"1.2 billion opportunities" #Africa

But slow growth, ballooning deficits and #debt that has increased 18x in 7 years, will make the path to prosperity fraught with pitfalls. 

1.2 billion opportunities

THE ECONOMIST
Apr 21

FOR A LOOK at the African boom at its peak, do as a multitude of foreign investors have done and fly into Abidjan, the capital of Ivory Coast. Visitors arrive in an air-conditioned hall where a French-style café sells beers, snacks and magazines. There is advertising everywhere, for mobile-phone companies, first-class airline tickets and a new Burger King. The taxi into the city smoothly crosses over a six-lane toll bridge. On the way to the Plateau, the city's commercial core, cranes, new buildings and billboards jostle for space on the skyline. In the lagoon, red earth piles up where yet another new bridge is under construction. 

Just five years ago, Ivory Coast seemed like a lost cause. Having been defeated in an election at the end of 2010, the then president, Laurent Gbagbo, refused to leave office. The victorious opposition leader and now president, Alassane Ouattara, mounted a military offensive to force Mr Gbagbo out. French troops seized the airport to evacuate their citizens (the country used to be a French colony). Protesters were gunned down by troops, foreign businesses were looted and human-rights activists gave warning about mass graves being dug.

Ivory Coast still has problems, as shown by a terrorist attack in March that killed 22 people. But its economy is the second-fastest-growing in Africa (after Ethiopia, which is much poorer), expanding by almost 9% per year. Foreign investment is pouring in. As well as the Burger King, Abidjan now has a Carrefour supermarket, a new Heineken brewery, a Paul bakery and plenty of new infrastructure. Sharp-suited, French-educated ministers explain in perfect English what they are doing to "open up", "improve the ease of doing business" and "sustainably grow the middle class". Expensive hotels, such as the reopened $300-a-night Ivoire, are booked up; their bars are full of affluent people striking deals. The country's three port terminals, the biggest of which is being expanded by Bolloré, a French industrial firm, are working at full capacity, importing cars and electronics and exporting cocoa, coffee and cashew nuts.

This is the Africa of business magazines and bank ads: a continent that is rising at a prodigious pace and creating profitable new markets for multinational firms. But Abidjan also has plenty of reminders that it has been here before. For all of the new buildings springing up, its impressive skyline is still dominated by crumbling 1960s and 1970s concrete modernism. The roads may be new, but the orange taxis that ply them are still ancient fume-spewing Toyota Corollas, remnants of an earlier boom. For the two decades after independence from France in 1960, Ivory Coast enjoyed an economic miracle. Then, quite suddenly, the price of cocoa and coffee plunged and the boom faded as quickly as it had begun.

Reasons to worry

The deepest fear of today's investors in Africa is that it may be happening again. In Ivory Coast's neighbour, Ghana, thousands of government workers have been marching in the streets in the past few months to protest against their rising cost of living. Ghana relies on oil and gold, both of which have fallen in price, as well as cocoa. That, plus prodigious government borrowing, has caused a crisis. One US dollar now buys 4 cedi, the local currency; in 2012, it bought not quite two. Growth has halved since 2014, and Ghana is running a budget deficit of 9% of GDP and a current-account deficit of 13%.

According to the World Bank, in the year to April last year the terms of trade deteriorated in 36 out of 48 sub-Saharan African countries as the price of their commodity exports fell relative to the cost of their imports, mostly manufactured goods. Those 36 countries account for 80% of the continent's population and 70% of its GDP. Eight countries, including two giants, Angola and Nigeria, derive more than 90% of their export revenues from oil, which has recently plummeted far below the price needed to draw in new investors. Growth across sub-Saharan Africa dropped to 3.7% in 2015, far below East Asia's 6.4% and nowhere near enough to create enough jobs for the continent with the world's youngest and fastest-growing population. The World Bank expects it to tick up again, but only to 4.8% in 2017.

Countries that happily borrowed from international investors over the past few years have now found themselves shut out of the markets. The stock of outstanding sovereign bonds in the region had risen from less than $1 billion in 2009 to over $18 billion in 2014. If growth continues at a decent clip, that should be manageable. But if it stops, interest rates of 10% or more on dollar-denominated bonds will make refinancing difficult.

