Q&A: Zain Latif, Principal, TLG Capital

As a regular feature of my blog, I will be interviewing investors in the frontier markets of sub-Saharan Africa, to better understand the ways that perceptions of political and social risks impinge on their investment decisions. First up is an interview with Zain Latif, a principal at TLG Capital, which is a private equity investment firm focused on frontier markets, especially in sub-Saharan Africa. TLG is targeting companies that are poised to benefit from the rise of Africa’s middle class and increased consumer spending—companies in the healthcare, real estate, food processing, and retail sectors.  For example, TLG owns a 12.5% stake in the Ugandan pharmaceuticals manufacturer, Quality Chemical Industry Limited (QCIL), which manufactures triple combination HIV antiretroviral and anti-malarial drugs, under license from the Indian drug company Cipla. TLG also owns a 40% stake in the Snapper Hill Health Clinic in Monrovia, Liberia, which was founded by Dr. Sirleaf in 1980 and survived the country’s civil wars.  I met Zain at a recent Columbia University conference on investing in Africa, where he participated in a panel on healthcare. He expressed a view I found intriguing: “When we invest in India we are considered visionaries. When we invest in Africa we are viewed as the Peace Corps.”

TLG Capital has made some interesting investments in the African healthcare space. What factors have driven your decision to invest in for-profit healthcare in Africa?

One factor is simply the size of the market. In Uganda the middle class is growing rapidly. In Liberia, 70% of its 4 million people do not have access to healthcare. People will get sick, so there is a market.  And in countries such as Uganda, there is a rising middle class, so people can afford to pay for it. The big question is how to price it so it is profitable.  That is, how do we price the product for the so-called “bottom of the pyramid.” Our investors need to make money.

We can lower the cost of the product if we lower the costs of production per person. For example, in the Snapper Hill Clinic, the largest cost is medical equipment. If you can bring in low-cost equipment the cost per person is lower.  We have secured agreements to purchase equipment at a lower cost from distributors. In terms of healthcare providers, we use local providers so those costs are relatively low.  We are also trying to get qualified personnel from Bangladesh. Right now, at Snapper Hill, there are about 20 primary healthcare providers.

Finally, we hope to scale these businesses regionally.  The intended market for the QCIL drugs is East Africa. We also hope to scale the Snapper Hill  model regionally throughout West Africa.  So we think about our potential market in broader, regional terms.

On your website you say that one of your investment strategies is to bring technology and expertise from India into Africa because of the similarities between India and Africa.  Can you elaborate?

The QCIL investment is a joint venture with the Indian drug company Cipla. We feel that collaboration with Indian companies has been really beneficial. I have seen several similarities between the Indian operating environment and Africa: a similar work ethic and similar challenges with infrastructure.  There is no question that these are challenging environments within which to operate businesses. Operating a business in India is useful preparation for operating in Africa.  On the other hand, we have struggled when we have tried to work with European management teams who lacked experience in these emerging market environments. For example, we exited an investment in a cancer care provider in Ghana that was co-managed by European partners.

 How does perception of political risk affect your investment strategy?

In my view, political risk and instability in Africa are over-emphasized. Political instability in emerging/frontier markets is one reason there is such a high return. So emerging markets are defined by political risk. One of our strategies to mitigate political risk is to focus on sectors where there is less exposure to corruption risks. The sectors we are involved in—such as healthcare—are not sectors where there is tremendous exposure to corruption through concession processes.  It is not like the extractive sector. We have strong political and government support for our investments in both Uganda and Liberia, so we are not overly concerned about political risk.

Al Qaeda threatens sub-Saharan Africa’s frontier markets

Though the risk of Al Qaeda attacks in the west has dramatically declined,  recent evidence suggests that the risk of attacks on targets identified as “western” has dramatically increased in several sub-Saharan African frontier markets: Nigeria, Uganda, Kenya.

On June 28^th, the White House released its new counterterrorism strategy, which emphasized that Al Qaeda’s affiliates in Africa pose a serious threat to western interests. Al-Shabaab, based in Somalia, threatens western interests throughout East Africa, especially Uganda, where the group struck last year. Interestingly, in an article by the insightful Ugandan journalist Charles Onyango Obbo, a Kenyan security source described Al-Shabaab as a “pan East African entity.”

The White House report also claimed that Al Qaeda in the Lands of the Islamic Maghreb (AQIM), based in Mali, endangers western interests not only in the Sahel, but also in northern Nigeria through its ally Boko Haram, which is responsible for a string of recent deadly attacks in northern and central Nigeria.

In addition to the White House report, on July 19 the Wall Street Journal reported that, under its new leader Ayman al-Zawahiri, Al Qaeda plans to focus on attacking U.S. and Western targets overseas, where plots are easier to execute than on U.S. territory.

The increased risk of Al Qaeda attacks in Nigeria, Uganda, and Kenya has many potential implications for investors, such as increased security costs– made slightly more complicated by the fortified British anti-bribery law. In Nigeria, the escalating threat from Boko Haram could pose a particular challenge to the pharmaceutical sector: Boko Haram has stated that it is opposed to western medicine and back in 2003, Muslim extremists, some of whom were associated with Boko Haram, opposed the expansion of a polio vaccination program in northern Nigeria.

What do Rwanda and Ethiopia Mean for Development Theory?

I’ve just published a piece in World Politics Review on what I call the “African Lions” and development theory. Rwanda, Ethiopia, and Uganda pose a challenge to theories of development that link political and civil liberties to human development. Alongside my piece, the World Politics Review has also published two really interesting essays on Rwanda and Ethiopia, with lots of on the ground reporting. Here’s a link to a free 30-day subscription to the magazine. I’m always impressed with it: they are publishing in-depth, analytical articles on international topics that are overlooked by the mainstream media.