Entrepreneurs should be watching Africa

May 9, 2012: 1:21 PM ET

Many investors and philanthropists still miss two important points about how and why many of the continent's investors are succeeding.

By Tony O. Elumelu, contributor

FORTUNE -- The turnaround of Africa's economy gets a lot of attention. Yet, despite a gradual evolution in thinking, many investors and philanthropists still miss two important points about how and why Africa is succeeding: African-led entrepreneurship is growing rapidly and needs to be encouraged further; and long-term capital commitments that build economic prosperity and social wealth should not be a niche asset class—they should be the heart of all investing in Africa.

I have called this development approach "Africapitalism," and its adoption as the driving force of African development is an urgent matter, not just for Africa, but for the world.

Africa's workforce will soon be the largest in the world. According to McKinsey & Company, by 2040, Africa will be home to one in five of the planet's young people and a working population of 1.1 billion people. Many believe this "demographic dividend" can fuel Africa's economic competitiveness, but it could also pose a huge global burden if that potential is squandered.

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Decades of charity work and tens of billions of dollars have failed to create economic self-sufficiency. And while investors have finally opened their eyes to the potential for making money in Africa (GDP growth is on par with the much-touted BRICs countries; equity returns are strong; and combined consumer spending exceeds that of Russia or India), they have yet to fully commit to the idea that concurrently creating social wealth is one of the best ways of ensuring the success of their investment.

I believe this africapitalist business model drove the success of United Bank for Africa (UBA), which started with the acquisition of a failed institution and a vision for democratizing Nigeria's banking sector. UBA became a leading pan-African institution because it created much-needed financial infrastructure, opened channels of commerce, and met tremendous untapped demand among "unbanked" and ignored consumers—all the while, creating jobs, wealth and substantial investment returns.

In agriculture, Africa has substantial underutilized arable land. Yet we are a net food importer with chronic food security issues. Rather than looking to charity for solutions, we should see this as an opportunity for African-led entrepreneurship to solve problems. For this reason, Transnational Corporation of Nigeria recently commissioned a fruit juice concentrate processing plant in Benue State, Nigeria, where previously 60% of the fruit crop rotted on the ground for lack of storage and processing capacity. Such downstream private sector investment can create employment, boost farmers' productivity and profitability, conserve foreign exchange, provide food security, and open new consumer markets domestically.

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These cases demonstrate, as do many others, that Africans know where development is needed and can take the lead in executing on those goals. For their part, African governments are helping by stepping aside and letting entrepreneurs do their beneficial work, with governments doing the work that only they can do: providing a stable, transparent, fair environment in which businesses can thrive.

More philanthropists need to sharpen their focus on Africa's competitive economic advantage, human capital, and private sector growth. Investors, both in Africa and abroad, need to realize that short-term investments focused on wealth extraction now put them at a competitive disadvantage. In the "new" Africa, economic winners solve problems and create shared value, generating sustainable growth and significant returns. By shifting development toward these approaches, Africa has the potential to leapfrog other emerging markets in industrial capital development, as it is doing in IT services, mobile telephony, mobile payments, and financial services.

I recently heard an American airline was considering building a hub for intra-African travel... in Spain. Why Spain, when Africans can do the job just as well, at the same time creating jobs and customers for the company's product in Africa? African entrepreneurs need to step up and lead the way, and foreign investors must be ready to be African-led—all investors need to think long term, and seek social as well as economic gains.

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During a recent week I was the keynote speaker at three venues in Washington D.C. – the World Bank President's Philanthropy Advisory Council, the International Finance Corporation, and the Global Philanthropy Forum. At each one I was asked, in one way or another, what advice I might have about Africa for U.S. and global investors. My answer: embrace the opportunity and the urgency of Africapitalism.

Tony O. Elumelu is the chairman of Heirs Holdings and founder of The Tony Elumelu Foundation, an African-based philanthropy committed to enhancing the competitiveness and growth of Africa's private sector; he is the former Group CEO of United Bank for Africa, and current Chairman of Transcorp.

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