The continent's two biggest economies, Nigeria and South Africa, are already in deep distress. The reasons are different, but both have suffered from commodity-price falls as well as from atrocious economic management. The IMF, although loathed in much of Africa, is back, providing a $ 1billion loan to Ghana and preparing another for Zambia. Some fear a return to 2000, when this newspaper described Africa as the "hopeless continent".

Yet despite that, Nairobi's thriving malls and Abidjan's humming ports show that there are plenty of reasons to stay optimistic. The economic conditions have got worse, but this is a very different continent from two decades ago, when troops from eight African countries were fighting in Congo alone. Wars still rage in South Sudan, Somalia, Mali and northern Nigeria, and violence bubbles in places like eastern Congo, the Central African Republic and Burundi. But broadly speaking, most of sub-Saharan Africa is now peaceful. Elections seem increasingly less likely to result in strife, even if they still generally return incumbents, and more and more often for unconstitutional third terms. The governments that come to power are still often corrupt and inefficient, but far less brazenly so than those of cold war despots such as Mobutu Sese Seko of Congo or Jean-Bedel Bokassa of the Central African Republic.

Africa's 1.2 billion people also hold plenty of promise. They are young: south of the Sahara, their median age is below 25 everywhere except in South Africa. They are better educated than ever before: literacy rates among the young now exceed 70% everywhere other than in a band of desert countries across the Sahara. They are richer: in sub-Saharan Africa, the proportion of people living on less than $1.90 a day fell from 56% in 1990 to 35% in 2015, according to the World Bank. And diseases that have ravaged life expectancy and productivity are being defeated—gradually for HIV and AIDS, but spectacularly for malaria. Some of the gains may seem modest, but given that living standards across Africa declined during the 30 years after independence they are sufficiently established to prove lasting.

And for all that oil and metals have come to dominate economies such as Nigeria's and Congo's, the boom broadened beyond natural resources. Mobile telephones have transformed commerce across Africa, and now smartphones and feature phones (which are halfway between dumb and smart) are taking hold. In 2014, the latest year for which figures are available, 27% of Nigerians owned a smartphone. In many African countries 4G mobile-phone infrastructure is the only thing that works well, but it works at least as well as in much richer countries, and a lot can be built on it. What began with mobile-money systems such as Kenya's M-Pesa is now branching into bank accounts, savings accounts, loans and insurance. That in turn is helping people rise out of poverty and invest in their future.

This special report will argue that despite some deep and entrenched problems, African businesses offer hope too. It is clearly risky to make sweeping judgments about an entire continent with 54 countries and 2,000 languages. This report draws on visits to various countries in sub-Saharan Africa, but four in particular: South Africa, Nigeria, Kenya and Ivory Coast, all coastal, urbanised and relatively rich. They certainly do not represent the whole of Africa, but your correspondent picked them because they each illustrate a different aspect of business across Africa as a whole. The businesses covered have not yet transformed the continent, but they show that African firms are capable of extraordinary innovation—if only they can be set free.

See the article on The Economist here:

1.2 billion opportunities Economist – Apr 14, 09:00

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John Elkann: Fiat's fresh face

Elkann, now 37, at the test track on the roof of Fiat's Lingotto headquarters building in Turin.

(Fortune)

"Turn that off," Sergio Marchionne says, indicating my recorder. Fair enough. He wants to show me a couple of new Chrysler TV ads on his office computer before they are released.

