East African Impact Investing: 7 Takeaways from 7 Days

In May 2017, PeakChange spent a whirlwind week in East Africa. The immediate purpose of our trip was to engage with Jibu, one of our direct portfolio investments, while our long-term goal was to deepen our understanding of the impact investing and social enterprise landscapes in Kenya, Uganda, and Rwanda.

Our team had most recently visited Kenya in February.  And, PeakChange has taken several investor trips to the region over the last couple of years, including Investors’ Circle investor trips. I taught in Ghana following college graduation, and I toured the continent for half a year from the Indian to the Atlantic Oceans.  The entire PeakChange team has had separate as well as shared experience in Africa.  During this visit, we met with entrepreneurs, engaged with local stakeholders, and got to know the capitals of each country a bit better.

The PeakChange Team at Jibu's Kigali HQ. Jim Davidson, Melanie Davidson, and Emily Winslow are all smiles. Check out that view!

The PeakChange Team at Jibu's Kigali HQ. Jim Davidson, Melanie Davidson, and Emily Winslow are all smiles. Check out that view!

We believe that effective impact investment requires more than just the commitment of capital. Devotion of time, resources, experience, passion, and other applications of attention is necessary to optimize financial, social, and environmental returns on investment. Especially when it comes to investing in developing countries, there is no substitute for first-hand experience. Support for social ventures that deliver solutions to the world’s most pressing problems requires you to get out of your home/office, go to where the action is, and step away from your computer while you’re there. When making impact investments in places like East Africa, getting to know the people, culture, environment, history, political and business contexts is essential.

A week may not seem like a long time, but here are my 7 takeaways from 7 days:

 

1. Do the stakeholder trip.

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Almost a dozen people traveled from the U.S., Europe, and India to see Jibu’s budding operations first hand in Uganda, Rwanda, and Kenya. The itinerary was fast paced and packed with franchisee mixers, in-store visits, team meetings at Jibu HQs, warehouse tours and a stakeholder roundtable discussion. We were able to ask entrepreneurs face-to-face how becoming a Jibu franchise owner had changed their lives (almost all for the better) and, by sampling the product for ourselves, come to understand why customers would want to drink Jibu water over the competition (spoiler alert: it’s designed to taste better). The trip allowed investors and stakeholders to understand the business and its operations through firsthand experiences, thereby informing strategy discussions and generating more sophisticated feedback.

 

2. Get to know the local culture, people, and organizations in your geographical area of interest.

Africa is a very diverse continent. Each country has it’s own unique cultures and contexts. Therefore, the importance of making local connections and understanding local customs cannot be overstated.  So, aside from our time with Jibu, we sought opportunities to learn more about each country’s culture and social entrepreneurship ecosystem.  I was particularly grateful to learn more about the Global Livingston Institute’s work in Kampala. Through the guidance of Martina Namuddu, the Director of East Africa Logistics, I became familiar with the organization's programs and initiatives, explored cultural attractions, and connected with local social entrepreneurs.  In Kigali, Noel Ntabanganyimana, a colleague through one of our portfolio companies, ThinkImpact, was a great tour guide and took us to a peri-urban area to explore real estate development opportunities. The demand for affordable housing in Kigali is estimated at 344,068 dwelling units between 2012 and 2022. More than 60% are needed for low and middle-class affordable housing; and options are hard to come by in locations adjacent to urban settings, which are typically agricultural.

 

3. Job creation is vital, but finding and retaining talent is hard.

The region has a disproportionately young population, where nearly 45% is under the age of 15 and almost 65% is below age 25. Beyond noting that each country in East Africa has a population pyramid that skews heavily towards youth, the details for each demographic and the implications for economic development are worth exploring. The population of Rwanda is relatively small and has been greatly affected by the genocide, leaving many people who are uneducated or undereducated and under-resourced to take advantage of economic opportunities. One stat I heard was that 80% of Uganda’s population was under the age of 25. I later verified this claim and came to appreciate that Uganda has one of the youngest and most rapidly growing populations in the world; its total fertility rate is among the world’s highest.

