Doing Business in Africa: Q&A with Colin Coleman

Colin Coleman, a former anti-apartheid activist who is the head of Goldman Sachs Sub Saharan Africa, recently visited the MacMillan Center and met with a variety of students, faculty, and visiting scholars to talk about doing business in Africa.

In the early 1980s, Colin was involved in South Africa’s change process and later in its constitutional transition. From 1989 until South Africa’s first democratic elections in 1994, he was an executive director for the Consultative Business Movement. Colin served in working groups of the multi-party talks, facilitated the International Mediation Forum and helped to negotiate the agreement to facilitate all parties’ participation in South Africa’s 1994 elections.

In 1996, Colin was nominated as one of the World Economic Forum’s Global Leaders for Tomorrow. He was also a recipient of Harvard Business School’s “Business Statesman Award” in 1994 and was named one of Euromoney’s World Top Ten “Financing leaders for the 21st Century.”

You have a degree in architecture, but yet you find yourself in investment banking. How did that happen?

Life happens. I was at university and completed my architecture degree at the same time South Africa was at the height of the Anti-Apartheid movement. During those years, I was immersed in the student movement as part of an Anti-Apartheid pro-democracy movement. When I graduated, I was asked to help a group of business leaders in South Africa negotiating the future, so I completely left architecture having completed the degree.

That’s how I got into a phase from 1988 to 94 that was really about helping the politics of South Africa transition from the old system to the new system. In 1994, I went into banking by advising the chairman of South Africa’s largest bank on what the issues were that the bank should be aware of as South Africa transitioned to its new phase. I became very engaged in the banking world and increasingly became active in the transitional environment in banking, and ultimately went to learn merger and acquisitions at JP Morgan in 1997 and then joined Goldman Sachs in 2000.

In your role at Goldman Sachs, do you find there’s a difference between how you do business in South Africa or Sub-Saharan Africa (SSA) versus, for instance, what would you do in London?

Not really. Our clients are different. The macro-environments or the markets are different, and that brings out different skills. The skills of being aware of, and engaged with, the macro-regulatory government interface is definitely part of the world of Goldman Sachs in emerging markets and in Sub-Saharan Africa both broadly, and perhaps it requires of a business leader in Goldman Sachs to be able to work in the world of the public sectors, as well as the world of the private sector seamlessly.

When the International Monetary Fund published its SSA Regional Economic Outlook reports for April and October 2015 they had challenging forecasts. How do you successfully do business in a difficult environment?

I think anywhere in the world, whether you’re working in Russia or you’re working in Sub-Saharan Africa or you’re working in Brazil, or anywhere, at the height of the crashes in Greece or Spain or Ireland, you would face adverse conditions in those markets, and different people would have different views on what restructure required to adapt and reform those markets, which may or may not conform with the prevailing view in our own market, but it doesn’t dictate. It’s an input into one’s thinking about the market. It doesn’t dictate your responses to the market. We certainly have, at Goldman Sachs, our independent views, research, data, so we’re able to generate our own views about things, but obviously we take everybody’s institutional views into account. We defer to different people, but ultimately we have to integrate and respond to the realities that we find in those markets.

What are some of the realities of the market that you’re dealing with today in Sub-Saharan Africa?

Sub-Saharan Africa is a big place. Africa is a big place. We tend to think of the market as a whole in countries, so country by country. The reality in South Africa, which is where I’m based, and is the largest capital, 800 billion dollars is the size of the exchange, the stock exchange in South Africa, 300 billion dollar GDP. The realities are that this is a very sophisticated economy with lots of structural challenges before it. Low growth at this point in time, around 1% growth rate, very high employment rate, 25% unemployment, racial inequalities have their roots in the legacy of Apartheid in South Africa, but very large companies that are very sophisticated growing in South Africa and Africa and in the developed markets, diversifying global champions that are strong, well-managed, very well governed, and in many cases, globally successful companies.

South Africa is a very different reality to, let’s say, Angola, Nigeria, or Kenya, or Mozambique. Those countries each have their own reality. I suppose what is common to both at this point in time is a pullback in growth rates. The commodity cycle is punishing for many of the commodity exporters, particularly the oil exporting countries like Nigeria and Angola, and so this requires at the moment a cross-Africa fiscal consolidation. People digging deep into their budgets to take out wasteful expenditure and to prioritize, but at the same time not cut so much that you’re cutting the growth potential of those economies because those economies need to invest.

We could talk to each one of them, but it’s broadly challenging in a difficult environment but supported by some strong fundamentals of demographics – 1.2 billion people, lots of services, a higher growth environment than many other developed markets. On aggregate, Sub-Saharan Africa this year is growing at around 3% growth rate, but in the longer term, growth should improve as the commodity prices stabilize and perhaps return a little bit. One will get a much more stable base for these economies, and you’ve got the demographic dividend that’s going to push with its banking, telecommunications, retail, consumer, industrials, manufacturing, it’s going to push all of those sectors to perform well.

I believe in the “Africa rising” narrative, but you can hear that there are many people who think there’s an Africa uprising narrative in this context of low growth and lots of challenges in the structural challenges of inequality and unemployment in the continent.

As a business leader, what is your response to that? How do you grow when you’re faced with those kinds of challenges?

