Rwandan industrialist always hunting for the next big business idea

Jean de Dieu Kagabo

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In the late 1990s, when the Rwandan economy was recovering from civil war and the 1994 genocide, Jean de Dieu Kagabo began his journey as an entrepreneur. “Everything was in chaos and the country was rebuilding itself from scratch. People were trying to find themselves again and everyone was trying everything and anything to survive financially,” he remembers.

Kagabo had a little money at his disposal and in 1998, when he was 18 years old, he began importing affordable cars, such as Toyota Corollas and Starlets, from Dubai. At first, he only brought in one or two vehicles at a time, making a few hundred dollars profit on each, and over time gradually grew the venture. Still, there were times he couldn’t afford the import taxes and left vehicles at customs while he looked for buyers. “If a client liked the car, they would pay me an advance which I used to pay the taxes so that I could deliver the car.”

Importing vehicles was, however, not generating much money and Kagabo saw it as no more than a way to make ends meet and save until he was able to invest in something more lucrative. This turned out to be a fuel station. He rented premises and bought fuel from Rwandan suppliers. But once the country began to stabilise, international fuel companies such as Shell entered the market and pushed out small dealers such as Kagabo.

That dark cloud had a silver lining as the same multinationals needed truck owners to transport fuel to their service stations across the country. Based on the good relationship he had with the banks because of his previous business dealings, Kagabo secured a loan to buy a truck and began transporting fuel. This, too, didn’t last long as the fuel companies eventually began operating their own fleets of trucks.

Having a truck, Kagabo went looking for other companies that needed transport services and, in 2002, landed a contract with logistics operator SDV Transami (now Bolloré Africa Logistics) in neighbouring Uganda. It was his job to transport goods between the Ugandan capital Kampala and Sudan – it was a difficult route with bad roads and security problems. Kagabo didn’t do any driving himself; he managed the business from a small apartment in Kampala and employed drivers.

After a few years, Kagabo left Uganda and returned, with his truck, to Rwanda in 2005. He had made some money with his transport business and went in search of his next venture.

WHAT WE’VE LEARNT: BUSINESS OPPORTUNITIES

Keep it simple In some African economies there remain gaps to introduce basic products, such as toilet paper, at better prices or improved quality than currently offered. As the continent develops, these opportunities are, however, becoming fewer.

A base for exports to neighbouring countries Rwanda’s location and generally business-friendly policies makes it an ideal base from which to export to Burundi, the DRC, Tanzania and Uganda. Rwanda is also part of the East African Community, which gives it preferential trade access to a market of 170 million people.

Business tourism products and services The Rwandan government is actively promoting the meetings and conferences industry.

Matches Most Rwandan households, whether lower or upper class, use matches. Yet matches are still being imported despite being easy to make.

Clothing and textile manufacturing Rwanda introduced a 12-fold tariff increase on second-hand clothing to stimulate local production.

Electric cables Rwanda has a goal to provide electricity access to the entire country by 2024 but there is currently no local manufacturer producing electric cables.

FINDING INSPIRATION IN CHINA

In the early 2000s, the Chinese economy was booming with average annual growth rates of 10 per cent. Kagabo was intrigued by this new El Dorado and wanted to go and see it for himself.

He flew to Guangzhou, a sprawling port city and one of China’s major trade and commercial hubs. On his own and unable to speak the local language, Kagabo was overwhelmed by the millions of people and the fast pace after coming from laid-back Rwanda.

He didn’t have a concrete plan for what he was going to do in China, but in the back of his mind he hoped to stumble upon an opportunity to sell a product from Africa to the over one billion Chinese. “When I got there it was a different story. I couldn’t pinpoint a single product they didn’t already have,” he recalls.

A visit to the Canton Fair, one of China’s largest and oldest trade shows attended by manufacturers from across the country, steered Kagabo into a new direction when he came across a machine for making toilet paper. It was something that Rwandans needed: “We are one of the poorest countries in Africa. So I was looking for a basic mass-market product, nothing fancy. What is one of the most basic human needs after food and medicine? It is hygiene. Toilet paper is something people use every day.”

Kagabo built his business case on the fact that most of the toilet paper available in landlocked Rwanda was imported from neighbouring countries via road, which greatly inflated prices. If he could manufacture it in Rwanda, he could sell it at half the price of the imported brands. Although there was another domestic toilet paper manufacturer at the time, the company didn’t have the capacity to supply the entire market. Furthermore, Kagabo saw potential to export to neighbouring Democratic Republic of the Congo (DRC) and Burundi.

He returned to Rwanda, sold his truck to free up some capital, and went back to China to buy the machine. All he then needed was money to buy the first batch of raw materials.

