Europe, China, and the US invested nearly $500 billion in Africa just over the past year, and that is no accident. Rich in minerals, but poor in infrastructure and knowledge, Africa is becoming the official playground for investors worldwide, and Israelis are not missing the opportunity, either.
When you ask ESI Angola owner Yoav Ben-Eli why he chose to do business in Africa, he does not respond sanctimoniously; he answers sincerely, “I had to go far away in order to stand out.” ESI specializes in providing residential services and offices for diplomatic delegations and companies in Africa, while concentrating on energy companies like Chevron and Exxon Mobile. Its success is based on a simple truth: in countries where getting service is difficult, such as many African countries, somebody who gives good services stands out well above the others. He builds to order, and supplies his customers and their employees with tens of thousands of apartments in which the electricity works properly, the water is drinkable, and the Internet works, as do the air-conditioning and guarding services. When the Norwegian consulate in Angola was asked recently why it was using ESI’s services, Ben-Eli says it answered, “Because they answer the telephone when I call, ” a rare occurrence in Africa.
More than a few Israeli companies, some of them among the largest in Israel, such as Tahal Group International BV, Ashtrom Properties Ltd. (TASE:ASPR), and Netafim Ltd., have been operating in Africa for many years. They are being joined by more and more new Israelis beginning to circulate and search for opportunities by riding the global wave that regards Africa as the fastest growing continent, to which enormous sums of money are flowing from all over the world. A recent example of this is Ehud Barak, who it was reported a month ago was about to invest in agriculture and mining in Ghana.
The “veterans” not infrequently regard this throng with scorn, as described by Adv. Manny Gurman of the Steinmetz Haring Gurman & Co. law firm, which represents many companies operating in Africa. “The Israelis who have been there a long time ridicule the masses of Israelis who have been coming to various countries in the continent in recent months, and who think that Africa has gone back to the days when manna fell from the sky. They all want to be Benny Steinmetz and Lev Leviev right away. They forget that those people worked for many years before achieving success in this difficult continent, ” Gurman says.
Ben-Eli is not one of those who discovered Africa only recently. He has been working there for over 15 years, has slowly built a company for himself worth tens of millions of dollars, and has fallen in love with Angola. Were it not for his wife, who misses Israel, he would still be living there to this day. It was difficult at the beginning; he got malaria twice, “but with proper care, malaria is like flu, ” he says. “You get sick and you get well.” His wife and three children joined him later for eight years, until his wife wanted to go back, and his youngest daughter was born in Israel. He has walking the line for four and a half years: half the time overseas, including with the customers in the US and Europe, and one week a month in Angola.
Every so often, he takes his excursion motorcycle, a GS1200 BMW Adventure, for a trip in Africa. Even before he had a motorcycle license, though, Ben-Eli was very familiar with Africa, from childhood, actually, since his father worked in civil engineering and contracting in Nigeria. After he finished his term in the permanent army and his academic studies in Israel, he was invited to Angola by an Israeli businessman working there, who wanted to establish a construction business in Angola.
That business connection lasted only a few months. Afterwards, he was a partner in the LR company for three years, and in 2001 began working independently in construction and civil engineering, “and I quickly realized that the truly interesting world is working with oil and gas companies. That’s a cash intensive industry that knows how to pay for professional building management service.” He says that during trial drilling, the companies order individual housing units for a short time, then switch to more substantial contracts lasting for many years.
“I haven’t lost a client yet. A company that has already invested capital in follow-up drilling and the buildings around it wants to get the most out of its investment, ” Ben-Eli says. His business in Angola, and recently also in Gabon, amounts to tens of millions of dollars a year, and employs 400 workers, together with a large number of subcontractors, some of whom are his former employees. “We encourage our workers, who earn $300-500 a month, to get more education, to study in courses subsidized by the company, to take part in hobbies, and to become our subcontractors, rather than employees, ” he says. “It’s tough, because the locals are very worried about tenure, but we tell them they can make a lot more money as contractors. I realize that the Africa I know is very backward in education, and for my employees at least, I’m trying to make up for it a little.”
