A Trip to Africa

MBA Africa

2007-08-31T13:09:00.000-07:00

"Boa Noite" from Maputo, Mozambique--

The bar exam is over and the course I am teaching ("Entrepreneurship and Business Planning") is well under way, so I thought now would be a good time to share some of the experiences I have been having here in one of the world's poorest but fastest-growing economies.

I checked into the Hotel Terminus (pictured right) on my birthday and time has been flying ever since (special thanks to the Peace Corps volunteers who ensured that the birthday party for this perfect American stranger lasted well into the night). Getting off the plane in Maputo reminded me of what it felt like to arrive in Annapolis the night before my first day of "Plebe Summer" at the Naval Academy: I really wasn't sure what to expect. Thankfully, the decision to teach here has proved to be one I am very glad to have made.

The students are very good. Not only do they demonstrate intellectual curiosity and an eagerness to learn, but most of them also combine substantial business experience with a genuine desire to improve the quality of life of their fellow Mozambicans. In the executive MBA section (pictured left), two participants are using the material in this course to help create entrepreneurship centers for young Mozambicans. Another is using the material to create an entrepreneurship initiative for HIV/AIDS patients who cannot find work in traditional business organizations. One student started a bank two years ago that he is still running; another founded an internet company; and a third has decades of engineering, sales, and management experience with Johnson & Johnson and 3M. In short, we are all teaching one another.

It is fun to have the chance to interact with members of the first generation of "free-market" business leaders in a developing country. I am sure that some of those pictured in these photographs will one day help transform the lives (directly and indirectly) of a huge number of people.

My guide and host for most of this journey has been Dr. Cardoso Muendane, a larger-than-life
personality with a laugh even bigger than he is. Cardoso (pictured with his wife, Clara) is a well-educated member of the Mozambican upper class. After working in management at Mozambique's largest food-production concern, he turned his attention to teaching (he is on the economics faculty at UEM) and consulting. It is hard to travel anywhere in Maputo without meeting someone who knows Cardoso; Malcolm Gladwell (author of The Tipping Point) would likely describe him as a "maven." The MBA program in which I am now teaching is his creation. In the section below I hope to convey why I think his work in improving business education in Mozambique and other parts of Africa is important.

WHY AFRICA NEEDS BETTER BUSINESS TRAINING

The nighttime satellite photograph of Africa and Europe at right shows how much unrealized opportunity for development exists in Africa today. Africa accounts for over a sixth of the world's population, but generates only 4% of global electricity. As explained in a recent Economist article, the continent is mostly dark for at least two reasons:

Demand for electricity consistently outstrips supply (in Nigeria alone, demand for power is an estimated 7,600 megawatts, against an actual operating capacity of 3,500 MW; in Kenya 12,000 households per month are being added to the national grid) and
Many Africans cannot afford the energy that is available; the cost of lighting a shack takes 10% of income in the poorest households.

A central theme of any entrepreneurship course is that "within every problem is an opportunity," so we have used up hours of class time dreaming up business ideas that could evolve into business opportunities as Africa's energy crunch grows more severe. For example, Aggreko, a company based in Scotland, is the world's biggest supplier of temporary electricity in the form of back-up generators. It meets up to 50% of Uganda's power needs, and 10% of those of Kenya and Tanzania.

WHY ARE AGGREKO'S GENERATORS BEING MADE IN SCOTLAND AND NOT IN AFRICA?

A complete answer to this question would be too lengthy for this blog (Africa is an extremely diverse place that is hard to generalize), but a basic explanation for why Africa has not developed at the same pace as much of the rest of the world is worth keeping in mind. In short, economic, social, and political institutions imposed over more than a century of colonial rule caused resources to be allocated in a way that blocked the potential for economic integration and development. Africa's colonizers focused on developing export enclaves designed to feed Europe and America's growing appetite for minerals and other raw materials. Each enclave typically remained cut off from neighboring regions, blocking continent-wide integration.

Lacking access to the educational institutions available in Europe and the U.S., young male Africans usually joined the low-cost labor force and stayed there. The profits realized by the utilization of Africa’s labor force and natural resources were not internalized and re-invested within Africa to the same degree as margins in other parts of the world. Instead, profits disproportionately benefited colonial rulers. This situation impeded the development of institutions (such as schools and government) that typically foster economic growth.

A vicious cycle of poverty, lack of education, low productivity, and poor infrastructure has taken root in many parts of Africa, and a tremendous amount of work needs to be done to reverse the effects of years of colonial rule. This work has taken on a new urgency, however, as the effects of globalization are felt in more corners of the world, including Mozambique. For example, a view has emerged in Mozambique that protectionist trade policies may be the only way to give nascent industries (such as beer bottling) a chance to get started and grow. Some suspect (perhaps rightly) that South African beer producers produce and sell in Mozambique only to suppress future competition from local bottlers. Regardless of whether that suspicion is accurate, the fact remains that globalization rewards (and thus breeds) increasing levels of specialization. If African businesses want to one day compete in markets that require increasing levels of sophistication and specialization (ie the markets that will produce the bulk of per capita income and growth in the decades to come), the time to break the vicious circle and begin developing the relevant skills and necessary infrastructure is now. With each passing year, entry into those markets could become more difficult for newcomers. In a global markets regime, the inquiry is shifting: we no longer wonder whether Africa will be able to compete with producers in other countries. Rather we concern ourselves with whether Africa will ever be able to provide fully for itself in the face of competition from abroad, or instead will continue to be left "in the dark" for a long time to come.

Excellent management or "MBA" training can help break the vicious circle and have a "ripple effect" in a society by teaching managers (and those they influence) how to make better, more rational decisions, how to think creatively when solving problems, how to define objectives and sub-objectives clearly, how to plan projects in detail and work well in teams to see those plans through, and how to think strategically about long-term goals. These are exactly the skills that are most desperately needed in Africa. Much attention is paid to mismanagement of the public sector in African countries (rightfully so). But in most democratic countries (including Mozambique), a large number of leaders in the public sector are drawn from the private sector. So improving the management training of those who will initially work in the for-profit economy cannot help but evenutally make African governments more reliable, transparent, productive and service-oriented.

More to the point, two other things that hold back economic development in Africa are illiquid capital markets and lack of foreign investment. Other than the political risk investors see in the unstable (and often corrupt) regimes found in many African countries, they are also wary of accounting standards that are not in line with those found in more developed countries. Mozambique is working on legislation to mandate the use of international accounting standards (one of the students in my course is involved with that lobbying effort), but the problem is that not enough people actually know what these standards are for the law to have much of an effect. If nothing else, better business training would at least give more African business leaders the financial expertise they need to make their operations compatible with the global economy.

