Defend Truth


Doing business in Africa – how hard can it be?

Educated at Oxford University, Steven worked British Council, Seoul, South Korea before returning to UK to complete his MBA at Durham University Business School. He moved to South Africa from Kenya in 2003. Since 2006 he has focused his attention on the emerging private health industry in Africa and is responsible for bringing forward the currently distressed 160-bed hospital project in Lusaka, Zambia with another 200-bed facility planned for Luanda, Angola.

I thought I had the answer to that one. After years of tripping into Zambia and signing up clients I thought I knew pretty well how the place worked. That was four years ago. I was wrong.

I’d recently succumbed to the mid-life crisis thing which almost cost me my marriage and decided that a drastic change of direction was needed. One result of the saga was that I also had the proceeds from the sale of my UK property which gave me a chip in the game. 

Zambia is a country of some 11.5 million people with 1.1 million in the capital Lusaka and the popular conception is that this is where the money is spent. So what business direction to take? In terms of market entry the basics of supply and demand must surely apply and in terms of fundamental needs the two infrastructural essentials for an economy to grow are education and healthcare. Small wonder then that both IDC and IFC prioritise these sectors and have dedicated related departments focussing on private health for Africa.

Thinking back from a personal perspective, both of our children were born in Nairobi and as a family we know how important it is to ensure quality healthcare both at the time of the event itself and beyond. After all, 14 hours of labour assisted only by gas and air and left unsupervised while the obstetrician went off home to let in her housemaid and then got stuck in traffic on the way back is not something anyone would wish for, let alone tolerate in the First World.

Without adequate health and education infrastructure an economy cannot develop efficiently. Investment becomes transitory and wealth is expatriated to more mature economies, which in this instance means South Africa. In the case of Zambia, large multinational companies house their senior personnel’s families in Johannesburg, typically in compounds such as Dainfern and Fourways Gardens, where they can be sure of access to good schools and medical facilities, while typically dad commutes regularly to his place of work on the Copperbelt, at considerable additional expense due solely to nonexistent local infrastructure.

In the case of Lusaka there were four international fee-paying schools, but crucially no international-standard hospitals such as in South Africa. Everyone who could preferred to buy a ticket to Joburg for treatment rather than risk something going terribly wrong locally. And the stories are legion, from misdiagnoses to lack of available medicines, complications and mistakes in procedures, sometimes fatal. In one particular case, an Australian tourist had been treated for water on the lung and instead of removing the water, doctors missed the lung entirely, and unfortunately drained his stomach instead, killing him. Then and there I made my decision: I would bring a South African-style hospital, make a difference and build a great business.

It took a while, but my knocking on doors in Joburg paid off and I secured the backing of the Industrial Development Corporation, which was willing to provide very generous funding required to bring modern health infrastructure to Zambia. Together with the professional support of a health management company and South African experts, we put together a multidisciplinary hospital of 160 beds with ICU, full MRI and CT diagnostics, five operating theatres and all the bells and whistles a modern facility requires. 

I was feeling very optimistic. My life was changing rapidly. What was it about Africa that gave everyone such worries? We were going to make a difference and launch a radical new approach to healthcare in Zambia which would put us, and more importantly myself, on the map.

From the South African side it was all about presenting the business case, verifying the market for private healthcare and obtaining the response of “seizing the opportunity”. A lot of good faith work was done at risk – such was the belief in the business model for a flagship hospital in Lusaka which would then, with the support we’d obtained from a leading SA insurance provider, become the referral centre for the Central African Region.

So, following a presentation to would-be investors in Lusaka, I jetted off to join my family in Europe for our annual holiday. I remember I was in deepest France in wine-rich Bourgogne when I received a call from the estate agent in Lusaka to tell me the ideal location I had placed an offer on would soon be lost as someone else was bidding.  I requested a 48-hour window, booked my flight and closed the deal.

