These Israelis Want to Do Business in Africa. Can They Succeed Without Bribes?

With an annual growth rate of nearly 5% and a projected population of 2.5 billion within a generation, Africa offers promise – and peril

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At the international airport serving the Nigerian capital of Lagos – a city of as many as 25 million people – there are just three passport control officers on hand when we land. As we wait on line, one makes a motion to show that he’s hungry and asks if we have anything to give him. Not wanting to pay him a bribe to enter the country, we answer, “We are the guests of former president of Nigeria Olusegon Obasanjo.”

The mention of his name is enough to end the discussion and our passports are stamped accordingly.

Africa is every bit as despairing as it is exhilarating. In population, it is the youngest of the world’s continents and will account for a significant share of the world’s economic growth over the next few decades. But it is also the world’s most corrupt and backward continent.

Prime Minister Benjamin Netanyahu’s visit to Africa a year and a half ago signaled the new importance Israel places on the continent, 50 years after relations cooled in the wake of the Six-Day War. Still, declarations are not enough. For Israel to break into the African market, it needs a detailed plan and follow-through, which is why a first-ever Israeli-African business summit was held in Lagos this month.

The initiative for the Africa-Israel Forum came from Tel Aviv University, which, under President Yossi Klafter, has been building relationships with emerging hubs of knowhow and business. TAU already has business-academic forums together with China and India, and its new target is Africa. To that end, the university has developed ties with private sponsors, including philanthropists Stanley and Dr. Marion Bergman and the Israeli entrepreneur Eytan Stibbe, who has notched proven successes in Africa. But the primary connection it’s made is with the Brenthurst Foundation, which has extensive connections in Africa and helped TAU secure the sponsorship of Obasanjo, who hosted the conference at his home near Lagos.

Most improved leader

Obasanjo is a former general and chief of staff of the Nigerian Army. He was responsible for defeating Biafran rebels during a brutal civil war in the late 1960s that led to the deaths by hunger of 1 million Biafrans. On the other hand, as military ruler of Nigeria a decade later, Obasanjo peacefully moved the country toward democratic elections.

Two decades later, when the army was once again ruling Nigeria, Obasanjo became its sharpest critic and was imprisoned for three years. Following his release, he was elected president. Today, he is one of the most influential and highly regarded people in Africa, so his personal sponsorship of the conference was of immense significance.

The focus of the conference was agrotech. Israel is a leader in the field and Africa badly needs to improve crop yields. Yet, despite the perfect match, Israeli companies have had little success in agriculture or any other industry on the continent. The few that have succeeded did so by continuing to operate even after the 1960s golden age of Israeli-African ties ended. Defense companies have done well, too.

“Israel is involved in Africa primarily by way of arms and by political consulting – the less pretty aspects of the Israeli business world. You [Israelis] haven’t succeeded in building yourselves a stable democratic brand that wields influence for the good of the continent,” says Greg Mills, a Brenthurst Foundation director.

One of the few Israelis who have done well in Africa is Daniel Pinhasi, who has been involved in the continent since his days in the Foreign Ministry as a diplomat in South Africa and ambassador to Senegal. Pinhasi now acts as a consultant to Israeli companies operating on the continent, primarily in agriculture. It is patently obvious to Pinhasi why the Israelis have such a difficult time doing business in Africa.

“Africa is a game only for the big and powerful,” he says. “It takes an immense amount of capital and connections to make it here. With my connections on the continent, I speak to heads of state and it takes me 15 minutes to convince them of the need for the project. Except that then it will take another three years for me to raise the financing to close the deal. For someone who lacks connections, it would be very difficult to make any sort of deals, and after you do so, the implementation is close to impossible, including the fact that the payments simply do not arrive in time.”

Other difficulties, he says, are “that in Africa they never tell you no. You leave every meeting with an affirmative response, and only after three years of failed efforts do you understand that they never actually intended to do business with you. This is on top of the tremendous physical difficulties of doing business here – bureaucracy, long lines for receiving visas, the lack of roads, even the mosquitoes and disease.”

In Pinhasi’s view, the great difficulties are what justify the insanely high profit margins of business deals in Africa – a return of 25% to 50% would be considered a sure sign of corruption anywhere else in the world, but is standard for Africa. “There’s no other way – the returns on investment have to be very big to compensate for the risk. Anyone going into a business deal in Africa has to prepare to wait at least three years before they see any cash flow, which means that for the majority of startups it is practically hopeless.”

The lack of Israeli success in Africa is heart-rending, particularly given the noteworthy relative advantages that Israel has to offer, especially in agriculture and water. Pinhasi sees the agricultural sector not only as having abundant business potential, but also as a generator of social change in Africa.

Lagos, Nigeria, 2016.Credit: AKINTUNDE AKINLEYE/Reuters

“What is a school in Africa?” he asks. “It is 100 pupils of all ages in a single room, with a teacher who teaches all of the subjects and physically beats the pupils. Children don’t get anything from a school like that, so they don’t learn, they remain illiterate. In the next generation there will be hundreds of millions who don’t know how to do anything. The women, for instance, won’t even be able to work as cleaners, because they do not know what hygiene is. African governments don’t invest in education, because it’s a long-term investment – beyond the scope of the ruling president’s tenure.

