It was, by any measure, a challenging task to map the investment possibilities for a program that hopes to gain more private capital to sustain and scale enterprises in East Africa and West Africa. Thomas Flahive, a partner at CrossBoundary in New York, led a team charged with surveying enterprises, investors, and service providers. Their mission was to determine the viability of the various innovations. The work was done through USAID’s INVEST program.
“Early-stage innovators are typically young businesses, and whether it is East Africa or West Africa, they face many of the same challenges in emerging markets,” said Flahive, who coordinated the studies. The challenges include access to capital, often unproven business models — either in that particular country or the world—and a lack of collateral.
“Unproven business models will always struggle with access to capital. It simply might not be available,” said Flahive. “That which might be available in Kenya, might not be in Uganda.”
The two geographic regions of Africa are areas being mapped by USAID under a program launched in late 2019 called Water and Energy for Food Grand Challenge (WE4F). It differs from the six-year-old Securing Water for Food (SWFF) program in that the linchpin is more emphasis on private investment.
Early-stage innovators are typically young businesses, and whether it is East Africa or West Africa, they face many of the same challenges in emerging markets.
An important subtext of the program is a focus on gender equality, the poor and young people, which can limit the sources of capital by narrowing the available investment pool. “This is what WE4F is all about. Helping a small fish grow into a bigger fish,” said Dr. Ku McMahan, USAID lead on the program and co-founder. “If an enterprise is only sustainable with subsidies, then eventually those go away, and the beneficiaries (often small farmers) are left behind.”
“We don’t want that. This is why we have married private investment with our technical support to encourage small businesses to seek, with our help, private capital,” he added.
Flahive noted that CrossBoundary spent approximately two and a half months in each geographic area, aided substantially by the company having offices in the regions.
“We continuously see nuances in the different regions and in different countries,” said Flahive. “The companies that are the most viable are those that depend not on grant capital, but that have a sustainable business model going into the future.”
“That doesn’t mean some enterprises can’t benefit from some form of a grant, but it doesn’t have to be free money. It can be for services rendered or be repayable over time,” he added.
Flahive said any support for enterprises in what he termed “frontier markets” should be based on the innovating companies meeting specific milestones, a provision in USAID’s SWFF program. “It can’t be about just short term support and hope everything works out,” added Flahive. “There have to be measurable goals met, and this can be helped along with technical assistance.”
Flahive described both east and west regions of Africa as sectors that have been areas of interest for investors for some time, particularly in East Africa. There have been many successful investment outcomes in these regions, he said.
In approaching the project and interviewing dozens of enterprises, investors, and service providers, the CrossBoundary team considered four factors:
- Which scalable enterprises are operating in the WE4F nexus in East Africa and West Africa?
- What type of capital sources are available to support the growth of such enterprises?
- Which financial/investment partners would be able to support the enterprise’s growth objectives?
- And, what kinds of technical and advisory services are needed by the enterprises and what is the availability of service providers linked to those needs?
In West Africa, the CrossBoundary mapping indicated there was a high concentration of activity in the irrigation sector due to the especially dry climate. There was a demand for enterprises to aid in year-around productive land use.
A particular attribute of West Africa was that the enterprises surveyed were distributed over a larger geographical area and were often located in the challenging and under-penetrated markets compared to their East African peers.
Investors struggle to deploy capital in these tougher environments, especially when smaller ticket sizes are required, leaving West African companies with fewer options to finance growth. The study found that while most of the companies have at least one female in a management position, challenges remain in creating an equitable investment landscape across genders.
In East Africa, various enterprises are ready for expansion, but it is difficult to achieve the desired scale without active intervention. This is due to the challenges around small investment amounts, the lack of local bank participation, and nascent business model structures.
However, whether in East Africa or West Africa, there are no countries that are hopeless when it comes to generating capital for enterprises to scale and be sustainable, said Flahive.
“You will find more investment in markets that are more vibrant,” he said. “But there are no hopeless areas. There are possibilities in Somalia just as there are in a highly concentrated area like Kenya.”
USAID, Sweden through the Swedish International Development Cooperation Agency (Sida), and the Governments of The Netherlands and South Africa invested $34 million in Securing Water for Food (SWFF) to promote science and technology solutions that enable the production of more food with less water and/or make more water available for food production, processing, and distribution.
This story was developed through the SWFF Social Impact Storytelling Initiative which was established to document innovator journeys and social impact as they work to improve the way water is being used for agriculture. #socialimpact #innovation #agriculture #water
“The WE4F GCD is funded by USAID, the Swedish International Development Cooperation Agency (Sida), Germany’s Federal Ministry of Economic Cooperation