Think you understand Africa? Well, it is a huge continent and, no, you probably don’t. But Robert Scharar does and you may be shocked to hear what he has to say. Scharar, president of FCA Corp., has been investing in Africa for 20 years and has a completely different perspective than what we hear from the mainstream press. FCA manages Commonwealth Funds, a financial planning and investment advisory firm that manages funds invested in Africa.
Russ: This is the Businessmakers Show, heard on the radio and seen online at thebusinessmakers.com. It's guest time on the show, and our topic now is doing business in Africa. My guest is Robert Scharar, the President of FCA Corp, and a 20-year investor in Africa. Robert, welcome to the Businessmakers Show.
Robert: Good morning, Russ. It's nice to be here.
Russ: Well, let's start at the top. Tell us about doing business in Africa in 2012.
Robert: Well, it's a great opportunity for Americans today to be doing a business in Africa. The African economies are growing rapidly, the middle class is expanding, and there's a lot of things that Americans can do there that are profitable business opportunities.
Russ: Well, it's interesting because setting up your interview today, right before I came in, I got an e-mail from the Kaufmann Foundation talking about how startup fever has even taken over in Africa.
Robert: Well, we had a meeting for entrepreneurs about five years ago at our hotel in Africa and we invited some professors actually from Texas Southern University came and local business people, and we offered a dinner and a presentation on entrepreneurism. We thought after about an hour, everyone would leave, but three-and-a-half hours later we said the meeting has to come to a close. The interest in being an entrepreneur was tremendous, and Africans are already entrepreneurs. We're now talking about really creating what we would call formal business opportunities in an entrepreneurship.
Russ: Well, the continent is huge and there are many countries, and I would assume some are ahead of others.
Robert: Well, you just passed the first test. You know Africa is a continent and not a country.
Russ: Okay. Thank you.
Robert: There's literally about 60 countries in Africa and they all differ very much.
Russ: What is perhaps the most progressive country in Africa today?
Robert: Well, South Africa is the most industrialized country on the continent and it is doing a lot of things that are affecting the southern part of Africa but there's a number of shining spots in Africa. For example the government of Senegal has just elected a new president. They've had several democratic elections. They're moving forward. You're seeing the same thing in Malawi, for example. They have their first woman president. Democracy is alive and well, particularly in sub-Saharan Africa.
Russ: So tell us about your 20-year history, though. It must be very different today than it was 20 years ago.
Robert: It's been quite varied over the years and it is very much different from when I first went. One of the things is technology has made a huge difference. When I first went to Africa, I came out with this little slogan that said, "Just because you can fax it to them doesn't mean they're going to do the same thing with it there that you do here." I was at the hotel one night and my wife would call me. It's 8 hours difference and it's very expensive to call out of Africa, and I noticed the front desk was not answering the phone. So at 1 o'clock in the morning I said, "Is there a reason you're not answering the phone?" He said, "Who would possibly want to call this time of the night?" So after a brief discussion, they now answer the phone at 1 in the morning. You know, it's a perspective. Technology has advanced so much in Africa that people do business like they do here, computers, cell phones. Our insurance group there is selling insurance over the mobile phone. You're seeing a huge difference. Banking is being done over mobile phones, so technology has just leap-frogged, really, in terms of the business community in Africa.
Russ: Well, I guess leap-frog is the right verb because apparently they're one of these countries that were sort of behind but are able to sort of leap-frog the requirement of a huge, massive infrastructure for communications and go right to leading-edge technologies.
Robert: That's correct. Satellite delivery of television, for example, is happening throughout the continent. You don't have to put the landlines in and the phone systems like you would here. So those things are making it possible for many countries to become first world in terms of the use of technology.
Russ: I would suppose that the fact that Africa was slow to start embracing capitalism and free enterprise, that they have probably potentially a low-cost advantage in some categories of business?
Robert: Well, labor costs are probably less in many places although there's a formal and an informal sector in Africa, and the formal sector is often burdened with historic trends that came from colonialism - expectations of compensation and titles and entitlements - so it's not always as cheap as you would think it would be. But there is a great opportunity to have productivity and there's a lot of natural resources including human beings as a resource that one can develop and make into very, very profitable business opportunities.
Russ: When you kind of gave me an overview of the continent and countries that are leading the way, there's still quite a few, aren't there, that have very unstable governments and conditions?
