An Interview With Papa Madiaw Ndiaye, CEO and Founding Partner of AFIG Funds

By Harshad Maral on November 2, 2014 - In light of the upcoming Wharton Africa Business Forum, The Wharton Journal had the privilege of interviewing keynote speaker Papa Madiaw Ndiaye. Papa (WG’92, G’92) is the CEO and founding partner of private equity firm AFIG Funds prior to which he was an Investment Director at Emerging Markets Partnership in Washington.

WJ: What, would you say, are Africas most pressing challenges today that students and entrepreneurs interested in the development of the region should focus on?

PMN: When I look at the African environment, I see significant improvement in the development plan in the last decade. People are realizing the importance of environmental issues and security among others. The overlying umbrella is the quality of human resources in the region. Governments of African nations continue to lag their counterparts in other parts of the world in terms of sophistication and the ability to develop human resources, to compete globally. They don’t have very exposed Presidents who have travelled before being President. They lack the CEO mentality. Academic success needs to be brought in the higher echelons of the government. A good government is capable of bringing solutions to climate change, security and peace. That’s the last missing piece in the Africa puzzle. The things that would differentiate the current state of affairs are the handling of the scarcity of resources and a demonstrated strong leadership at the state. Ethnic and regional differences should be resolved. Effective preparation for our kids’future is another important consideration. As a PE investor, I’m in the business of optimism. Tomorrow in Africa will be better than today. You and your peers should focus on the private sector. You don’t come out of Wharton and run for the Parliament. We like to invest in high-growth and strategic sectors. Private sector creates jobs. Overall Africa is on the right path. There is an improvement in Human Development Index. The middle class is growing and it’s demanding. They are very serious about getting quality. Growing up, this wasn’t the case. People weren’t so demanding about yogurt. Now you have 10 different brands of yogurt competing for the same set of customers.WJ: What is your opinion about Chinese investments in Africa? Do they benefit Africas economy in the short-term and/or the long-term?

PMN: There is a simple answer and then there is a more complex answer. Consider how long the continent of Africa has starved for investment. Our experience has been that the Chinese have been the most competitive investors. From 2014 to 2020 the volume of trade between China and Africa is expected to double. This has challenged Western powers like the U.S. to step up their game. At the same time, it is dangerous to generalize. Experiences in one place cannot be duplicated in another. Africa is learning from Brazil, India and others. Investment lays the foundation for years to come. Chinese investment could be a problem. 70% of contractors working on Chinese projects in Africa are Chinese. This limits knowledge transfers for locals. Everybody seems to have accepted that Chinese companies are gaining one-sided deals with African government. I don’t blame the Chinese for that. I blame the African governments. They should have stronger policies. The U.S. has stronger policies. African governments, however, come to negotiate the best deal for themselves. Right now, we need the money as an engine for growth in the short-term.

WJ: Dambisa Moyo argues in her book, Dead Aid, that grants and aids to Africa are a major cause behind the lack of development in the region. What is your take on this issue?PMN: I am grateful to Dambisa for bringing up this issue in international media. These are issues that people talk about in their living rooms and she exposed it worldwide. I’m always cautious when we discuss aid, government, etc. The more important focus for me is facts. Is it a fact that no country has relied on aid to achieve global economic progress? African countries must be competitive. We must develop the private sector. Because of my business, I am biased. I believe in development finance. It should be a catalyst for development. International aid is growing in Africa. However remittances to Africa from Africans abroad exceed the amount of formal aid. It’s a pretty astounding statistic. Where is the private sector headed? Does aid have the potential to accelerate the growth of the private sector? Local entrepreneurs would not have access to grants. To me this is an old debate. It is interesting for an intellectual debate. However effects are big. When you look at Bill Gates and Warren Buffett, they are investing in healthcare in Africa with budgets larger than the reserve of World Bank. Right now the focus should be on billion dollar funds deployed in Africa that are actually investing in companies of local entrepreneurs. Aid is not even under discussion. In my day-to-day, there is very little aid.