WHY BETTER TRAINING IN ENTREPRENEURSHIP IS ESPECIALLY NEEDED

The wonderful thing about a course in entrepreneurship is that it encompasses all major subjects taught in business school--strategy, finance, accounting, management, and communication, then adds to them by initially creating a frame of reference in which anything is possible. This "possibility" frame of reference is created by using a series of exercises to get the class to a place of "knowing unknowingness" or "beginner's mind." In the first week of the course, the goal is essentially to get all of us to remember what it was like to think like a 4-year-old: to first notice and then question all those little things that have been right there in front us, yet get taken for granted. Our natural curiosity tends to get smothered as we go through life. Rediscovering the "why?" instinct is essential to identifying underlying trends and generating great business ideas. But to get to that point we have to empty our minds of all preconceptions of what we think we know to be true or false, real or unreal, possible or impossible. We have to get back to a place of discovering the world for the first time--because it is only from that empty of space of "nothing" that anything truly original can be created or innovated. So before we can get to thinking about what the MySpace or WeddingChannel.com of Mozambique might look like or what new entrepreneurial opportunities might arise from global warming, we first have to arrive in a space where a chair becomes a lawn mower, an apple becomes a horseshoe, and a bed becomes a zebra. We have to realize that a "chair," an "apple," and a "bed" exist as "chair," "apple," and "bed" only in language, and if we created those things as we know them to be only through our use of words, we can use the same technique to re-create them into whatever we want (the same can be said of our relationships with other humans, btw, but that is the subject of a different course). And if we can use our words to re-create a "bed" into a "zebra," we can suddenly use them to imagine a world in which we are no longer confined to paradigms like "Mozambicans just aren't that entrepreneurial" (as was argued by one student in my class).

This sort of shift in thinking is especially needed in Mozambique, where socialist thought paradigms present an additional challenge. As I mentioned in my previous post, Mozambique was devastated by a civil war that began when the country's Portuguese colonizers were removed from power in 1975 and didn't end until South Africa's apartheid regime (which had supported the armed rebel movement in Mozambique) was displaced by the ANC in 1995. When the Portuguese left, they took with them just about all of the human capital that would be needed to build a society that could keep pace with Mozambique's neighbor to the southwest. Only 10 doctors were left in the entire country after the Portuguese withdrew. Even today 80% of Mozambique's population works on a farm of some sort--despite the fact that agriculture makes up only 20% of Mozambique's economy.

The combination of Mozambican resentment toward the country's Portuguese colonizers and the (relative) acceptance of Marxism in the 1970's led to the development of a socialist system in which no private citizen could own land. To this day, no Mozambican can own the land on which his home is situated. This constraint is particularly relevant to a course in entrepreneurship, because no Mozambican can borrow against the value of his land to start a business either. Mozambican "property rights" consist of a 50 or 100-year non-transferable permit from the government to use the land for a specific purpose. If the land is no longer used for that purpose or if the government identifies a better purpose, the government can reclaim the land and give it to someone else.

So if a developer wanted to build a vacation resort or an office park or a residential community over a given tract of land, he or she would have to negotiate with the local community to reach some sort of agreement as to how the people will be compensated. The trick is that the people cannot be compensated with money, because land cannot be bought or sold. Instead, the people in the community have to be compensated with some sort of in-kind payment, such as building a house for them in a different area. Because this negotiation process is so unpredictable (there isn't any way to know in advance what the community's members will want in return for moving off their land, because there is no relevant price of the land to provide an estimate of that cost), land doesn't change hands as easily or often in Mozambique as in other parts of the world. And because land transfers are more rare and difficult to accomplish, would-be developers have little chance of realizing a profit on improvements to the land they might otherwise consider.

To see a dramatic illustration of the impact of this policy, all one needs to do is drive across the border from Mozambique into South Africa. The Mozambican side (top picture) is mostly barren; once one enters the RSA (bottom) they are greeted by a green golf course on the immediate right followed by fields of sugar cane and bananas. One might theorize that this is so because the South African land is more suitable for farming. They would be wrong. In reality, Mozambican bananas are sweeter than those in other parts of the world, and South African farms are situated near the border in order to get access to soil that is more like that of Mozambique. But people generally don't invest themselves in developing that which they cannot own for themselves, and travelling the N4 from Maputo toward Johannesburg gives an excellent (albeit anecdotal) demonstration of that point.

Cardoso gave another interesting example of the need to help reshape old ways of thinking in Mozambique. There is a big difference between the culture of large cities like Maputo and the surrounding hinterlands. In the country, the collectivist culture combined with poor educational standards has created an environment in which it is very difficult to teach people about the benefits of competition. Many people view their fellow Mozambicans as their "brother" to whom they owe (and are owed) a duty of care. The notion that they should try to beat out their brother at anything is completely foreign. In the country, the idea of “homelessness” is a completely foreign concept. People don’t even know what it is, because they have never seen it. Everyone has a home because everyone just provides a home for their “Mozambican brother” in need. This is viewed as a cultural obligation that is shameful to ignore. Unlike in the United States, where people who excel and set themselves apart in one way or another are often rewarded socially, Mozambicans who exhibit the same competitiveness are shunned. In fact, a belief is held among some that if one farm produces 10 units while the surrounding farms only produce 7, the only conceivable explanation is that the farmer must have employed "witchcraft," not that the additional production was because of his or her own skill and ingenuity. The belief that someone has employed "witchcraft" can lead to ostracization or even excommunication from the community. This belief system makes it very difficult to foster a competitive, free-market economy in Mozambique.

I had the chance to speak with Dr. Joaquim Carvalho, President of TDM (Mozambique's largest telecommunications service provider), about the challenges old thought paradigms and ways of doing business presented at his formerly state-run firm. He described to me how difficult it was to get the newly privatized company to begin to orient itself around things like customer service, competition, and doing complete work in a timely manner. Through leadership and persistence, however, eventually his company did turn around and adjust to the demands of the free-market economy. For me, this conversation underscored that people and organizations not only can change over time, but that they are likely to change whether we want them to or not. The only question is whether management is going to be a proactive cause or a reactive recipient of that change.

Besides helping students achieve the paradigm shift that entrepreneurial thinking requires, courses in entrepreneurship (and the businesses that often result from them) have much more practical benefits. About 75% of new jobs in the U.S. are created by entrepreneurial firms. According Jeffry Timmons and Stephen Spinelli (authors of New Venture Creation: Entrepreneurship for the 21st Century), America has created 34 million new jobs since 1980, but Fortune 500 companies have lost 5 million jobs. In the late 1960's about 1 in 4 persons in the U.S. worked for a Fortune 500 company. By the late 1990's, that number was down to 1 in 14. Carl J. Schramm, President of the Kauffman foundation, has called Entrepreneurship "the only uniquely American resource" and "the force most likely to provide true freedom for individuals across the globe and here at home by giving everyone the opporutnity to fulfill their potential."

I do love teaching. The interaction with the students, the unexpected laughs, and the potential that this area of knowledge has to both inspire people and teach them how to really improve their lives makes this experience incredibly exciting. But UEM and schools like it need more faculty. If you or anyone you know has substantial business and teaching experience (at the graduate or undergraduate level) and would like to apply to serve as a Visiting Professor, please contact me at JIM.DAY@1998.USNA.COM. Courses are typically held for four weeks. I know that there are a number of professionals who would like to make a difference by helping to facilitate a freer exchange of business ideas between North America and Africa, because this would improve the quality of life of people in both areas of the world. If you are one of those people, I hope to hear from you soon.

The only thing we know for sure is that one, five, and ten years from now the world will look different (for better and for worse) than it does today. It is unlikely, for instance, that five years from now Mozambique will still only have 2% of its population online. The percentage might not be as high as in the U.S. or Europe, but it will be different. My hope is that some more of the participants in this and other classes in Africa will take on that if the world is going to change anyway, they might as well be one of the people who helps make that change happen.