“Therefore,” Pinhasi continues, “if you want to change Africa, you must generate change in the quality of life for rural Africans here and now. The only way to do so is with agriculture. If we can improve their profits from agriculture and raise them to an income level of 300 euros [$342] a month, they will be left with enough money to live on and give their child a private teacher, and also to start buying consumer goods.”

Yet this breakthrough is problematic, because to reach that 300 euros you have to fix the entire value chain of the farmer. “It isn’t enough to bring them modern seeds if they don’t have an irrigation system. An irrigation system won’t help if there is no fertilizer. Fertilizer won’t help if they don’t have the ability to get to the market and sell their crops and turn a profit. You have to treat the entire package, from start to finish, and that requires a great deal of effort, as well as cooperation between different companies,” says Pinhasi.

Pinhasi is riled by the lack of cooperation among Israeli companies. “If you’ve got one big company that has managed to win a project, why doesn’t it bring in more Israeli companies to deal with tangential issues, and in so doing giving more Israelis a foothold in Africa?”

One exceptional instance of collaboration between several Israeli companies may be found in the first tomato hothouse established in Nigeria. Built by Wells Hosa, which like everything else in Nigeria is owned by one of the wealthiest families in the country, it is the first attempt to grow tomatoes in the country with modern methods. The hothouses protect the plants from Nigeria’s torrential rains and from pests found in the soil. It not only uses drip-irrigation systems made by the Israeli company Netafim, but products made by Mapal Agriculture (hydroponic systems), Ginegar (plastic sheeting) and Pelemix (hydroponic substrate).

Entirely innovative, the hothouses aim to help end the scarcity of tomatoes, which are grown only in the country’s north, and only in the non-rainy season. The rest of the year they are imported and sell for $6 a kilogram, a price that the vast majority of Nigerians can’t pay. The first harvest of hothouse tomatoes has just been completed and have reached the local market (albeit for now in limited quantities) at one-quarter that price. The plan is to expand the hothouse operation in other parts of the country.

Another distinct advantage that Israel possesses is, of course, its experience in technology. More than a few Israeli startups have tried to penetrate the African market with cheap and frighteningly simple technologies. Cellphone use has spread rapidly across Africa in recent years, but few Africans can afford a smartphone. The solution is to give the phones the ability to surf the internet, like that offered by the Singaporean-Israeli company N-Frnds, whose technology connects basic cellphones to the internet cloud. The majority of the financing is provided by businesses trying to reach end-users in Africa.

China rules

Another Israeli company provides loans to farmers by means of scratch cards, which are sold in advance. The Israeli startup OKO provides crop insurance by means of SMS messages, and for those who can’t read or write it provides the service through a call center. Another company is attempting to penetrate the home water purification market with used dialysis filters.

There are, of course, also Israeli companies working in infrastructure development, most of them since the glory days of the 1960s. But Israel is judged to have no relative advantage when it comes to infrastructure, as these are colossal projects that require a great deal of capital as well as connections with the regime. On both counts, the Chinese dominate in Africa.

“The Chinese come in with a proposal for a billion-dollar project, and they bring the financing, as well, and along the way they also pay 10% commissions – $100 million – to the officials that approve the project. There’s no way to compete with them,” says one entrepreneur, who asked not to be named.

The elephant in the room, of course, is corruption. A successful Nigerian businessman, who asked not to be named, says with surprising candor that when pricing out any government contract, he allocates a margin of 20% for paying bribes. In some cases, he says, bribes can amount to 50%.

“There are projects that get stuck in the middle – that aren’t completed – because the government official has gone too far and hasn’t left any profit for the project itself,” he says.

Asked about the investigation into alleged bribery of African officials by the Israeli company Housing & Construction Ltd. and what an Israeli company that doesn’t want to pay bribes should do, the businessman breaks into peals of laughter. “What’s the problem?” he replies. “Let them take on a Nigerian partner, and he’ll pay the bribes.”

Nigeria is a particularly corrupt country, but there are countries in Africa like Ethiopia, Kenya, Tanzania and Ghana where it is possible to operate without bribes. Even in the most corrupt countries, there are strategies for avoiding bribery, for instance, by acting as a supplier to a project rather than being an equity partner. Another is to develop projects under the aegis of international bodies like the World Bank, from which officials don’t dare to demand bribes. Dealing exclusively with the private sector in another alterative. Anything involving technology tends to have fewer problems, maybe because government officials don’t understand it enough to know what they should be demanding bribes for.

Nigeria's former president.Credit: AP

In any event, even without bribes, no matter which country it is in Africa, you need connections to succeed and make deals. You need untold patience – particularly if you’re not paying bribes to expedite the process. Evidently, you need something else, as well, which both Mills and Pinhasi dwell on: The desire to work in Africa not only because of the huge profit potential, but out of a desire to help the most miserable, poorest people on the planet. Without a sense of mission, it is difficult to cope with the risks and obstacles.

“It would be worthwhile trying to do a pilot project in several countries in Africa, in which Israel would coordinate an effort to introduce Israeli technologies, and demonstrate to the other countries the change that it can generate,” says Pinhasi. “It would be good to do this in the more democratic and more transparent states in Africa. So far, we have been partners of the darkest regimes on the continent, but now we should specifically be developing relationships with the positive regimes.”

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