30th Jul 2015 Back
“What is an African entrepreneur and do African entrepreneurs do things differently?”
Well this is the question or maybe the challenge that the organisers of this fine event put to me.
Maybe its best to give an example or for those MBAs in the audience a “Case Study”
So here is part of my story as an African entrepreneur. From it I hope we can share some experiences regarding the issues, opportunities and challenges that define an entrepreneur and specifically an African entrepreneur, and hence understand whether African entrepreneurs necessarily do things differently – out of necessity or choice. As we go along I will detail some lessons and side bars for emphasis.
Sir Richard Branson (founder Virgin Airlines, serial entrepreneur) describes an entrepreneur as an “innovator, job creator, game-changer, a business leader, a disruptor, an adventurer.” Incidentally we have all seen Richard and doesn’t he always look to be having fun.
In this African story, innovation, job creation, game-changing, business leadership, disruption, adventure and fun are certainly present.
Now let’s cast our minds back almost a quarter of a century ago…
I left Citibank in 1992, after 10 years, to pursue an entrepreneurial vision, initially with 2 other colleagues. We were at the time contemptuously referred to by Citibank as “3 men in a boat”. We added another ex-Citi “techy” colleague in early 1993 for a total of 4.
Sidebar – Bringing in another partner with technology was a potential risk – cost, focus etc but also an opportunity as we could see importance of technology in finance.
I guess if you asked any of the partners the Loita story it would be slightly different but that is to be expected for one thing the four of us were drawn from all corners of the world – Africa, America, Middle East and Australia…..
But today’s question pertains to African Entrepreneurs…..
So our original overriding vision was to create a pan-African financial intermediation business positioning itself between the demand for international funding (trade finance, project finance and equity finance) primarily by medium and large size African exporters, importers and banks and the supply side of funding from the international capital market (mainly then composed of international commercial banks and development finance institutions).
This may sound complex if you are not a banker but for us it was our niche.
A secondary vision was to develop a technology business to support emerging commercial banks.
Lesson: an entrepreneur begins with a vision. The ideal is a single one but if good opportunities come along take them so long as it is not a distraction.
Sidebar – Do not confuse being an Entrepreneur with a life style choice. A business on the side – like the lawyer with the up-country farm is not being an Entrepreneur its being a lawyer. The Entrepreneur bets the farm on his enterprise.
At the time of leaving Citibank, I (who by the way had trained as a lawyer but was now a banker by choice), had worked my way from trainee in Zambia, to Vice President at Citibank’s Africa Region Office in Kenya, responsible for non-presence countries in Southern Africa. The other two banking colleagues were responsible for non- presence countries in Eastern and West Africa
An entrepreneur has been defined by the Mirriam-Webster dictionary as “someone who exercises initiative by organizing a venture to take benefit of an opportunity and as the decision-maker decides what, how, and how much of a good or service will be produced”.
We exercised initiative by:
-spotting a market gap or opportunity namely what Citibank and similar international banks were doing and what they were not doing in Sub-Sahara Africa (our proposed market);
We organized by:
-positioning ourselves to fill this gap: a quick but honest SWOT assessment showed that we possessed the skill (3 guys with over 20 years collective African banking experience, covering Southern, Eastern and Western Africa) and strong market relationships. A key strength recognised by my colleagues was that as the only African in the team, I was uniquely positioned to bring African market knowledge and acceptance, hence my appointment as Chairman and CEO of the team. However, 2 other strengths brought by my other colleagues included strategic thinking and financial control.
Lessons: (i) know your market and therefore know your opportunity (ii) position yourself according to your strengths (iii) deploy your unique team strengths against the market opportunity.
We decided by:
- Agreeing between ourselves our roles, writing down a “shareholders agreement” and setting both joint and individual targets…we will see more of that later
Immediate Problems: pregnant wife (maybe more a happy challenge than a problem), 2 children, no capital, “3 men in a boat” with a big vision/idea (a pan-African investment banking institution);
-Approach to the Problems:
(i) Pregnant wife, 2 children- important to maintain liquidity to provide for the family, and therefore not create even more stress;
(ii) No capital: important to look at our collective strengths as a potential source of capital (and therefor liquidity). No bank was willing to lend against an idea and therefore innovative thinking was required;
(iii) “3 men in a boat”-important to turn this potential weakness into a strength which would address the capital issue. Critical therefore to build a narrative namely: 3 men who possessed market knowledge, experience, skills and relationships in over 23 African markets. The strength would represent an “intellectual asset” against which we could build or borrow “intellectual capital”.
