Author: Sam Floy

Entrepreneur and author Sean Keough explains the need for a different financial model in developing markets

Overview

This is an episode which I really hope you stick with.

As you’ll have seen from some of the other episodes, I find that often the “unsexy” aspects of doing business in East Africa are the most interesting and important.

Financial modelling is not necessarily top of most people’s lists to think about, however, in this episode, Sean Keough puts forward a pretty compelling argument why you should.

Sean has worked in Ethiopia for many years and has been building up businesses in the country which haven’t previously existed.

He began with advising other companies on their growth and found that it was difficult to forecast what the impact would be of different business decisions.

Entrepreneurs knew the ins and outs of their business, but couldn’t run through scenarios of how external factors affect their business, and as such were running blind, and also not having the rigour to attract foreign investment.

Long story short, Sean has now written a book which takes entrepreneurs through how to model their business.

It’s available on Amazon by searching for the somewhat cryptic title of “Financial Modelling in Developing Countries”. You’ll also find a link in the podcast description: Financial Modelling for Developing Countries

The interview also allows us to speak more about the nuance of doing business in Ethiopia, one which is fundamentally different to others in East Africa owing to its closed economy legacy.

There are tons of insights here around the different dimensions of working in Ethiopia, as well as the life aspect of running a business in the region.

For more episodes from Ethiopia search for Ride Hailing and Takeaways in the archives, but now, it’s my great pleasure to introduce Sean Keough.

 

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It all started trying to attract capital

Helping foreign investors to invest in Ethiopia. Not possible to answer questions on the business in a way to satisfy investors.

Sean works on different

90% with EQOS (Ethiopia’s first business outsourcing business)
10% with EIL (Ethiopia Investment Limited)

Entrepreneurs know the ins and outs of their business.

However, they had difficulty in giving answers to why certain decisions were being made.

Example of wheat processing.

The root of the issue comes from foreign reserve currencies.

Ethiopia is different

Because it’s been a closed economy since the early 2000s there are certain business practices that are unique to the country.

The foreign currency reserves are key

There were lots of infrastructure projects (dams, railroads etc.) which require the use of foreign currency because there isn’t enough local currency to fund the projects. As a result, the rate at which Ethiopian burr is traded with, say, USD is much higher.

12 step financial model

The book helps you build and maintain your financial model.

Sensitivity analysis is the most interesting

Starting there helps Sean explain to the entrepreneurs how something like switching from a local to international distribution will affect their margins. Power of your decisions that you didn’t have before.

Net working capital is key

Is much more expensive than elsewhere. These are big hits on the cash.

Why?
1. More inventory needed
2. International payment terms take longer

Scale my own business slower

We didn’t have the processes in place to build up that quickly. More patience is required.

Message to investors on delays

We thought it would take X, in fact, it took Y, here’s what we’re doing to rectify. We generally half the project profit and expand the timelines by 3-5 times.

Our investment philosophy

Build businesses that will generate cash flow rather than to exit.

What’s changed the life perspective?

Harder, you work, the harder you need to rest. Getting quiet, getting solitude is really important to avoid burnout. The most stressful aspect has been managing the people. They’re counting on you to make the right decision. This comes from having enough.

One for One on the book

For every copy sold on Amazon Sean will give it to an entrepreneur in East Africa.

Lessons & Insights

Biggest lesson: should have scaled outsourcing business more slowly

Biggest insight: Ethiopian currency dictates how businesses should be modelled

Memorable quotes: Insights from a financial model will help you dominate your market

Links etc

Book: Financial Modelling for Developing Countries

LinkedIn: Sean Keough

Other podcasts on Ethiopia: Ride Hailing ( Localised Uber version – Ethiopia ) Takeaways – Food E-commerce Platform ( Ethiopia )

The Economist’s Africa editor compares East Africa’s development with the rest of the continent

Overview

In this episode I speak with Jonathan Rosenthal, the Africa Editor of The Economist.

Our paths crossed when I was back in London for a few weeks, and so we took the opportunity to meet, and speak about some of the continent wide trends which he’s seeing, from the vantage point of running the Africa desk for the magazine.

