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Tech Hub Sustainability In Africa #HubSustainability

I will participate in a series of Google Hangouts partnering with AfriLabs and AfriHive discussing tech hub sustainability in Sub-Saharan Africa. The first will occur on Friday the 14th of November at 7AM EST or, 12PM GMT.

The first hangout will be hosted by Jon Gosier and Tayo Akinyemi and will focus on a discussion of sustainability and business models. You can join the hangout at the following link.

Several excellent introductory blogs have been posted:

An introduction to the discussion from Tayo and Hilda Moraa at AfriHive.

A discussion concerning sustainability by Tayo on Medium and on AfriLabs website.

The research work of Oxford PhD candidate, Nicolas Friederici.

Friday’s hangout will include participation by:

Mugethi Gitau, iHub, Kenya;

Yann Le Beux, CTIC, Senegal

Lukonga Lindunda, BongoHive, Zambia

Some of this discussion was a result of an observation based on my visits to tech hubs and incubators across Africa. This should be a fascinating discussion. Please join us if you can!

Network Theory and Financial Risk

I had the privilege of attending and participating in the inaugural Financial Risk and Network Theory Seminar at Cambridge University. The event was organized by Kimmo Soramäki, PhD, founder of Financial Networks Analytics, hosted by the Cambridge Center for Risk Studies, and hosted at the Judge Business School at Cambridge.

Judge Business School

The seminar also served as a kick-off celebration for the new Journal of Network Theory in Finance and served as a vehicle to spark interest and feed new collaborations in this emerging multidisciplinary field. The event drew an impressive number and breadth of researchers and practitioners in the field.

Financial institutions and markets are highly interconnected, but research has only recently begun to emerge that maps these interconnections and assesses their impact on financial risks and returns. The presentations at this conference were impressive not only from their mathematical rigor but their applicability to assess and solve real-world problems that face the financial sector.

Cambridge University

Some of the topics discussed included:

Mapping Change in Complex Financial Markets, Rod Garratt, Vice President, Federal Reserve Bank of New York

Financial Catastrophe Risk Modeling, Andrew Coburn, Cambridge Centre for Risk Studies

Filling in the Blanks: Network Structure & Interbank Contagion, Goetz von Peter, Bank for International Settlements

Liquidity & Solvency Shocks in a Network Model of Systemic Risk: The Impact of Minimum Capital & Reserve Requirements, Andreas Krause, University of Bath

Interconnectedness of the Banking Sector as a Vulnerability to Crises, Peter Sarlin, Goethe University Frankfurt and RiskLab Finland

How Interdependent Are Systemic Risk Indicators? A Network Analysis, Christian Brownlees, Universitat Pompeu Fabra

I had the honor of chairing a session that focused on the use of Social Network Analysis in Finance. The presentations in this session included:

The Mortgage Meltdown: From Main Street to Wall Street, Valdis Krebs, Orgnet LLC

Financial Networks & Contagion during the Panic of 1873, Daniel Ladley, University of Leicester

Going beyond Financial Data: The Application of SNA to Investments in the Listed & Start-up Company Universe, Murat Ünal, Funds-at-Work and SONEAN

Dr. Murat Ünal presents at the SNA in Finance Session

Having organized a similar-type inaugural event, I was incredibly impressed by both the quality of presentations and the number of impressive attendees from both academia and industry. The discussions were relevant to real-world problems faced by many of the participants; not, theoretical situations that are so common at academic conferences. The “so-what” of every presentation was readily apparent and potential applications were developed during the discussions that followed. I’m already looking forward to next year’s event and predict that the number of participants will dramatically grow based on the high standard set by this event.

marketatlas

By: Justin Mahwikizi

We heard news following the US/Africa Summit last week of some major private equity deals in Nigeria. Blackstone and Carlyle finalized deals with Dangote to focus on Energy in Nigeria. Energy is the backbone of a growing economy affecting people, industry, and all the...

Tech Incubators in Africa: Too Fast, Too Soon?

As part of our ongoing data collection effort in support of the Network Science Center at West Point’s research project entitled, “Developing Network Models of Entrepreneurial Ecosystems,” we previously visited the Dar Teknohama Business Incubator, the Buni Collaboration Space, and the KINU Incubator. After those visits we visited with the Mara Foundation. Mara was founded by Ashish Thakkar, a serial entrepreneur and from the Mara Group an African conglomerate. Thakkar grew up in the United Kingdom and Uganda and considers himself, a native son of Africa.

Mara Foundation is Mara Group’s social enterprise that focuses on emerging African entrepreneurs. Its goal is to create sustainable economic and business development opportunities for young business owners through their initiatives.

The Foundation is now active in a number of countries across Africa. We visited with their office in Kampala, Uganda during our data collection visit in the spring of 2013. During this particular visit, we were hosted by Jennifer Mbuya, who leads the Dar es Salaam office.

