Vijay Mahajan: ‘Aid is not always money’

Vijay Mahajan authored "Africa Rising: How 900 Billion African Consumers Offer More Than You Think" after a three-year "consumer safari" across Africa. Photo by: Marsha Miller

A couple of years ago, Vijay Mahajan was unaware of just how influential Africa’s consumer market could be. Now, the author of The 86% Solution and Africa Rising argues that the continent’s 900 million residents are a force to be reckoned with. Eventually, the world will have to heed Africa’s call, just as it did India and China’s, he says.

Mahajan received a bachelor’s degree in chemical engineering from the Indian Institute of Technology at Kanpur, and then proceeded to the University of Texas in Austin, where he secured master’s and doctoral degrees in chemical engineering and management, respectively. He is currently the John P. Harbin Centennial Chair in Business at the University of Texas’ McCombs School of Business.

The 86% Solution, a book published in 2007, derived its name from the fact that 86 percent of the world’s population lives in developing countries, and called for increased ties between developed and developing countries.

“I’m the son of an entrepreneur. I mean, I know how hard my father worked. I know how hard the rest of my relatives worked. And entrepreneurship is alive and well where I come from,” the Indian native said. “So that was what started my journey, to actually show that there are huge opportunities there provided we change our mindset.”

After Scandinavian students pointed out that The 86% Solution “didn’t have much to say about Africa,” Mahajan proceeded on a “consumer safari” through Africa to investigate business practices and prospects on the world’s second largest continent. The result is Africa Rising, a book that coined the phrase ubuntu market and adds to a growing cadre of experts that regards Africa’s middle class as the continent’s biggest hope for growth.

Ubuntu is a Zulu term that can be translated into “I am because you are,” Mahajan told Devex.

“I actually kind of gave a business connotation to that, saying that businesses cannot live without the customers, and also cannot live without their employees,” he said. “At the same time, employees won’t have a job unless they take care of their customers. So we’re all in this together.”

Devex caught up with Mahajan to gain further insight into why he thinks Africa’s consumer market – paired with the right kind of international development assistance – holds the keys to unlocking the continent’s untapped potential.

Do you think African consumers behave particularly different from consumers in other parts of the world and how would that influence the choice of partnerships and investments?

Well, I don’t think that consumers are any different. Our culture and value system does change. For example, family structure is very, very important in Africa, just like it is very important in the country where I was born. The mother plays a very dominant role – my mother did. The expectations are the same, that you help everybody. So if your cousin loses a job, you would help out the cousin. And so, I think you’ll have to understand the fabric of the society – that’s what I call ubuntu – [and] that you cannot manage a market by having your offices in New York, or having your offices in London, and just fly [to Africa], which used to happen 15 to 20 years ago, with China and India also because since there were not much structures, people used to have their headquarters in Singapore and Hong Kong – major, major companies, investment companies as well as IT companies. And then they realized that you cannot manage one billion consumers by having an office in Singapore. So, now you see you cannot even find a space to open your office in Shanghai, Beijing or Bangalore.

And so, a couple of years ago, Coca Cola, after so many years, made a decision to move their headquarters from U.K. to Johannesburg, which I really applauded them [for]. Some [companies] have combined Africa with the Middle East; consequently they tend to have offices in Dubai, which is fine, but at the same time, Dubai is not Africa. So I think the opportunity there really is that they would get more consumer insight if they really go into Africa. Because African consumers, they are demanding, they know the quality, they also have relatives living outside Africa – these relatives are in the 14 percent of the world, just like the Chinese and Indians. So I think they are consumers like any consumers that you would find in any developing country.

In your opinion which sectors have the biggest growth potential over the next ten years?

Oh I think all the sectors. Be that education, be that health, be that transportation, be that media, entertainment, retailing, consumer packaged goods, and especially the industries that cater to the young population.

A key to success: African entrepreneurs

Can you tell us a bit about some of the African ventures and entrepreneurs that you were particularly impressed by?

I think that’s a long list. We have published many of them in the book. The person who gets the most attention is, of course, Mo Ibrahim. And that’s because he created Celtel, an inventor, really, a brilliant entrepreneur, very strong about the government, didn’t want to do any corruption, wanted to provide best customer service, just like the customer service we have [in the United States]. Understood that the infrastructure does not exist, understood that in the rural areas people won’t be able to even charge their telephones, so how do you do that? Understood that he cannot have the system that we have here, where you sign a contract for two years or one year, and get a bill at the end of the month, understood that the banking industry was not that organized. I mean you have to really applaud this person. So I think that he opened the doors for many, many companies. But there are several you will find.