Most episodes you’ll have listened to on the show will delve into a particular aspect of running a company in East Africa. Teasing out the specifics of why a certain business decision has been made or not, or trends that are present within a particular industry niche.

This episode is slightly different.

Jonathan and I take a much broader look at Africa’s development through the lens of, say, government debt ratios and currency reserves.

Whilst this might seem a bit lofty, I’d encourage you to stick with it.

In listening to the other episodes you will (I hope) get an understanding of the micro level of business in the region.

To get a fuller picture requires, I believe, to understand the larger macro factors at play in the story of development.

One such example of this is the government policy of raising debt from local banks.  Because the interest rates they offer are so high, it distorts the incentives for banks to lend to local businesses. As such, this macro level effect of “crowding out” the private sector trickles down to the suppression
of local businesses looking for capital to grow.

There are also references to the macro trends that can come from the innovation of rooftop solar systems. If you’d like to learn more on this, be sure to check out the Distributed Economy episode with Conrad Whitaker from Azuri Technologies.

The interview took place at The Economist HQ in London which, helpfully, has a recording studio of its own. If you’re interested in hearing more from The Economist, be sure to check out their regular podcasts which feature updates, insights and in-depth interviews that expand on their stories.

 

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Former banking editor of The Economist

The editor was looking at more of a business/ finance angle rather than just people looking at dangerous war zones.

Africa is skewed by South Africa and Nigeria

The simple dissection of those two main economies with the rest of the continent is a way to identify growth patterns.  The price of oil is a big determinant of the West African economy.

Debt in East Africa

There is an interesting relationship between investment and taking on debt. If it goes towards productive use: great,  though some of the growth seems to be from unsustainable government spending.

Distressful levels of debt?

Public Debt: GDP. How much have government entities borrowed as a percentage of what you earn. Africa has what seem to be relatively modest levels (50%) compared to an international level (80-100%).

Interest rates are higher locally

This often means that the government is paying back a higher percentage of the (low) tax revenues that they generate which becomes a significant burden.

Problem: governments raise local currency

This comes from local banks. The T-Bill rate that I can get from the government is really good, and so why should I take on the risk of lending to local governments?

Result: local banks channels savings to the government which means that local businesses aren’t able to get

Suppression of domestic business growth

This is the result of incentives at play, and relatively shallow capital markets, which means that new companies have difficulty to grow.

Financial repression

This is a way out of the cycle: capping the amount of government debt local institutions can hold to force them to get their money out into the economy.

Intra-Africa trade is low

Difficult to measure, but the value of trade between nations is internationally very low. There are still non-tariff barriers.

Slow ports drives up costs

The inefficiency of containers sitting idle, the higher the cost, the less internationally competitive it becomes.

Africa missed out on textiles labour

There’s a path dependency in that a number of, say, textiles factories have set up in China, and so it’s less likely to move elsewhere. This is now moving.

The race against the machine

Can Africa industrialise before robots outstrip unskilled labour?  Some tasks are complex for machines to do still, and still expensive, and so the economics are still compelling to hire local labour.

African Central Banks have done very well

By and large there has been a professionalisation of financial discipline which has translated through to low and stable inflation.

Ideological opposition

To privatising aspects of institutions. Some believe in the China model of it being state led rather than profiteering private companies. The Economist is, as a general stance, in favour of the capitalist approach.

Lessons & Insights

Best bang for buck? Reduce the influence of a predatory state. i.e. instigate competitive, privately-owned port operators

Insight: “Africa missed the escalator of the original boom in textiles”

Opportunity: “Countries need to build stuff to grow (rather than relying on a service economy)”

Links etc.

Jonathan on Twitter: https://twitter.com/rosenthal_jon

The Economist Radio: http://radio.economist.com/

Big retail CEO Daniel Githua explains the role of supermarkets formalising the East African economy

Overview

Some of the biggest and most visible players in any country are the supermarkets.

They employ thousands of people, have a wide geographic presence and interact with many aspects of the economy through supply chains and products sold.

Tuskys is one of the biggest in Kenya, and East Africa, and in this episode I interview Daniel Githua the CEO.

