GrowthCore with Luis Gravito; Investments run to places where innovation is happening

In this edition of The GrowthCore, our monthly conversation with business leaders across Africa, we caught up with Luis Gravito in Kigali, Rwanda to discuss innovation and smart investing on the continent.  Luis is Senior Partner & Managing Director at the Lagos office of Boston Consulting Group.

Checked out of the beautiful Marriot Hotel in Kigali and ready to leave Rwanda after participating in the 26th annual World Economic Forum (WEF) on Africa in Kigali, but Luis Gravito’s optimism about Africa’s future and enthusiasm about his work on the continent made him tarry a little at the hotel to speak to The Nerve Africa. He smiled gracefully as we made our way to a part of the lobby overlooking a beautiful scenery that distracted me throughout the interview. I was not alone; my boss joined me for the interview and kicked off the discussion with Gravito who I knew was going to give brilliant answers to our questions, judging from things he said when Boston Consulting Group launched its fourth office in Africa earlier in the year.

He says the WEF came at the right time for Africa, a continent where governments covered up their lapses with petrodollars for decades.

Embracing innovation

“Because the commodities prices are no longer as high as before, no longer can you rely basically on that to keep on growing and improving your well-being. So, before, you should do things, but you could afford not to do them, and many countries did not do them, but right now you will have to do them, because you don’t have the option any longer. So in that sense, I think it is a good moment for Africa to seize the day and actually make it an opportunity,” he says.

Gravito insists that there are myriads of opportunities for growth in Africa, even more for countries on the continent that have innovation to sell. What does Africa need? More jobs, foreign exchange, economic growth and diversification? Luis Gravito says innovation could help. More so, it is a magnet for investment. “So you have a hub of innovation in Africa, I’m sure that will also be an additional magnet for foreign direct investment,” says Gravito.

East Africa has impressed in recent times in terms of dedication of governments across the region to fostering innovation and growth in their respective countries. The impact is already being felt, with Kenyan startups getting investments of more than $47 million in 2015, the third highest in Africa. As part of their dedication to the growth of innovation in the region, governments in the East African region are supporting WEF’s Internet For All Initiative which aims to extend the reach of the internet to the 4 billion people worldwide that are not yet connected. However, Gravito thinks the pace of innovation growth in the region may not necessarily mean it would attract more foreign direct investments (FDI) than bigger markets on the continent like Nigeria.

While he notes that innovation in East Africa has been majorly ICT-led, he points out that innovation happens in other industries. He applauds East Africa — especially Kenya and Rwanda — regardless, explaining how “highly likely” it is for countries in the East African region to be a magnet for FDI in the ICT space, having grown innovation in the area. But in large markets like Nigeria, huge population alone presents great opportunities for investment, there is also a huge infrastructural gap; innovation comes as a plus.

“… Africa as a whole … is positioning itself towards being a magnet for FDI … and if the continent behaves well in terms of innovation, that will be an additional market and that innovation can be across different industries,” Gravito says. “The pools of money that are out there looking for opportunities are very sensitive on places where innovations are taking place, because innovation is what creates value. And there is no way to accelerate growth than the one brought up by innovation that is successful.”

PPPs

Despite interruptions from the man arranging his ride to the airport and another who wanted audience with the BCG executive, Gravito never got disconnected from the discussion. He knows so much about partnerships and was keen on partnering with The Nerve Africa (by granting the interview) to deliver on its mandate of providing growth information. He would not leave until he answered every question we had; every other person had to wait. He never rested his back throughout our discussion but it wasn’t out of impatience but out of keen interest in the subject. He notes that if Africa will solve one of its major challenges which is poor infrastructure, the public and private sector must work together. BCG’s duty is to foster this relationship and make sure it works for the benefit of all, whether its client is from the private sector or the public sector at any given time.

Apart from freeing up government resources for other public priorities, public-private partnerships also spur economic growth.

Research shows that countries with 70 or more PPP infrastructure projects demonstrated a 25 percent GDP growth rate between 1990 and 2003. The reason for this is simple: such projects tend to be large undertakings that bring capital into the market and create long-term employment. With job growth comes more consumption, then more wealth and a stronger economy. Large scale private investments also attracts other private investors to the market, creating a sustainable model for economic growth.

While Gravito admits it can be very difficult to make PPPs work because they bring together many stakeholders from different sectors together, “you have to marry them and you have to align them in a fruitful way, a mutually beneficial way,” he says.

