Facebook, Shmacebook: Make Your Money Work in Africa
African entrepreneurs are struggling to get funding. Impact investors, stop checking your Facebook page and listen up
If you're thinking about purchasing stock in Facebook, Walter Lamberson has something to say to you: "Facebook doesn't need your money, invest in Africa instead."
That's the title of his excellent article published today on Good.is.
Lamberson is a partner at Open Capital Advisors, a brokerage service supporting small and medium enterprises (SMEs) in East Africa that focuses on capital "to achieve growth, innovation and social impact."
He says that Facebook's record $16 billion IPO is about half of Kenya's GDP. According to International Monetary Find figures, that's actually more than the GDP of 73 nations, including the African states of Senegal, Democratic Republic of the Congo, Mozambique, Namibia, Mali, Burkina Faso, Chad and Zimbabwe.
Let's look at the actual figure. Facebook, with some 3,000 employees, is getting $16 billion. That's approximately the GDP of Gabon, which has 1.5 million people.
Let's put it into further context: Gabon is one of the most prosperous countries in Sub-Saharan Africa and has the region's highest rank on the Human Development Index (HDI). But it's all relative: a third of Gabonese live under the poverty line.
What's wrong with this picture?
KENYANS "PASSIVELY ASTONISHED" AT THE FACEBOOK IPO
"Facebook is being forced public by SEC regulations and the desire of some early investors to cash out; founder Mark Zuckerberg has made clear his company doesnât need the cash," writes Lamberson. "As such, financing growth for Facebook probably means investing in some combination of server racks in Oregon, lobbyists in Washington, and ergonomic keyboards, massage tables, and sushi in the California headquarters."
No wonder that the Facebook IPO figures have produced what Lamberson describes as a "passive astonishment" in Nairobi where he lives.
And anyway, do you really want to help a company pay for lobbyists who will try to get your privacy rights stripped? As Nick Pinto notes in "Rise of the Facebook Killers," his Village Voice cover story from February, "There's no reason the architecture of a social network has to include the kinds of privacy invasion endemic to Facebook.
(Not to mention the issues concerning eleventh-hour changes to the S-1 offering document and GM's decision to pull $10 million in advertising from Facebook just a few days agoâfacts that fund manager Jim Jubak says make the IPO a "terrible offering.")
NO CAPITAL, NO LOW-COST HEALTH CARE
"As a financial adviser and consultant to small and medium-sized companies in the region, I meet daily with companies that can offer investors attractive returnsâand provide market-based solutions to problems in sectors from energy to horticulture," Lamberson says.
"We're currently supporting a network of health care providers who will offer ordinary Kenyans low-cost, high-quality outpatient care. Most of the other companies we work with have revenue models that are simpler and, perhaps, lower risk than Facebook's. Yet they can't raise capital."
He blames weak capital markets in Kenya, which can't access the streams of cash that flow through Wall Street and Silicon Valley. But he argues that weak markets can offer good returns because the entrepreneurs in those markets require investments in the most basic necessities for a business to functionâan initial nut that is fundamentally generative.
"Imagine a clinic operating without an ultrasound machine, or a barley farm operating without a tractor," he says. "The fruit couldn't be hanging lower. The first ultrasound and the first tractor are astronomically more productive investments than the furniture in the Facebook lobby."
THE ASIAN-AFRICAN CONNECTION
Asian investors know that Africa is the place to invest, in particular because it holds vast untapped resources as well as clear need for infrastructure.
"Africa's needs have been estimated at $70-100 billion a year for infrastructure investment that is unmet right now by international capital flows," said economist Jeffrey Sachs at a recent Asian Development Bank meeting in Manila. The ADB estimates that in 2010, Asia invested around $29 billion in Africa, though Sachs thinks that figure could be upwards of $100 billion.
"I think there's at least an additional $50 billion a year that could profitably flow to Africa for core investments in the power sector, rail, roads and the IT backbone that is not flowing right now," said Sachs, who is the director of the Earth Institute at Columbia University.
He said that considering the slowdown of medium-term growth prospects in the United States and Europe, Africa could also be a major export market.
AFRICA'S IMAGE PROBLEM
Perhaps Africa suffers from an image problem in the West that doesn't exist in China. Lamberson says that part of the problem getting capital flowing are "continual fears about 'risk'âa word often applied to earnest African businesses, but not to JP Morgan. A man I know has built a brand manufacturing lotions and cosmetics from local aloe vera plants, but because heâs based in the much-maligned Democratic Republic of Congo, itâs all but impossible for him to break through to investors and grow. Even companies in east Africaâs comparatively advanced tech scene have a hard time raising smaller amounts of capital. But they deserve the chance to be productiveâremember, it only took $18,000 in capital to start Facebook."
Imagine what $16 billion could do if, instead of being invested in social media, were invested in social change. Now that's a thought that should get a lot of "Like" buttons pressed.
Reynard Loki doesn't use Facebook.
Open Capital Advisors. About Us. Accessed May 18, 2012.
International Monetary Fund. World Economic Outlook Database. April 17, 2012. Accessed May 18, 2012.
United Nations Development Programme. Human Development Statistical Annex. 2011. Accessed May 18, 2012.
World Bank. Gabon Country Brief No. 5. March 2011. Accessed May 18, 2012.
Lamberson, Walter. Facebook Doesn't Need Your Money; Invest in Africa Instead. May 18, 2012. Accessed May 18, 2012.
Pinto, Nick. Rise of the Facebook Killers. The Village Voice. February 15, 2012. Accessed May 18, 2012.
Jubak, Jim. Beware the Facebook IPO. MSN Money. May 17, 2012. Accessed May 18, 2012.
Reuters. Asia should invest in Africa, says Sachs. May 3, 2012. Accessed May 18, 2012.
image: Maasai women make, sell and display their bead work in Kajiado, Kenya, 2010 (credit: Georgina Goodwin/World Bank, Flickr Creative Commons)