Interview Zain Latif, An Investor Keen to transform the Lives of Africans

The answer for Africa’s underinvested health infrastructure. Mr. Will Mutenza the publisher of Promota magazine had a chance to meet Zain Latif, Principal of TLG Capital.  

Promota: There may be some folks who don’t know you so, if you had to introduce yourself, what would you say?

Zain: I am the principal of TLG Capital, a firm that focuses on frontier markets.

Promota: What is your background and what was it that motivated you to begin TLG Capital? Zain: To give some background: TLG Capital started in September 2009. But before that, I was an Executive Director at Goldman Sachs in the New Markets division focusing on Sub-Saharan Africa across all products. I joined Goldman Sachs from Merrill Lynch where I was involved in originating and executing a number of emerging market transactions in Africa. Prior to that, I worked in the special situations African effort at HSBC, which culminated in the inaugural debt/equity hybrid structure for a leading Nigerian financial institution; that was widely reported. At 19, I gained a Masters in Finance from Cass Business School, City University.  

Promota: Was there a point at which you realised you were onto an important concept?

Zain: I realised that the majority of opportunities in Africa were not at the $25 million or greater level at which most banks and private equity firms like to operate it and that there was a severe need for growth capital in the SME sector in Africa. When you compare the SME sector in Africa, you can see that about 60% of the GDP in the US and the developed world is comprised of the SME sector. In Africa, that figure is under 10%; so effectively what we are trying to achieve is harnessing the local business talent that have proven a concept but need capital to go that extra mile: that is the basis and genesis of what we believe to be the whole market at TLG capital.

So there are two significant themes that I’d like to talk about: Growth capital. if you are not a multinational or a firm without collateral (particularly land)  it is hard  to access funding from local banks  while typically micro finance organisations are too small to facilitate your needs – As a result, we operate in that vacant middle space. Transmigration of technology into to Africa. In particular, we feel that India presents an  interesting opportunity not as a role model but as a partner for Africa given that Africa and India have had the same issues in the past in terms of governance, infrastructure problems, bureaucracy, income inequality. India has an incredible amount of low cost human capital with an existing Diaspora in Africa. The Indians have been able to create very effective industries in pharmaceuticals, health care, IT, services that can work within an African environment unlike European businesses which, due to high cost structures, make them difficult to operate in these markets.

Promota: Is there a main interest and core market in Africa?

Zain: We have great faith in the African consumer. We shy away from major products like infrastructure that require a lot of Capex, Oil, Gas or mining etc...  We think there is a severe underinvestment in health care in Africa and that is something we are very focused on in our projects. We are currently closing a health care deal in Liberia; the only surviving healthcare clinic in the country, which even operated during the civil war. We want to make a statement that investing in the future of health care in Africa can make a significant commercial return but also bring meaningful social benefits to the population at large. We are also looking at simple yet effective industries like food processing, milk processing plants, medical diagnostic centres, things that traditionally have been overlooked by investors abroad because they like the Telecom story. They read  international magazines and it says that African telecom is great, but that was 5-10 years ago. You saw MTN, Starcomms making money; Zain being sold to Bhartifor $10 billion; We believe health care can be another future growh sector for future investment given where Africa’s health care is right now.

Promota: What made you decide to invest in Quality Chemicals in Uganda?

Zain: In Uganda, the amount of people who die of malaria every day is about 350. It’s tragic. It’s wrong. Quality Chemicals have an incredible plant there. The Ugandans have taken steps with the Indians to try and resolve the issue of malaria and Aids, debts and so on... On seeing this plant, I was struck by how technologically advanced it was. We had to show that this level of entrepreneurship is exactly the type of entrepreneurship we wanted to get involved with. Despite the clear need for Aids and malaria drugs within Sub Saharan Africa, there was no plant capable of making those drugs – most of them were imported. This is African owned, providing an African solution to an African problem. And, although the company was fully funded, we bought out an existing shareholder.

