Don't Try to Divert Rivers - In East Africa, do business with those global partners truly interested in the region - A Thouht

Have you ever heard of a river that changed its direction? As a child (and sometimes as an adult) have you ever put your hand into a stream of water and tried to change the direction it goes? Most of the time, the water simply goes around your hand, over or between your fingers and rarely does it go the direction you want it to go. Now if you’re an engineer and you build a mini damn or some other system to divert the water in your direction, great. But if you want water, it’s a lot easier to just find a river that is coming in your direction and fill your cup from its source.

A few years ago, a good friend of mine who is an American high-level finance expert in the Gulf was actively seeking global funds and investors to consider East Africa. However, one thing he noted, is the hesitation, fear and outright paranoia that some have about investing or having their business in Africa general.

His exact words to me were “I’m tired of trying to change the flow of a river. Nowadays, I only deal with groups that have an established background in funding projects in Africa and in the areas of my interest. I’m no longer trying to change the course of anyone’s river.”

After years of success and failures, I truly understand his sentiment which has been regularly reiterated by many people in East Africa and the continent. One conclusion many business people and even government figures in Africa have reached is that many no longer go out of their way to try to convince groups to invest in Africa. Yes, there is corruption. Yes, some countries regularly experience political turmoil and social upheaval. Yes, some nations do lack transparent legal systems which may cause problems with establishing a stable business practice. However, there are 54 countries in Africa and all of them are not the same.

As it stands in 2023, 9 out of the 16 fastest growing economies in the world are in Africa which includes Rwanda, Senegal, Uganda, Cote de Ivoire (Ivory Coast), Benin and the Democratic Republic of Congo among others. The demographic numbers in Africa show that 70% of the continent’s population is under 30 years old. If one considers current population trends, it is expected that Africa will have a population of 1.7 billion people by 2030. There’s a reason why so many top global firms are seeking inroads into Africa. This growing population requires more houses, more food, energy, education, commodities and information.

However, many people doing business and based in East Africa have inevitably heard the negativity associated with the continent. Within this context, many have found it a lot easier to no longer waste time on those who need to be thoroughly convinced to do business in Africa. I recall a situation in which a group I was working with had an international contractor. The company had to send an engineer to begin some of the preliminary assessments for the project and they only had two individuals who were qualified for this unique job. I guess one person was not available but the other engineer was petrified at the notion of having to go to Kenya. One of the company’s managers was on the ground and trying to explain to this engineer that Kenya was a safe country with no wars, decent roads, good food and he’d be staying at a very nice hotel. The engineer expressed his fears about how he wasn’t comfortable about this place called ‘Nairobi’ and that it all seemed too dangerous. The situation was so ridiculous that we laughed. I can not understand the logic but he appeared to be conflating every bad thing he’d heard or seen about Africa and put it to his mind that it would all be found in Nairobi. Note: For anyone who has been to Nairobi, you can attest that it’s a great city, fairly well developed and has tons of great restaurants. The engineer then complained about the fact that he would be uncomfortable traveling around because he’d heard all these stories about people being swindled or kidnapped by fake taxi drivers. We told him to just use Uber, problem solved. After a bit of cajoling, providing information about Kenya along with his boss probably giving him a bonus, the engineer finally came. He did great work, asked for multiple assignments back to Kenya and the last I saw him, we had a great seafood dinner at one of the best hotels located along the beach.

But a lot of companies and investors never reach that understanding. I’ve had businesses and investors visit East Africa and then compare it to Germany and Canada which they found to be “much easier to operate”. By that time, I’d dealt with numerous other groups who expressed a similar sentiment and I simply responded by saying, “you’re right. Nice meeting you and all the best in your endeavors.”

