best, which is something MI & Associates can help with. In fact in general mandating an African expert to
navigate this complex terrain will prevent headaches in the long run.”
Michael says “There is no social security, so if you don’t work you can’t buy food which has created a commercial and entrepreneurial society.” However adds “the African is a resourceful and friendly individual.”
“The Nigerian social system supports powerful and strong women who remain responsible for family matters but men take the lead outside of the household.” He elaborates “You don’t really have feminism, the culture just isn’t like that – women are expected to be loyal to their husbands.” He adds “There is a big divide between young girls who dress in a Western
way particularly in major Cities. In villages women wear traditional attire, so there is a contrast of Western and local attitudes. Although he says “The young don’t see any negatives or restriction in wearing traditional attires. The outfits are colourful and creative and a wonderful sight to behold.”
Michael adds “Africa is very religious with Christian, Methodist, and Catholics and most people go to church. They go three times a week, and give a lot of money. Church is central to the life of the average African, they worship for several hours most Sundays and Ministers have a high profile. They are people who are looked up to and respected. Preaching is very forthright – directly the word of god. They say ‘you must not commit sin or defraud.'” He adds “Nothing is watered down and lots of younger people go along.” Despite this Michael says “Business is not involved with religion.
India in Africa
Michael comments “Indians invest a lot but in their specific business areas, so import and export and they like to use local labour.” He adds “If you have finances you can duplicate an Indian market in Nigeria without the competition that exists in India.”
China in Africa
Michael says “The Chinese are the most aggressive investors in Africa; they know everyone at a very high level. Once the Chinese Government is fully settled in Africa, the business people will follow.”
Michael Igwe’s eight key pointers for dealing with Africa
1. You are in good company. Global professional services firms operate in Africa.
2. Make sure you research the sector or Country you are interested in thoroughly.
3. As with international transactions insist on securing full and complete financials of any business target that is the focus (independently audited accounts going back three to five years).
4. Establish contact with relevant government ministers and regulatory authority that oversee the sector in which investment being made.
5. Plan an exit route, before making final decision.
6. Ensure right logistical and security measures are costed into the overall transaction (costs can rise on these if not costed properly).
7. Always send the senior director, CEO or
MD to meet his African equivalent. Respecting age and status is culturally very important.
8. Check that a local African business person is the principal owner, decision maker or that majority investors are visible and identified. Quite often people front for others making it difficult to pin down who exactly is in control.
Biog: Michael Igwe B.A., B.C.L. (International Law)
Having obtained a post grad’ Masters Degree in International Law from Durham University, Michael studied to be a Barrister at the Inns of Court School of Law, Gray’s Inn, London.
After being called to the Bar (England and Wales), Michael trained as a barrister in the Chambers of a former Attorney General and Lord Chancellor of England and Wales and also the Chambers of Barry Pinson Q.C., a leading taxation set. After this he held positions as in-house legal adviser in various investment banking institutions. Michael worked as deputy head of the legal department of Banque Indosuez; legal and compliance officer Citicorp Scrimgeour Vickers,and legal adviser of a Merchant Bank in the City (London). In one role he managed the legal issues that impacted the Swiss arm of the Bank he worked for.
Michael speaks fluent French.
February 2007 Reuters Africa announce new website dedicated to pan-African news and financial data.