As we learned, the Mara story is, perhaps, a precautionary tale about the buzz and excitement for tech incubators that are popping up all over the African continent. While these organizations may be the necessary catalyst for aspiring entrepreneurs, not all local environments may be mature enough for these business models.

The Mara model in Dar es Salaam was based on the more traditional models around the world. They acquired a large, modern space, equipped it with the latest equipment, and offered important capabilities for new entrepreneurs like broadband internet, reliable power, a shared support staff, and copiers/printers. They also supplied services such as mentorship and training.

The overhead for this effort was significant and, after a recent assessment, it was determined that the local environment was not developed enough and they changed their model.

The “old” Mara Foundation Office in the Mayfair Plaza in Dar es Salaam

Since that assessment, they have closed down the original incubator space, opened up a much smaller office, and modified their business model. Mara now has leveraged their network of local business leaders to act as mentors to aspiring entrepreneurs. These entrepreneurs apply for entry to the program and if accepted work through a 6-month long program. The mentors have agreed to spend at least two hours a week with each entrepreneur, either in person or virtually.

Mara has had about 35 participants since they modified their model and they are currently on their 3rd cycle under this model. Jennifer told us that Mara has made similar changes in their models at their other offices in both Kampala and Nairobi.

Based on the maturity and business viability of many of the small tech firms that we have met with over our data collection visits, and the modification of many incubators' business models, we completely understand the thought-process behind this "pivot" in strategy. For example hubs that we have previously visited like iceaddis and iLab in Liberia, and HiveColab in Uganda have all scaled back their original lofty aspirations. These hubs originally planned for a multi-tier membership model, charging rent for office space, and acquiring equity of the companies that were the most mature. Based on these assumptions, they thought they could be self-sustaining in a short period of time. All have scaled back their expectations and operate more as collaboration spaces for the local tech community and offer technical training and mentorship.

Based on our observation and conversations, we wonder: Is this rise of tech incubators a bit premature? Are the local ecosystems not ready for the more traditional incubator models?

KINU-Grinding up the Ingredients for Entrepreneurship

As part of our ongoing data collection effort in support of the Network Science Center at West Point’s research project entitled, “Developing Network Models of Entrepreneurial Ecosystems,” we previously visited the Dar Teknohama Business Incubator and the Buni Collaboration Space. After those visits we visited KINU, another business incubator/tech hub with a bit of a different business model

KINU is located in Conservation House on the booming Bagamoyo Road corridor in Dar es Salaam. We were graciously hosted by CatherineRose and JohnPaul Baretto, a sister-brother duo who are part of the founding team. Both attended university in California and have both impressive academic and business backgrounds.

Bagamoyo Road, Dar es Salaam

KINU is a Swahili word that means mortar, as in the tool that is used to grind ingredients in a pestle. The analogy is that KINU aims to be the space where different skills are combined to create locally built solutions for community problems.

The Collaboration Space in the KINU Incubator

KINU was established in June 2011 when It kicked off its first "boot camp" in Tanzania, where the founders and leadership core of KINU held an event called a "hackathon" that focused social issues and accountability. This event was attended by approximately 250 people and included IT experts and local stakeholders such as the government representatives who showcased their work. A second event was held in August of 2011. This event was hosted by Apps4Africa with a focus on social, health and sanitation issues. After these two events, the organization was firmly rooted in the local ecosystem.

Research Team Member, Jake Moffatt interviewing at KINU

The KINU staff describes it as "a Social Enterprise with the mission of concentrating, growing and accelerating the Tanzanian tech and social landscape." Their emphasis is on community and they described their organization as a family. This was readily apparent as soon as we entered the modern collaborative space. The atmosphere is upbeat, positive, and collegial; in my opinion, a sign of great leadership.

KINU was initially funded by Google and the Indigo Trust. KINU has since formed partnerships with Smile Internet, Raha Broadband, and Samsung.

The KINU Hub offers the following capabilities to its members: high-speed internet access, data storage and backup, desks, collaborative meeting spaces, a conference room, exhibition space, industry meet-ups & events, a mobile app testing environment, multiple training events and workshops, and refreshments.

Cadet Researchers conduct a class on Performance Management and Counseling

In contrast to DTBi, KINU is not a government-sponsored organization so it must depend on its sponsors and becoming profitable through its business plan. This forces the staff to be entrepreneurial and consequently, there is a high-energy atmosphere in the KINU space. Membership is currently free and open-KINU does not have a tier membership system like many other incubators; however, they might consider it for future sustainability. Currently, KINU rents desk space to both start-ups as well as more established Small Businesses. The 6 co-founders also offer consulting services to businesses and government organizations in Tanzania. Additionally, not all training events are free for members who pay a subsidized fee to attend.