Lessons: (i) always think cash flow (liquidity)-most businesses fail because of this; (ii) capital is not just physical assets-innovative thinking is critical (iii) always have a narrative (who do you say you are)?
-Question: Who would buy this narrative (i.e. who would be convinced that the team strengths were an asset for which they could pay 3 individuals to build their own business)?
-The Solution: the solution came through (i) knowing our market (i.e. which potential players could see value in this narrative-these were mainly Citibank’s competitors who were trying to capture incremental market share, of which HSBC, then the biggest bank in the world was the identified player) (ii) employing our collective skills by negotiating and putting a structure in place between HSBC’s Equator Bank (their then Africa arm) and ourselves that took into consideration our identified concerns and the concerns of the solution provider (i.e. matching our mutual needs to create a “win-win” situation).
-The Structure: the structure agreed was (i) to create a new special purpose vehicle (SPV-or the New Company) which was 100% owned by the 3 men in a boat (ii) having the special purpose vehicle second the 3 men as employees under a management contract between the New Company and HSBC (iii) the management contract contained stringent qualitative and quantitative goals over a 3 year period (iv) the goals were the basis for determining success (which would allow the team after 3 years or earlier if they met their goals to fully delink the SPV from HSBC, or if the SPV did not meet the goals, it could be collapsed and the contract terminated) (v) Under the management contract an advance or loan was agreed from HSBC to the SPV to cover the initial costs of the SPV employees (ourselves) and quarterly payments which took into consideration a percentage share of profits on transactions successfully closed and billed during that quarter. (vi) we agreed amongst ourselves to only pay ourselves 50% of the total annual fee received from HSBC as our annual salary (about the same as we had at Citibank), and the rest went into capital reserves to maintain on-going liquidity and consider other non-conflicting (with HSBC) investments.
In summary, the SPV was capitalised by the HSBC management contract.
Lesson: structure is important to underpin entrepreneurial thinking.
-Loita is born:
We were successful in meeting the goals of the management contract in just 18 months. HSBC paid us out fully (and full capitalisation of the Loita Group ensued). Loita HQ was established in Mauritius to take advantage of Mauritius growing reputation as a well supervised offshore companies hub, in addition to it being in Africa.
Focus was now on integrating the financial IT requirements of our banking and financial institution clients (through a 100% owned subsidiary known as Fintech International) and innovative approaches to their funding requirements through Loita Capital Partners International. Since 1994, Fintech has implemented banking solutions at over 80 banking sites across Africa ( Angola by way of Libya to Zambia and Zimbabwe amongst other countries). Loita Capital Partners International has advised on, structured and put in place various facilities for its clients in excess of USD 3 billion. Over the years it has had investments in several banks and financial institutions of which presently investments in Ecobank Malawi (formerly Loita Bank Malawi), AAR Credit Kenya and AAR Credit Uganda are the most notable.
As our businesses matured other opportunities presented themselves. A new generation of entrepreneurs could see shared values and joined the group at different levels. One that has really progressed well is our transaction business – Loita Transaction Services or LXS. Whilst we did not realise it at the time we incubated that business within our established Fintech international base before allowing it to break free whilst maintaining common linkages. Overall we recognised the next significant growth phase in African banking and the financial sector would be automation of transactions – ATM and POS – as well as increasingly sophisticated card technologies. The group therefore established its third arm, LXS in 2001. LXS owns 100% of EFT International and EFT Ghana which are focused on supporting and implementing financial transaction technologies. Additionally it owns the majority shareholding in the national switch in Zimbabwe (Zimswitch), 100% of the de facto national switch in Kenya (Kenswitch) and 50% of Zamlink here in Zambia.
Lesson – Although Finance and technology are different disciplines, the creation of any business needs that entrepreneurial first step or decision and commitment to getting the business to be sustainable.