Robert: If we set aside the northern part of Africa for a moment, but go down to for example Sudan - our insurance group we have is actually looking at Sudan to maybe open an insurance company there. Even within all the confusion, there are opportunities, but clearly there's countries where democracy does not exist, where there are terrible things that happen to people, but that's not the face of all of Africa. Africa is vibrant and many parts of Africa are moving forward politically, economically, socially, and that's really the story that people don't here. You see too much of the news that shows you all the destitution, and really there's a lot more than that in Africa.
Russ: Real interesting. Now I'll say it once again, you've had a 20-year history. I know you have an Africa fund, a mutual fund. Sort of describe what sort of investments you've been managing and encouraging over the years.
Robert: Well, for the first 18 or 19 years, we did private investments, sometimes in public companies, where we took an active role many times in the management of the company or other business endeavors, and because we've run a New Zealand mutual fund for over 20 years, we decided to open a public fund in the U.S., and we have an Africa fund, that can invest in any public company in Africa. So we've been investing in companies that really deal with the middle class, for example we have a company called Shop Right Checker. Shop Right is a supermarket chain that's expanding throughout the southern reach of Africa bringing products and services very similar to what you'd find in a Houston supermarket, or insurance companies that are providing group term insurance or health insurance to what I call the formal sector in these developing markets - transportation, tourism. We've stayed away from just the resource companies so we don't have a lot of mining companies or things of that nature in our portfolio. We believe you can buy those without having to invest through our portfolio. So we're really looking for companies that will benefit from the emerging middle class that does exist in Africa and is growing very rapidly.
Russ: Okay, now when you describe one of these public companies, they're public based in what exchanges?
Robert: Oh, over 20 stock exchanges in Africa. Actually on our website, commonwealthfunds.com, we've tried to make it an educational website so if you wanted to look on that site, you could find access to every stock market in Africa. We have links to the different stock markets. We have links to things like the CIA fact page on every country. So we really use it to educate people about the African economies and marketplaces. Now South Africa has had a stock exchange for over 150 years so this is not new to them, and our stock in a hotel company in Malawi originally traded on the Nyasaland Stock Exchange which was northern Rhodesia. That goes back a long way. In fact, one of the fellows at our company there's granddad, I think, tells stories of Livingstone coming through there so, you know, there's a lot of history in that part of the world.
Russ: Real interesting. Now you're mentioning South Africa. Just recently we had a group from the DaVinci Institute from South Africa which is this institute focused on bringing up math, science, and technology innovation within South Africa, and apparently they're doing very well but they still think that they need some U.S. education and help potentially in understanding how to commercialize some of their technology. It was a very impressive group.
Robert: Well, there are a couple of things that I like to remind people. A lot of people talk about Africa being lost. No one in Africa has ever asked me for directions, all right? They're not lost. Now we just had a program at Florida Southern College in Lakeland, Florida - it's the oldest school in the state - where we had 15 mid-level African executives who came from a two-week I'll call it mini-NBA program. This just concluded about a week ago. Yes, there's a desire to see how we do things here. We certainly have a lot of knowledge base to draw on the U.S., but there is a huge opportunity in Africa to develop value-added products within the region and go from just a commodity producer to a product producer. A good example is, you know, you can product dairy and just have powdered milk. That's the low end of the curve. You can make whipped cream or you can make other products that come out of that that are much higher value-add - or ice cream for example - much higher-value products. So you're seeing that in Africa where it's going up the chain in terms of value-add in the product base, and they have a huge, huge consumer base in Africa. It dwarfs many other parts of the world and people don't realize that. It's a huge consumer base.
Russ: Well Robert, these sort of glowing reports make me feel even more so that our media over here tends to not want to show that or something because all that we ever see is negative stories about Africa.
Robert: Well, that's true, and it's frustrating for me because I know a lot of people in Africa. I know the success stories. I know the sadness too. When I take people to Africa, and I've now taken dozens of people there to go see it, I make sure they see the variations. You know, there's people that are in poverty, there is the sadness there, but our insurance group for example has a hospital full, a full-line hospital in Malawi, and you go in and you see the thank-you cards to the nurses on the walls, thanking them for the great service. Their local clubs provide help in the community. So you see the worst parts, you see the refugees in Sudan and those places, and that's tragic, but that's not the picture of Africa. I've taken my family there. I've been there dozens - I've lost track of how many times I've been there, to be honest. I've never been hassled. I've never had anything stolen. You can get in trouble anywhere in America if you want, okay, but it's not like that, and the people are genuine and it's just really a lot of fun to go there.