Doing Business in Mozambique

2007-08-16T09:32:00.000-07:00

Sent: Sunday, March 18, 2007 9:37 AM

Hello one final time from Africa (for now)--

The reality of ending this brief stint as freelance photojournalist and returning to my “real world” of finishing grad school and studying for the bar exam is reluctantly sinking in.

But before that happens, I want to share some wonderful experiences and news from our recent trip to Maputo, Mozambique (pictured left). The purpose of this trip was to complete a project for the International Finance Corporation (the IFC is the private investing arm of the World Bank). The project asked my 4-person MBA team to research the history of venture capital and early-stage business investing in the United States, then learn as much as possible about what U.S. “best practices” might be transportable to Mozambique. We were then asked to recommend an investing model that would both stimulate economic activity and provide a positive rate of return.

Our team spent months conducting interviews and research back in Washington before beginning this trip. We conducted more interviews of investment professionals and other participants in this industry when we got to South Africa. In Mozambique we had the chance to meet with entrepreneurs and tour their businesses, interview development experts from USAID, and explore Mozambique’s only major city (Maputo).

We visited Maputo’s university (Universidade Eduardo Mondlane, or UEM for short) yesterday afternoon and met with the Dean of their newly-forming MBA program. I got invited to come back and lecture as a visiting professor, so it looks like I might be returning to this remarkable region of the world in the not-too-distant future before starting at my law firm in the fall.

MOZAMBIQUE IN CONTEXT
Flying from Johannesburg to Maputo is a bit like what I imagine it would be like to travel in a time machine. Johannesburg is a large, complex, cosmopolitan city. The airport bustles with tourists, business travelers, and government officials from every corner of the globe. The airport in Maputo (the largest city in Mozambique) doesn’t have walkway gates. Planes simply park in front of the terminal, a set of stairs rolls up, and passengers get off and walk through sliding glass door before proceeding to an awaiting customs official. The planes are still filled with businesspeople and tourists, but not nearly as many of them. Why the difference?

Like South Africa, Mozambique has been inhabited by Europeans for about 500 years. But unlike South Africa, Mozambique’s European colonizers were more focused on trade with India and the colonization of Brazil than on the economic development of their possessions in sub-saharan Africa. Europeans showed much greater interest in the development of South Africa because of the strategic importance of the Cape sea route (the fastest way to get to India and Asia from Europe before the Suez canal was to go around the Cape of Good Hope), and because of South Africa’s vast mineral wealth. The discovery of diamonds in 1867 and gold in 1886 may have brought war and other forms of conflict to South Africa in late 1800’s and afterward, but these discoveries also brought a wave of immigration that would serve as the bedrock for the RSA’s economic development.

More importantly, South Africa has held regular elections for almost a century. Mozambique first held democratic elections in 1994. South Africa has enjoyed self-rule for about 100 years, while Mozambique did not gain its independence from Portugal until 1975. South Africa is one of the only countries in Africa that has never experienced a military coup or other forceful transition of power from within the government. By contrast, Mozambique was flattened by a civil war that erupted shortly after independence when the communist FRELIMO party took power. According to one source, FRELIMO “eliminated political pluralism, religious educational institutions, and the role of traditional authorities.” FRELIMO was resisted by an armed rebel movement sponsored at times by neighboring Rhodesia and South Africa. The rebels were organized into a party called the Mozambican National Resistance (REMANO). The ensuing civil war killed roughly 1 million Mozambicans, while 1.7 million others took refuge in other nations (Mozambique’s current population is less than 20 million). FRELIMO and REMANO persist as the two dominant political parties to this day.

FRELIMO did emerge from the civil war as the ruling party, however the constitution that it ultimately agreed to provides for a multi-party political system, a free market economy, and free elections. FRELIMO still maintains a strong grip on the government of Mozambique. In the 2004 elections, FRELIMO party member Armando Guebuza won 64% of the popular vote, and the FRELIMO party won 160 of 250 seats in Parliament.

It is hard to overstate the negative impact Mozambique’s civil war had on its economic development. In 1996, Mozambique was one of the world’s poorest countries. According to the International Food Policy Research Institute, “it was so poor that mean per capita consumption was below the absolute poverty line.” Brighter days lay ahead, however. The return of war refugees in the mid-1990’s facilitated an economic rebound, culminating in a 10% growth rate from 1997-1999 until floods in early 2000 slowed growth to 2.1%. Growth has rebounded once again. Today, Mozambique is one of the fastest-growing economies in the world, posting an 8% GDP growth rate in 2006 on a population growth of only 1.3%. However, it is much easier to greatly increase national wealth on a percentage basis year after year when you don’t have much to start with. Mozambique’s per capita GDP is only $320 a year, and about half the population still lives in poverty. Put simply, Mozambique has come a long way since the end of its civil war, but it still has a very long way to go.

WHAT HOLDS MOZAMBIQUE BACK?

As is the case in so many other countries in Africa, Mozambicans live in poverty largely as a result of a government that has not created the conditions necessary for sustainable economic growth and entrepreneurship. The World Bank ranks Mozambique 140th in terms of “ease of doing business.” To provide a basis of comparison, the World Bank identifies 5 procedures (needing, on average, 5 days each to complete) required to register a business in the United States. 13 procedures were identified in Mozambique (requiring, on average, 113 days each to complete). 13 procedures at 113 days each is 1,469 days, or just over 4 years (assuming one works 7 days a week for 4 years continuously just to have the right to open his or her doors). Commercial contracts are effectively unenforceable through the legal system. If one is somehow lucky enough to obtain a judgment from a Mozambican judge, the procedure will take on average 1,010 days, compared to a 351.2 day average for nations that are members of the Organization for Economic Cooperation and Development (OECD).

Would-be entrepreneurs are held back not just by the remnants of socialist thought paradigms, but also by a legal structure that does not adequately recognize or protect property rights. In his book, The Shackled Continent, author Robert Guest cites the value of unexploited urban shacks and informally owned fields in Africa at over $1 trillion dollars. For economic purposes, this $1 trillion of land and property is dead capital, because the Africans living on it do not have the ability to borrow against its value and use the proceeds to start a business that could feed their families. In Mozambique, freehold land ownership is not allowed. While citing Peruvian Economist Hernando de Soto, Guest made a great point when he wrote “Third World leaders wander rich-country capitals begging for aid and investment. All the while, they fail to notice a much larger source of potential wealth at home.‘ In the midst of their own poorest neighborhoods and shanty towns,’ writes de Soto, ‘there are trillions of dollars, all ready to be put to use if only the mystery of how assets are transformed into live capital can be unraveled.’”

So why doesn’t Mozambique simply pass laws guaranteeing property rights for all citizens? The answer lies in the socialist philosophy still believed by many that land is for “the people,” therefore ownership of it by an individual constitutes theft. More importantly, however, the issue of land rights brings back bad memories of Portuguese colonizers in the minds of many Mozambicans in power today. For this reason, land rights are more of a political than an economic issue.