Again, Kagabo had a plan. In China he had come across a company that produced trailers for transporting shipping containers by road. He knew such trailers were expensive in Rwanda and that transport companies often had to wait a long time for an order to be delivered. Leveraging his industry contacts, he connected the Chinese manufacturer with a Rwandan company, which placed an order for six trailers. The commission from the transaction allowed him to buy the raw materials he needed.

The Kigali Convention Centre

BECOMING AN INDUSTRIALIST

In 2007, 27-year-old Kagabo set up shop in a small factory in the capital, Kigali, and named his company Soft Group. He doesn’t find it strange that he was buying machinery from China and establishing himself as an industrialist at an age when many young people are still finding themselves. “You can never be too young to make money. Age is just a number when it comes to business,” he says.

Soft Group did not make a profit immediately and Kagabo describes those early days as hard. He had to train a team which had no previous manufacturing or production experience. “It is difficult to train and manage people in a country that never really had much of a manufacturing sector. Everything was new to our workers.”

He also soon discovered that having a better product at a lower price wasn’t a guarantee of shelf space in shops. His brand was unknown in the market. Kagabo went to corner shops and markets stalls and arranged deals that allowed shopkeepers to stock the toilet paper and pay him only once it has been sold. “It was tough, really tough, to introduce a new product in a small market like Rwanda where everyone was accustomed to one brand,” he says.

WHAT WE’VE LEARNT: DOING BUSINESS IN RWANDA

Challenges Despite its impressive economic figures and reforms, a large percentage of the population still lives in extreme poverty. Rwanda also has a number of drawbacks for businesses: the population is small at about 12 million, the country has few natural resources and no sea port.

Government support for priority sectors The government has prioritised a number of areas where it believes Rwanda has a competitive advantage, which include the knowledge economy, information and communications technology (ICT), financial innovation, light manufacturing and intraregional trade. For instance, the Kigali Special Economic Zone is geared to make life easier for manufacturers by providing serviced commercial land, reliable and cheaper electricity, and by having less red tape.

High borrowing costs Interest rates charged by banks currently average around 17 per cent.

Being in a small country also had its advantages, though. Once people began buying his toilet rolls, word spread quickly. Within about six months, shopkeepers and wholesalers began to approach him.

With the toilet-paper business still in its baby shoes, Kagabo wanted to diversify and began to make detergents. This, he now admits, was a mistake. The detergents sold well but Kagabo didn’t fully appreciate how expensive the imported raw materials would be. It forced him to dip into the money intended for the toilet paper side of the business, which meant his original product suffered.

With 20/20 hindsight, he says that when developing a business plan for a particular product, entrepreneurs need to have a clear idea of the size of the market they are targeting. And if that opportunity is large enough, it is important to stick with that one product until it can stand on its own feet before branching out. “Focus on one thing until it can sustain itself. Luckily I discovered this at a young age, so I stopped with the detergents, and focused on the toilet paper.”

It didn’t take him long to spot another opportunity: plastic drinking straws. In certain parts of Rwanda it is traditional to share banana beer (urwagwa) in a wooden container (umuvure) with a shared reusable natural straw. For hygienic reasons, the government banned these straws. “I saw it as an opportunity. We were the first factory in Rwanda to produce single-use drinking straws,” says Kagabo.

Since 2014, Kagabo operates from a much larger factory in Kigali’s Special Economic Zone and now employs over 200 people. He has branched out and currently makes several other products. One of the most popular is biodegradable woven sacks used by farmers for their produce. He runs this part of the business as a separate company called Soft Packaging which was established in the same year that they moved premises. He is also involved in plastics recycling and manufactures items such as plastic sheeting for the construction industry and greenhouse covers.

One of the biggest hurdles to expand his companies is access to affordable financing as the interest rates charged by banks currently average around 17 per cent. “The market is there and it is growing but we still face a challenge in terms of borrowing money for the expansion of the business,” he says.

Rwanda’s capital Kigali

DOING BUSINESS IN A COUNTRY WITH BIG AMBITIONS

Rwanda is often referred to as the Singapore of Africa, an analogy most visitors to Kigali would agree with. It is efficient, orderly and clean. Rwanda has transformed itself into one of the continent’s most business-friendly countries. It is placed second in sub-Saharan Africa (and 41st globally) on the World Bank’s Doing Business rankings for 2018 and is the region’s third most competitive economy, according to the World Economic Forum’s 2017-2018 Global Competitiveness Index. The economy has grown rapidly, expanding by an average of 7.5 per cent between 2008 and 2017.

Despite the impressive economic figures and reforms, a large percentage of the population still lives in extreme poverty. Rwanda also has a number of drawbacks for businesses: the population is small at about 12 million, the country has few natural resources and no sea port. The government has prioritised a number of areas where it believes Rwanda has a competitive advantage, which include the knowledge economy, information and communications technology (ICT), financial innovation, light manufacturing and intraregional trade.

