Wednesday, October 17, 2007

Final analysis: is investing in an African firm worthwhile?

Hello everyone, this installment is the final entry for my thoughts thus far on uventure capital. Again I have been tardy in adding this posting so I apologize to those who were waiting. I also want to thank Adapted Consulting for their feedback and support. As always feedback is welcome.

Final Thoughts
Groupe Zirasun presents an interesting example of an African company that could create a fantastic marginal return on invested capital. The potential that Groupe Zirasun has also reinforces the difficulty North American investor have/would have, identifying good opportunities for investment in Africa. If a North American knew to search for Groupe Zirasun, which in itself is very unlikely, the company’s website ( contains no financial data. Groupe Zirasun is not listed on any foreign exchange. The average North American investor has no way of performing a traditional evaluation of Groupe Zirasun. The inability of the North American investor to compare Groupe Zirasun to other potential investments essentially precludes investment. When I began this project I thought that I could encourage investment by bridging this information gap but soon realized I was wrong.

I falsely assumed that I could approach the problem from a different perspective, but still a perspective familiar to North Americans, and justify taking an equity stake in Groupe Zirasun. However, I soon realized that an African company in a developing nation could not be compared on similar risk metrics because of issues such as reliability of data, scale of economic data in relation to developed countries. In fact, it was very difficult to compare Mali to other “developing” nations because of the size of Mali’s economy as compared to that of any of the BRIC countries. As a result, I was led to the conclusion that even traditional thinking on investment into developing countries would not completely apply to smaller, impoverished nations. Soliciting investment in these countries can only be done with the offer of returns from a source not observable under traditional methods of examining companies and economies.

Defining investment in regional terms, instead of by individual country, simplifies the task of enticing individuals to invest in developing markets, and ultimately will provide companies in developing markets with greater access to capital. Adapted Consulting is not large enough to facilitate large-scale regional investment across a number of industries. However, by offering investors returns generated through their ability to identify companies with above average potential, Adapted hopes to prove that there are profits to be made in seemingly unattractive markets. An ideal outcome to Adapted’s plan would be instant acceptance by investors. A more realistic outcome is that the learning curve will be slow. As companies like Adapted help institutional investors to identify opportunities a trickle down effect will likely expose the mainstream investor to opportunities in Africa. Despite the uncertainty of acceptance, the mere process of attempting non-traditional investment should generate feedback sufficient to create a working model that will eventually help to build wealth in some of the world’s poorest nations.

1 comment:

Peter Baldwin said...

Interesting Reading, Rob. Thanks. My one note of caution (which you already mentioned) is to be very careful drawing any inferences from the BRIC countries. These four countries are really in a class of their own and bear little similarity to other developing countries--hence the term "BRIC" after all.