The key is there are a ton of investors and financial institutions willing to and currently investing in East Africa. If you have to convince a fund manager or a corporate exec to choose, Uganda over London, guess what, you are probably going to lose 99 times out of 100. In fact, the returns in Uganda may actually be 30% higher but many groups around the world will simply choose the UK or other developed markets. As a business person in Africa, your focus should be on the funds and businesses that are either already investing or have a clear mandate to set up an entity on the continent. They have done the research, identified the risks, recognized the opportunities and are moving forward. But the group that is hesitant or constantly finding every reason not to invest, let them go.

As it stands, US multilateral institutions are investing billions into East Africa. China has done a few billion dollar projects along with countless smaller projects in the $25-30 million range. Qatar financiers have invested in Rwanda and UAE investors have put funding into agricultural projects in East Africa. The one challenge which admittedly is a problem is that there are certainly large financial institutions looking to develop projects in East Africa, particularly with government entities but there is a seemingly lack of access to small to mid-level financing. Finding options for the small to mid-level entrepreneur that require between $500k to $3 million for a project can be more challenging than getting $200 million (this is experience talking). This smaller segment certainly requires reliable funding and if we look at global statistics, this sector of the economy provides a good portion of jobs. Such groups who don’t have access to the “big boys” may feel the urge to chase after mid-tier investors or funds around the world because the larger ones have a ton of requirements which they don’t meet. This may include a high level feasibility study, 3-5 years of financial reports showing their revenue matching the requested amount and even just the funding minimum. There are some funds which do not consider deals under $25 million which may be small in Denmark but is huge in Ethiopia. In growing markets such as East Africa, this amount would fit only the largest of companies and leaves out the small groups.

My recommendation to businesses is to not be deterred. There are a ton of viable funds that focus on this segment. US EXIM itself can finance projects under $1 million along with other global export credit agencies (ECA). My suggestion would be to identify funds specifically designed for your sector and apply for financing. There are a number of funds which focus on education, fintech, energy, food, trade and other very specific sectors. Don’t cold call funds you have no contact with and also, don’t seek to engage groups who don’t have a clear policy for Africa. If they’ve never thought about East Africa, it will take a long time to convince their upper management to consider this market. Develop more nuanced targets for funding sources focused on Africa and seek to build a working relationship with such groups. In that sense, it’s simply far easier to catch the eye of a group that is looking in your direction rather than trying to get the attention of someone who doesn’t know you exist.

Over the years, I’ve constantly reflected on the words of my friend and this has been reiterated to me by direct experience and the sentiment of many people. Such sentiments is not designed to deter small businesses from engaging global finance, nor is it meant to give international partners any cause for not seeking to identify new markets. However, what is clear is that in the world of business, no one wants to waste time and energy. If you are a global firm that wants to simply know about business in Africa but aren’t really interested in setting up a business or investment, that’s great. My honest suggestion is to not waste any individual or company’s time pretending that you are ready for business by asking them for a bunch of reports, documents, information and then when it’s time to make a decision, you mention some conflict you saw on the internet (in an entirely different country) and then complain that you are worried about how things will go. If all you want is information, simply pay a consulting group or just use Google.

My other honest suggestion to African businesses and entrepreneurs, do your own due diligence on potential groups. Don’t be too strict about only being interested in large global firms or that they should show their proof of funding before discussing any business. Such talk will drive away even serious companies/investors. But also don’t be na?ve and believe that a group is sincerely interested in establishing some of business link when nothing in their background suggests they are legitimately interested. As with anything in link, have a balance. Look for reliable partners and work hard towards the future. With a mutually interested company, even a small business can go very far in the future.

Now some people will be reading this and say, “Is he talking about me?”. The answer is yes, I’m talking about you. But not necessarily in a bad manner. Having reservations about doing business in a new location is normal. Additionally, as a business person living in East Africa, I understand the reality that there are challenges and risks. In business, I never take anyone lack of interest personal because everyone has their ideas and objectives.

Overall, there are tremendous opportunities for business in East Africa and the continent as a whole. If you are on the ground, you know for certain that all you require is an outside partner, a bit of funding and a well-executed plan to develop your idea. With this in mind, find a river that is going in your direction and take your business to its destination.

All the best.

Jamal Bradley