Kagabo’s companies are benefitting from the state’s drive to boost the manufacturing sector. The Kigali Special Economic Zone is geared to make life easier for manufacturers by providing serviced commercial land, reliable and cheaper electricity, and by having less red tape. “The industrial area has many benefits, number one being stable electricity. In plastics manufacturing, an interruption of one second in the production line can lead to big losses. The zone has its own dedicated power supply, as well as backup generators,” he explains.

The Rwanda Development Board, which is modelled on Singapore’s Economic Development Board to promote business and investment, encourages prospective investors to think bigger than the domestic market. Because of Rwanda’s location, it is an ideal base from which to export to Burundi, the DRC, Tanzania and Uganda. Rwanda is also part of the East African Community, which gives it preferential trade access to a market of 170 million people.

Kagabo has tapped into these cross-border opportunities by exporting to the eastern DRC and southern Uganda. He has a small depot close to the DRC border that carries all his companies’ products. “We have a marketer in the DRC and, when we sign a client there, we export the products from that depot, or they simply come across the border and buy it themselves,” he adds.

However, doing business in eastern DRC, which has suffered from years of instability, is much different from the orderly way things are done in Rwanda. Kagabo says the biggest obstacle in the DRC is the ever-changing regulations, particularly regarding import taxes.

WHAT WE’VE LEARNT: ENTREPRENEURSHIP ADVICE

Be prepared to hustle to land your first sales During the early days when his toilet paper brand was still unknown in the market, Kagabo went to corner shops and arranged deals that allowed shopkeepers to stock the toilet paper and pay him only once it has been sold.

Start with consumer demand when developing your business idea Kagabo was looking for a product Rwandans needed. What is one of the most basic human needs after food and medicine? It is hygiene. So he settled on toilet paper.

Don’t spread yourself too thinly Entrepreneurs shouldn’t introduce new products or services until their current offerings are well established.

FROM SPARKLING WINE TO SOCKS TO…

Kagabo still travels to China regularly and attends industry shows such as Chinaplas, one of the world’s biggest plastics trade fairs, to keep abreast of the latest machinery and make new connections.

In a sideline venture, he and a partner are the Rwandan distributors of Luc Belaire, the French sparkling wine known for partnering with American rappers such as Rick Ross and Young Thug. They approached the company’s regional representative in Dubai and have been selling the drink in Rwanda ever since.

The demand for high-end alcohol is partly driven by the tourism and conference industries, which the government actively promotes. The Kigali Convention Centre, which was completed in 2016, has played host to large events such as the African Green Revolution Forum, the Afreximbank annual general meeting and the Africa Health Forum. International hotel chains such as Marriott and Radisson Blu have also opened in the capital. “There are people coming here who want to be able to enjoy what they are consuming in other countries,” says Kagabo.

Still, he is always thinking what next; for instance, clothing and textile manufacturing. Throughout East Africa, much of the clothes sold at markets are second-hand imports from the West. In 2016, when Rwanda introduced a 12-fold tariff increase on second-hand clothing to stimulate local production, it attracted the ire of the United States, which retaliated by revoking Rwanda’s African Growth and Opportunity Act privilege to export clothing duty-free to America. “When people see something as a problem, I always see it as an opportunity,” says Kagabo. He is thinking socks and underwear. “People wear them every day and you have to wash it every day. You can’t wear it twice.”

Another of his business ideas is for a simple but widely used item: matches. Every Rwandan household, whether lower or upper class, uses matches. Yet matches are still being imported despite being easy to make. “No one has done it.”

Then there’s Rwanda’s goal to provide electricity access to the whole country by 2024. “What do we need for this? We need electric cables. There isn’t a factory making cables in Rwanda.”

Despite all he has achieved, Kagabo, currently 38, doesn’t feel like he has arrived. “I can’t say I’m there yet. I still have a long journey to go because my country is growing and the region is growing. The sky is the limit.”

This article is a beta sample of a brand new premium How we made it in Africa interview series, called “Learn from the best”, launching 1 April 2020. Every week, subscribers will receive an in-depth written interview with one of Africa’s most accomplished entrepreneurs and business leaders. Through these honest, no-nonsense interviews, the continent’s most interesting business leaders will reveal:

  • How they built their companies – from the initial idea to commercial success
  • The business lessons they’ve learnt on their journeys so far
  • The latest business trends and untapped opportunities in their respective sectors and countries

The cost will be from $8.95 per month. To receive a 25% lifetime discount voucher on our launch date, subscribe to this mailing list.

This article first appeared in HOW WE MADE IT IN AFRICA: THE BOOK, published in November 2018.