However, the simple passage of a law protecting property rights for Mozambicans, by itself, probably would not create favorable economic conditions as quickly as one would hope. In The Shackled Continent, Guest acknowledges the work of Tony Hawkins (a business professor at the University of Zimbabwe). Hawkins points out that most of the peasants who would be given title to their land under an African property-rights regime are unfamiliar with written contracts, much less with the business transactions that would allow them to collateralize their property. America was also a nation of “squatters” for a very long time. It took hundreds of years for America and other rich nations to form uniform property codes. In 1642, Virginia passed a law that gave squatters a right to be compensated for improvements to the land they occupied. If the owner of the land was unwilling to pay, the squatters were given the right to buy out their landlord at a price set by a jury. According to Guest, “this helped many squatters to become legal.” As pioneers moved west, states enacted laws similar to the 1642 Virginia law. “The Homestead Act of 1862 and the mining law of 1866 essentially formalized the arrangements that extra-legal farmers and prospectors had already worked out for themselves hundreds of miles from Washington,” writes Guest.

No matter how sound the economic and political policies of a nation may be, a country cannot reach its full economic potential until it has reached its educational potential. Our tour of UEM was encouraging because we saw so many Mozambicans who were clearly happy to be in school and eager to learn. The new MBA program we visited was designed to enable students to earn their MBA’s at night while working during the day. However, UEM needs resources, just as Mozambique needs more and better schools with enlightened teachers in order to help these students reach their potential and begin to lift their nation out of poverty.

Finally, Mozambique needs better and more transparent government if private investors are to gain enough confidence to invest their money there and reduce poverty in the process. I had dinner with Marianne Camerer, co-founder of the government watchdog NGO Global Integrity (http://www.globalintegrity.org/) while I was in Cape Town. When the conversation turned to the importance of open, honest, competent government in preserving the well-being of the people those governments are supposed to serve, her passion for her work and her organization shined through. Global Integrity has a unique index used to rate governments along six axes. Below is a comparison of how Mozambique fared on each axis in comparison to South Africa and the United States:

The executive summary to Global Integrity’s report is helpful to understanding why Mozambique fares so poorly relative to other countries whose citizens enjoy a much higher standard of living:

Corruption in Mozambique is made possible by the very nature of the Mozambican
state, where the power of the ruling party overlaps with the state
machinery. Despite massive fraud, especially in the privatization process, no
senior government representative has ever been convicted, so corruption
continues with impunity. In this small African country, pledges to strengthen
transparency and integrity are easier said than done.

The history of how Mozambique’s political elites have enriched themselves has been amply documented. It essentially resulted from the country’s calamitous privatization projects and the squandering of bank resources. More than 10.4 trillion meticais (US$400 million) disappeared from the banking system in the 1990’s. The state was forced to repay the money.

….Allegations of corruption also come from foreign companies trying to invest in the country. For example, following the approval in December 2005 of a new procurement law, a French scanner-production company complained that a contract had been manipulated. Although customs authorities denied any corruption, the damage was done: Mozambique gained a reputation of a country manipulated by political elites. And the reputation is not undeserved. External investors are often forced to give shares and partnerships to ministers in exchange for license approvals. This deters internal, as well as external investment and limits commercial development….

Corruption does not only flourish at the highest political levels in Mozambique, it also grows through bribes paid to traffic police, hospital workers and the sexual extortion that takes place in schools.

It would be a mistake for Mozambique to simply try to copy the laws of the United States and expect a similar economic result. Just as the United States needed property laws that reflected the reality of what was already happening when it passed the Homestead Act, Mozambique needs property laws that preserve the relationships Mozambicans already understand while allowing them to turn their assets into live capital. I hope I get the chance to return one day and identify / discuss some ways to make that happen with people who could help to implement those ideas.

INVESTING IN MOZAMBIQUE: THE IFC AND USAID

We began our visit to Maputo with a meeting with USAID representatives. One of the USAID representatives had been involved with investing in Mozambique since 1989 and has since turned his attention to working to reforming the policies of the government. The concern I had with our assignment and project generally was that we had been asked to design a venture capital fund for a country that has only one company listed on its stock exchange and no debt or other liquid capital markets. If a new Mozambican company was able to attract the necessary seed financing, there are extremely few technical and management consultants around to help it get over the stumbling blocks that present themselves as the business tries to grow.

Venture capitalists plan on seeing about 8 or 9 of 10 investments fail or go sideways when they put their money into a new company. This is why United States VC’s generally invest only in companies situated in high-growth industries, such as software and biotech companies. If just one of these investments becomes the next Google or Microsoft, the VC can earn a huge cash return (called “getting liquid”) by selling shares either through an initial public offering on a public exchange or to the owners of another company. A VC will have a very hard time doing that in Mozambique, because there aren’t many other companies and there is no real public stock exchange to sell to.

A USAID report that described a long string of failures the IFC has had with venture capital investing. The report stated:

The IFC has also provided resources for venture capital companies. A recent
evaluation of eight such enterprises in which the IFC invested $40 million from
1976 through 1986 concluded that this indirect support had serious problems. The
venture capital companies had difficulty persuading owners of promising
businesses to sell part of their equity; managers of venture capital companies
were usually inexperienced and had to learn by doing; and developing a
management that created proper incentives was difficult.

Overall, the IFC’s venture capital portfolio performed poorly. Estimated real rate of
return on its projects in venture capital companies was minus 5%, compared with +6% on its overall portfolio. In other words, the IFC’s investment in venture capital companies lost 5% of its value for each year it was invested.

Since previous IFC investment attempts in Mozambique have failed, there is a concern that if another fund is created and that fund also fails, the private investors whose money stands the best chance of improving economic conditions could be scared off.

SGL PRINTING

After arriving in Maputo we met with Nadya, the owner of SGL printing. SGL focuses on high-end printing services for the local business community. SGL was started by Nadya and her partner in Canada; the company moved to Nadya’s home in Mozambique when Canada went into recession in 1982. Tracy recently arranged a capital infusion of hundreds of thousands of dollars into SGL; that money was used to buy a machine that tripled the company’s production output. Nadya confided that she hopes to use her business to retire, but at the moment her profits are pushed downward by competition from another business that allegedly functions as a money laundering operation. According to Nadya, there are three major printers in Maputo. One prints for 97 cents per copy. She sells her product for 84 cents. The alleged money launderer somehow manages to sell for 30 cents.

The exciting thing about IFC’s recent investment in SGL is that the new machine improved production enough to require Nadya to increase the size of her labor force from 50 to 60 employees. Nadya pays her most junior employees at least three times the minimum wage (the minimum wage is about $60 per month), even though she claims could pay them less if she chose. The more skilled employees of course earn a better wage. Junior workers in the pre-production room earn $500 per month; senior workers make $1000 per month. So because of the IFC’s partnership with SGL, 10 more people in Maputo have jobs that can enable them to maintain a standard of living well above what they would have had otherwise.

Because Nadya came from Canada, her business is considered “foreign owned” and is subject only to the 16% foreign tax rate. However, this benefit will expire in a few years, and SGL will be subject to a 32% domestic corporate tax rate. I asked her why there wasn’t more chaos and how there could be much business at all if the legal system was so useless. She explained that in Maputo everyone knows everyone, so having a good reputation is very important to a firm’s future economic viability. People essentially have to work disagreements out amongst themselves, because the legal system is too broken to utilize.

When we asked Nadya what her concerns for the future are, she mentioned a trade agreement into which Mozambique has entered with South Africa and other countries. The agreement is called the “South African Development Compact” (SADC). If BEE (Black Economic Empowerment) is the affirmative action of Southern Africa, SADC is its NAFTA. Nadya is worried about competition coming over the border from the RSA.