The interview was pencilled in to take 30 minutes, but there ended up being so much interesting stuff that we continued recording, meaning it’s one of the longer episodes on the show to date.

I think part of the reason was the depth of insights that Daniel had, and the frankness with which he spoke about both opportunities and current downsides in running the business.

Some highlights from the interview include: the macro trends in formalising the retail sector in Kenya and how reaching new towns transforms the local economy, the biggest opportunities he sees for retail products across different categories, and how the market may change in the coming years, with the introduction of large international retailers like Carrefour and Shoprite

If you’re interested in other interviews about food and retail, look to episodes on Cooked Beans, Invoice Financing and especially on Coconuts which talks a lot about the struggles manufacturers have with payment terms when selling to supermarkets, something Daniel recognised that the retail industry has to address.

At times there might be a bit of shuffling, and sips of tea (the Tuskys staff were very accommodating) and so please excuse and slurps or shuffles which exist at the beginning – or at least when the tea was still hot.

 

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Accountant by background

Daniel started as an auditor with Deloitte. He then wanted to look at entrepreneurship, and considered the two companies Nairobi Women’s Hospital and Tuskys.

Tuskys is a mass-market supermarket

Furniture, clothing, amenities and fresh food. Currently 63 stores in the region, looking to grow to Ethiopia and the east of DR Congo.

My Mum is a milk farmer

She sells her milk to a local processor which then has it appearing on the shelves in Tuskys. For this, you need advanced IT systems and processes.

Tuskys began with a small grocery store

A few hours from Nairobi in Nakuru. The focus was on training local people, his sons joined and they grew from there.

We open shops to empower communities

Many times Tuskys becomes the largest employer in town – it transforms the local economy.

What determines opening a new store?

1. settlement patterns 2. trade routes. A high volume of traffic is what makes a new site attractive. This was helped by Kenya’s devolution of power, which gave greater power to local government, such as with Narok.

How Tuskys transforms a town

By creating jobs for 300-400 employees there are ancillary services (such as housing) which need to be met.

Increasing demand through availability

In the case of Narok, there historically wasn’t the option for premium products such as, say, mouthwash. By Tuskys opening there is some simple switching from the informal sector (fruits) and others are products which previously only existed in the capital Nairobi.

We don’t have many own label products

This loses our focus. Our main objective is to create the market where consumers meet the manufacturers. Whilst the market is yet to be exploited we don’t wish to conflict with our suppliers. When you have your own product, you begin limiting what the consumer has.

Listing as a supplier

Quite simple really. Starts with having government approval. Then want clarity on the types of customers that you want. Can you show in your product that you’re going for. How does this compare with the competition? How do you match with them?

Gross margin on foodstuff

Is roughly 16-18%. The time it spends on the shelf differs by category. Fresh is for 2-3 days. Dry foods 14 days. Clothing 45 days.

“The best yoghurt in town”

This is how a Dutch Private Equity investor sold his vision of creating one of the leading brands of yoghurt in Kenya. He said it’s going to be expensive, but it’s going to be the best. He’s doing very well.

Other opportunities lie in…

Processed meats (bacon, sausages), cooking oils (premium olive oils are now on every table), premium pasta, fruit jam, personal care items (shampoos, lotions)

Human capital gap

It’s impossible to find a good buyer locally. The skills to negotiate with buyers are low. There isn’t the experience, and so Tuskys have decided to train them, often on projects abroad.

Pilferage

This is a big issue for retailers as there are no established processes in place. How inventory moves around is still quite informal.

International retailers are coming!

This brings a different kind of competition to the market. The biggest effect is that payment terms needs to be more disciplined. Manufacturers no longer tolerate the long payment terms and so retailers need to get better at paying on time.

Consolidation in Kenya retailers

There are likely to be “Tier 2” retailers in the sector who will merge to get better buying power with manufacturers.

Self-regulation

Certain standards for being good retailers: payment terms, transparent payment terms, treatment of workers, CSR etc.

e-commerce opportunities

Electronics, personal brand items and textiles are moving quickly. Logistics isn’t an issue, as customers want to come by to the Tuskys store.