There are some fundamentals that still push things forward. There’s a wealth of natural resource discoveries. Oil and gas discovery that’s going to require 50 billion dollars of capital invested in the next decade. Natural resources will be a boom. It may not be as much of a boom as it’s been for the economies in the past. It certainly cannot be relied on, but natural resources are demographics in the form of consumer services, telecommunications, banking, et cetera, technology in general. People have to eat. They have to have electricity. They have to clothe themselves. They have to drink. They have to do all these things. Africa is a developing environment where many of those things have either been very highly priced or they haven’t been available, or the technology’s been poor, and this is all improving. The reality is it may take longer than we would’ve hoped five years ago, as a consequence of the general global economic environment, but it’ll happen in the longer term.

What do you mean by the longer term?

That’s the million-dollar question. Is Africa’s rising a 10-year, a 20-year, or a 50-year story? I would say that there are going to be pockets of it happening in the shorter term in certain places, and there are going to be pockets where it’ll take longer. The key underlying the responsiveness of the African countries to these challenges is institutional capacity and ability to reform. This is the one area of weakness in Africa. The institutions are largely on the weaker end of the spectrum. The skills and expertise, the regulatory coherence of the markets, there’s a long way to go in that. People, expertise, finance, these things are available, but the institutional backbone of many of these countries is quite weak.

What policies need to be implemented to move things forward?

I think if you had to encapsulate it in one phrase, it’s back to basics. It’s getting the basic return on investment made in education and health, and getting those systems to be productive rather than consumptive. Unfortunately, I think a lot of the culture of these institutions, going back to the weak institutions, is consumptive. It’s not necessarily people being measured as they are in the private sector for productivity and being rewarded in that sort of way, and so they live or die on their salaries. It’s not about what they produce, or how effective they are.

We need to get back to basics in the areas of education and health in terms of state-run organizations hiring the best people that they can attract. It’s important to get these best people into the most important places in these state-run organizations so that we can reform and modernize these institutions. Then thinking about inviting private sector or third-party capital into these institutions, particularly the most successful ones, and getting private participation into the ownership of these organizations.

There are some organizations that are extremely profitable, extremely well run – the telecom companies, or the mobile companies, or the oil companies. You would have the ability to get local, indigenous people to participate in the equity of these companies, not necessarily a majority but in the Chinese model of having minority investors in majority-held state companies, which has been proven to be quite successful. Whether it’s South Africa, Angola, or Nigeria, this is a model that would move the bow forward.

There has been much talk of China moving into Africa. What are your thoughts on this?

China certainly has a very strong long-term agenda for Africa. This is multi-decades. It’s called a century of strategic perspectives on Africa as a relationship. I think they’re going to be there for the long term. I think they want to build this long-term relationship. It doesn’t have to be a one-way domination by China of Africa, and I don’t think that’s what China wants. I think that China wants to have a more reciprocal relationship because they know that a one-way relationship will be a short-term relationship. They want a long-term relationship that works, but perhaps because China is generally stronger than Africa, in part because of the institutional weakness, they will tend to take advantage of the African weaknesses.

I think that there is a lot of interest from China in helping Africa build its infrastructure, build its institutional capacity. Banks are investing, telecom companies are investing, and mining companies are investing. Goldman Sachs has been involved in a variety of those transactions over the years. The China-Africa link is going to grow. There’s no question. If anything, there’s a frustration from China about the lack of speed of African responsiveness in terms of bringing bankable projects to the floor, which they can invest in.

President Xi from China has strategically tried to encourage the Chinese state-owned enterprises to be active. At the same time, there are probably a million Chinese living on the continent, and they have very active infrastructure and mineral resource projects, and oil projects, but I wouldn’t overstate it. I think they would like it to be more than it is. African countries have managed to get a lot out of it that they otherwise wouldn’t if China wasn’t there.

It’s also true to say that multinationals have moved into Africa, and global multinationals have moved into Africa strongly. Private equity has moved into Africa strongly. Some wealth funds from around the world have moved into Africa strongly, so it’s not China alone that is doing this.

What about the United States?

For the United States, the multinational companies are leading the way, whether it’s Proctor and Gamble, GE, Goldman Sachs, Microsoft, Facebook, etc. Many of the U.S. companies that have an Africa presence are very active on the continent, and there are lots of government organizations or semi-government organizations like OPEC that are active on infrastructure projects at the same level as the Chinese. It’s certainly not a one-way street.

What will be some of the biggest opportunities in Sub-Saharan Africa over the course of the next 3 years?

I think private equity is a big opportunity. It’s a very active sector at the moment and Goldman Sachs is very involved in advising many of these private equity firms active in the continent. I think that any of the service sectors, be it retail, banking, telecommunications, or technology in general, will have opportunities. The introduction of battery technology into homes and small businesses, can be very interesting, akin to the mobile phone effect of leapfrogging fixed line technology in many of the countries that didn’t have it, and now have very successful mobile markets. I think providing smart power and renewable energy into homes and businesses is a very interesting sector. Because Africa is a fantastic climate for both wind and solar and it’s clean energy, it’s a very attractive sector. I think there’s a lot of potential.

What kind of skills do you think students need to be able to make a difference in the world?

I would encourage a younger person to learn Mandarin because I think that China is so much part of the future. Generally speaking, I would recommend for Africans studying in the United States to go back to Africa and get into a business or a small business, or linking yourself with an organization. There is so much opportunity, wealth creation, and career opportunity in Africa that I encourage students to think about that.