Because SGL is a local business, Tracy wasn’t as concerned about the impact of SADC as she would have been had Nadya been running a business more susceptible to competition from abroad. Nadya told us that it was hard to work with the IFC because the due diligence process was so extensive. However, Nadya added that “we wouldn’t be where we are today without the IFC.”

DÉJÀ VU CHOCOLATE

We also had the chance to meet with Milton, the co-owner of a chocolate business in Maputo called “Deja Vu.” Milton was educated in South Africa, but identifies himself as Mozambican. Tracy used IFC money to provide Milton with some management consulting and market research support, and had a meeting on Friday to approve an equity investment that would double his production. Milton was very excited about his partnership with Tracy and the IFC. He claimed that up until now he was unable to grow his business because loans are overcollateralized by Mozambican banks.

A chocolate factory just before Easter in a Catholic country is an intense place. Other than some soft jazz playing in the background, there was total silence in the room as we toured the production floor. The employees were nearing the end of a 12-hour shift that had begun at 7 am. In spite of competition from South Africa, Déjà vu seems to have carved out a niche for itself in Maputo’s chocolate market. Mozambicans like their sweets; it is expected that the market could easily absorb all of Milton’s product even if he were to triple production.

PRESENTATION TO IFC MOZAMBIQUE

We used all this information to present the best case we could for how an investment model could be structured that would both stimulate economic development and make money. During the meeting, the conversation turned to the need for a paradigm shift both among Mozambicans and among the donors who give money to them. The IFC made the point that donors must realize that money alone will not solve this problem; only a change in the way people think and govern themselves will produce the kind of results everyone is hoping for in the long term.

One of the IFC representatives attending the meeting was a young Mozambican named Sabino. Sabino is not as privileged as we are; he cannot afford to come to Georgetown to get an MBA. But he is an absolute sponge for information…a self-taught venture capitalist. He even (accurately) corrected me at one point regarding the history of venture capital in the United States (thankfully no one asked me to research the economic history of Mozambique). Toward the end of the meeting, I looked at Sabino and told him I hope to return to Maputo in 20 years and reminisce about the meeting we were having. I hope that when we have that conversation, the system of laws, government, and capital markets currently operating in Mozambique will be a distant memory. He looked admiringly at the “Big Red Book” I obtained for Professor Martin Ginsburg’s class on Structuring Private Equity and Venture Capital Transactions. I promised to get a copy in his hands before I graduate. My other teammates told Sabino that they envision him as the head of the Mozambican version of the Carlyle group in 20 years. He didn’t laugh at that. He actually looked at it as a real possibility.

Sabino is not naïve. In his recent, excellent book, The Emerging Markets Century, Antoine van Agtmael points out that we currently live in a world where 15% of the population controls about 80% of the wealth. Agtamael estimates that by 2035, 50% of the wealth will be controlled by underdeveloped nations like Mozambique. If Agtmael is right, this state of affairs will be created not by a pure transfer of wealth from developed economies to underdeveloped ones, but by growth from within. There is a good chance that Sabino's of this world (and those who align themselves with people like him) stand to make an awful lot of money in the next 30 years. [postscript: much thanks to Jack Levin, the author of "Structuring Private Equity and Venture Capital Transactions," who did generously-and quickly-ship a copy of his book to Sabino].

If I had to sum up my time here in Africa, I would say the two biggest themes of this trip are "hope" and "possibility." The evening we returned to Johannesburg from Maputo we enjoyed a farewell dinner at our hotel. At that dinner, we were treated to an a cappella duo of these students from the Community and Individual Development Association City Campus (or CIDA City Campus). CIDA is the first private higher education institution in South Africa to offer a virtually free business degree to students from disadvantaged backgrounds. Listening to their voices, it is hard not to be hopeful for the future of this region of the world: http://www.youtube.com/watch?v=VdqEWWfnlEE

Very Best,
Jim

Doing Business In South Africa: Globalization Up Close

2007-08-16T09:05:00.000-07:00

Sent: Wednesday, March 14, 2007 8:36 PM

Hello from Johannesburg, South Africa—

I left Cape Town on Saturday and have enjoyed the research, restaurants, nightlife, and tourist attractions we have indulged in since then (not necessarily in that order). If Cape Town is the San Francisco of South Africa, Johannesburg is the New York.

Thanks to everyone who has written back. Writing about these experiences gives me a chance to reflect on them; in that process I usually end up learning something that I wouldn’t have picked up otherwise. Reading and responding to your notes has only deepened my experience of this extraordinary place. Although I haven’t yet decided to pack up my apartment and move to sub-Saharan Africa, one of my friends (who visited this area one year ago) and I did agree that it might be worth the move just for the weather and the golf courses. It has been between 65-75 and sunny here almost every day since I arrived (then again I heard the weather in DC was pretty good yesterday as well).

We are leaving for Maputo, Mozambique tomorrow morning to do some field research and present our project. I think we have some interesting, creative ideas and I am excited to hear what our client thinks of them. But I wanted to take a break from preparing for that so I could share some of my thoughts and experiences from my Africa adventures so far.

MACRO OVERVIEW

One of the biggest reasons I am glad I had the opportunity to study and visit this country is because of all the interesting parallels between South Africa and the United States. Both countries are relatively young, having been settled by Europeans about 400-500 years ago. Unfortunately, both countries have histories of racial injustice partly resulting from that European migration. These histories impact the way governments and people behave today as the countries work to put those pasts behind them. Like my home state of Ohio, South Africa has a “brain drain” problem; South African doctors, dentists, and air traffic controllers often leave the country to pursue sweeter opportunities in other parts of the world. Finally, both countries are economic engines, and are dealing with a wave of immigration as a result of their economic success. For now I want to focus on this last similarity. I have visited Robben Island, the Apartheid Museum, and several other destinations, and have assisted in the Landmark Advanced Course (an event that I believe greatly improved relations within the multi-racial participating group), but will describe those events in a later email. To put in perspective how important South Africa is to the African economy, consider the following facts:

50% of Africa’s purchasing power is within South Africa
55% of cars driven in Africa are driven in South Africa
75% of electricity generated on the continent is generated in South Africa
45% of airline flights in Africa are flown within South Africa
35,000 km’s of Africa’s 70,000 km’s of railroad are located in South Africa
47 million of Africa’s 782 million people are in South Africa (6% of the population)
That 6% of the population is producing 24% of the African continent’s GDP.

As one of our guides put it, in terms of economic impact, South Africa is to Africa what the United States is to the world.

South Africa’s economy has boomed since the end of apartheid in the early / mid 1990’s. 2006 was a particularly good year; the Johannesburg Stock Exchange’s index rose by 46%. South Africa has also been chosen as the host country for the 2010 FIFA World Cup. World Cup soccer has since prompted a debate in Cape Town as to where a new stadium should be located and how it should be paid for…a debate not unlike DC’s current/recent experience with the new baseball stadium. The United States is currently the Republic of South Africa’s second largest trading partner, and is currently running about a $3 billion trade deficit with the RSA.

