When Liberian Rubber Hits the Road
WHY YOU SHOULD CARE
AIDS, unemployment and seemingly limitless supplies of rubber gave Princeton professor Gregory van der Vink a big idea.
In our occasional ¿por qué no? series, OZY looks ahead and asks “Why couldn’t this be in our future?”
Liberia has AIDS. It has unemployment. And it has unlimited quantities of raw rubber. You don’t need to be a Princeton professor to spot an entrepreneurial opportunity with social benefits there. Why doesn’t somebody build a condom factory in the tiny West African nation?
Gregory van der Vink, who teaches courses on environmental entrepreneurship at Princeton, came up with the idea a few years ago while brainstorming socially responsible business ventures in developing nations. He calls it a “triple bottom line” project: jobs, public health and profits.
He calls the condom plant a “triple bottom line” project: jobs, public health and profits.
Van der Vink’s company, Terrametrics LLC, has been trying to get the condom plant off the ground for two years now. He says the idea offers a cornucopia of pluses, not only for Liberia but also for the United States. Besides the obvious job-creating and AIDS-fighting benefits, the project qualifies for special treatment by the U.S. government, because the State Department views Liberia as a “favored nation.” That means the condom factory should qualify for targeted federal loans and tax breaks, van der Vink says.
Still, the Terrametrics board of directors has encountered nothing but brick walls in its pursuit of seed money. It gets sympathy sometimes, but no cash.
“These venture capital guys hear ‘Africa,’ and it’s terrifying to them,” van der Vink says. “They might invest in large organizations that are already in place. But startups? No.”
In fairness to the VC guys, Liberia is, by some accounts, a treacherous place for outsiders to do business. For one thing, the nation has a serious image problem, after its brutal civil wars and the conviction last year of its president, Charles Taylor, for aiding and abetting a bloody rebellion in neighboring Sierra Leone. Not exactly a place you’d feel comfortable parking your 401(k).
Arjuna Costa, director of investments for the Omidyar Network, actually invests in Liberian enterprises. Yet he adds that commitments tend to be evanescent, and the rules can be straight from Lewis Carroll’s Queen of Hearts (“Chop off their heads!”).
“Take land titling,” Costa says. “You move from, ‘I’ve got a signed lease’ to ‘Where’s your permit to build?’ to now you have to carefully move out a single squatter. That’s a year of work.”
But Terrametrics officials say they’re shielded from all that. They may not have the full support of the American investment community, but they have Liberian friends in high places.
The condom project figures to cost $10.2 million, according to the firm’s projections. Van der Vink says it needs about $4 million to start, with the prospect of the Overseas Private Investment Corporation (OPIC), a federal loan program, picking up the rest. The big question is: Where’s the $4 million seed money (without which OPIC won’t get involved) going to come from?
How about the influential American do-gooder establishment?
Socially responsible investment (SRI) has been a popular liberal cause since the 1960s, when the baby boom generation embraced the idea that capitalism could be refashioned to advance positive social goals. The mantra was: Do well by doing good. College students, church groups and enlightened investors helped bring apartheid to its knees in South Africa by pressuring pension funds and large universities to divest from companies that did business there. Companies that profited from the Vietnam War, like napalm manufacturer Dow Chemical, also found themselves under pressure from investors.
Soon, though, it became a matter of not only punishing the irresponsible but rewarding the responsible. Corporations made themselves more inviting to investors by lending money to minority and women-owned businesses. More recently, asset managers have put together funds that invest in companies promoting environmental sustainability. The trend continues. According to Kiplinger.com, there are now 493 SRI mutual funds with assets of $569 billion (up from about $12 billion in 1995).
But giving money to a company in Africa with big, progressive ideas? That’s a horse of a different color.
Van der Vink and associates have been to foundations, charitable funds that invest in Africa and SRI venture capitalists. The standard reply has been that they don’t do startups. Or if they do, they don’t do small projects.
The plant would bring a plentiful supply of the most effective weapon for stopping the spread of AIDS in Africa: old-fashioned rubbers.
What makes it especially frustrating is that Terrametrics is tantalizingly close to being able to pull it off. Tubman University in Liberia’s Maryland County has offered Terrametrics a 10-acre site on its own campus, complete with power lines and water access. The university is also providing technical assistance from its Rubber Technology Institute, a U.N.-funded study program. Terrametrics has a construction company that specializes in building condom factories standing by.
The Liberian government has gotten behind the project, too, with President Ellen Johnson-Sirleaf taking a personal interest. In a ceremony in her office two years ago, Johnson-Sirleaf, who with two other African women received the Nobel Peace Prize in 2011 for their advocacy of women’s rights, handed van der Vink business-registration documents for the plant.
Liberian-born entrepreneur Chid Liberty, whose firm Liberty and Justice runs garment factories in Liberia and Ghana, says there’s actually plenty of capital poised for investment in sub-Saharan Africa. “There are a lot of people interested in investing specifically in Liberia,” Liberty says. “It’s just a matter of putting the deals together.” But the problem here may not be lack of potential investors.
“It’s sounds like the easiest thing in the world to raise capital for,” Liberty says. “The margins on condoms are ridiculously high; raw materials are abundant in Liberia; it’s environmentally positive.”
The drawback may be that the site Terrametrics has selected is far from the hub of the Liberian business community and major ports. “It’s a really remote area. If you need spare parts for your machine, it’s a two-day drive to any major city, probably more in the rainy season.”
Liberty says would-be investors who are pitched the condom factory project go quickly from enthusiasm to, “Ahh, not with my capital.” The government likes the project because it would bring jobs to an area where there are few jobs. “But they don’t have a dog in that show,” he says. Liberty’s suggestions: Move Terrametrics to a site in Monrovia.
Toby Kasper has worked in HIV/AIDS and reproductive health internationally for more than a dozen years for a range of major international organizations. He says Terrametrics may also be facing stiff competition from Asian condom manufacturers, which could deter investors.
“It’s not clear that a new factory in Liberia would be able to make condoms for lower prices than existing firms already do,” Kasper says.
Liberia currently exports its huge rubber crop while importing rubber products. The condom factory would be the nation’s first instance of value-added production using rubber.
But van der Vink insists there’s a built-in market for Terrametrics’ condoms. In fact, the firm has commitments from condom distributors to buy Liberian condoms.
The payoff for Liberia, van der Vink says, should be about 400 new manufacturing jobs, a new market for independent rubber producers and plenty of work for Liberia’s community of rubber tappers. The enterprise would also bring a plentiful supply of the most effective weapon for stopping the spread of AIDS in Africa: old-fashioned rubbers. That could be the biggest payoff of all. Like other sub-Saharan nations, Liberia has been hard hit by the disease, with 1.5 percent of its citizens between the ages of 15 and 49 having either AIDS or HIV.
Liberia currently exports its huge rubber crop while importing rubber products. Anything from latex gloves and baby pacifiers to tires and, yes, condoms, come from elsewhere, probably using Liberian rubber. The condom factory would be the nation’s first instance of value-added production using rubber.
At this point, Terrametrics is negotiating with Liberian governmental agencies for a partnership agreement – either a government-supported investment bank or the country’s social security system, which sometimes invests in projects.
Has the Terrametrics board come close to throwing in the towel?
“Not at all,” he says. “We expect to identify investors by mid-November.”
You have to have a thick skin to do business in Liberia, says one person involved in business projects there (who asked not to be named). “It’s brutally difficult.” Van der Vink may be just the man for the job.