African Business - At the Africa Finance Corporation (AFC) infrastructure summit hosted in Abuja Nigeria during May 2017, Africa’s most prominent business minds and political leaders met to discuss bridging the continent’s infrastructure deficit.
While most delegates at the summit were hoping to close deals on multimillion dollar infrastructure projects, Tony Elumelu, chairman of investment company Heirs Holdings and founder of the foundation that bears his name, had other things on his mind. Speaking exclusively to African Business magazine, the Nigerian entrepreneur and philanthropist was eager to discuss one of the greatest challenges facing Africa: youth unemployment.
“When I was growing up, I was inspired by seeing other young people going to university, graduating and then getting a job with a Nigerian company where they could develop and work their way up,” says Elumelu. “But now those days are gone. Unemployed young people will likely be the Africa’s greatest challenge over the next 30 years.
“Today, the economies of many African countries are not as strong as they were, more and more young Africans are joining a depressed job market, and we even have educated people struggling to find a job.” Unemployment among young people aged 15–24 years old in sub-Saharan Africa has hovered between 12% and 14% since the global financial crisis of 2008. This is higher than the 9–10% in South Asia over the same period, according to World Bank statistics.
The data does not include youth in vulnerable employment and underemployed in informal sectors, who make up at least 70% of the workforce. The situation in Africa will be compounded by the fact that the youth population is expected to double to over 400m people by 2045. The numbers make sober reading for policymakers, but what can be done to mitigate the serious challenge?
“The private sector, and not just government, will have to play a critical role in finding solutions to the issue of youth unemployment,” Elumelu says. “One of the things the private sector can do is to increase investment in Africa. When we invest, we create economic opportunities for people through the value chains such as paying tax.
“Another important solution is for the private sector to help encourage young African entrepreneurs by giving them support from the start of their business until they are able to go out there and grow it on their own. So, through the work of the Tony Elumelu Foundation, we have set up the Tony Elumelu Entrepreneurship Programme (TEEP), which offers 1,000 African entrepreneurs annually seed capital of between $5,000 to $10,000, training and mentoring.”
The programme, which began in 2015, has assisted around 3,000 startups to date in the agriculture, ICT and manufacturing sectors across Africa. This year saw the highest number of applications – 93,000 entrepreneurs from 55 countries – since the start of the programme.
The United Bank for Africa (UBA) chairman recognises that more needs to be done to help Africa’s small and medium-sized enterprises (SMEs), but the programme is hopefully a starting point which could inspire other business leaders. In the meantime, Elumelu believes that governments also need to do their part by making it easier to do business in Africa.
“We need our politicians across the continent to help improve the business environment. If we improve the business environment then we will be able to deal with the issue of unemployed youth and poverty,” he says. “The people who grow the economies are SMEs. They create jobs which translate to reductions in poverty and increased revenues for the government in the form of income taxes. What entrepreneurs need to succeed is that the business environment is right.”
One of the ways that governments can help create a conducive environment for business is to make it attractive for domestic investors to put money into projects that are bankable, Elumelu suggests. The governments should also use business leaders’ knowledge of the African market to attract foreign investors into the continent.
“We need to realise that no one but us will develop Africa and if we do not invest in our continent, others will not have the confidence to also invest in Africa,” he says.
Tough times for investors
Elumelu’s comments come as data from consultancy firm EY shows that foreign investment projects in Africa fell by 12.3% over the course of 2016. The drop was attributed to sluggish economic growth across in some key economies and a moderate recovery in commodity prices.
Some analysts are concerned that the investment slump is also due to anti-private sector rhetoric in countries such as South Africa and Nigeria, and political instability in Ethiopia and the Democratic Republic of Congo (DRC). However, the Heirs Holdings chairman dismisses this analysis.
“I do not think the mood music in Africa has turned distinctly anti-private sector. You always have the situation where people blame either the government or the private sector for whatever problems. The important thing is that government and the private sector works together to solve problems,” Elumelu says. “Government must realise that what is good for the private sector is also good for society.”
“African countries can boost private sector investment by creating the right environment, which means policy consistency, credible regulations, security and power,” he adds. “We want African governments to do something about the huge power deficit in Africa. However, government alone cannot fix the power issue alone. It needs private sector backing and expertise to make these power projects a reality.”
According to Elumelu, the right business environment is key to the success of SMEs. Many of the entrepreneurs who have participated in the TEEP have faced basic challenges which have nothing to do with their actual business, such as a lack of a reliable electricity or water. This is unacceptable in this day and age.
“How can the businesses succeed and help grow the economy of a country under conditions such as these? So for African leaders, their agenda should be driven by providing the infrastructure to ensure that SMEs can succeed,” says Elumelu. “I know if we work together to make this happen then we can make Africa succeed in a short time.”
Only around 30% of Africans have access to electricity, compared to 40% of people in similar low-income countries from other regions. Yet infrastructure is not the only challenge holding Africa back. The dearth of trade between African countries is a missed opportunity to help boost growth, according to Elumelu.
African countries mainly trade with countries and regions outside the continent, with only 10-18% of trade taking place between African nations. This compares unfavourably to Europe, where 69% of exports were traded within the region, and Asia, where 52% exports were traded with other countries within the region.
One of the reasons Africa’s regional trade is so low is because most trade with overseas countries is in the export of raw materials, such as copper and iron ore, which are rarely processed within the continent.
“Therefore, producing value-added goods which can be traded between African countries, as well as overseas countries, should be a priority for African governments and business,” says Elumelu. “But this cannot happen until – and we keep returning to this theme – we improve the continent’s infrastructure, especially in power.”
Regional integration is key to securing the future development of Africa, according to Elumelu. “I do believe that the leaders are moving in the right direction and there is now better coordination between African countries,” he says. “When the Organisation of African Unity (OAU) was set up, it was mainly focused on fighting to emancipate ourselves from colonialism. But today I think the African Union (AU) should skewer itself more towards economic integration platform.”
“They are changing, but we need that change to come faster,” he adds. But in the meantime, Elumelu is focusing on his foundation and investments made by Heirs Holdings.
Heirs Holdings has business interests in various sectors including financial services, power, oil and gas, real estate and hospitality, and healthcare. While the investments are for profit, Elumelu believes that businesses should also consider their social impact.
“I call this philosophy ‘Africapitalism’, because it is a combination of business and philanthropy. We need to encourage businesses to make sensible and responsible investments,” he says. “So the motive should not only be about making a profit, but it should also be about adding a social benefit to society. When you bring together business and social growth, it is what is good for society.”
“We built the Ughelli power plant power plant in the Niger Delta which generates about 500MW of electricity, but in addition to the plant the company has also built a hospital and school for the community, so the ecosystem is complete that way we have shared prosperity. I believe strongly that the public and private sector should work in conjunction with each other in sectors such as power to help alleviate poverty in Africa,” Elumelu concludes.