Ben-Eli does not work with the government or military sector, and his clients are all “foreigners, ” so he says he is not exposed to African corruption. Even in his contacts with the local authorities, however, for example in obtaining building permits, he claims, “In most places, the bureaucracy is not more corrupt than in Tel Aviv or New York. It has a Portuguese, French, English, or Belgian base (depending on the colonial map of the past). Maybe you have to invite someone to dinner every so often and massage his ego, and get him a small gift. In Tel Aviv, too, you can also bring a good bottle of whisky after they’ve helped you at the municipality, but if they want more than that, it’s not for me. That would wreck my business model and my relations with the clients (who have to be careful to avoid any involvement with any illegal activity whatsoever).”
The key word is infrastructure
The construction and management services provided by ESI correspond to Africa’s most urgent problem: infrastructure. Once upon a time, the first topic of conversation with Israelis was security, from military training to security consultancy and selling equipment. Now, in addition to that (which is still going full speed ahead, of course), you find Israeli businessmen in a broad range of fields: paving roads, transmitting electricity, establishing cellular and agricultural networks (both in the form of consultation and in setting up and operating a farm), and renewable energy and water.
One company is Electra Ltd. (TASE: ELTR), which entered Africa in 2007 by acquiring OTS, a leading Israeli electromechanical company that did business in Nigeria. “One of the reasons for the acquisition, ” explains Electra VP commercial and business development Moshe Litwak, “was that we realized the opportunity in Africa, where the size of jobs was much greater than what we were familiar with; they do projects on a huge scale there.”
Because the general infrastructure is so weak, when Electra takes upon itself the preparation of the infrastructure for a construction project, it must install generators, an electrical system – even where it exists, it is unreliable for treating water, because water from the main pipes is unfit to drink, and so forth. The problem is not merely preparing the infrastructure, Litwak explains, but also its maintenance, which is usually subsequently on a low level.
“Nigeria, ” he says, “is a difficult country. It’s crowded, and it has almost 180 million people, with many cities and a high population density.” Electra also entered Angola a year ago where it is just beginning. Litwak says, “The trick is to go to countries with the strongest finances, and which are rich in minerals. There has been development momentum in these countries in recent years, and that’s what led us to enter Angola a year ago, even before there was an opportunity there with a local Israeli partner.”
As with Ben-Eli the customers are foreign companies, mainly German and Italian, doing construction work in these countries, and Electra sometimes also works directly with the central bank, which is setting up banks all over Nigeria. It recently obtained just such a project in cooperation with a German company. “Foreign companies – European, US, and sometimes also South African – do most of the major professional work, ” Litwak says. “The local companies aren’t professional enough, so they do only small jobs. Even the engineers doing consultation for the projects are foreigners. Only the simple workforce is composed of local people.”
Working in Africa, however, is no picnic. There is an outbreak of Ebola, which was preceded by security problems. The Boko Haram terrorist organization is active in northern Nigeria, and there was a period in the south when people were kidnapped for ransom. The prolonged stay away from home is also hard. An engineer or businessman with a family has to live like a single person – he visits his home only four times a year.
“They do very well financially, ” says Litwak, “but it’s not easy, although some fall in love with the place and aren’t willing to return at all. They stay for periods of 10-30 years. People also get used to the comfort – a luxury home, a driver, a cook, a high standard of living. They come home from work to a ready meal, a clean house, and freshly laundered clothing. Those who come with a family send their children to the American schools, which are good.
“Globes”: Are there a lot of Israelis around there?
Litwak: “All the time. Israelis circulate and look for opportunities and work in commerce and any other field. They try their luck. Some don’t succeed, others make it big.”
Are there plans to expand to other countries?
“We’re looking a lot at Ghana now. It’s happening slowly, because it is in trouble with the World Bank and has slowed its activity, but it’s close to Nigeria, but also smaller, is developing more, and is more pleasant to work in.”