To give us a better sense of what factors are affecting how business is done in South Africa, we were treated to a presentation Saturday night by Craig Allen, the Senior Commercial Officer for the U.S. Embassy (many of the facts I cite above and below were gleaned from his Power Point, so if anyone has a quibble with them, I’ll be happy to forward his email address ;-) ). Craig gave us an overview of both the current macroeconomic environment in addition to laws and regulations affecting how business is done in South Africa. One of the laws important to understanding South Africa’s business environment are those pertaining to Black Economic Empowerment, or “BEE.” BEE has many of the same goals and operates in a manner similar to “affirmative action” laws in the United States. Just as in the United States, South Africans are not of one mind on this issue. Some (both black and white) think that BEE serves only to patronize and ultimately harm those it is designed to help, and unnecessarily restrains economic activity. Others credit BEE with the emergence of a black middle class, political stability / national unity, and even with helping to improve race relations by ensuring blacks and whites work together in business organizations. One of the features of the law involves ranking companies according to a “BEE scorecard” weighted by the following factors:

Black / colored Ownership (20%)
Black / colored Management Control (10%)
Employment equity (15%)
Skills Development (15%)
Preferential Procurement (20%)
Enterprise development (15%)
Socio-economic development (5%)

A key element of the underlying philosophy of BEE is that if South Africa is to achieve its full economic potential, the skill sets of the entire population must be developed. It is not good enough to fully develop only the skills of those who were given advantages by accident of birth. The argument is that BEE broadens skill development by providing business opportunities to non-whites that would not have been present otherwise.

The impact of globalization to this region of the world was highlighted when we passed the L’Oreal plant in the picture to the right. Although I had the chance to visit plenty of overseas destinations in the Navy, I never gave much thought to whether U.S. companies were doing business there. Currently, 600 U.S. companies have a presence in South Africa (including Coca-Cola, IBM, GM, and GE, among a long list of other household names).

AEROSUD

In order to better understand these trends, on Monday we were given the chance to tour the plant of Aerosud Aviation, a supplier of aviation systems and parts for the civil and military aviation industry. Like many other South African businesses, Aerosud (a privately owned company) has enjoyed phenomenal growth in the last six years. It has an order book exceeding 4 billion Rand (about $541 million), has a staff of 470 employees growing to 700, and currently manufactures about 750,000 parts per year for Boeing and British Aerospace. One of their technological achievements is the heat suppression system manufactured for the Super Lynx helicopter, one the most formidable attack helicopters in the world. As an American, all this left me wondering during the tour “why isn’t this work being done in the United States? Boeing is an American company and should be using U.S. suppliers. These are great jobs that would be wonderful to have back in Ohio (a state that has lost hundreds of thousands of manufacturing jobs over the same period of time that this company has grown so much).”

Our tour started with an introduction given by Frans Nortje, a young engineer whose enthusiasm for his company is evident from his attached picture (the one titled “Quality Control at Aerosud”), and Isaac Nkama, an equally ebullient man who serves as Boeing’s Director of Economic Affairs for Southern and East Africa. Isaac also serves on President Thabo Mbeki’s Black Business Working Group. In the link below Frans comments on his perception of the job the South African government has done managing the economy:

http://www.youtube.com/watch?v=eH_04wvn5as

The first thing that impressed me about the presentation was the way the two men described Aerosud’s culture. Having twice gone through the law firm recruiting process, I am used to hyperbolic discussions of organizational culture (I think my grad school loans would already be paid off if I had a dollar for each time I heard “you are going to love the people here”). But there was something different about Aerosud. South African firms have a more informal, family-like atmosphere than many American ones. Junior engineers address their seniors as “oom,” (meaning “uncle”) or “tannie” (meaning “aunt”), a subtlety that helps foster a nurturing work environment conducive to mentorship. This distinction was further impressed upon us during a visit with Dr. Paul Potgieter, Aerosud’s CEO. Dr. Potgieter mentioned that one of the biggest management challenges he faces with the company is finding a way to “take the wealth of senior engineering talent and impart it on our young engineers in a way that their creativity is not stifled.” When questions about tensions surrounding BEE were raised, Aerosud’s culture was credited with enabling the firm to turn BEE into a competitive advantage by ensuring high levels of training were achieved throughout the company through open communication. My inner cynic did raise a raise flag at this last assertion, but I don’t have any other reason to doubt its truth.

The picture of Frans in the file titled “Quality Control at Aerosud” tells a story about Aerosud’s culture and innovative use of technology. He is standing next to a document called the “Not Right First Time Chart.” If a worker undertakes a task resulting in the production of scrap or requiring rework, the worker must own the reason for the failure on a publicly-displayed paper and state what he or she will do in the future to prevent the error from happening again. Aerosud has experienced dramatic quality control improvements from successfully implementing this culture of ownership, openness and mentorship. For example, since implementing this system, the factory has improved the time it takes to smooth parts (called “deburring” them) from 4.6 minutes to 1.9 minutes per part. Aerosud’s European competitors reportedly have a “scrap rate” (the rate at which raw materials must be discarded as scrap) of 60% when welding. Aerosud’s scrap rate is only 12%. The links below will give you a feel for what it was like to tour the plant (and how noisy it can be…might want to turn down the speakers on your computer):

http://www.youtube.com/watch?v=kkYaWYTitXo

http://www.youtube.com/watch?v=lrnzbYAE7cQ

Another interesting thing about Aerosud is that it lists two competing companies (Boeing and Airbus) as clients. That fact left me wondering through the tour how they got their primary client, Boeing, to agree to allow the supply of parts to their primary competitor without incurring any harmful consequences. When that question was asked, the answer was pretty simple: “we asked.” Aerosud explained to Boeing that they had extra capacity that they would like to use to manufacture parts for Airbus, and Boeing agreed so long as Boeing production was not affected.

LONMIN MINING COMPANY

On Sunday evening my stellar four-person IFC Mozambique team (consisting of Karlene, Rob, Jeremy, and myself) and one of our professors (Richard America) had the opportunity to meet with Tony Dallas. Tony is one of the people who helped bring Landmark Education to South Africa in an effort to transform the country and help it move past its history of racial tension. When Landmark started a private consulting group in the mid-1990’s (called “Landmark Education Business Development,” or LEBD), Tony took advantage of the opportunity to use Landmark methodology to improve the area’s businesses, economy, and way of life.

Landmark Education Corporation is a for-profit LLC based in San Francisco that seeks to improve people’s lives and relationships by causing a shift in their way of thinking. The company is best known for its introductory weekend seminar called “The Landmark Forum.” If you have not heard of Landmark, it is probably because the company does not advertise; it relies almost entirely on word-of-mouth recommendations from its current and former customers to ensure the company’s profitability and future viability. This extremely passive marketing effort is workable only because 94% of participants in the Landmark Forum report that their Landmark experience made a “profound, lasting difference in the way they live their lives.” I am grateful to be one of those people (and I thought I was pretty happy before I did the Forum). Like many people who experience Landmark, I completely blew off the first person who suggested I look into it, then decided to enroll when 2 other friends also raved about their experiences. Since my participation during the weekend of January 12th, 2007, I have enjoyed many of the benefits described in the video link below, and so have my father and one friend (both of whom completed the Forum on my suggestion since then).

www.landmarkeducation.com/wdcintro

My initial thought in asking Tony to meet with my group was that Landmark’s transformative methodology could be used to make businesses in Mozambique more profitable, thus enhancing the rate of return on the investment fund model my team is recommending to the IFC. LEBD has been uniquely successful in developing, at all levels of their clients’ organizations, a shared ownership of organizational objectives, resulting in creative solutions focused on those objectives from all organizational members, regardless of rank or status within the company. Put simply, I thought Landmark might be able to help bring about a culture similar to the one we saw at Aerosud in the companies in which the IFC plans to invest.

