U.S. Investors Offer Something Different to Africa
By Matthew Davis, CFA | Wed Dec 10 2008
“The U.S. wants to invest in Africa? [pause] Really?” Looking slowly over his shoulder, he leans in and whispers…”It’s about time. Where have you been?” These are not the words of one of the hundreds of small- to medium-size business owners RENEW has been meeting with. These are the words of a well-established business man who has worked relentlessly for years, and long since transcended the upper echelons of the Ugandan society. I have seen and heard variations of this same astonished reaction from many meetings with business men and women here in Uganda. Many are in no need of investment capital. They are not trying to impress me. They just want something different. They generally describe this difference in two forms. The first has to do with the U.S. brand. The U.S. brings with it standards and ethics like no other country in the world (these are their words). Other countries that have successfully been investing in Africa for years, don’t generally focus on raising the standards and ethics while simultaneously making profits. Rather they focus on the latter. This is understood, they recognize, but not optimal. I’ll save the elaboration on this point for a later post.
The second reason, which I will go into, is that the current approach the U.S. takes with Africa is not working (again, their words). U.S. resources, both money and people, flow into Africa in large quantities in the form of aid. The target recipients are the poor (a large and in-need group) and the government (a small group). We’ve seen results, true. But are they the best return on the dollar and manpower?
Well, let’s take a closer look at this equation. One can quickly see a critical sector that misses the direct benefits of these U.S. resources. The business community. One could argue (and some try) that business owners are a benefactor of aid through things like improved roads, clean water and electricity that the government provides. Take one drive around Kampala and you will have some questions. No. The reality is businesses fend for themselves. Being a capitalist I am OK with rough conditions; it drives innovation. But, for capitalism to succeed — and thus create taxes, provide jobs and build up a stable middle class — you need capital. So, banks start growing, and charging handsome fees to outweigh their risks. If a business is lucky enough to get a loan it most likely goes towards expenses that could be minimized by an effective government. Namely they buy generators to keep their manufacturing plants operational because electricity shuts off multiple times a day. They pay for vehicle maintenance because the roads rattle their cars apart. They pay for unhealthy and sick workers because waterborne pathogens and malaria are commonplace.
So, one could deduce that the current flow of resources into Africa has not targeted the one group that could potentially be the solution for advancing development, making it “sustainable”, and directly eliminating all of those wonderful problems that many NGO’s build their mission statements around. But, there is doubt in the voice of my affluent friend who is clearly wondering if this new approach will really happen - this “U.S. investing in Africa.” They naturally go onto to ask “How will you do it?”
For the past two years RENEW has been diligently trying to build a business-understanding of Africa. We recognized early on just how important it would be to “go slow to go fast” with this new approach. We knew that well before we could operate in Africa, we would need to understand our stakeholders’ wants and needs; we would need to have a strong formal and informal networks within each country to advise us, guide us and vet opportunities with; and we would need an information technology- and process-driven system that would make our operations efficient and cost-effective to the IAN. After over two years of focusing almost exclusively on working “on our business”, these three pillars (service, relationships and systems) have become the foundation of our operational model. And since RENEW has been operational in East Africa since October, this model has proven itself to be very successful.
With our fundamentals in place, we have been busy defining our country-strategies for Uganda and Kenya. Starting from the top, RENEW’s desire is to help build amazing businesses by using an investment approach that ensures both a financial and social return. This is done by directing U.S. resources (money and people) towards businesses with high growth potential. Although new, this model of market-driven development has been proven to be successful by many other brilliant scholars, and continues to be written about in the news. Therefore, I will not go into unpacking the details of this model here, but rather say RENEW is focused on putting it to work.
We are looking along strategic supply chains like healthcare, agribusiness, land development and energy. We seek out the ethical, visionary and strategic. In just under two months RENEW’s business model has borne fruit. We have found some diamonds in these rough middle markets, and it is time to change the hesitation in the voice of our affluent, local friends by showing them that the U.S. is ready for change—that we see the potential and that it’s time for a new equation. One that bring ethics and standards with capital. One that is sustainable. One that works.