WJ: Macro-economic predictions put Africa on the top of the charts in 2050. What role do you see Africa playing in the world economy after a few decades?

PMN: We are already seeing middle class local consumers taken by global businesses. When it comes to yogurt, airtime, bread, clothes, people get it locally. The middle class in Africa is an interesting mix. Yogurt is outrageously expensive. Local companies make it and demand is met. But more than that, a provider of more innovative solutions innovated in Africa and going to the rest of the world. For example, mobile money. People are paying their phone bills from their phone in Kenya and Senegal. These are not academics or sophisticated early adopters. It is easy to imagine how much scope there is to grow. If you really want to change the environment and mark your generation, seed companies as local champions first and aim for them to become global champions. It takes a while. Who would have thought in 1970 that China would be where it is today. No one would have thought that. No one would have thought the same about Japan. In 50s-60s Japan was where cheap and useless stuff came from. Then it was Korea. Then it was China. Now China is reinventing itself. So, I think there is a chance for Africa. Particularly we can start with our own local consumer base and then go global. After that, when you look around places like Wharton, there were 6-7 African students in my class. Now its around 35 per class. So, Africa has a growing student base. At our private equity firm, we get CVs from all over the world. We have people from China, India, France, the US, you name it. We are a relatively modest shop in terms of size. However, we see an increased degree of inter-African trade. A greater amount of wealth is being retained on the continent through consumer and retail markets. Now it makes sense to provide quality schools and hospitals. My family finally moved from Washington to Africa a few years ago. My children were able to seamlessly transfer from the US. This school would not have existed a few years ago. The middle class is enjoying a higher disposable income. By 2050, we are going to see more African countries reaching there such as Ghana, Botswana. More intra-African trade will take place. Today most of it is outside, Sengal-France, China-Kenya, etc. While the rest of the world is getting older, Africans are getting younger. Africa will have the largest population of people of working age. To me, a proper analysis on the ground, changes your perspective. Here you see it everyday.

WJ: Could you please talk about AIG African Infrastructure Funds investment thesis? Does the fund face competition from Chinese investors?

PMN: We don’t really see them much as competitors. We focus on investing in local entrepreneurs and turn them into MNC and international standards. When Chinese come to do multi-billion dollars, they are competing with large firms like BlackStone, KKR who can afford multi-billion dollar investments. We are more focused on 50-200 million dollar companies. The Chinese come to invest in larger companies. However, what we are seeing, some of the companies we are investing in, for example an assembly plant, bring parts from different parts of the world such as China India, I had to fly multiple times to China and negotiate partnerships. They bring capital, control the process. In that sense, China is very much a collaborator: A source of more affordable inputs. Plug and play factories and you get cheaper equipment than in Europe.

WJ: What can Wharton students who are looking to start or join businesses in Africa or other emerging markets do to best position themselves for success while at Wharton?

PMN: We were all encouraged to go away from home and experience international business. One thing that is different now is that it is critical that we gain experience in Africa. It is also important to bring back best practices in business and management. You can get away with being an average player in a big company but you cannot be an average player in an African country. In a couple of months, you’ll be talking to CEOs. If you are not good, it’ll be extremely challenging. If you arrive at a big firm in the U.S., the probability that you going to a board meeting that exposes your understating in the initial stages of your career is very low. To be successful in Africa, you need to bring best practices. We have locally grown talent. Back in the day we had the return of the best minds. Now working in Africa is increasingly done from Africa, it has to be done from the ground. The days of being positioned in foreign lands are gone. In terms of the value add of the companies, the growing of the companies – nothing beats being on the ground. Africa is a very large continent. You need to start early. You do that when you are 25. By the time you are 35, you see the linkages Since you went to Wharton, you see what’s going on in the US. You have an international network. In Africa, your database is refreshed.

The Wharton Journal is grateful to Papa for his time and looks forward to welcoming him on campus for the Wharton Africa Business Forum.