Bob Geldof on Investing in Africa

Bob Geldof has a sales pitch for Africa.

The humanitarian, private equity investor, and former rock star describes investing in two vineyards in Addis Ababa, Ethiopia, and the transformation that he witnessed. “The management now is nearly all Ethiopian in the space of 18 months,” he said. “They didn’t have that knowledge [to operate a winery] before. Once you have it, of course they’re skilled, of course they’re talented, of course they’re intelligent. That’s it for me.”

Geldof became a leading figure in the fight against African poverty when he co-organized the Live Aid concerts in 1985. The event raised over £150 million for famine relief in Ethiopia. Now he chairs 8 Miles, a private equity firm that invests exclusively in Africa.

“As transformative as aid and debt relief [are], so too business on top of that is the ultimate transformation,” Geldof remarked during a Take 15 interview with John Authers of the Financial Times.

He rejects the aid vs. trade debate, saying that “one begets the other and eliminates the first one ultimately.” Live Aid was just “banging the drum” for Africa, he noted, but it created enough political goodwill to permanently lift people out of poverty through investment. “It’s self-evident if you encounter poverty at the egregious level that I met it in the mid-80s . . . that the only way to avoid this happening in the future is economic growth.”

Geldof originally envisioned using his profile to market Africa as an investment hot spot, as he doubted that the financial work would interest him. That eventually changed as he realized, “The world was economically expanding at an exponential rate and this one continent was being left out.”

Africa is a unique opportunity because it is a “blank slate.” A lack of investment left what Geldof terms “corkers,” firms poised to take off once they get capital.

At the winery, bottles were washed and labeled by hand before 8 Miles mechanized the process. Even with the extra production, the company still sells its entire stock because the market is large and untapped. Geldof believes Chinese ventures in Africa marked the beginning of what will be rapidly accelerating investment.

Tailwinds for Africa include the world’s fastest growing population, which is urbanizing and entering the middle class at one of the highest rates in the world. Rising labor costs in China are also spurring industrial investment in Africa.

Corruption in some states is a deterrent to investment, Geldof concedes, but he claimed that on average, Africa is not particularly corrupt. Although the continent’s status as the “resource mother lode of the planet” is important, he stressed that the extractive industries only account for a quarter of the economy.

“Agriculture is the basis of all the total African economy across the board. Not resources. Agriculture. Agriculture is the growth area,” Geldof said.

That is why 8 Miles acquired a stake in Verde Beef, which raises cattle for export — largely to the Middle East. Geldof hopes the Ethiopian company’s exports will top $100 million by the end of 2017.

There are constraints that hold Africa back. For one thing, infrastructure is insufficient. The price of electricity is much more expensive than in the developed world. Many firms also need investment in human capital.

“Ethiopia is the ninth largest cattle breeder in the world, but its beef is of a very low quality, so it only takes about a third of what Brazil and New Zealand get,” he said. “So we need to upgrade that and the skills to do that and the land around it. So yes, while we’re employing lots of people, the benefits that extend out through the family go on and on, and that’s what I’m interested in.”

Though 8 Miles has yet to sell any of its stakes, Geldof said he would be very disappointed if the firm’s internal rate of return does not end up above 25%. He realizes that earning a healthy return is an important part of his mission.

Why?

“One, you have to give as much money back to the investors to prove the model for a start; two, to allow everyone to make a living; but three, to improve the quality of life of the people who work for you, for skills transfer which they’re eminently capable of doing, and to build capacity for a country to be able to breath so [famine] doesn’t happen again,” he said.

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