Learning from the World - Mr Ayisi Makatiani & AMSCO

From online to helpline
Aug 3rd 2006
From The Economist print edition
Ayisi Makatiani is on a mission to promote development in Africa, one small business at a time

TEN years ago, Ayisi Makatiani would have burst out laughing if someone had suggested that he would end up working with the World Bank and the United Nations. An engineering graduate of the Massachusetts Institute of Technology, he was busy building his own business, Africa Online, which eventually became the largest pan-African internet service provider. But today Mr Makatiani uses his acumen to try to help the continent's other entrepreneurs. Since 2004, he has been at the helm of the African Management Services Company (AMSCO), based in Johannesburg. It is the brainchild of the International Finance Corporation (IFC)—the World Bank's private-sector arm—the UN Development Programme, and the African Development Bank. Its mission is to help small African firms become competitive.

It was a surprising move for an established entrepreneur. “My friends thought I was mad,” he chuckles. Ironically, his joining AMSCO was the result of a failure. For two years, he had tried to raise 300m rand ($44m) to launch Gallium, a private-equity fund for Africa. After leaving Africa Online, he wanted to use his experience to help companies in the region. But he got only half the money he wanted, and decided to drop the idea. While looking for investors, however, he had approached the IFC. They thought he was just the man to run AMSCO, and Mr Makatiani felt it was a chance to do what he had hoped to do with Gallium.

The Kenyan-born entrepreneur certainly understands the problems faced by African companies. While studying in America in the mid-1990s, he started Africa Online with two Kenyan friends. It began as a service distributing news from Africa by e-mail. “We hooked up two computers, one in Boston, the other in Kenya,” Mr Makatiani recalls. When they realised that there was demand for the service, they went on to create a web-based offering, and then rode the internet wave that was starting to sweep across the world. Africa Online was bought by Prodigy, an American technology firm. It began to provide internet access, as well as content, and expanded into other African countries, where it was often the first to offer such a service.

Setting up the company in Kenya gave Mr Makatiani a first-hand taste of some of the difficulties of doing business in Africa. Shortly after the office opened in Nairobi, powerful rivals leaned on the national telephone operator to switch off Africa Online's phone lines, paralysing the company. Mr Makatiani was determined to stay clean, though, and stuck to a simple strategy: “if you don't pay bribes, people don't ask for them.” Appointing a well-connected board of directors helped to shield Africa Online from further troubles. A management buy-out in 1998 and the acquisition by African Lakes, an investment company, two years later led to differences over strategy, and Mr Makatiani departed.

At AMSCO, he took over a troubled ship. Created in 1989, the company was making big losses and had lost its way. “It was trying to be everything to everybody,” Mr Makatiani recalls. He cut costs, sharpened the organisation's focus and got AMSCO back into the black. It could then concentrate on promoting economic growth by giving advice to other businesses.

The local private sector is increasingly seen as having an important role to play in Africa's development. Almost half of the region's economy is informal, and there are very few small and medium-sized enterprises (SMEs) to bridge the enormous gap between informal traders and large companies. Although aid agencies have long been involved in helping businesses, fresh initiatives are now proliferating. The Investment Climate Facility, set up to improve commercial conditions in Africa, was launched in June; last year, big firms with an interest in the region started Business Action for Africa, to look at how companies can help development; and the New Partnership for Africa's Development (Nepad) also has a business initiative.

Hands-on help
AMSCO's aim is to help small firms to become competitive at home and abroad by offering management help and on-the-job training. “Harvard takes young smart people and turns them into global leaders,” explains Mr Makatiani. “We want to take SMEs and make them successful.” He believes that for many African companies, the problem is often not money or ideas, but management. AMSCO selects struggling firms that have strong potential, where experienced managers can make a big difference. It is a non-profit organisation, but its services are not free. A foundation helps clients that cannot afford its services.

AMSCO typically hires one or two specialist managers to work at the client company, usually for three years. Around 225 managers from all over the world—including Africa—are now working with 120 clients in 21 African countries. It is not easy work. The first manager placed at the Hotel Nord Sud in Mali gave up after a few months, discouraged by the task at hand—but the second turned it around. At the end of the process, the client's own management is expected to be able to fend for itself.

Global Forest Products, a South African wood company, was losing money when it approached AMSCO. Outside specialists then introduced modern wood-processing techniques, helped develop new products, improved productivity and trained their successors. Today, the company is profitable. Patricia Mothibi, Global Forest's corporate development manager, says AMSCO's specialists have transformed the company's culture. “Long after they're gone, their skills stay,” she says. At Omnium Mali, a firm that makes environmentally friendly batteries outside Bamako, the technical manager sent by AMSCO increased production by 45% and reduced the reject rate from 5% to less than 1% in a few months, by training workers and improving procedures. A small dose of management, in short, can make a difference—not just to individual firms, but more broadly. As Mr Makatiani puts it: “By making profitable companies, you develop countries.”