Tony, like many other people I have met from Landmark, has a grace and calmness about him that makes him very easy to listen to. He began by telling us about his current project at the Lonmin Platinum Mines outside Johannesburg (in the “Bushveld”). Lonmin is the world’s third largest platinum producer. It operates four mines in South Africa with proven mineral reserves of over 60 billion ounces, employs 27,000 people, and enjoys a market capitalization of over $9 billion. When a new CEO was brought in by the name of Brad Mills, Mills made the decision to hire LEBD to improve the company’s performance (both its financial performance and performance as a corporate citizen). Mills had used LEBD at one of his former companies (Magma Copper), and hoped that LEBD could achieve the same transformational effect in South Africa that he had seen on other continents in the past.

Before Mills decided to hire LEBD, Lonmin suffered from strained labor and shareholder relations, a poor work safety record, and a poor relationship with the surrounding community. Racial tension lay at or near the core of many of the issues that were hurting Lonmin’s performance. By improving the nature of the relationship amongst Lonmin’s stakeholders, LEBD was a cause in tripling Lonmin’s share price and raising its community approval rating from 14% to over 60% in just two years (these results are documented in the attached pdf file).

At Lonmin, management consisted of many white Afrikaners (South Africans of Dutch descent who are identified by many as creators/sustainers of apartheid). Labor was composed largely of non-whites. The two sides did not get along very well. 80% of the population of the surrounding community lived in shacks, and the community had a 40% unemployment rate as a result of a lack of jobs outside the mine. HIV/AIDS was rampant.

Tony related to us that one of the first steps was to set up a 4-day program to which over 100 major stakeholders (management, workers, members of the community, etc.) were invited. As Tony described it, the first day is spent by most people being angry—both at the people they are with and with their Landmark facilitators. On the second day, many of the nasty things people had been keeping bottled up inside of them began to come out in public. By the fourth day, the participants had begun to design a future together.

This isn’t to suggest that all of the problems I described above were solved over a 4-day weekend. However, I believe that if I had been at Lonmin before LEBD began its project, I would have thought it a miracle to bring such a group of people together to the point where they could all talk to one another and begin to work productively together in such a short period of time. That initial weekend was only the beginning of LEBD’s work at Lonmin. Two years later, Tony is still working on his project. Since LEBD arrived, the mine has seen a 10% increase in production, a 68% boost in revenue, and a 152% growth in earnings per share. At the time the attached report was written in October 2006, year to date industrial fatalities were down to 3, compared to 12 in 2003, 8 in 2004, and 6 in 2005 (the project began in 2004).

How was Landmark able to achieve these results? The answer has much to do with why I believe South Africa has the potential to become an economic powerhouse not just within Africa, but eventually for much of the world. South Africans unite themselves (regardless of race) behind a core principle called ubuntu, which translates into “I am because of you,” or “We are, therefore I am.” This contrasts sharply with the Cartesian philosophy embraced by so many Americans and Europeans: cogito ergo sum, or “I think, therefore I am.” At the core of Landmark’s philosophy lies the notion that when human beings place too much value on their own subjective thoughts and beliefs, they become closed-minded and feel threatened by alternative ways of thinking. Although it can be comforting to stick to ways of thinking that may have served us well in the past (or that we think have served us well in the past), this “steadfastness” and “consistency” ultimately limits the number of people with whom we can have relationships, and also undermines the depth of those relationships we are able to gain. Worse, these rigid ways of thinking limit what we believe to be possible for our lives, preventing us from striving for goals that are actually within our reach. This has much to do with the quote by Albert Einstein pictured above (taken at the Landmark Advanced Course where I assisted last week). Landmark teaches that most of the reasons and excuses we create for not striving for or realizing our most extraordinary possibilities are actually just lies we tell ourselves in order to avoid responsibility for the great things we are all capable of achieving when we let go of our need to be right, feel comfortable, look good, dominate people, avoid being dominated, and make others wrong.

South Africans seem to grasp this principle of ubuntu implicitly. This principle lies at the core of the culture of any organization operating at or near its full potential. It might be that other African countries are poor not because their people do not embrace ubuntu, but because so many of them are led by corrupt, incompetent governments that misappropriate national wealth and cannot be relied upon to uphold a just rule of law (such as one particular country located on South Africa’s northeast border…and I am not referring to Mozambique). South Africa does not seem to have this problem to nearly the same extent as its neighbors, which is why I will watch for it to become the next China or India in terms of its economic growth rate. The country is literally “teetering on the brink of success” (to borrow an expression from Craig Allen). Which way it falls will be largely determined by the outcome of the transition of power that will take place this year when President Mbeki’s term expires.

THE CHALLENGE OF SOWETO AND PLACES LIKE IT

The meeting with Tony was the perfect segue into a conference held yesterday at Witwatersrand Business School, popularly known as “WITS” (pronounced “VITS”). Tony related to our team that although South Africa has enjoyed fantastic economic growth since the end of apartheid, for a large number of citizens, especially those who are members of races whose freedom was limited under the old regime, life hasn’t improved all that much. Far too many people still live in settlements and squatter camps without sewage services, running water, electricity, or any of the other basic necessities of human life we take for granted in the U.S. and elsewhere. Professor Charles Villa-Vicencio (not a socialist) described it best yesterday afternoon when he remarked “Capitalism is great at generating economic wealth, but not very good at distributing it.” How South Africa manages the widening income gap between its rich and poor will be critical in determining whether its current level of political stability will be maintained, or whether it will once again flirt with the severe instability that was anticipated when the African National Congress took power in 1994. How the United States manages the same problem (especially as it applies to an aging baby boom generation) will be critical in determining its future as well. South Africa’s wealth is forcing it to confront the same age-old question that has been the focus of so much debate for so many years within the U.S.: how can we (or should we even attempt to) structure a society in which the basic human needs of each citizen are met without inhibiting the freedom, creativity, and drive of those individuals who generate national wealth through entrepreneurial, business, and other activities?

This morning we were given an up-close-and-personal view of the implications of this question. Our group was given the opportunity to tour a “squatter camp” in Soweto. Soweto is the location of the Soweto uprisings of June 1976. These uprisings convinced the ruling white National Party to begin negotiations with Nelson Mandela, and ultimately paved the way to the end of apartheid in South Africa. Soweto has a population of 4 million, and that 4 million is comprised of an extremely diverse mixture of millionaires, the poorest of the poor, and everything in between.

My initial reaction to the camp (before I even got off the bus) was one of total shock and surprise. I immediately noticed the man whose picture is below. Here was a community of 20,000 people living in conditions decrepit to a degree I have not yet seen in the United States (and hope never to see). Yet these people actually seemed happy. Or if not “happy” as I prefer to think of the term, they at least seemed not miserable, or at least no where near as miserable as I imagine I would be if I ever had to trade places with one of them. Why? How? I will not pretend to know the answer to that question, because it is still blowing my mind as I type this. How can this man give me two enthusiastic thumbs up walking out of a slum he calls his home when I sometimes struggle to fake a smile toward my colleague passing me on the street? How can these children run up to me in the middle of their dirt road and hug me, a total-stranger-white-man-born of a race their parents should naturally have taught them to hate when I struggle to have a conversation longer than five minutes on topics more meaningful than sports, the weather, or my job with my family members and friends? How can these children show such joy over being given a lollipop by visitors to their camp when I cannot find happiness in a new car, apartment, or six-figure starting salary? How can they have so much pride and self-esteem that they meticulously clean these tiny, run-down shacks when I so often lack the motivation to clean out my microwave oven? The reality of this is both humbling and embarrassing.

