Before arriving in Ethiopia, my only interaction with Africa was largely related to researching some macro numbers or hearing stories from other people who had traveled to the continent as a tourist or as a volunteer. Moreover, the media portrays stereotypical images of Africa, either showing a lone acacia tree (as pointed out by Simon Stevens on Twitter) or poverty without showing a balanced view of economic growth. These stereotypes reinforce that Africa is a country and not a continent with as varied fundamentals as in Europe. When Michael Silverberg (a writer at Quartz) asked Peter Mendelsund (an associate art director of Knopf and a gifted cover designer) about the prevalence of Acacia tree on each book cover about Africa, he pointed out laziness, which is both individual and institutionalized. He further mentioned that most American book designers tend not to know all that much about the rest of the world and that is why they resort to visual clichés. Risk-averse marketing departments further reinforce these clichés.
Unfortunately, these stereotypes prevail in investing too as media puts the entirety of Africa in one basket without recognizing the differences among countries. In the new world order, where Central Banks all over the globe are printing money, it has become more imperative to search for yields in all places, which essentially means turning over more stones while controlling for popular biases. I believe the best philosophy of investing in Africa comes from a fictional character of Captain James T. Kirk of Starship Enterprises instead from a popular investor. Just replace “Space” with “Africa” and you can understand the differences and nuances of investing in African countries.
“Space: the final frontier. These are the voyages of the starship Enterprise. Its five-year mission: to explore strange new worlds, to seek out new life and new civilizations, to boldly go where no man has gone before.”
I believe that RENEW’s modus operandi resembles Captain Kirk’s statement. Instead of being based in Washington DC and occasionally visiting Ethiopia, RENEW has boots on the ground; employees who turn over many stones to find ideas while increasing the probability that the investment opportunity RENEW decides upon is actually promising and will turn out to be good. Based on my prior work in emerging and developed economies at multiple private and public equity funds, I learned the lesson to invest the same amount of time you spend looking at the Google’s and Apple’s of the world as you do with promising ideas in other countries — and no matter what you’re looking at, keep just a few in your nest to gain diversification and thus Ethiopia.
Ethiopia’s situation is as different from many other countries in sub-Saharan Africa as a comparison between an apple and a sheep. Africa’s big four are grappling with cheap oil, political uncertainty, depreciating currency and weak banks but that is as unrelated with Ethiopia as my previous comparison. Ethiopia shares the same continent with other problem countries and probably some problems too, but the country has different fundamentals than South Africa, Nigeria, Angola or Kenya. South Africa is set to grow by just 0.6% this year (source: IMF) with a currency that plummeted 30% last year as well as an ongoing political turmoil.* Nigeria is buckling under the low oil price as it relies on oil for 70% of government revenue and accounts for 90% of export revenue.* Angola is another victim of oil prices as it relies on oil for 95% of its government revenue.* Ethiopia’s neighbor, Kenya is relatively more resilient and diversified but has been facing troubles in its banking sector; the country has 43 banks, most of which have overstated profits and are facing the weight of non-performing loans combined with a big fall in deposits.* Although Ethiopia has its own set of troubles, none of them require relying on a commodity that fuels a significant part of its state budget. Real economic growth is projected at 7% between 2016 and 2025, which, according to the IMF, is due to Ethiopia’s heavy public investment into priority sectors such as infrastructure, agriculture, and manufacturing.** Moreover, strict capital controls support Ethiopia Birr’s value. I believe these are some of the factors that made me buy that one-way ticket to Addis Ababa.
As a stereotypical investment professional, when I saw the job posting by RENEW, I researched Ethiopia’s macro indicators first before pressing the “send” button. I could sense a similar pattern as I noticed in a few emerging markets' growth stories. I saw a fast-growing frontier economy with an emerging middle-class and a young population that demands products and services similar to their counterparts in other emerging markets. Moreover, I could identify with RENEW’s work ethics and decided to join the global team in July 2016. Ethiopia is a regulated economy that is still figuring out its place in the global trade. As the regulatory environment is focusing on cautious growth, Ethiopia’s on the ground situation feels similar to the China or India of two decades ago. The good part is that the country is eager to learn from the growth of other emerging countries and leapfrogging growth without reinventing the wheel. Despite fundamentals and precedents of other countries, the country and a majority of Ethiopian midsize businesses take their own time in figuring things out and move cautiously. I believe that is where RENEW plays a pivotal role in helping management teams and companies grow by considering an outside perspective, which could merge with local conditions to spearhead a potentially high growth sustainable company.
I have been enjoying my journey at RENEW and turning many stones with a talented local team to find opportunities that create social and financial returns. Moreover, I can leverage on my prior experience in operations, research, and investing to help businesses in Ethiopia grow. I believe the larger part of work satisfaction come from seeing companies employing more people and building livelihoods. There are many other trends and fundamentals that are worth learning about Ethiopia. I am taking my time to assimilate macro and cultural learning about Ethiopia to help our companies and investors navigate growth in Ethiopia, which I will share in the my next blog.
Renew Capital is an Africa-focused impact investment firm that backs innovative companies with high-growth potential. Renew Capital manages investments made on behalf of the Renew Capital Angels, a global network of angel investors, foundations and family offices who seek financial returns and sustainable social impact. For the latest on investing in Africa, subscribe and follow us at our social links below.