Lessons & Insights

Surprises: gaps in human capital and pilferage of stock

Biggest lesson: “It is shocking how much opportunity exists in food retailing in Kenya”

Biggest insight: only 30% of retail in East Africa is formal. This is increasing 2% each year which presents a big opportunity.

Website

http://www.tuskysonline.co.ke
http://www.tuskys.com

Overview of Food in East Africa: Lessons from interviewing Food entrepreneurs in East Africa.

Booming factory business. Tales of growth, expansion and toilet paper, from Darshan Chandaria

Overview

Manufacturing is one of the major value drivers in an economy.

In this episode, I speak with Darshan Chandaria, Group CEO of Chandaria Industries, the company founded by his grandfather in the late 1940s and which has now diversified into other areas.

The core business is hygiene products: recycling waste paper and turning it into tissue and other products.

This episode is slightly longer than usual, mainly because there just seemed to be so much to talk about. This includes the set up of their fully integrated operation, the thought process of building a new factory, hiring strategies across the group and Darshan’s management strategy for leading the team. Essentially: find people on the same wavelength and leave them to it.

There are also other tidbits of information in there around designing detachable roofs in the new factory, the comparatively high cost of transporting goods, as well as Darshan’s strategy for building his Instagram following.

The interview took place at Chandaria HQ which is a working factory and so at times there might be some background noise of trucks moving around. I’m sure you’ll agree though that it adds to the effect.

 

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Other notes

Family business established since the 1940s. Established in 1964.

Diversified portfolio of companies. Hygiene is the main. Largest tissue and hygiene products company in East and Central Africa: a fully integrated operation.

There are 30,000 Kenyan families employed in the paper collection. Often these jobs stay in the family: there are generations of people in collecting of paper waste. 3,000 people are employed across the group.

Toilet tissue is the biggest seller. It’s the entry level product to hygiene.

Leadership team have to be on the same wavelength, the same vision.

There a few major channels they work with, the crux of the experience the customer should feel is: does the customer feel comfortable enough to call you late at night, because you will sort out the issue they have.

Meeting ISO standards, and the way in which that is measured.

It’s a capital intensive company with high barriers to entry.

Transport cost takes up a higher percentage of the margin.

The expansion of building a new factory will be a $50m investment. Part of this will be a detachable roof in the design. Most of this new factory will be taken on with debt.

Raw materials is a big thing. Less things being printed means availability of raw material is a concern.

Transition from Family Office to Venture Capital firm. Early stage companies to then scale up.

Lessons and Insights

Biggest learning: the leadership team has to be on the same wavelength

Biggest insight: future proof your investment decisions i.e. does your factory need a detachable roof

What keeps you up at night: as paper usage reduces, raw material costs will increase

Social media etc.

Chandaria Industries

Website: http://www.chandaria.com/

Facebook:https://www.facebook.com/ChandariaIndustries/

LinkedIn: https://ke.linkedin.com/company/chandaria-industries-ltd-

Darshan (personal)

Twitter: https://twitter.com/dchandaria

Facebook: https://www.facebook.com/darshan.chandaria/

LinkedIn: https://www.linkedin.com/in/darshan-chandaria-7143a57/

Other links

SuperBrands: http://superbrands.com/

Mobius Motors:https://mobiusmotors.com/

An innovative construction material transforms Kenya’s booming housing market, with Mburu Karanja

Overview

Housing in Africa is a huge problem.

Every year millions more people arrive in cities and are forced to stay in informal settlements.

Developers struggles to keep up, and walking around Nairobi at least, you’ll rarely be far from a construction site building another high rise.

What I didn’t realise though, was how the current approach of building with bricks and mortar is actually quite inefficient.

There’s a limit on how much you can build each day (four stones high) and a whole series of other considerations which means that the supply of housing is actually constrained by the bricks and mortar approach.

In this episode I speak with Mburu who runs Cemex Holdings, a company that produces a new form of building material, essentially panels of reinforced steel mesh.

Before conducting the interview in Mburu’s office upstairs I had a tour of the factory and a the show home they made next door. Maybe I was missing something, but the argument to switch seemed pretty compelling.