The is obviously a threat to the conventional way of doing things; big US pharmaceutical giants who obviously don’t want their market in ARVs to be flooded with local production. It is a political balancing act, and not the easiest business area in which to operate but it is good to see that businesses in Uganda have taken this step forward, hopefully encouraging others to do the same. Africa is too big a market to have only one plant of this kind. Promota: Has the government done enough to promote Uganda’s image abroad? Zain: The government is doing quite well to combat a lot of what went on in the past. The way they got Sipla to build the plant in Uganda for example is to be applauded. There is an ignorance amongst the international community. For example, when “The Last King of Scotland”, came out that film’s message reached more people than those who heard what the government would like to say; unfortunate, but true.

Promota: What criteria do you use to invest in a company?

Zain: Management is absolutely key;

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  do they know what they are doing?
  


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  Have they got an ability to run this company?
  


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  Is there transparency? Especially in Africa because numbers can change incredibly but management, transparency, corporate governance, being able to drive a market within the context of the country in which they operate as opposed to best practice in the West. I really believe that you have to build a business to the African consumer in the African market as opposed to how it is being done in the  developed world. It’s a very different culture; different strategies are required. So I think that people that follow that philosophy will probably win out in the end.
  

Look at the telephone market: they started selling cards through street vendors, as that is the way things are done in Africa. In the US you can’t do that. Here it is all shop based and monthly contracts but in Africa, many people don’t have accounts; there is no credit history etc. so you have to be creative and knowing these dichotomies and realising you need to tailor it to the market is the way forward. We want managers with insight. There is no such thing as a “Pan-African strategy”, it doesn’t work. So you just have to know the different nuances to get greater prosperity in each of the markets that a company operates in.

Promota: In many African countries, there’s a mindset that products made in Africa are sub-standard. Has this attitude been a concern when you’re investing in Africa?

Zain: Yes. It’s not just that they think it is substandard; over the years you have seen a lot of African produced goods that are poor quality. In the health care sector you have a lot of placebo drugs; drugs that are manufactured without the right ingredients being sold to unsuspecting individuals. So, people equate foreign goods with better quality. A good African business can change their mentality. For example, if you go to Nigeria, the clear leaders on the telecom side was MTN because they provided a premium product. They branded themselves as such and I believe that the way to change that is to start creating businesses that raise the benchmark.

It is unfortunate and we have seen it a lot at our facilities: for example if you are going to give medical treatment people want Western doctors and go to Europe to be treated as opposed to being treated in Africa, but to be fair, most people also go to India to get treated, and in my view there is no difference between being in Africa or India yet the incorrect perception persists that Indian doctors are more skilled. And the irony is that if you are sick, you’d rather be treated by a Nigerian doctor in London than a Nigerian doctor in Africa. Although it is a matter of equipment; it is also a matter of the thought process and the concern that the quality may not be as high as in other parts of the world. That needs to change.

Promota: I understand you invested in Ghana in the cancer treatment facility, providing the affordability of cancer treatment in such a poor nation. How do you expect to sustain the facility and at the same time protect your investment?

Zain: Nigerians spend more than $5 billion a year in foreign medical services alone. Now Ghana is an hour away from Nigeria and the centre is not just for Ghana, but the whole of West Africa. The centre has a capacity to only treat 500 people. It’s not an easy process to conduct. It is so important for us as a fund to demonstrate to investors that you can build that centre and you can make returns. If we stay with the status quo does that mean that Africa does not deserve cancer treatment facilities? We have to be creative.

Promota: Do you get support from governments of those countries where you’ve invested so far in Africa? Zain: We receive incredible government support in the countries where we are operating, especially in healthcare and I think it is very important governments support us in what we do and how we do things. African governments are waking up and realising that private investment is a sure way to keep people happy, create jobs and attract further investment in the country... it is about providing a service to the population at large so it doesn’t matter which party is in power. Consumer and retail focused sectors, particularly healthcare, tend to be sector agnostic – after all a healthy nation is a wealthy nation.

Promota: Do you think that Africa, to be more progressive as we saw in India and China, needs its Diasporans to go back? What is your take on this?

Zain: We need to study the issues carefully before devising policies that can alleviate some of the concerns. For example within healthcare,one of the main problems in Africa is availability and recruitment of medical professionals. The reality is not that Ghana isn’t producing enough nurses, it is, but one in three leave the country as soon as they graduate. Why? Because they don’t have the facilities to work in and the pay is low. So when people ask me what the social good is, I say the social good is that we encourage the building of facilities in Ghana that nurses think “I want to work there. I don’t want to leave my country, my people, and my home. I became a nurse to help my people but how can I help my people if I am earning $100 a month in Ghana and I could earn $2,000 in the US”.