One is about returning war veterans, narrated by Oprah Winfrey, and the other is about farmers, starring Paul Harvey as the voice of God. Each is also about Chrysler products, of course, but the message -- maudlin but effectual -- is America. "We're the only ones who can speak about Detroit today," says Marchionne, who is the CEO of both Fiat and Chrysler. "We're the smallest of the three, and there's a level of legitimacy associated with us pitching the American story. Which is almost bizarre, because the thing is foreign-owned."
Chrysler's recent pedigree is complicated. The company was kidnapped by Daimler in 1998, sold into private equity in 2007, and bailed out by the federal government in 2008, and since then it has been sidling step by step into Fiat's fold. The Italian carmaker started buying shares after Chrysler filed for Chapter 11 bankruptcy in 2009, and by 2011 it had accumulated a majority stake. Fiat hopes to buy the remaining 41.5% from a UAW retiree trust fund, pending a Delaware court's ruling on what the stake is worth; that could happen this summer. Chrysler, you see, is actually Fiat.
But Fiat, if we keep going, is really Exor, an investment company headquartered at the historic Lingotto factory in Turin, Italy, which is where I interviewed Marchionne in a haze of cigarette smoke the day after he returned from the Detroit Auto Show. Besides owning 30% of Fiat, which itself owns Ferrari, Maserati, Lancia, Alfa Romeo, and, oddly, the Turin daily La Stampa, Exor also has big holdings in commercial real estate brokerage (Cushman & Wakefield) and heavy equipment (CNH Industrial, which includes the former Fiat Industrial), and smaller ones in property development (Almacantar), banking (Banca Leonardo), media (The Economist and Banijay Group), paper (Sequana), and the Turin soccer team Juventus. Total sales in 2012 were $146.3 billion. That puts Exor at No. 26 on this year's Fortune Global 500 list, up 19 spots from last year.
While Exor is a public company, it is tightly controlled by the descendants of Giovanni Agnelli, who co-founded Fiat (it's an acronym for Fabbrica Italiana di Automobili Torino) in 1899, built it into one of the great industrial enterprises in Europe, and so gave rise to an enduring family fortune. Exor, you see, is the Agnelli family.
The Agnelli family has one leader, a capo di famiglia. Always one, always male. It was Giovanni Agnelli until he died in 1945. He chose as his successor his grandson and namesake, the Agnelli we knew as Gianni, or l'Avvocato (a nod to his law degree, though he never practiced). Gianni in his prime was brutally handsome, indiscriminately passionate, and daring in the extreme. Born to privilege, he fought on the Russian front in World War II, collected art and automobiles and mistresses, hung out with royalty, wore his wristwatch outside his shirt sleeve, fought the unions and won, and came to personify for the world what it meant to be an Italian man in full during the raucous and glittering middle decades of the 20th century.
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Gianni died in 2003, having left Fiat on the verge of bankruptcy. His successor -- the eldest son of his only daughter -- is a lanky, apple-cheeked, curly-haired engineer who was still a college student when the weight of the family began settling on his shoulders. The new guy has a Germanic last name, drinks tea instead of coffee, and prefers family outings to nights on the town. But as a businessman? He's still just 37, and he has held the CEO title at Exor only since 2011, but considering the good things that have happened on his watch -- the stabilization of Fiat, the successful investment in Chrysler, the reorganization of the far-flung family empire -- he could outshine his ancestors. The Agnelli family, today, is John Elkann.
"Sometimes the grandfather would say to me, 'I am sorry I ruined his youth,' " says John's father, the novelist and journalist Alain Elkann. "In the sense that when one is young, one should have more light, more fun, be less overwhelmed by responsibilities. It's one thing to create from nothing when you are young. It's another to inherit a very heavy situation."
In fact John had been preparing unknowingly for the role since he was a child. He was 5 when his parents divorced, and while he says he doesn't remember the breakup, he remembers well the bitterness and recrimination between his parents that endured long after. "Because he was the oldest, he took unpleasant things," says his brother, Lapo. "He had to toughen up in certain areas which are more emotional, and he had to do it young." He was "the most serious of all of us," says his sister, Ginevra, noting it was John who reminded them all to brush their teeth, John whose bed they came to in the night when they were scared, and John who, when the kids made a home movie, chose for his costume a suit and tie.
