by Kara Lilly, Mawer Investment Management
I had my first encounter with witch doctors in Africa.
Never in my life did I imagine Iād actually run into one. I had always envisioned them as characters suited more to fiction than reality. If they did exist, I assumed they were poor, rare, and lived in rural villages far removed from the rest of society. I never anticipated that they could have significant social influence or even be business savvy. At least these were my assumptions before I travelled to East Africa and saw their influence for myself. There they were onā¦ mainstream radio.
The world is full of businesses with little to nothing to add to society. Some even harm the world, like witch doctors. Yet many are attractively profitable. So what is an investor to do?
We tend to believe that companies that shouldnāt exist eventually wonāt. Whether a company has a competitive advantage today or not, if it does not provide genuine value to its customers, or if it actually detracts from society, it is unlikely to survive over the long-term. Either innovation will herald better substitutes or society will price it out of the market. Not always, but often.
Consider the witch doctor. Here is a business that can have competitive advantages and be relatively profitable. Well-known healers have brand awareness and an established client base. They service clients who are relatively uneducated, in a poor negotiating position, and typically have limited knowledge of, or no access to, the main substitute service (western medicine). Many successful witch doctors even have the means to pay for lengthy radio spots, which allows them to increase their own personal brand, as well as the services of the sector as a whole.
Yet these healers have an almost undeniably negative influence on the progression of African society. Traditional healers are primarily responsible for the propagation of the virgin myth, whereby HIV-positive men are advised to sleep with a virgin girl to cure their disease. Likewise, their advice has led to extreme cases in which albino men and women have been attacked because their body parts are believed to be magical. Even if most of their advice is relatively harmless superstition, this in itself is, frankly, a disservice to the very clients who they purport to serve and who are in genuine need of health care.
This is why we expect that most witch doctors will disappear over time. Not because traditional healers are inherently a thing of the past, but because they have failed to provide a service that is valuable to a modernizing African society. One need only look to recent radio focus groups to see this is the case. The most desired change the average listener would like to see on the radio? Kicking the witch doctors off the air.
Sometimes a business can meet most of your investment criteria and buying it would still make you feel dirty. In these cases, we suspect that the strange feeling in your stomach is not indigestion but a very useful red flag. That feeling is probably shared by others and likely reflects a truth that, while not easily verbalized, could still undermine the business. Morals aside, witch doctor businesses ā which provide no real value to the world ā probably have more embedded risk in them than we imagine.
Kara Lilly
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