On most fronts it seemed to be a superior offering to stone building, the main barrier being people’s willingness to go with something outside of the status quo.

I won’t spoil things too much, but I found this a fascinating business for showing how to introduce a new technology into a market, as well as learning more about the dynamics of the construction industry which I know next to nothing about.

 

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Mburu is a biochemist by training from University of Texas, passionate about building Kenya.

The vision is how to offer dignified housing to all Kenyans.

The technology they are using for the panels (EPS: expanded polystyrene) is over 40 years old. There are 60 plants around the world, and 17 in Africa.

It allows for rapid installation of housing materials, cutting construction time by 50%.

The core business as a materials supplier. But also need to vertically integrate, with this being a new market. The big thing is to train contractors in using the Cemex system.

There are various trade offs involved. The major consideration is the time taken to build a structure. With stone you can only do 1 metre per day. By using a whole panel you do 3 metres per day.

Being a new technology in Kenya they are going through the diffusion of innovation.

There is a unique housing problem in Africa. There are not enough houses in Africa.

A big thing is to try and move people away from the idea that stone is the only route they can do.

Kenyans are price sensitive, so the numbers have to work. Which they do. There are cost savings in: less materials (reinforcing foundations), time, finances

Interest rates are high in Kenya (13.5% base) and so being able to realise revenue quicker cuts the overall costs.

In going to the market, they’ve never had a rejection once engaging with a developer.

The vision of the company fits the government’s Big Four agenda (ensuring food security, affordable housing, manufacturing and affordable healthcare).

Several other companies have begun using this technology in Kenya. Though they are the only one with a partnership from the Italian originators Emmedue.

It’s a certified green building technology. Reduced environmental impact compared to quarrying stone. Transportation is much lighter too: 1 lorry of EPS is the same size of finished product as 7 lorries of stone.

For production, there’s a quick turnaround of 48 hours to make the panels.

The company has 20 front office (sales, marketing, technical department, admin, finance), 40 in the factory.

The idea is to become a household name: the Intel of building systems. Associate a premium to quality of materials that have gone into the construction.

Lessons and Insights

Biggest lesson: introducing  a new technology requires teaching stakeholders

Biggest insight: training stakeholders builds confidence and grows the market

Links etc.

EPS technology in Kenya

Visit: the factory site in Ruiru (Google Maps link)

Website: http://ww.cmax.co.ke

How Busara Center’s unintuitive behavioural insights bring clarity to the complex, with Chaning Jang

Overview

A lot of the interviews on The East Africa Business Podcast have been related to individual companies telling their stories, and the lessons they’ve learned.

In this episode, you’ll no doubt come away with a lot of insight, though the dynamic is slightly different.

I’m speaking with Chaning, who is the co-founder of the Busara Center, a behavioural economics lab based in East Africa.

Their roots are in academia, though they have now branched out to applying the insights they generate to other organisations. We also have an interesting conversation around grants, and how Busara will typically work with clients to write grant applications to unlock funding.

In this episode Chaning and I discuss the multitude of problems which the lab have solved, similarities and differences in how people around the world act in certain situations, and how they have scaled to become an organisation of 150 employees operating in multiple countries.

Towards the end Chaning also references a pharmacies business that “sits downstairs”. Nairobi is a small city and he was referencing a company called Maisha Meds. You can listen to that interview that I had with Jess, the CEO by searching for the Medicine podcast in the archives.

As always would be very interested to hear any feedback you have on the podcast, but for now, here is Chaning.

 

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Other notes

Busara is a decision lab founded on how stress affects decision making. There’s an initial sense of a psychological poverty trap.

It started as academic, and now applies the learnings to organisations and business decision makers.

Busara now have 150 employees around the world. The “lab” is like a computer lab where people play behavioural economics games.

Behaviours move more along income levels, rather than geographical regions. i.e. low-income participants in Kenya and America behave more alike than Kenyans and Americans who are low-income and high-income.

The engagement that they have with clients is working together to solve business problems.

Partner with organisations to help writing grants i.e. solving a problem with a behavioural lens. Grant givers are looking to find innovative solutions to put their money on.