Russ: Okay. Now I understand, and with your experience in actually having this mutual fund, that you've created a 7 points of investing in Africa advisory document. Tell us about that.
Robert: Well, I think there's several things that you have to think about when you go to invest there. For example, taxes exist all the way around the world, you know, and so you start, if you're an investor to understand that. Now interestingly, their tax regimes are sometimes clearer than ours. For example, we don't pay two taxes on our dividends in Malawi. In many other countries in Africa, you pay a corporate tax like America and the dividends have no further tax. The second is to understand the regulatory schemes that exist. When I first went to Malawi and I asked for some information, it came back looking an awful like corporate documents in the U.S., why, because the British had set up the legal system there, so you to understand the regulatory climate. You have to understand the cultures, so one of the things I try to do is get out into the community. I happen to attend church in the U.S. - when I'm in Malawi I go to church, and as a part of that I get to meet people from different walks of life; and over the many, many years I've gone there, that's opened up other opportunities and knowledge base I wouldn't have had without being able to kind of immerse myself a little bit into the culture.
Robert: And then you look at things like education. When I was in Senegal one time, they actually asked if I worked for the CIA and I said, "Why?" "Well," they said, "you wanted to go visit our court system. You wanted to go to the university library." I went to the library to look at the accounting books, and which I found none, and that's when I figured out why I was having so much trouble because they were all economists. They had French economics but they viewed accounting as a mundane subject they taught in the polytech, not in the university. So you have to understand the education systems. You have to understand what's acceptable and what isn't in the local customs and you have to sometimes - I've had to learn to shut up, that's hard to do, but give it a chance to work. There are different ways to get to the same destination and you have to learn sometimes to adapt yourself. On the other hand, when we first had board meetings, everything is through the chair, so I ask you a question and you're at the board meeting, you don't answer me, you answer the chair. Well, that gets pretty hard to have open communication when you're trying to deal with people. We all laugh now at the board meeting and say the chairman gets no respect any more because of me but it's actually changed, and so you learn to do things different and that sort. So there's these sort of steps you have to take, and then you have to identify people you can trust and you can do that. I mean, we've learned over the years that by learning about people, by finding out what else they do in the community, their contacts, you can see a lot about a person, their family, how they treat their family, their friends, and I try as much as possible to get those first-hand observations, and it's not failed me to date by doing that because if you invest in a relationship, it's much harder for the other person not to deliver. So those are the kind of things we look at.
Russ: Very interesting. Now I know your business is investment, and investment advisory and stuff, but do you ever get involved in connecting African companies with American companies and that sort of thing as well?
Robert: Absolutely, in fact we've been a sponsor of the Texas/Africa Summit. The last one was held at Rice University last month. Those are great opportunities for American entrepreneurs and business people to interact, and you do not have to be a large company. If you think of Africa not as a market but as a customer, there are opportunities to do business in Africa for mid-size and small-size U.S. companies that are amazing. We have a Texas-based firm that did a couple hundred thousands of consulting work on a shopping center project. They didn't need them to build it but they were looking for someone to give them some additional best practices. This is about a $20 million center. They had a South African contractor but they were willing to have an American company on the team just to have a fresh look at some things. So there's those type of opportunities. Import activities are possible. Educational activities, that's a business in America and just as I mentioned, we brought the people over here to go through the course. We've done several of these and they pay tuition to come here, and it's a business opportunity for American educational institutions. So there's a host of business opportunities to be found within Africa because the businesses there are looking for contacts and relationship, and Americans are well-liked in most parts of Africa.
Russ: Really cool. I'm sure we have some viewers right now who might be interested in following up and knowing more. How do the y find your website?
Robert: Well, the commonwealthfunds.com is the one. If you look at the Africa link there, it'll have a lot of information on Africa. I think people will find it very educational and very helpful. Our company FCA Corp has been in business for 38 years. We're based here in Houston. We're at the corner of Beltway 8th, 9th, 10th in the city center, which we really enjoy being out in that area, and we also have a website for fcacorp.com.
Russ: Okay. Well, Robert, I really appreciate you opening our eyes to doing business with Africa.
Robert: Well, thank you for inviting me in.
Russ: You bet. That's Robert Scharar, the president of FCA Corp, and this is the Businessmakers Show, heard on the radio and seen online at thebusinessmakers.com.