The kids are alright: Family-run businesses in Africa
African capitalism is a tapestry of companies, many of which are family owned. The management of family companies bring its own set of problems, like improving governance and handling successions.
Alliance had one of the happier trajectories.
Hassen Khelifati, the chief executive of Alliance Assurances in Algeria, recalls the brutal change in minimum capital requirements in the insurance industry that required a quick financial injection in 2010. “It was quite a difficult conversation with the family to get them to open up their equity and go towards the market, but now we are in agribusiness, food, education,” he recalls.
It is not the only trajectory available.
Take Nigeria’s Diamond Bank. Set up by Pascal Dozie in 1990, it was an innovator and market leader in several categories. Pascal handed the task of running the bank over to his son Uzoma Dozie, who became CEO in 2014.
Things did not go well, and the bank’s death spiral only ended when it was bought by Access Bank in late 2018.
There is a saying beloved of money managers: ‘The first generation makes it, the second generation spends it, and the third generation blows it.’
Luc Rigouzzo of Amethis Capital says: “In my career in both Latin America and Africa, I have seen tragic stories where family groups didn’t have the courage to tell people [read ‘other family members’] that they needed to behave like shareholders and not managers and get out of the operational side of things.”
Rigouzzo has long worked with family businesses. He reminds those he works with that just because you own it, doesn’t mean you should necessarily run it.
This challenge has become a priority for Rita Maria Zniber of Morocco’s Diana Holding, who wants to avoid the third-generation curse: “We are a family group that has only really just started to open up to the kind of corporate governance that will ensure our sustainability.”
Be wary of nepotism
The group recently restructured its agricultural companies into a sub-holding and sold 22.6% of the equity to Fipar-Holding, an investment fund owned by Morocco’s state-owned Caisse de Dépôt et de Gestion. “It is these institutional partners that allow you take the right path and especially allow you to be certain that nepotism will never be the Achilles heel of the group,” Zniber says.
For many private-equity operators in Africa, the business model is quite different to that seen in, say, the United States. Ziad Oueslati, managing director and co-founder of Tunis-based AfricInvest, preaches the benefits of outside partners to deliver corporate governance in family-owned companies.
In East Asia, there was a step change in growth when those types of companies reorganised; Oueslati says family businesses in Africa are heading in the same direction.
For Rigouzzo, one of Amethis’s success stories has been Kenya’s Ramco Group, a large conglomerate. Amethis took a 30% stake in Ramco Plexus, the printing division of Ramco Group, freeing up capital for the conglomerate’s expansion into East Africa.
Amit Patel, chief executive of Ramco Group, says the change came by building trust. “We didn’t even know that we wanted to divest until we had the conversations over the course of a year,” he recalls. “We thought: ‘Let’s open ourselves up to Africa and the world.’”
The restructuring and rationalisation can quickly produce benefits. That may be because many of these companies historically grew in an opportunistic rather than a planned fashion.
As Patel says, “People tell me: ‘You are a confused group. You are in everything,’ but that is simply because wherever we saw an opportunity, we just dived in.” And while this can makes for fast growth, it can mean that the relevant corporate structures to underpin the business may be lacking.
Knowing when to look for partnerships
For Yohannes Mekbebe of Côte d’Ivoire’s Yeshi Group, this problem has become more apparent in the past few years. “Our story starts in 1979, with a partnership between my mom and the Beydoun family from Lebanon,” Mekbebe tells The Africa Report.
It has grown into a sprawling conglomerate of 10 companies in eight countries, operating in retail, building materials, imports and distribution, with a big chunk of the business focused on steel rebar for the construction industry.
His company finances property developments in all of its markets because “developers need space and time to execute payments. And it is becoming a real problem for us, as we are operating as a bank in many of these markets,” says Mekbebe, “and yet we don’t have a finance division to address these needs.”
As a result, the Yeshi Group is looking for the right partnership to help it grow – perhaps a fintech company to help with payments, or maybe Visa, says Mekbebe.