Some examples of the projects which they have funded, including a telco around funding agricultural financing.

There’s an ecosystem that exists around asking and evaluating behavioural questions, including Innovation for Poverty Action and ID Insights.

Companies come to Busara for: high quality data, insights generalisable to the wider industry, drive value in their company.

There are also different levels of project engagement: $20,000 (entry level), $50,000 (rigorous insights) or $100,000+ (longer term engagement).

Lessons and Insights

Biggest lesson: a little physical coin far outperforms SMS intervention in helping people save

Biggest insight: behaviour is more closely linked to income than nationality

Chaning’s big behavioural question: how to properly incentivise network agents to fully align with business goals

Links etc.

Website: http://www.busaracenter.org

Impact Investing: Beyond Capital’s perspective, with Brian Axelrad and Nicholas Java

Overview

In this episode I speak with Brian Axelrad and Nicholas Java: investors at Beyond Capital.

They are a special type of investor, which is the topic of our discussion.

Beyond Capital operates as an impact investor, an interesting player in the East Africa business space.

Like traditional investment, impact investment is fundamentally a vehicle for injecting money into ventures, the difference lies in that the success of the investment is measured not just in financial terms, but also for social good.

As we discuss, this can be a tricky concept to define – but the broad sense is that these investments will accept a trade off on pure financial return on investment, in exchange for promoting pre-defined societal objectives.

For Beyond Capital they invest in businesses that address the lack of access to basic goods.

We go through how they whittle down opportunities in their pipeline, the challenges of reporting on impact and, where they see the greatest opportunity for impact in the social entrepreneur space.

With this episode there are also lots of links and reports that we mention, and so be sure to check out the show notes for more information about both Beyond Capital and impact investment in general. You can find more info via https://theeastafricabusinesspodcast.com/2018/08/16/impact-investing-beyond-capitals-perspective-with-brian-axelrad-and-nicholas-java/

 

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Beyond Capital’s criteria

In the investments they make, companies need to be financially stable, with long term prospects for financial return, but also how it’s going to behave as a responsible citizen. On the impact front, lack of access to basic goods is what drives their definition of impact.

Intentionality is important for impact investment

In order to be classified as impact investment, the consensus is that the initial intention behind the investment should be for impact reasons. i.e. most people invested in Uber not for impact reasons, but through a different lens, it’s reduction of greenhouse gases through the sharing economy could be classified as such.

9 capital investments

Half in India and half in East Africa. This has come from looking at 500 companies.

Deal flow comes from a local presence

This has been with Ben Grozier and Mehak Malik. They meet with businesses and are able to find opportunities in different stages of the pipeline.

Beyond Capital avoids education

Difficult to measure the impact. It also almost always involves the public sector which makes things difficult. Instead, B2C models which more directly provide access to the basic needs that people are missing is a much more direct fit.

Investors don’t sign NDAs

Their reputation is their lifeblood. There’s a level of trust between the entrepreneur and the investor which will develop over time.

“We play in the capital gap”

The area that Beyond Capital play in as at the “seed” and “pre-seed” areas.
In other parts of the world there would be disposable capital from angel investors which would fill that gap, but in East Africa and India there’s not as much to in the market to do so.

Aligning reporting on the impact

There are different levels of how to quantify the impact that the business has. This goes from the entrepreneur doing it anyway, towards more hands on approaches of how to measure the impact. It’s difficult to legal bind someone to their impact goals.

Biggest opportunity?

Brian: Using technology to facilitate financial inclusion
Nicholas: Agriculture supply chain development

Website links etc.

Website: https://www.beyondcapitalfund.org/
One of Beyond Capital’s investments is Kasha, which you can learn more about at: http://kasha.co/
Matt’s blog post on impact scorecard: https://www.linkedin.com/pulse/beyond-numbers-how-why-measuring-social-impact-matt-raimondi/
Global Impact Investors Network (GIIN): https://thegiin.org/
Brian on LinkedIn: https://www.linkedin.com/in/baxelrad/
Nicholas on LinkedIn: https://www.linkedin.com/in/nicholas-java-083a9226/
Beyond Capital on LinkedIn:https://www.linkedin.com/company/beyond-capital-fund/
Beyond Capital on Instagram:  https://www.instagram.com/beyondcap/

Season Three Preview

Overview

So it’s been a few months since we last released episode and we’re back soon with some more interviews on the bustling business scene in East Africa.