It will never be clear sailing and there will be failures, crisis and disappointments along with success. That is to be expected. By far the biggest crisis we faced was the sudden death of one of the original guys in the boat – Eric Roy in 2000. That was devastating on a personal and professional level as we lost a dear friend and chief strategist, but we managed to continue because by that stage we had structure and sustainability.
The Group has at various times had on-the-ground investments in Rwanda, Burundi, Cote d’Ivoire and Angola.
We have been innovative, created jobs (presently over 450 Loita employees in 7 African countries), been a game-changer (we for instance, issued the first ever bonds for the PTA Bank and the East African Development Bank in the capital markets of Uganda, Kenya , Tanzania and Zambia) a business leader (Kenswitch has 35 of the 41 commercial banks in Kenya on its switch, Zimswitch is the national switch of Zimbabwe), a disruptor (we were instrumental in creating commercial paper and domestic capital market bonds as an alternative to bank financing), adventurers (the adventure continues).
Lesson: small and medium enterprises such as those that start of as 3 men in a boat must evolve and develop into formal businesses.
Now getting back to our original theme - Do African entrepreneurs do things differently?
In a recent speech to a graduating class, philanthropist and founder of United Bank for Africa, Tony Elumelu remarked:
“The exigency of employment and overall development cannot [therefore] be left only to government, donors and philanthropic organizations. The African private sector must play a role. In this regard, Modern America for instance, has been built and transformed by 5 American entrepreneurs, namely JD Rockefeller, Cornelius Vanderbilt, Andrew Carnegie, Henry Ford and JP Morgan. Similarly, Africa must recognise key entrepreneurs as key drivers of development and prioritize them in African economic development policies”.
If African entrepreneurs do things differently, in my view, it is because of the exigency of the developmental issues they face, which is reflected in the day to day challenges of poor infrastructure (electricity-load shedding, telephone networks, poor road systems, cumbersome border delays), abundant labour but limited skilled resources, burdensome and frequently changing regulatory requirements and the difficulty of accessing capital especially by small and medium enterprises. This means that they must run twice as hard as the entrepreneur in the West and East to just stay in the same place, but still they thrive.
That is not to say that Africa does not present opportunities for the entrepreneur - young populations are willing to try new ideas – really handy for a market. Technology and communications mean ideas travel quickly. Natural resources are plentiful but need to be developed to full potential. And if we African’s know anything it is how to adapt– to the climate, the politics and the market.
So many positives but the banker in me reminds us that we still need capital.
In this regard I am passionate about enabling the accessing of capital by SMEs in particular Let us see a venture capital fund specifically to focus on the funding of viable ideas and greenfield enterprises. Such a fund (unlike the CEEC) should not be an initiative of government but a PPP (Public Private Partnership ) - the private sector (through a body such as the Zambia Chamber of Commerce and Industry-ZACCI) in joint venture with government but managed by the private sector. Personally I would like to cede some capital to such an initiative – it makes great business sense. In addition to addressing the SME capital requirements, technical advisory capacity and business culture enhancement (including the fostering of a culture that respects debt) would also need to be included as part of the total package.
In conclusion, Robert Kennedy once stated:
“There are those who look at things the way they are and they say why? I dream of things that never were and I say why not?”
I trust that by sharing this African entrepreneur’s story, there will be those with dreams among us who will say “why not”.
My friend Mwila Lumbwe, a renowned accountant and my generation of friends always posed the following questions to reiterate that as Zambians we could compete with the very best of the world., while creating our own historical paths. Please think about them:
“If not us, who? If not here, where? If not now, when?”
So there it is I think we have answered “What is an African entrepreneur and do African entrepreneurs do things differently?”
Now whether that is by necessity or choice is for you to decide !
Finally, those of you who are slightly older and knew me knew me as a bon vivant. The years have mellowed me now, and I realise that there is a greater purpose to my life. I have been blest to be a blessing, and it is God who gives seed to me as the sower. It is He who builds the house otherwise I as the builder, builds in vain. Therefore I am not ashamed to confess Him and His gospel of Jesus the Christ His son and my saviour, for it is the power of God for the salvation of everyone who believes.
I hope this blesses you. Thank you very much for affording me your time and lending me your ears.
N. Justin Chinyanta, July 30th 2015