<h1 style="text-align:center;">Rethinking Risk and Return</h1>The New York Times reported Friday in an article entitled, <a href="http://www.nytimes.com/2008/12/13/business/yourmoney/13wealth.html">It’s the New Economic Reality. Work With It.</a>, on the lessons that wealth managers are learning from their failed risk assessments and troubled portfolios:Very few believed a financial disaster like the one we are living through could actually happen, according to a forthcoming paper by Robert Seaberg, head of the wealth planning group at Citi Global Wealth Management. Or put another way, the risk models that high net worth and ultra-high net worth investors trusted to insure their portfolios failed.Seaberg discusses four overall lessons that high net worth individuals and their wealth managers should be taking away from their recent losses. Among them, he urges HNIs to “redefine a safe investment” and “diversify more broadly.” Specifically, “Mr. Seaberg said investors now need to look outside the United States and Europe to emerging and frontier markets in all aspects of their portfolios to create the greatest diversification.”In other words, while investors are doubling down on Treasuries as a safe place to wait out the storm in the short term, the smart money will not stay there, particularly as the yield for Treasuries dwindles to almost zero. Rather, HNIs and funds should seek out new and growing markets, like Africa. While these markets carry risks of their own, they are subject to a different set of risks, some of which can be offset by careful due diligence and local representation.At RENEW, we aim to provide HNWIs and funds with the option to diversify their portfolios, thoughtfully and strategically, beyond U.S. and European markets, while at that same time offering the prospect of demonstrable positive impact on the local economy and community as a result.

Very few believed a financial disaster like the one we are living through could actually happen...

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Rethinking Risk and Return

<h1 style="text-align:center;">U.S. Investors Offer Something Different to Africa</h1>“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.

”It’s about time. Where have you been?”

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U.S. Investors Offer Something Different to Africa

<h1 style="text-align:center;">Building a Global Company During a Tough Time</h1>To be sure, a recession poses plenty of challenges to a young company like RENEW. Many investors will hunker down and focus on businesses and business models with which they are comfortably familiar. But, as Daniel Roth of Wired writes <a href="http://www.wired.com/culture/culturereviews/magazine/16-12/st_essay">Back to the Garage: How Economic Turmoil Breeds Innovation</a>, the instinct to turn insular during economic difficulty leaves the playing field wide open for up-and-comers:With the world’s economies apparently snowballing into a deep recession, it feels uncomfortably Pollyannish to see signs of hope. But for the bravest inventors and entrepreneurs, conditions are ideal to pounce on a business opportunity. In periods of economic turmoil, people are hungry and work cheap, and entrenched companies often concentrate on in-house cost-cutting instead of exploring new markets, which can explode with the next turn of the business cycle. When VCs from Foundation Capital met with their nervous investors recently, the partners advised them to stay the course rather than follow their peers into the bunkers. “Our strongest companies have the potential to be whales when the market opens up,” partner Paul Holland told the group. “This is the crucible that forges great companies.”Between a Wall Street full of talented people tasked with selling junk and a development field searching for a way to kick its aid addiction, the RENEW team sees tremendous opportunity in linking investors searching for solid businesses with entrepreneurs searching for the capital and management expertise they need to grow their businesses.Impact investing, currently regarded as a niche market, will not stay that way for long. As Western economies emerge bit by bit from economic turmoil, solid businesses in new markets are becoming viable candidates to enter the global economy as fast as RENEW builds the mechanisms to plug them in.

To be sure, a recession poses plenty of challenges...

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Building a Global Company During a Tough Time