We have a number of episodes that you can look forward to. I’ll give you a short preview of the ones to come and also a bit of housekeeping.

We’re starting on Thursday 16th August 2018 with

 

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Impact Investing

The view from Beyond Capital, and impact fund, on what they look for when putting in money for social good in the region

Behavioural economics

Insights that come from the Busara Center on applying behavioural practices to solve challenges in East Africa. Lots of interesting, and often counter-intuitive insights in that one

We’ve then got a few big players in the Kenyan economy. I noticed that there has been a slight bias in previous series around focusing on the “growth start up”. Entrepreneurs who have spotted a gap in the market, and are early on their journey. But with this series we’ve got some more… bricks and mortar businesses going on:

Tissue Paper

Chandaria Industries. So I have a great interview with Darshan Chandaria who is third generation of the family business. They’re one of the biggest manufacturing companies in the region (making tissue paper) and now a host of other activities.

He is personally an investor on the TV show Lion’s Den which is the Kenya equivalent of Shark Tank in the US and Dragons Den in the UK. Interestingly in Rwanda it’s called Face the Gorillas, I guess because they are they are a formidable creature in the country. And, I had to Google it, it turns out that in most other countries it’s called Dragons Den. I was hoping there’d be lots of Tiger references in South East Asia, but that’s just Japan where the show is called Money Tigers. Sri Lanka probably has the most interesting version which is called Wall of Tuskers, in reference, one would guess to elephants being the most unnerving creature on the island.

Supermarkets

Tuskys is one of the biggest retail chains in Kenya, and by virtue, East Africa. I think this might be one of my favourite interviews to date. It’s certainly the longest, which I guess is a proxy for how much interesting stuff there was to cover. But again, we’re talking with the CEO of a large bricks and mortar business, employing thousands people across the region. The insights and perspectives that you get is different five people with their laptops coding up a solution to a problem they see

Walls

And then to continue the bricks and mortar analogy we have an interview with Mburu Karanja who runs Cemex. They are, ironically, in the business of disrupting the literal bricks and mortar industry. There’s a technology developed in Italy which is an alternative to making walls with stones, instead making panels from steel mesh, concrete and polystyrene. From what he says it’s superior on almost every measure to building stone structures and seems like it could be a really promising part of the nation building aspect of East Africa.

The Economist

Also whilst I am based most of the year in Kenya, I was back in London over the summer and took the opportunity to meet with Jonathan Rosenthal who is the Africa Editor of The Economist magazine, who sponsored earlier episodes on the show.

This was quite fun, as I got to go into The Economist office, in the radio booth that they use for their own podcasts, and also see the magazine in the making, as well as have an interview about a lower case economist’s view of Africa.

There are a few more interviews in the pipeline, but I’ll leave it there for now.

Now, in terms of following along to this season, I’d invite you to subscribe wherever you get your podcasts. This way you can have new episodes (which will be coming out on Thursdays) ready for you to go.

You can head to The East Africa Business Podcast on Facebook. Click Like and you’ll then get to follow when new stories come out. We’ll also be sharing quotes from the interviews which can also be found on the show notes section of the podcast, which is at www.samfloy.com/podcast.

Also, if you think of other companies who would be a good fit for the podcast, or would have a good story to tell, then please do get in touch, either by emailing [email protected]

Sending a message on Facebook, or even via tweet. On Twitter I’m Sam_Floy.

Big Data Lending: unlocking commercial capital for Africa with Daniel Goldfarb from Lendable

Overview

It’s widely acknowledged that one of the biggest prohibitions to the development of East Africa is lack of capital.

The global economy is premised on aggregating savings in, say, pension funds and then deploying it to areas where it will earn a return.

This investment is what generates economic activity – stimulating business growth and creating jobs.