I was so impressed by Ethiopian Airlines. I mean, these guys are not only a homegrown success story, you know, they train even pilots, the stewards and stewardesses or flight attendants are from Africa. And it’s a tremendous contribution to their economy, and it’s a public company that’s highly profitable. And irrespective of which government was ruling there, they knew what the importance of the airline is. They even created; they invested their own money and created a warehouse, centralized warehouse. So they could actually – and they even created the roads and whatnot, giving the trucks credit to actually bring the flowers and vegetables to the export market. I mean, I think, throughout the continent you will find many, many success stories – north, south, east, west, central.

From Kenya, Nakumatt is an amazing story, supermarket story. Last year that I was there, they opened their first 24-hour store in Rwanda. And people couldn’t believe that you could get 24-hour service in Kigali. So I understand that some of the ministers actually gave them a surprise visit three o’clock, four o’clock in the morning, just to see if these guys were really genuine. And then they created a fantastic supply chain, because you cannot import vegetables or eggs – they have to be fresh. So they worked with the farmers and the poultry farms to actually cultivate those. So, no, I think throughout the continent you’ll find amazing, amazing success stories.

What do you think African governments should be doing to spur investment and economic growth?

Now that question I cannot answer, because throughout my trip I never met any government official. I never sought out an opinion from a government official. Although many people offered me that opportunity, I didn’t want to take that. Because I wanted to see that despite all the problems they have, how were the entrepreneurs meeting the needs of the consumers? But you know, the fact of the matter is, what I have learned from many of these developing countries, is when the companies starts doing better, entrepreneurs very quickly realize, they give the credit to the government so the government officials can get elected and they can take credit for what the businesses are doing.

An example of that would be the government in India. They did not create the IT sector; they had no idea about the IT sector. Entrepreneurs created the IT sector and now – I think that is very clever – they give the credit to the government and the government is very happy to actually help them. So I think that you’re going to see that as the consumers start being more demanding, as local businesses start doing well, government is also going to realize that, well, they better be with the businesses and the consumers, that they should actually join them, otherwise they won’t get elected.

The importance of education

Countries like the U.S., China and India are increasingly investing in Africa, which is spurring growth, but it’s also adding to competition for African businesses. How do you strike that balance?

I was very surprised that on the whole continent, there are less than 80 business schools that offer you business education, and if you really look at the quality, probably hardly 15 or 16 of them. We probably have more than 80 business schools in the state of Texas for 25 million of us. So I kept on thinking: How are these companies going to grow over time? Where are they going to find that talent?

If the European Union could go to China several years ago to help them establish a new business school, or Harvard Business School, … Kellogg and Wharton went to India to set up business schools, I say: Where are these guys? How come [the] European Union, given that they had so many ties with Africa, how come they are not trying to establish schools, just like the good schools they did in India? Why aren’t the people from the U.S., the Kelloggs and the Whartons and the Harvards, … actually establishing a business school?

Why isn’t the African diaspora participating in that? Because China and India and in Mexico, the diaspora has a lot to do with that, convincing these people that, “There’s an opportunity, we’ll help you.” …

When you look at the money that they send back home, it’s close to $40 billion, both through the formal and informal channels. This is exactly the same money that the Indians send to India and the Chinese send to China. And even for Mexicans here [in the States], 100 million people, they send $24 billion through the formal channel and probably an equal amount through the informal channel. So I said: Why, where are these Africans? Why are they actually not really saying, “My God, we also want to take care of the education where we come from” – be that the primary school, be that the secondary school, be that the universities? And I really believe that’s the best investment we can make there.

Many people believe that trade between African neighbors is not as strong as it should be. What do you think is holding that back and do you think it has anything to do with a lack of pan-African institutions and mechanisms?

… One billion consumers, I mean who the heck could ignore one billion consumers on this planet? … So I think that we have to realize that they are poor but they are consumers. They need help. At the same time, they can also afford things on their own, just like India and China.

I was watching … Haiti, I saw what was going on, how bad the situation was. But then I started thinking in terms of [the 2004 Indian Ocean] tsunami. After that happened, … India decided they were not going to take any foreign aid. They wanted to make a statement that they could take care of themselves. I mean, I’d love to see Africa very soon making a statement: “We need help; we need help with the structuring of the education system. Give us the technology, give us the university, send your best people to set up our infrastructure, and we’ll work with you. But there’s going to be a time we’ll say we can do it on our own.”