John Philip Jacob Elkann (he's "Jaki" in the family) was born in New York City and raised like a diplomat's child in London, Rio de Janeiro, and Paris. He speaks the languages of all those places, plus a little Russian; his Italian, natives say, is fine, but his sentence construction sometimes sounds a little off, as if he were translating from French. Vacations were often spent in Italy with his grandparents on both sides of the family. When it came time to go to college, he chose to return to the country that to him felt most like home. Gianni nudged him to study economics at Bocconi in Milan, but Elkann opted instead for engineering at the elite Politecnico di Torino. Because "engineering was tougher," Elkann says. "It just felt more challenging."
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Being in Turin also meant more opportunities to spend time with his grandfather Gianni. They met often for meals and long conversations about business. Slowly, says Elkann, the outlines of a future somewhere within the family firm began to take shape. Yet he was in no way prepared for the brief conversation that took place at Villa Frescot, the Agnelli family home in the pine-clad hills overlooking Turin, when he was 21.
An older Agnelli cousin, who was being groomed for the capo position, had died suddenly, leaving a board seat open at Fiat. After lunch that day, Elkann recalls, his grandfather said, " 'I'm thinking about the appointment on the board, and I think it should be you.' I wasn't expecting that. I asked him, 'Do you think it makes sense?' "
Reasonable question. In certain photographs of Gianni as a young man one can see clearly that the grandfather and the grandson are descended from the same line. Yet their personalities could hardly be more different. Gianni was devilish and splashy; Elkann, by temperament and appearance, is almost cherubic. He is invariably described as shy.
Having recently spent a fair amount of time with Elkann -- for a series of formal interviews in New York and Turin, at lunch with his kids at the Eataly restaurant across the street from the Lingotto headquarters, on a flight from Turin to Rome aboard the company jet, and during a visit to the studios of Chinese dissident artist Ai Weiwei in Beijing -- I don't think "shy" is the right word. Not for a billionaire industrialist who wears excellent suits, enjoys ocean yachting and small, fast cars ("not absolute speed, more acceleration"), is married to a contessa, and named his three offspring Leone, which means lion, Oceano (ocean), and Vita (life).
That said, most men of Elkann's wealth and standing whom I've ever been around seem to move through the world as if the camera were always rolling. Elkann, who has a sometimes disconcerting habit of staring intently at people, behaves more as if he's watching the movie. Gianni always took the wheel; Elkann, when he's working, is content to be driven. If the car is full, he'll squeeze into whatever seat is available, even the middle one in the back. Once, after a visit to Grugliasco, the new Maserati assembly plant near Turin, he insisted that I take the keys to the Quattroporte from his very reluctant bodyguard and drive us all back to Lingotto.
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Elkann's innate deference, his "Talmudic" way, as his Jewish father describes it, of avoiding direct contradiction, and his willingness to ask questions -- all that gave him space to grow within the family incubator. "Everyone was wanting to be helpful," says Elkann, who was guided closely in those early days by the family's longtime consigliere, Gianluigi Gabetti. "Again, I was very young. I was not a threat to anyone, which clearly helped. If I was 40 years old, maybe the dynamics, the chemistry, would have been different."
Gianni Agnelli died in January 2003, followed 16 months later, after a brief illness, by his younger brother Umberto. Suddenly Elkann was the last one standing. His apprenticeship, which had included a summer working incognito at a headlight factory in Birmingham, England, and a world tour with GE's elite Corporate Audit Staff, was over. "Were we worried that he was too young at that time? Probably," says family member Lupo Rattazzi. "We were coming from a very traumatic period. He inherited a Fiat that was essentially broke. The challenges ahead were absolutely staggering."
The family's flagship was adrift. Two significant capital infusions had failed to make things right. Fiat was hemorrhaging $2 million a day, the stock was plummeting, and the banks, which owned more than $3 billion in convertible debt, were circling.
While the Agnelli business dynasty had always had a family head, the companies within it, including Fiat, had sometimes had outside CEOs. When Umberto died, Fiat's CEO was a man named Giuseppe Morchio. He pushed the board to make him chairman as well. Most in the family believed that Morchio was doing a good job in difficult circumstances, but they were loath to assign total control to one outsider. Fearing Morchio might quit if he didn't get what he wanted, Elkann flew to Geneva for a secret meeting with Marchionne.
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Marchionne at the time was CEO of SGS, a Swiss company controlled by Exor. He had been appointed to Fiat's board a year and a half earlier, but the fact is, he was running a company that tests toasters and baby toys. "I had never made a car or a tractor," he says now. "I really didn't know shit."