It also generates a return for those running, say, the pension fund to disperse to their members.

Traditionally this large scale movement of money has happened only in developed markets.

Developed markets are structured in a way that allows finance professionals to calculate the riskiness of an investment, and therefore feel comfortable parting with their capital with an expectation it will be paid back.

Traditionally, the methodology for deciding whether to invest big pools of money in Africa has been done using the same framework as for developed markets.

This hasn’t bode well.

In short the techniques for deciding how much money to invest have meant that only small amounts could be safely deployed.

Lendable have taken a different approach.

They are a technology enabled debt platform created to help non banking lenders scale.

They use in-house software tools and algorithms to analyze loans and offer facilities that make sense for lenders based on their loan books.

It might sound simple, but this approach of a buying a loan book, rather than looking at the assets that a company has, is a paradigm shift towards creditworthiness and has meant the company has been
able to unlock millions of dollars of capital that, using the old frameworks, wouldn’t have been deployed.

Now, I appreciate that might all sound a bit technical and advanced but Daniel, Lendable’s CEO and I go into the details of how this works – as well as tales along the way of running their business through two Kenyan elections, and what it takes to attract US Hedge Funds to invest in Africa.

This is, for me at least, a great episode around how large scale impact can be achieved through facilitating the transfer of wealth from the developed to developing world.

 

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Lessons & Insights

Biggest insight: when times are tough people spend more on electricity

Biggest lesson: by rethinking risk we can unlock millions of dollars for Africa

Website etc.

Website: Lendable Marketplace

Twitter: Lendable

A “one for one” model delivering nutritious hot lunches for schoolchildren, with Wawira Njiru

Overview

Most people have somewhat underwhelming memories of school lunches.

Bland, uninteresting food which likely compelled you to go off at break time to the local shop and eat sugary doughnuts, a chocolate bar and a bag crisps. Or chips, for our American listeners.

This dynamic is somewhat similar in the Ruira county of Kenya, just outside the capital Nairobi.

The difference though, is that the option of meals at school is non-existent.

 

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That is until Wawira Njiru started Food 4 Education, an organisation that provides nutritious and affordable meals to 1,600 school kids every day.

She and I cover all parts of the operation including setting up relationships with schools,the economies of scale in their food production and how the school meal programme is funded by their for profit catering business, as well as (indirectly) from the Lonely Planet travel guide company.

This episode is a great example of a organisation stepping in to fill a market need, with the help of other interested parties.

Wawira and I talk about how she feels there is not a wholly sustainable business model in just providing affordable lunches in rural schools, but I think you’ll agree after listening that undertaking creative ways to make it sustainable, including lessons from India, is a good thing for the world.

In market economies, entrepreneurs are typically drawn to businesses that will yield the greatest profit.

If two options involve the same input of time and resource, traditional economics would suggest that the one that is most likely to give high returns is favourable.

Of course though, many entrepreneurs have other motives at play, and Wawira Njiru is one such person – pursuing the business of delivering affordable nutritious meals to low-income Kenyan school kids.

The facts around the importance of good nutrition are compelling on both an academic and anecdotal level.

Many studies point to the positive correlation of nutritious food and school attendance, and you also instinctively that if you don’t have a midday meal – your concentration wanes in the afternoon.

This episode is all about how Food 4 Education is bridging that gap, by taking a “for profit” mentality to tackling a societal problem where, under normal conditions, the market wouldn’t solve it.

We discuss the intricasies of their model, as well as plans to scale in line with a Public Private Partnership in India that serves 1,600,000 school meals each day.

Wawira’s recommendation to policymakers is that, because Indian law mandates Corporate Social Responsibility, programmes such as providing nutritious school meals have much more support, and can a greater impact.

It is, for me at least, a great example of co-ordinating multiple parties with similar needs to solve an issue that would otherwise be overlooked.

Lessons and Insights

Biggest insight: schoolkids don’t need shiny laptops, they need wholesome hot meals.

Biggest surprise: I need to be thinking waaaay bigger with what this can achieve.

Find them Online

Website: http://food4education.org/f4e/

Facebook: food4education