So that would be my dream. And … I think it’s the mindset that we will really need to change there.

The ‘right’ kind of aid

What’s your opinion on development assistance from international donors like the U.S. Agency for International Development or Japan International Cooperation Agency? Do you think there should be more development assistance or less?

You know, I’m a product of USAID to India. At that time, after the British left, India did not have too many professional schools, medical schools, mechanical engineers, or chemical engineers. And the school that I went to, the primary instructor at that time directly went to President Kennedy and said, “I need help.” And President Kennedy directly called the president of [the Massachusetts Institute of Technology] and said, “Hey guys, can you think about doing something in India?” And MIT put together a consortium of the biggest universities, they found a champion who was willing to go to India, and they came there in 1960 and in 1970 they left. So they had an exit strategy and in ten years they helped to set up this Indian Institute of Technology, where I went to. This was the first engineering school started in India by the U.S. So we had a semester system, our books were coming from here, our faculty were coming from here. The question there was: Who was going to pay for it?

So no, not all the aid is money. So here they were giving us the intellectuals, they were giving us the knowledge – and then the U.S. had a very clever system. And the clever system they had was, in the 1960s there was also famine in India, so then the Kennedy administration decided, and the Johnson administration decided, to give the grains. But they told India, “We will give you the grains, but you will have to pay for that in your own currency. And when you pay for that, you will have to deposit the currency for us, and we will not bring that currency back home. We will use that money, your money that you’re giving us to buy the grain, to spend on you.” So they used that money given by the Indian account, and they used that money to actually help establish this school.

So my point here is that aid is always good. I mean, we need the aid; aid is not always money. It’s also knowledge, it’s also technology transfer, it’s also training. …

And so my [opinion] is that it’s not aid versus trade. Mine is that they go hand in hand; it’s not one versus the other. We’re very blessed here in [the United States]. I mean, our [gross domestic product] per capita is $44,000 and poor Africa is close to $1,000. So you realize that there’s no way they can compete with us. But why not help them compete?

What do you think about the work multilaterals such as the World Bank or African Development Bank are doing?

I honestly cannot comment on them. Especially the World Bank, except for the International Finance Corp., because IFC really is investment. In fact I met many companies that IFC has invested in, and that’s because that’s the [World Bank’s] business arm. In fact one of the very good universities in North Africa, [IFC was] willing to even invest in, because the university is for-profit and it’s a private university. So the World Bank, I don’t know all the things they do, I’m sure they do very good things also. But I think their mandate is that they have to work [with] government. So I’m not sure how much of the money really filters down to the people. I firmly believe in entrepreneurship and I think good things are going on there when you go one-to-one, you know, like when you see Kiva micro-financing and all that, in the private sector.

It’s not that you don’t want to deal with the government, the question there is: How much you want to deal with the government?

What role do you think nonprofit organizations and other civil society actors play in Africa’s growth?

I think they can play a major role. But I must say, those organizations – you know, just like anywhere else – some are doing a fantastic job, and some are not sure what the heck they are doing. I mean, you cannot do charity by renting the most expensive houses in those countries. I mean, I couldn’t believe that in Kigali, I drove to one area and all the NGOs, all the big houses and all that, they were all rented by the U.N., by UNICEF or the World Bank executives or NGO executives, you name it. I said, “My God, I don’t know, how much is the cost of really doing business there?” In Harare, some of the restaurants I went [to], they all actually were running only because of the people who are working for these NGOs. They are good-hearted people. I mean, I think good-hearted people also need to come up with a business model, just like the foundations are doing.

That’s what I like about the Gates Foundation, that’s what I like about the Dell Foundation: They are very professional, and it’s not that other NGOs are not professional, but they have very strong business, success matrix. They know exactly what they want to achieve with one dollar and they make it very clear, this is what needs to be achieved. Because they look at both the impact they’re going to have, plus how much they have to spend. So, they look at both sides of the equation.

You know, I think there are a lot of very, very good charities there. I mean, I was very impressed, they’re doing wonders. You know, like HIV/AIDS, I saw the great job that they are doing – some of them through the government, some of them through private. But I think they also need to start thinking in terms of the success matrix, the relationship between how much they’re spending and what they’re getting out of that.

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