Our tour guide introduced himself, and then we proceeded into the camp. The people of the camp have a 60% unemployment rate. The guide gave us his introduction:

http://www.youtube.com/watch?v=kCJMTPwcqmk

Even though our professor had assured us beforehand that everything was ok, I still felt uncomfortable that these people were being put on display, and that their dignity was being threatened. The guide persuaded us not to worry; we were invited guests (of a sort):

http://www.youtube.com/watch?v=DoW8IqSWVYY

There is no free public education, however the camp did have a day care. One of my colleagues brought lollipops, so we handed them out: http://www.youtube.com/watch?v=F5VRrnkEwkQ

And then we played with the children for a little while and left.

These were not the starving, miserable children of Ethiopia I had seen on TV growing up as a child. And I certainly don’t mean to suggest that such children do not exist or don’t need to be helped. What was powerful about today is the fact that the children who were hugging me do need to be helped, yet they showed so much generosity even as I thought they had nothing to give.

I am still not sure what to make of my experience in Soweto this morning, because it is all still sinking in. I certainly have not arrived at any firm conclusions about the “age old debate” I mentioned in the first paragraph of this section. What I do know is this: the debate is no mere intellectual inquiry. A government’s approach to this debate over has consequences no less real than the children in these photographs. And I don’t think I will ever arrive at a “firm conclusion” or “answer” to the question of the debate, because at the point where I have my “mind made up” I will lose the possibility of having it made again and again in a better and more effective way. The best I or anyone can hope for is to deal with the tensions of the debate in the most effective way possible—the way that best aligns our values and hopes for the future.

There is another question I want to know the answer to: why were these children running up to us white Americans and hugging us, when so many children in Iraq and Afganistan are shooting at us? True, the U.S. never invaded South Africa, but I believe the answer is deeper than that. The discussion at WITS yesterday did shed some light on that, and I look forward to sharing more about that in a later email.

Very best,
Jim

Africa is Awesome

2007-08-11T05:42:00.000-07:00

Back in March of 2007, I began a trip that I thought would simply fulfill a graduation requirement, but turned out to be a bigger opportunity than I had expected. This blog contains the travel log entries of that first trip to Africa and an account of what happened when I went back.

Sent: Wednesday, March 07, 2007 5:07

Hello from Cape Town, South Africa! I started an amazing experience on Saturday, March 3rd when I boarded a South African Airways flight from Dulles to Johannesburg. In order to complete my MBA program, I am working on a consulting project requiring my team to make recommendations to the International Finance Corporation as to what venture capital fund models could be employed to spur economic development in Mozambique (the IFC is the private investing arm of the World Bank).

I decided to use the first week to explore southern Africa, and the second to get my work done. This place has got to be one of the best places to explore the outdoors on the planet. After nearly 18 hours in the air, I was picked up at the Cape Town airport by a friend and settled down to a steak dinner at the Cape Town waterfront. The waterfront reminds me of the inner harbor of Baltimore in its design and overall modern feel.

The food at the steakhouse was fantastic…and cheap. The rand is currently trading at 7.4 to the dollar, so my meal (which included wine and a tip) was only about $35. The next day my friend and I hiked up Table mountain, one of 3 peaks overlooking Cape Town. The hike was just challenging enough to be fun, and the view from the top was memorable. We then visited wine country, where we found a vineyard called Spier. Spier is one of those places artists paint about—a windmill, open lawns with people sipping wine on picnic blankets, a little pond, etc. It also has a restaurant within it called “Moyo,” which features some of the most entertaining musicians I have ever seen:

http://www.youtube.com/watch?v=n_A2tQmHjcU

This morning we went shark diving in a city about 2 hours outside of Cape Town—an experience that really deserves its own email later on. For now, just know that I still have all my fingers and toes, and about 5-6 great white sharks (about as long as the minibus that we drove in on) got a free snack of tuna head as bait while we watched them from inside a diving cage.
So that’s it for now. Tomorrow my travel partner is leaving to head back to the States, and I plan to spend the remainder of the week catching up with business school classmates and other friends I have met here. Tomorrow I plan to say hello to the penguins at the Cape of Good Hope, and possibly take in Robben Island (where Nelson Mandella was imprisoned) and a cricket match. Landmark is hosting an Advanced Course here in Capetown this weekend--I am looking forward to assisting at that on Friday before joining other friends in JoBurg on Saturday.

From: Jim Day [mailto:JIM.DAY@1998.USNA.COM]

Sent: Friday, March 09, 2007 4:40 AM

Subject: March of the Jackass Penguin

More Greetings from Cape Town!

These last few days have been even better than the first. I am up early to volunteer at the Landmark Advanced Course, so this message will be [mercifully, for some] brief. Most people other than my parents like the pictures more than what I have to say anyways ;-)

Wednesday morning was spent studying for our project with the IFC. The more research I do, the more I reach the conclusion that we have to arrive at effective policy recommendations as to what objectives the IFC should consider lobbying for in Mozambique. Other attempts at creating venture capital funds in underdeveloped countries failed because the funds were launched prematurely (before the country had securities laws and property rights suitable for entrepreneurial activity).

But now for more fun topics. I visited the Cape of Good Hope Wednesday afternoon, and was introduced to a new type of bird: the African Penguin. Two of them can be found in the picture titled “Posing for the Audience.” I thought it pretty funny that these two birds stood at attention for the tourists while the other 4,000 penguins couldn’t have cared less that we were there, so I took their picture.

The African Penguin is also called the “Jackass Penguin” because the noise they make when they call out to the other penguins sounds like the braying of a donkey. The interesting thing about these penguins is that they can swim out to 60 km to get food, and sometimes leave home for up to 2 years after they reach maturity. However, when it is time for them to mate, they return back to the place where they were raised. Once they do mate, they keep their mate for life.

One particular jackass caught my eye:

http://www.youtube.com/watch?v=uhDiLJFcWzs

Notice that in 30 seconds he (or maybe she) marches off, this hero penguin steals a kiss from another penguin, and gets 2 others to follow along in the process.

It was on the advice of my Employment Law Professor, Owen Hernstadt, that I made it a point to visit the Cape. He told me that standing on the tip of the Cape you really did feel like you were on the edge of the world and could easily sail off of it, and he was right. The picture doesn’t do it justice.

Other highlights from the Cape trip included seeing a South African warship at St. Simon’s (almost made me want to go back to my Surface Warfare days), meeting business school classmates of a Naval Academy classmate riding up the cable car (“new friends” photo), and checking out roadside (and sometimes not-so-roadside) wildlife along the way.

Wednesday night I had the good fortune to enjoy a meal and some after-dinner drinks with friends-of-friends on the waterfront. It was truly the perfect end to a perfect day. This video of the live entertainment at Moyo describes the experience better than I ever could:

http://www.youtube.com/watch?v=n_A2tQmHjcU

Jim