He notes that many of the PPPs are transnational, with big infrastructural projects cutting across many countries, “so you have an additional complexity, which is the multi-country aspect of it, and the sovereignty problems that stem from that. You have to align and coordinate many people and make sure that their objectives are complimentary but they are not necessarily the same,” the BCG MD in Lagos adds.

“Africa will have to become a specialist somewhere along the line in making sure that this whole framework will work and I’m sure we will get there, but there is quite a long way to go.”

Investing in Africa

…they should beware because short term investments in Africa is very volatile, so it can either go very well for you or very badly for you.

It’s BCG’s work to advise clients in the private, public, and not-for-profit sectors around the world and the company has been doing this for 53 years. But Gravito’s work is difficult; he has to advise clients planning to invest (or with investments) in Nigeria where it is very difficult to do business. Considering how long it takes to get a business registered, poor infrastructure, among others, the World Bank ranks the country 169th on its Ease of Doing Business list for 2016. But with the optimism of a citizen and intelligence available to a professional, Gravito seems to have all the right answers.

He says for the umpteenth time that opportunities abound in Nigeria where there are many infrastructural gaps to be filled, and in Africa as a whole. Asked whether he agrees with those who claim Africa is best for long-term investments. He says he does.

“I wouldn’t say that anyone who has a short term schedule shouldn’t invest in Africa, what I would say is that they should beware because short term investment in Africa is very volatile, so it can either go very well for you or very badly for you.

“But in the long term, I have no doubt whatsoever that everything is for Africa, all you need is here, and the natural resources are here. You have young populations growing and GDPs that are growing more than most parts of the world, you are blessed with all sort of natural resources, from agriculture to minerals to oil to gas and even energy. So everything is in your favour in the long term. I have no doubt that any investor that invests in Africa in areas that they know well, and are investing to stay and are investing to develop their businesses … I have no doubt in the long term they would have a fantastic return. But you have to be patient; you need to be prepared to grow your business.”

To ensure no one gets carried away by the opportunities he speaks of, Gravito reminded short-term investors of the risks involved. “Africa is still in a stage of development in which volatility will still be pretty high, much more than in any part of the world, and when volatility is very high, short-term investments are very risky. They can go well or very badly, so I wouldn’t say there are no opportunities, because there are. But for businesses who want to invest in Africa and grow those businesses, I have no doubt that the return will be good.”

Gravito says Africa’s poor infrastructure and policy inconsistencies slow business growth on the continent.

“… things go at an entirely different speed, depending on whether the environment is friendly towards fostering that speed or not and those differences are very clear,” says Gravito.

He cites the example of Singapore where there is a concept that is positive towards business. “The speed in which they do things and the speed in which they have been growing is amazing and the consistency in which they can do it.”

“Now, when you have less context, it is harder, but it still happens, but slower and in a less disciplined way. But it will still happen. Now obviously, the more the countries in Africa can improve that context, the better,” explains Gravito.

He admits Rwanda has been working hard in this area. In the East African country, it is now possible to register a business in six hours.

“If you take Rwanda for instance, Rwanda has been improving. If you talk of business context, 20 years ago nobody will dream of coming to Rwanda, but right now, for many people who are investing in Africa, Rwanda is the place they think they will be good.”

To make BCG’s work in Africa easier, it is engaging governments across the continent on key issues, especially infrastructure. Gravito says the company is in dialogue with the Nigerian government on this, as it continues its work as a “catalyser” and a “facilitator”, bringing impact across the continent.

Gravito was supposed to have left; he had a flight to catch but he wouldn’t leave without telling us about BCG’s projects in Luanda, Casablanca, Johannesburg and Nigeria. The company marked its entry into Lagos with the release of a report entitled Unlocking Nigeria’s Potential: The Path to Well-Being where it proposed focused, market-oriented interventions in five critical areas: civil society, governance, infrastructure, education, and health, in order to bring about effective real change in the country.

“Infrastructure should be the top priority—weakness there limits progress in a number of other areas, including health and education,” the report says.

In furtherance of this, the company has commenced healthcare projects in Ogun State, south west Nigeria. “Because it is one of the practices worldwide that we are responding to, so we can bring a lot there,” Gravito says.

The GrowthCore is TheNerve Africa’s monthly conversation with business leaders across the continent.