Cedric de Spéville, chief executive of the Eclosia Group in Mauritius, has relied on partners to help him learn. “In wheat milling, for example, we brought in an equity partner to bring real knowledge transfer,” he says. “And we are doing an aquarium in Mauritius. Rather than overpay consultants, we have brought in a player from the industry.”
Discussions about foreign investors buying shares in a family business can quickly turn hostile, however. For good reason, argues Yeshi’s Mekbebe.
Family groups often have their own hidden jewels, the value of which is only just being recognised: distribution networks.
Mekbebe says they are critical to doing business on the continent. “Building a distribution channel in an African country can take 10 years, if not a generation. It’s what we all owe to the generations that preceded us,” he says. “And as a family business, you can be quite defensive over that.”
Certainly, Mohammed Dewji, chief executive of MeTL, attributes the success he has had in taking on the Unilevers and Coca-Colas of this world to “our very strong distribution network that reaches right into the hinterland and lets us focus on the bottom-of-the-pyramid customer.”
But the right partners are needed, if speed is of the essence. For example, Eclosia took 25 years to get to know the market and set up its operation in nearby Madagascar. “And it is not even that big,” says De Spéville. This would take too long for the small investments on Eclosia’s radar in Kenya and Rwanda, he says.
More haste, less speed
Ultimately, the biggest obstacle a family business can face is succession planning. “My father took me to China to trade fairs when I was 12 years old,” says Dewji. “That was in 1987. You can imagine China in 1987? […] In hindsight, he was trying to train me to get where I am today. And so I am a father of three children, and you have to give them freedom. But you also have to try to influence, to give them that mentality: ‘I have built this. I really need your help to take it to another level.’”
Choosing the right moment to step down is key.
At 73, Jean Kacou Diagou (JKD), Côte d’Ivoire’s second-richest man, might have been planning to put his feet up as chairman of NSIA Participations, the banking and insurance group he founded in 1995.
His daughter Janine, already group CEO, is credited with bringing in National Bank of Canada as an investor in 2015, Swiss Re in 2017, and the acquisition of Diamond Bank’s assets in francophone West Africa. Everything looked set for NSAI to carry on its impressive trajectory.
But in 2018 the banking arm of the business lost a third of its value on the regional bourse due to the collapse of SAF Cacao and a bad case of payment-card fraud. At this point JKD was at pains to show investors that the succession is a gradual process. “This group was built brick by brick. I want to make sure that the torch is passed well. One fine morning, you will be surprised,” he told our sister magazine Jeune Afrique.
Successions can go less smoothly.
Search the annals of legal cases in most countries, and there is one constant: epic battles involving one side of a family in dispute with another. No one fights quite like a family, especially when there is a great deal of money involved.
There is no MBA programme to teach how to deal with this. Here, the strategies have to be very human.
For De Spéville of Eclosia Group, it is all about investing time in communication. “I have two sisters who don’t live in Mauritius. I could quite easily say, ‘I am the CEO. I am driving the group’ and leave them to one side. But I don’t. I explain what is going on, and I try to get their opinions,” he says. “And this will help, not only as a sounding board, but to help get through bad times, which inevitably there will be as a business. No one grows in linear fashion.”
MeTL chooses the independent route
While some family businesses choose to bring in partners for expertise, to tackle financing constraints and to rationalise and streamline their operations, others prefer to go it alone. MeTL Group in Tanzania “was founded by my father and my grandmother,” says Mohammed Dewji, now group CEO.
He explains how they coped with funding MeTL’s growth in a country that lacks a strong financial sector: “When I came back from university, the biggest bank we had was Barclays Bank. Their paid-up capital was $2m. The maximum they could lend you was 20% [of their paid-up capital]”.
Dewji was certain that a loan of $400,000 was not enough, and so took a plane to South Africa to convince bankers there. “And it was difficult to go as a family business and ask for money. It took time. But eventually we worked up to a syndicated loan with various banks – Investec, RMB, Rabo, Standard Bank – with lines of credit of over $200m,” he says.
That has allowed the company to create industrial divisions. With the heavyweight competition of ABN, Bunge and Cargil, “margins in trading have become very tight. We needed to add value,” concludes Dewji.