The land was a prime 10-acre site on the turnoff roundabout to Lusaka International Airport. The planned ring road was earmarked for construction about 400m up the road which would ensure easy access from all the surrounding suburbs.  Not being a Zambian and unable to purchase property directly, I registered a company to own the land (Lusaka Premier Health Clinic Ltd.) with one of my former clients who ran his own law practice and awarded him a 1% shareholding success fee in lieu of legal fees. The land cost $1,100,000 and I was only able to put down, by way of a foreigner’s loan to the company, the 10% deposit which according to Zambian law meant that I had six weeks to come up with the remaining $990,000 or lose my savings.  Not only that, but I needed environmental impact assessment, international investor’s license, planning permission, ministry of health approval, the list goes on. The right local partner was going to be crucial and this is where business in Africa’s less-regulated environments becomes self-serving, incestuous, and extremely messy.

I approached the National Pension Fund, various banks and insurance providers. I drew a blank for reasons of bureaucracy, timing and the “what’s in it for us?” factor. I did manage to structure a deal in collaboration with a South African finance house which had a local partner in Zambia, but the arrangement was so protective of the SA bank’s interests it burdened the project and effectively meant the land (the only asset at the time) would almost inevitably become forfeit. Besides, time was running out and I had no options left. It was at this point that I was introduced to the chairman of Zambia’s largest indigenous bank, Finance Bank of Zambia. 

Rajan Mahtani ruled over a local private business empire which had included, not only the bank, but insurance, leasing and property holdings. His organisation being so well-connected, it was one of the very few business contacts able to cut through the red tape to get the various approvals. He presented himself as the white knight coming to the rescue and willing to partner with IDC to bring forward the hospital. They say if something seems too good to be true, then it generally is. Yet by then I had no choices. I accepted his offer and played along. 

It took us a year from gaining IDC approval in South Africa to satisfying their conditions precedent locally in Zambia and construction finally started in the third quarter 2009 when the first tranche of money was drawn down. In the event, the magnanimity of Mahtani very quickly faded away and the sheer greed of the man become startlingly obvious. Despite his furious protests to the team’s requests for payment along the lines of how unappreciated his assistance was, the repeated rants about his integrity and even having to listen to details of his support from the Almighty, he continually paid late and short. Finally, when everything came to a head, he exercised his power to withhold and held the project to ransom. By the time the IDC had declared default and Murray & Roberts suspended work, 25% of the construction was complete with foundations and pipe work intact and an impressive array of columns and gantries, but virtually all of that investment had been sourced from the IDC’s loan. To add insult to injury, the IDC tried twice to renegotiate a rescue arrangement with their local equity partner and each time Mahtani proved unreliable. It then transpired he had been in negotiations with hospital companies looking to invest in Africa so he could sell off the project on a forward-pricing basis while under construction and make a killing on the back of the foreign investment capital.

Unfortunately, this is all too often the way business magnates such as Rajan Mahtani have learnt to operate. It’s the OPM (Other People’s Money) principle and it seems now Mahtani had no real intention of completing the hospital. He issued promises in the form of guarantees which he failed to honour to keep things going as long as possible.  The longer he could maintain momentum without committing his own money the more valuable and attractive the development would become. Alternating between bluff and threats, he kept raising the stakes until finally, when the situation became too hot to handle and his failure to honour his commitments and pay his share became untenable, the impasse was reached. 

By this time, of course, the arrival of the new international South African-style hospital was the talk of the town and approaches were being made by doctors (both locally and abroad), the nursing association of Zambia, radio stations and even the tourist office, all of whom saw the facility as a great leap forward for the economy and the Zambian health infrastructure. The value of the land had also increased as a result of the project and a mini-economy was in the process of springing up on the back of the new health infrastructure it represented on the airport node.

A year later this situation has not changed and IDC remains committed to bringing the project to fruition, albeit providing that new willing partners are found to take up Mahtani’s shareholding. 

These are willing and ready, but again sheer greed is the sticking point as the price for walking away, even though he is in default to the tune of several million dollars, remains too great. Thankfully, time is running out as litigation is being brought to bear which will declare the hospital company insolvent and a restructuring will have to be put in place. By then and only then will Mahtani probably revert to type, graciously agree to be reasonable and allow the people of Zambia to benefit from decent private healthcare.