Most of the young entrepreneurs I spoke with had multiple jobs or side hustles with limited ability to focus attention on any one business and without resources to source capital for their various projects. I connected with Aireen Katongole, the Director of Talent and Recruitment at Staffable, a recruitment and training workforce accelerator in East Africa, who is dedicated to solving these employment issues. Opportunities exist. Figuring out how to best develop, engage, and retain talent in growing organizations remains a challenge.

 

4. Co-working spaces are thriving.

One of the new co-working spaces, Design Hub, I visited in Kampala, Uganda.

One of the new co-working spaces, Design Hub, I visited in Kampala, Uganda.

In Kampala, I visited a few co-working spaces with Martina. These types of entrepreneur ecosystems did not exist just a few years ago. For example, Nairobi Garage, one of the largest co-working tech hubs in Africa, was founded in 2013. In a region where power shortages are common and the internet can be spotty at best, the importance of a good office space cannot be overlooked. I was encouraged to see tech companies and social enterprises co-located in large facilities where they have room to grow and scale in their current space. In talking with the entrepreneurs, I found they perceive many of the same benefits familiar to co-working spaces typical in the U.S. Early-stage businesses and social entrepreneurs can greatly benefit from working in these types of environments by sharing resources, strengthening networks, and generating entrepreneurial hubs across East African cities.

 

5. Huge opportunities are available for impact investment.

The combined population of four target markets for investors in East Africa (Kenya, Tanzania, Uganda and Rwanda), is estimated to be 225M by 2030. There are not a lot of investors competing for a place in these large and growing markets. If you are interested in investing in agriculture or energy, East Africa may be the place for you. Both sectors are growing and scaling due to the market for agricultural innovation and renewable energy. Rwanda’s robust business climate and track record of stable government make an attractive environment for impact investors looking for opportunities. The business environment in Uganda appears more challenging, but the economy is growing and improving over time. If direct investing isn’t your thing, there are plenty of incredible Development Finance Organizations and NGOs in East Africa that need support as well. Social businesses have challenges accessing funding and funding networks. Building and strengthening these relationships is vital for the impact investing space.

 

6. Building businesses in East Africa isn’t cheap and requires risk tolerance.

High financial returns and high social impact is an incredibly difficult target for early-stage social companies to hit. In the developed world, we take for granted that our roads are paved properly, when we order a product we can anticipate within a reasonable time frame when it will arrive, and that business norms will be followed.  In African countries, we can’t make such assumptions.  Furthermore, despite immense infrastructure challenges, market barriers, and unfavorable policy and regulatory environments, social ventures in East Africa must be commercially viable and present the ability to scale.  Although most enterprises have built social impact into their business model, they don’t necessarily advertise themselves as social businesses; so we should look at what companies actually do and not just what they say.

Investors rightfully have doubts about the ability for exits and the stability of policy initiatives. It appears as though investors will need to take a more hands-on role to support their investments in East Africa, including helping them with resources and business challenges beyond direct capital investment.

 

7. Eat the fish while you can.

While visiting Jibu’s franchise and microfranchise locations around Kampala, we were fortunate to have lunch at a restaurant on the water. This was not my first time sitting on the shore of Lake Victoria, the first being a trip I’d taken to the region in 2009. Lake Victoria is one of the largest bodies of freshwater in the world and supports a growing human population of approximately 30 million. Over the last forty years, the biodiversity of the lake and its catchment has been compromised for a variety of reasons. The indigenous fish species variety has been reduced by 80%, and over 70% of the forest cover in the catchment has been lost.  Although familiar with the area, my understanding of the environmental ecosystem and workforce challenges gave me a new perspective of the importance and fragility of eating the local fish with my hands as I’ve been able to do over the last decade. It’s an experience not to be missed, while you still can.

Yummy right?! Not pictured: delicious chips or fries. No utensils necessary.

Yummy right?! Not pictured: delicious chips or fries. No utensils necessary.

 

Do you currently invest in East African social ventures, or are you thinking about making your first investment in the region? Let PeakChange help you. We have experience direct investing in developing contexts and are working to catalyze more investment in the region. We seek to share our experience and leverage our insights with clients and strategic allies.  Have you had similar experiences or radically different takeaways? Check out all our pictures on Facebook. We’d love to hear from you.