<h1 style="text-align:center;">Developing Critical Thinking Skills</h1>Observations here in Uganda continue to confirm our thoughts about the value addition RENEW offers to businesses in Africa. Our ability to provide management consulting expertise to growing enterprises is not only sought after by our partners, but by the local leaders whose businesses they fund. Many business owners and local executives are desperate for a management-class workforce here in Uganda — managers that understand and apply analytical thinking to solve the many problems that arise daily in the developing world as a business grows. Electricity shuts off, orders change, a machine breaks down or a customer asks for something other than what is exactly on the menu of offerings. When this happens you will almost always see operations and customer service come to a screeching halt. An innovative solution or answer to either fix the problem or meet the needs of a customer is hardly considered and rarely conceived. The result? The hallmarks of “brand Africa” — poor customer service, poor product quality, inefficient operations and missed deadlines.One could argue that part of this problem starts very early in the development of the working class. Local education often requires students to memorize information, including tables and equations. Rarely are students pushed to understand the why and how behind the information they are given. Students are rewarded on standardized exams. There is only one right answer, never partial credit for understanding the logic needed to get to the answer. Years later, these issues show up on the streets of Kampala. It is very common to find ten identical businesses operating side-by-side one another; always eager to replicate, rarely able to innovate.Instilling analytical thinking and problem solving skills in management teams will undoubtedly increase a company’s ability to provide excellent customer service in a world where meeting the needs of each customer can make the difference in a company’s success. These thinking skills can no longer be confined to the front office, but must find their way to the production floor. When this happens, middle management will gradually shift away from acting as task drivers over their staff, to focusing their time on developing ideas and plans for improving numbers, beating targets and developing their employees.But there is a paradox. The answer to “how does an executive instill analytical thinking into middle management?” points to the management systems. The executive and his or her team must move away from putting out daily fires and reinvent the management systems. If this is done properly, you will no longer hear “if you want it done right, you have to do it yourself,” or “when I leave everything stops. I can’t get away,” coming from the front office. A true management system anticipates problems and develops options for middle management to follow in order to meet them. Middle managers become empowered to make decisions, while executives focus on creating and enhancing the systems. Their focus becomes increasing on gaining market share and meeting new customer needs. Analytical thinking doesn’t develop overnight. Entrepreneurs that start successful businesses have it. They must use that thinking to develop systems that allow the managers to operate in an environment that anticipates problems, provides options and allows the business to live. Thus the paradox: like local education, the executive must shift their focus away from providing their staff with the answer, and move toward developing a system that empowers them to choose options given a number of variables.Helping executives to accomplish this shift is RENEW’s passion. More to come…

Observations here in Uganda continue to confirm...

Developing Critical Thinking Skills

<h1 style="text-align:center;">Innovating Investor Options By Going Back to the Basics</h1>Last month, Warren Buffett, writing in the <a href="http://www.nytimes.com/2008/10/17/opinion/17buffett.html?scp=3&amp;sq=buffett&amp;st=cse">New York Times</a>, counseled investors to ”Be fearful when others are greedy, and be greedy when others are fearful. And most certainly,” Buffett continued, ”fear is now widespread, gripping even seasoned investors.”Investors’ new-found caution is an important corrective in overheated markets flush with capital but short on solid, grounded analysis. The flipside, of course, is that opportunities missed during the “greedy phase” come into focus when events force a re-valuation of the market. That applies to investors and businesses alike, says Steve Prokesch in his Harvard Business Review article, Recession: The Mother of Invention? Writes Prokesch:"I was astonished to learn how a number of enterprises outperformed competitors and actually grew during [the Great Depression] by excelling in understanding and satisfying customers’ changing needs… What lessons can managers glean from the 1930s? The main one, of course, is that the current wave of market upheavals and shifts are providing opportunities for innovations and growth."One of the areas Prokesch highlights as ripe for innovation is the ability to bring products and services developed for emerging economies to serve newly-felt needs in mature economies. (I’ll set aside for another blog post a discussion of how investors can create value in mature economies by investing in emerging ones - lots to explore there.)But RENEW’s approach to core services — the way we Find, Assess and Grow businesses in markets that are unaccustomed to thorough vetting – is itself an innovation, answering investors’ newly-felt need for rigorous, grounded analysis. As we work to establish RENEW’s Africa-based operations, our team in the field is designing systems and cultivating local networks that will reduce the cost of due diligence while improving its thoroughness.RENEW’s focus on overlooked businesses in unfamiliar markets means that we must find value in the fundamentals of each business we evaluate. RENEW sees no substitute for face-to-face, hands-on analysis. In fact, our business is founded on the premise that global investors will not engage seriously with small and medium enterprises in emerging economies until the need for quality information and clear, timely communication with these businesses is met.Our team sees the current economic downturn as an opportunity: the sooner investors in the West regain their focus on fundamentally solid businesses with significant potential to grow and change their communities for the better, the sooner these businesses will have a chance to prove their viability and gain the means to achieve their potential.