So, in terms of business ethics and culture, why should doing business in Africa be so difficult?  The needs for the results of it are definitely there and the will to provide is also there as in the case of the Lusaka hospital is the availability to pay for private healthcare. I have touched on the greed factor and that is hugely prevalent, as is the preference to expatriate profits to existing developed economies rather than reinvest in the infrastructure. Until that stops the vicious cycle will continue. Moreover, the process is helped by the relatively unregulated environment which allows short cuts to be taken and, of course, the corruption which goes with it. 

But it is deeper and more ingrained than this. I am reminded of the old restaurant anecdote in which a Cape Town fisherman gets a contract to send fresh lobsters to a top Johannesburg hotel. When they arrive he receives a call to confirm, but the chef tells him it’s a miracle they are all there because he forgot to put a lid on the box and the lobsters could have escaped. “Not at all,” replies the fisherman, “I’m saving you money by leaving the crate open – and don’t worry, when one of them climbs to the top ,the others make sure to pull him back down.” 

Business in Zambia is very much like this and magnates such as Mahtani make sure it stays that way and he retains control. In my case I offered him what I considered to be “a project on a plate” and, instead of rewarding the provider, he not only took the project, but the plate as well. Why? Because he could, and there was no recourse to be had. This is all too often the nature of doing solo business in Africa. Powerful and politically connected parties are able to move with relative impunity as long as their alliances are intact or until a change of regime shifts the balance of their power base.

The Law Association of Zambia has more than 500 members in Lusaka alone and it is a very litigious environment. However, so much time is spent over the minutiae of the law and its interpretation that those people able to afford it can easily frustrate the process and delay indefinitely what ordinarily ought to result in a common sense outcome. The recently deceased former president Frederick Chiluba is a case in point. Tried in absentia in London and found guilty of widespread corruption and the misappropriation of funds, the trial was repeated in Zambia for ratification purposes and he was acquitted on a technicality despite his widely known corrupt record.

Under the former president, Levy Mwanawasa, Mahtani enjoyed privileged status and protection, but Zambia is a small community and in his rise in business Mahtani seems to have stepped upon so many lives that these days he is virtually without allies. As chairman of Finance Bank he was famous for extending credit and then calling in the loan when the client concerned was no longer able to repay and seizing their assets by way of compensation. It happened to the developer of the Lusaka Radison Hotel which subsequently changed hands and was absorbed by Mahtani’s empire. The same thing happened some years ago to a local politician who took out a mortgage, over-extended on the credit and lost his house. Unfortunately for Mahtani that politician is now President Rupiah Banda and a great deal of investigation is being carried out into Mahtani’s formerly veiled business practices. There are charges of forged share documents, banking malpractice and the misappropriation of funds, among others. Mahtani is currently out on bail, has had his passport confiscated and is in and out of court regularly with his trial due to commence next month. He is no stranger to the judicial system, having served time in prison during the time of Chiluba over the alleged misuse of state funds in what became known as the Carlington Maize Scandal. 

The seriousness of the present allegations are seen in that Mahtani’s defence lawyer and former legal PA, Zaheeda Essa was herself implicated in the alleged charges and has since turned state’s witness against her former employer. None of this bodes well for the continuation of business and it is no wonder the IDC is looking for a replacement local equity partner to take over the hospital project.

On a personal note, I have no doubt the hospital will eventually be completed in the strategic site I secured, much to Mahtani’s annoyance at the time. It remains to be seen, however, how long it will take to unravel the mess he has left behind and recompense the various parties he has left unpaid. The good news for the future is that all the South African parties involved in the funding, design, construction, commissioning and management of the modern private hospital remain confident in its future.

One of the doctors instrumental in helping to bring this project to the level it is now has described the hospital development as “an Airbus A380 standing on the runway waiting to take off”. For myself, having invested so much of my time, energy and resources, but also for the people of Zambia, the region and for the general good of all it brings in terms of infrastructural health, I look forward to that day. DM


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