They ate at Marchionne's favorite Geneva restaurant, Windows in Hotel d'Angleterre, overlooking the lake, and afterward, when the evening had reached the grappa stage and Elkann, who normally doesn't smoke, was matching Marchionne light for light, Elkann humbly asked Marchionne for his help: If Morchio were to quit, would Marchionne consider becoming Fiat's next CEO?
"I sincerely hope you don't need me," he told Elkann.
At seven the next morning, Marchionne says, he got a call from Gabetti, the family consigliere. "He said, 'I know you saw the young man last night,' " Marchionne recalls, " 'but he was speaking on behalf of the family.' " Marchionne agreed to go forward. When the board chose a new chairman -- Fiat veteran (and current Ferrari chairman) Luca Cordero di Montezemolo -- Morchio quit; two days later, Marchionne took over as CEO. While initially few outside the family took Marchionne seriously (he is still seething about the "patronizing look" he got the first time he met the GM (GM, Fortune 500) CEO Rick Wagoner), his appointment marked the beginning of the turnaround at Fiat, and ultimately at Chrysler, and counts as the first big win in Elkann's column.
On Jan. 24, 2013, the Agnelli clan gathered at Turin Cathedral for a ceremony marking the 10th anniversary of Gianni's death. The president of Italy, Giorgio Napolitano, attended, together with cabinet members, bankers, industrialists, the American ambassador, what seemed like the entire Juventus soccer team, and seven full rows of family members. Ordinary Torinesi packed the pews and spilled over into the piazza outdoors. The archbishop of Turin read a missive from the Pope.
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Elkann sat right up front -- with his wife, Livinia, their two boys (the 1-year-old girl stayed home), and Gianni's widow, Marella. On the day of the funeral, 10 years before, many recalled, the skies over the city had been leaden. The gloom then seemed to capture the family's sadness at the passing of an era and its worry about the future.
Today, appropriately, the skies were blue. While the results would not be reported for another week, Elkann already knew that Fiat had just concluded one of its most successful years ever, thanks entirely to surging profits at Chrysler. The auto group's net earnings in 2012 were $1.86 billion; without Chrysler, it would have lost $1.38 billion. "I felt it was an opportunity," Elkann says of the decision to begin buying Chrysler in 2009. "I didn't feel it was going to be such a game changer."
Buried in the Fiat results was fresh evidence of just how dramatic a transformation Elkann has overseen as the family business tilts increasingly toward global markets. A decade ago Italy accounted for almost half of sales by Fiat and its subsidiary brands; today it's less than 10%. That's due largely to Chrysler's positive contribution, but also to surging sales in Brazil, and the negative impact of the collapsed car market across Europe. Sales of all brands in Italy last year dipped to levels last seen in 1979.
The same global shift is taking place more broadly at Exor: Ten years ago three-quarters of Exor's revenues came from Europe; today it's less than one-third. Exor's biggest market now is the U.S., followed by Brazil, Europe, and Asia. That's why Exor measures its performance against the MSCI World Index, a benchmark it outperformed by more than nine percentage points in 2012 as net asset value surged 20.6%, to $10.04 billion.
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Managing that transition has been as tricky a political feat as a business challenge. Fiat isn't just any other company; it's close to the core of Italy's national identity. The turnout for Gianni's anniversary service was just the latest reminder of that. Another was the time the unions first learned that Fiat and Chrysler were combining and demanded a fuller explanation. Marchionne and Elkann were called to Rome for a meeting with Italy's Prime Minister.
Fiat at its peak employed 300,000 factory workers in Italy; today only 62,000 remain. That number includes 950 workers recently rehired at Grugliasco to build the sixth-generation Maserati Quattroporte -- part of Elkann's strategy to redeploy production assets in Italy to build luxury cars for export. "The opportunity of doing that car, if we weren't present in global markets, would not happen there," says Elkann, and he goes further: Were it not for those global markets, "the company would have been bankrupt."
Last month Exor sold its considerable stake in SGS to a Belgian company, Groupe Bruxelles Lambert, for $2.6 billion. The sale converts an additional 20% of Exor's net asset value to cash, leaving the company with a war chest of nearly $4 billion. Most press reports have speculated that Exor will use the money to buy the rest of Chrysler, but the company has more than it needs for that.
So here is Elkann: still a young man, with the backing of his clan, sitting on a huge pile of cash at a moment when assets the world over are in distress. Expect him to make a big move soon -- the next act in a family drama that has been playing on the world stage for more than 100 years.
This story is from the July 22, 2013 issue of Fortune.
First Published: July 8, 2013: 6:45 AM ET