What lessons can managers glean from the 1930s?

Innovating Investor Options By Going Back to the Basics

<h1 style="text-align:center;">Want Encouraging News? Look to Africa.</h1>According to a recent article published in The Economist, Africa is expected to withstand the current economic decline better than many other parts of the world. Entitled “Opportunity Knocks,” the article appeared in the magazine’s October 9, 2008 print edition.The author comments that “Despite the litany of problems, the 48 countries of sub-Saharan Africa are, by several measures, enjoying a period of unparalleled economic success. And despite the turmoil in the world’s financial markets, international investors still think they can make money there.”“In 1990-94 annual GDP growth was a weak 0.9%; since then, growth has averaged closer to 5%. Before this autumn’s financial meltdown, the IMF was predicting GDP growth of 6.6% this year; now it is predicting only a slightly lower rate,” the article continues.

Africa is expected withstand the current economic decline better...

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Want Encouraging News? Look to Africa.

<h1 style="text-align:center;">Count Down to Uganda</h1> RENEW’s Matt Davis will deploy to Kampala, Uganda in late October, 2008 as the next step in establishing RENEW’s long term presence in East Africa. Over the next months, he will continue to build RENEW’s network in Africa, provide information services to the IAN abroad, establish and test impact investment metrics, source and coordinate opportunities, help grow investments, and work to increase the efficiency with which impact investment capital is deployed to East Africa

RENEW’s Matt Davis will deploy to Kampala, Uganda in late October, 2008...

Uganda

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Count Down to Uganda

<h1 style="text-align:center;">Benchmarking the Potential of Eight African Countries</h1>An interesting article entitled <a href="http://www.imf.org/external/pubs/ft/fandd/2008/09/pdf/fd0908.pdf">The Rise of Africa’s ‘Frontier’ Markets</a> appeared recently in the International Monetary Fund’s (IMF) quarterly magazine, Finance and Development. In it author David Nellor singles out eight African countries (Botswana, Ghana, Kenya, Mozambique, Nigeria, Tanzania, Uganda and Zambia) and benchmarks them against Asian countries that started to take off in 1980. The numbers (see table below) are pretty interesting. Nellor makes a strong, data-driven argument for why certain African countries are becoming “real” emerging markets.Here’s how the IMF determine whether a country is “emerging”:<ul><li>Has there been a takeoff in growth?</li><li>Is that growth led by the private sector, and has public policy embraced market-led growth?</li><li>Are there financial markets in which to invest?</li></ul><figure class="image image-style-align-left"><img src="/uploads/Benchmark_Photo_7ec72d93b9.jpg"></figure>

Here’s how the IMF determine whether a country is “emerging.”

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Benchmarking the Potential of Eight African Countries