Israelis find risk attractive
Africa’s appearance on the investors’ radar is no accident. Since 2008, following the wave of investment in Eastern Europe and East Asia, and after exhausting the opportunities created by the crisis in the US and Western Europe, the world has been looking for a new place to invest. “Today’s macroeconomic indicators justify the turn to Africa, but we have to remember to leave behind the reality culture of instant gratification, ” explains Gurman, who represents many clients working in mining in Africa. “If you want to work in Africa, you have to do it professionally and be cautious with the locals, some of whom seem like bigshots – every other person there is an uncle or a relative of the president.”
“We feel the change that has been occurring in Africa over the past five years, ” agrees Aron Ziv, financial risk manager at Aon Israel, a branch of the world’s largest insurance broker (which arranges insurance deals between insurance companies and policyholders). “It’s not just the amount of activity; it’s the willingness of the insurance market to insure deals in Africa, which is very different from what it was a few years ago.”
Because the policies are confidential, Ziv cannot disclose who his clients are, but he can, for example, tell about a major deal he recently insured for a large power plant in Ivory Coast, an interesting country which once had a relatively good economy. Following a civil war that ensued when a president who lost an election refused to leave office, the economy deteriorated. A new president, however, Alassane Ouattara, who has been in office in recent years, and who incidentally worked with Stanley Fischer at the International Monetary Fund, has been trying to move the country’s economy forward.
Gurman is ready to give some advice to those who want to try their luck in Africa. At the top of his list is “to try as much as possible to work with a local partner, after checking him out carefully, and making sure that the agreement with him is under the jurisdiction of a legal system you can deal with, not one based on which tribe the judge comes from, i.e. under a non-African legal jurisdiction. This will prevent a person from falling victim to his local partner in the event of a dispute between you.
“Secondly, try as much as possible to include an entity from a country sharing an international convention with the African country involved included in the agreement. The UK, Netherlands, and Portugal, for example, have very good agreements with some of the countries. If, God forbid, the state takes away a mining concession, for example, you have the option of petitioning an international court whose ruling will be honored in the country.
“Thirdly, try to insure the risks. The premiums are not small, but when you invest large amounts of money and take big chances, you should consider it.”
Aon has a map of the world according to political risks and deals, with the most risky countries, where it is almost impossible to get insurance, such as Zimbabwe, for example, colored in red. “We’ve had more than a few inquiries from Israeli companies doing business there in agriculture and mining, and doing very well, ” Ziv adds.
“Globes”: Why do they work in such risky places?
Ziv: “Israelis are small entrepreneurs (in contrast to many international companies), and they therefore have an advantage when they enter countries where not many do business, and where there is little competition. Because they are private businessmen who can make decisions quickly, they can enter quickly and get what they’re aiming at. The risk is also a big opportunity. You’ll find Israelis in almost all the countries considered risky.”
It is also true that even in the most orderly African countries, the risks are higher than in Europe, for example. Ziv says, “Together with this, there is also a very big commercial opportunity.” One example is the cellular sector, in which Israelis are strong. There is a risk of the government rescinding the license, and that risk can be insured. The market is much larger, however, and cellular communications are not something you can live without, because many places completely lack landline infrastructure. “When you get to infrastructure, the main risk is with the government, ” Ziv explains. “Will it pay for the road, power station, or hospital?” Frequent regime changes sometimes put this in doubt.
Another problem is how to evaluate agreements or partnerships with a commercial company in Africa. “The financial statements aren’t well ordered, there’s no transparency, it’s hard to estimate the risk in a connection, and it’s hard to go to court: even if you get a judgment in your favor, it’s hard to enforce it, ” Ziv says. “It’s a challenge that Africa will take a long time to solve, and until then, it can be assumed that no foreign bank will enter Africa, because it is hard to estimate the risks in granting credit to companies about which information is so unclear.”
What about real estate?
“We’re starting to see brave developers trying to develop real estate in Africa, but it’s difficult, because the entire concept of registering rights in land doesn’t exist, or is unclear. Who says that the person who sold you the land is really the owner, and what will happen if he says tomorrow that he didn’t sell it?”
Published by Globes [online], Israel business news – www.globes-online.com