Building these advanced facilities will bridge that gap, thus giving people opportunity and hope when they graduate from university; I cannot underestimate the importance. The reason that China and India became so economic progressive is due to vast numbers in the diaspora choosing to return the country, who brought back the skills and know-how that is required to build an emerging economy. We are taking stakes in a continent that we believe is a start in which my fellow African brethren will begin to return . I’m hoping that this is what we are doing: encouraging the African Diaspora to stop buying houses abroad and to stop saving all their money abroad. There are opportunities in your own countries, and trust me you’ll sleep better at night when you’ve done something like this.

Promota: Has the global financial downturn affected your operations?

Zain: Only to the extent that trying to raise funding and trying to get investors has been more of an issue. However, in terms of impacting indirectly on our investments, it hasn’t. Mainly because our investments are traditionally in health care; people will not stop spending on healthcare no matter what the economic climate is.

Promota: We are seeing a few countries in Africa still practicing dictatorship. Does it worry you that Africa might repeat the mistakes of the past?

Zain: I’ve never been too concerned about political issues. What most governments are finding out whether there is an opposition, or a one man show or whatever the case may be, they all want and need private sector development and growth. They all realise that the best way to stay in power is to create jobs and make people happy. They want to grow, they want to join the world community and whoever comes into power realises that...it’s difficult enough to understand the African political situation so we don’t try and tend to focus more on business while doing the best we can to mitigate the political risks by investing in traditionally strong political agnostic sectors and having strong partners in our companies.

Promota: Now you have moved to the Asian market in Cambodia, what does it mean for TLG? Zain: We’ve always been a frontier market fund. Our particular focus will always be Africa. Anytime we have invested outside Africa it is because it has a tangent into Africa. Even with this Cambodia business, as you’ll soon find out, we are looking at connecting it with an opportunity in Tanzania. And I think it is important that we demonstrate in a major way this transmigration theme that we feel is important.

Promota: Would you like to use this opportunity to get across any particular message?

Zain: Key messages to get across are: make sure you do your homework and don’t believe everything you read. Africa is rising. The consumer class is rising. I mentioned during my speech at Oxford University at the ‘Is Africa Next? Conference’, that GDP per capita is not the right or only criteria to measure wealth. You’ve got to look beyond that. 90% of the labour force in Ghana is not in the formal economy. Less than 5% of Ugandans have a bank account so how can you say to me that GDP per capita is the right way to measure wealth. If I believe those numbers, then how do I explain that 60 million Nigerians have mobile phones? So what it proves is that the right product, manner and strategy, at the right price, will find a market in Africa. You just need to know, understand and take the time to learn Africa’s cultural ways, its methods and the way they operate. It’s not a one size fits all continent.  

That’s the key message. And to the African Diaspora: start looking back into the incredible opportunities in Africa. Since 1990, Africa has returned about 29% on Foreign Direct Investment (FDI). Kofi Anan himself said that Africa remains the world’s best investment secret. Clearly there is some reason for all this so I would like to encourage my African brothers and sisters to take a longer term view of the region.

Promota: How would you like to be remembered?

Zain: That’s a tough one. The most important for me is to make sure that I have managed to inspire and encourage a few more investors to go to Africa. It’s hard for me when I go to Africa, and see the hope, the hard working person on the street who is looking to start a family, who is looking to get a proper job, who has a university degree but no opportunities. We sit here in London and  talk to people about why Africa lags behind the rest of the world and you hear all the common themes: corruption, they are lazy, they don’t like to work hard, they are fed on aid and you see celebrities talking about Live Aid etc.  But Africa is so much more than that. If I can be the harbinger of that message saying ‘let’s not patronise them, let’s put them on the same pedestal and let’s treat them as we would treat  any other emerging market and realise the incredible gift that they have in being able to work hard, contribute, and be productive’, that would be my goal. Thank you very much Mr. Zain. It’s a blessing for Africa to have an investor with such a big heart.