East African SMEs need to do more to meet the expectations of foreign investors

Investors come and say: ‘I see a lot of companies that I like, but none that I can invest in because no one is ready’. They don’t have the staff or ability to make those companies ready. Companies need more help thinking through their strategy or they cannot make a compelling case to the investor. There are lots of opportunities here, investors just need to tailor their investment model a little bit more. The off-the-shelf private equity venture capital model from America is probably not the best model for Africa. I see very little innovation in terms of fund structure and I think that’s what people need. You need to be able to provide a lot more direct support to your investees.

We are seeing a lot of grant funding and the growth of social enterprises. Is this a distortion from ‘real’ business and could it discourage profit seeking investors from coming to East Africa?

I am not on a crusader against grants. It’s complicated and there are grants everywhere. I think Equity Bank received quite a bit of grant money and I don’t think anyone regrets that. Even M-Pesa began with grant money. Soft capital allows innovation and I think Africa is a place where we need innovation. I don’t think it is a distraction per se. Are there places where soft capital crowds out more profit seeking capital? Yeah. On a case-by-case basis, you see a company that could really generate strong returns but receives soft capital, and then an investor who can’t accept really low returns doesn’t get access to the deal. Sometimes soft capital allows companies to continue with a bad idea longer than they should. Either way, you have to be really careful before you lambast all grants.

You are doing a lot of research on the healthcare industry. Why the focus on this sector?

It is a huge space because Kenya is a country of 40 million people who have a disproportionate share of health problems. The private sector has an important role to play because often government hospitals and clinics are not cutting it. Kenya has a massive, growing middle class and health is definitely something they spend their money on. We know the private sector can offer the middle class better quality and better prices. We have seen huge success in other business models that serve that middle class in telecoms and banking, for example, but none yet in health. I am excited about the potential of low cost, mass market health insurance. There is a lot of potential for that and it could revolutionise the entire healthcare sector. Kenya is under-insured and some people see this as a challenge but I see it is an opportunity. As the middle class get wealthier they will want insurance, and that insurance will bolster demand for all other healthcare services.

What other sectors do you find attractive?

There is opportunity everywhere. It’s about finding the right business models. We are excited about agribusiness and different parts of that value chain from primary production to processing. We are active in renewable energy, which we see as a big opportunity, where there is going to be a lot of innovation and different business models in the near future. There are all these other things that are hard to classify: manufacturing, distribution, logistics and ICT and telecoms, where there is still more potential.

Any advice for foreign investors coming to East Africa?

When I came here I was more cautious and perceived it to be harder and more risky than it actually turned out to be. Everything is easier than you would think. People hesitate more than they need to. I think Kenya is in many ways a great place to do business. The hang ups are few and far between. The cost of many things is still comparatively low, especially from the perspective of an international investor. I hope Kenya will embrace these advantages and continue to be one of Africa’s most attractive destinations for investment.