<h1 style="text-align:center;">Investing in Unfamiliar Territory</h1>We believe that some of the strongest opportunities for financial growth and social impact currently exist in Africa. Contact us if you would like to define a strategy for investing in emerging African economies. Here are ten reasons to consider investing in Africa:<ul><li>African markets offer among the highest return on investment in the world. Nearly every African stock market index outperformed the S&amp;P 500 over the past three years in U.S. dollar terms—in most cases by a significant margin. A sampling of overall equity market returns in 2006: Botswana +34%, Cote d’Ivoire +17.7%, Ghana +109%, Kenya +18%. (Source: Barron’s</li><li>U.S. investors are behind the curve. According to the World Bank, sub-Saharan Africa’s economic performance over the past five years suggests that it may have achieved a milestone in its quest for sustained growth. Growth averaged 4.0% between 2000 and 2005, compared with less than 1% during the early 1990s. In 2006, GDP expanded by 5.6% in sub-Saharan Africa and is projected to climb to 5.8% through 2008. The Congressional Research Service reports that “the growth seen in the current period is less volatile and more evenly distributed among African countries than in the past.” Yet over half of the $19.6 billion total U.S. investment in this region is in the petroleum sector. Reuters reports that the U.S. is so far behind that it had little presence at a recent meeting of the mobile phone industry group, the GSM Association, to discuss a $50 billion investment in sub-Saharan Africa in the next five years. Many such non-extractive sectors are nearing a tipping point, ready for investment.</li><li>Multinationals are re-assessing Africa. Reuters reports that major U.S. companies watching Africa’s rapidly improving investment climate will be examining ways to increase their activity. Merck &amp; Co, Boeing Co, 3M Co, Cargill, General Motors, Chrysler, Hewlett-Packard and Coca-Cola were among the participants in the 2007 U.S. Africa Business Summit.</li><li>New opportunities are emerging in consumer industries. Brisk demand for the commodities that comprise traditional large-scale foreign investment in Africa—oil, mining, agriculture—is creating secondary opportunities in consumer markets. Banking, telecommunications and tourism are among the sectors receiving a boost; renewable energy has the potential to leapfrog infrastructure obstacles the same way mobile phones have done. (Source: MoneyWeek, Investec Asset Management)</li><li>Information gaps remain, even as investment opportunities multiply. “I think there is a lack of information about the quality of opportunities and potential that continues to exist in Africa within the American business community.” (Robert Mosbacher, President of the U.S. Overseas Private Investment Corporation, speaking to Reuters). Renew aims to bridge those gaps by conducting comprehensive business assessments tailored to the needs of U.S. investors.</li><li>RENEW focuses on areas where experts say African markets can make progress. Experience suggests that fund managers are leery of Africa for two primary reasons: 1) Markets are comparatively very small; 2) Investments are illiquid—it’s too difficult to exit. In their 2007 analysis of African capital markets, experts from the Center for Global Development chart the following path forward:“A long-term strategy for attracting equity investment should concentrate on increasing the supply of available securities—since demand will come naturally through the market. Increasing supply means tackling the barriers of small market and firm size to encourage the growth of more and larger firms on the continent. Solutions to increasing the size and scope of the African private sector must focus on improving the investment climate, reducing the level of risk and uncertainty, and providing greater means for small, indigenous firms to survive and grow.”RENEW mitigates risk, channels needed resources and provides the expertise that will enable promising firms to grow and compete globally.</li><li>The continent is opportunity rich. “Many ideas that have been tested in the developed world, like cell phones, are still novel in Africa. Good business ideas and capable management are [the elements] in short supply. Most institutional investors are still frustrated by the quality of the deals available.” At the same time, few market sectors are saturated with products or teeming with competition, leaving plenty of niches for new ventures. As a result, “differentiated products can command a significant premium.” (Kehinde Oyeleke, executive director of Asset &amp; Resource Management, interviewed by Knowledge@Wharton).</li><li>Africa boasts extraordinary entrepreneurs. Local versions of Apple’s Steve Jobs are changing the playing field throughout Africa by creating enterprises that drive progress. Adenike Ogunlesi built a winning clothing brand by mixing African fabrics with Western styles and fabrics. She’s grown her business to the point where her company, Ruff ‘n’ Tumble, is not only a leader in Nigeria but receives orders from WalMart as well. Ogunlesi managed to scrape together enough capital from friends and family; others like her need access to better options. (Source: Africa Open For Business).</li><li>There is a new generation of African leaders who understand the promise and possibility of business in Africa. Paul Kagame — President of Rwanda and winner of the 2006 and 2007 ICT Africa Award for his innovative use of information and communications technology—has earned the nickname “The Entrepreneur President” for his business and technology-driven plan for Rwanda. Ngozi Okonjo-Iweala, the former Finance Minister of Nigeria and currently a director at the World Bank, emphasizes reform, economic growth and business opportunity. “The best way to serve Africa today is to help Africans stand on their own two feet, to create jobs,” she says. Imagine if Africans did not depend on others to cure their diseases or educate their children. Jobs enable Africans to do these things for themselves. (Source: Forbes, TED Conference)</li><li>The big picture is getting better. Since 2000, more than two-thirds of African countries have had multiparty democratic elections. In the past three years, the average rate of growth on the continent has moved from 2.5% to 5%, better than many of the wealthiest OECD countries. Conflicts in Africa are down from an average of 12 per year a decade ago to three per year today. (Source: World Bank, TED Conference)</li></ul><figure class="image"><img src="/uploads/i_Stock_000005377907_FOR_Proposal_1_38668a1611.jpg"></figure>

We believe that some of the strongest opportunities for financial growth and social impact currently exist in Africa.

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Investing in Unfamiliar Territory

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