KINU does not take equity from their members but it is possibility as their business model, and the local tech environment matures. KINU currently has over 400 registered members and on any given day, there are between 20 to 40 members using the space.

Our team met with the staff and the members of the community to better understand the organization and to administer our survey in support of our research project. Additionally, the cadet team taught a class on performance management and counseling to a very large group of KINU members.

A Major Step Forward for Entrepreneurs and the "Un-banked" in Emerging Economies: Alternate Credit Scores

In previous blog posts, I've written about the challenges entrepreneurs and small business owners face when it comes to accessing commercial loans. Banks typically require a great amount of collateral and charge incredibly high interest rates. A lot of these stringent requirements are due to the perceived risk that banks assume when loaning to people or firms with an unknown credit history.

Additionally, nearly 2.5 billion people in the world are "unbanked," or have no access to any form of formal financial institutions. More than a third of the global population has scarcely a trace of financial identity. This group has no financial history and has little chance to potentially borrow money for personal or business needs.

This challenge does not exist for people in North America or most of Europe due to a simple tool that many take for granted-a Credit Score.

During my visit to the Dar Teknohama Business Incubator (DTBi), I was introduced to an entrepreneur, Athu Karume who is the Country Director for First Access, a start-up based in New York, that is developing an alternative credit score for consumers in informal markets through access to the applicant's financial and mobile data. Using their proprietary algorithms they are able to predict credit risk and empower banks to make better lending decisions and reduce the overhead cost on these loans.

First Access offers instant risk scoring to financial institutions in emerging markets who vet applicants via SMS. First Access is able to access “alternative data” from prepaid mobile-phone information. Examples of this type of data are: the frequency of replenishing airtime, the types of data packages purchased, the number of text messages clients send, the timing of their calls, the manner in which clients interact with social networks, and records of online transactions. This data is then analyzed and interpreted to predict loan applicants’ creditworthiness. First Access claims that their "retail credit risk models have the highest reported accuracy of any in the developing world."

First Access gets real-time permission in the local language from mobile subscribers before accessing mobile records, they do not share information between financial institutions, and they engage closely with telecommunications and financial regulators.

First Access currently operates in 5 countries and recently signed a deal with Tanzania’s largest mobile network operator to provide instant risk scores for microfinance and other personalized loans.

Something that we in the West take for granted, a lender's ability to access our credit history, is a huge obstacle to economic growth in much of the world. As soon as Athu, explained the product to me, I had a true "a-ha moment." I think the idea is brilliant and is truly an out-of-the-box approach that addresses a major worldwide economic challenge. I truly believe that if First Access succeeds with their worldwide expansion plans, we may look back in 20 years and remark that this product was a seminal event that spurred economic growth in the world's developing economies.

The Entrepreneurial Ecosystem: Dar es Salaam, Tanzania

I have the opportunity the lead a team of three cadets who are assisting with data collection in support of a Network Science Center at West Point’s research project entitled, “Developing Network Models of Entrepreneurial Ecosystems.” We are currently in Dar es Salaam, Tanzania collecting data concerning social capital in the local entrepreneurial environment. The project has previously collected data in Uganda, Ethiopia, Zambia, Liberia, and Ghana. Analysts at the Network Science Center are developing new methods to compare and contrast the network models developed from this data.

On our first day in Dar es Salaam, we made an introductory visit to the Dar Teknohama Business Incubator (DTBi). DTBi is housed in the Tanzanian Commission for Science and Technology (COSTECH) office building, which is located on Bagamoyo Road in the Kijitonyama neighborhood of Dar es Salaam.

The COSTECH Building in the Kijitonyama neighborhood of Dar es Salaam.

We were hosted by Collin Gumbu, DTBi's, Business Development Manager. During our introductory briefing, we were also introduced to Richard Miles, an American who serves as an Entrepreneur in Residence.

The cadet team at DTBi

Collin explained that DTBi also serves as a meeting place and hub for technology start-ups. Like many incubators/accelerators, they "assist early stage IT companies by “lowering the cost of business and increasing the chances of business survival by providing access to shared resources, facilitating access to finance and markets, providing guidance and business management, and networking for technical trends and opportunities to access markets."

DTBi's business model involves an application process for aspiring entrepreneurs and then the DTBi staff accepts the best business plans, concepts and teams into the program. The entrepreneurs sign a 4-year agreement for incubation and in return, the companies get office space, power, high-speed internet access and conference rooms. DTBi provides mentoring, guidance and access to contacts in business and government agencies. Additionally, DTBi earns a percentage of their annual gross turn-over. DTBi received their initial funding from The World Bank, COSTECH, and Vodacom in May 2011 and their first cohort of incubatees was accepted in August of 2011.

After our introductory meeting, we met two members of the incubator program and administered our survey. After the survey, we then visited Buni Innovation Space, which is also located in the COSTECH Building.

Buni is sponsored by TANZICT, The Information Society and ICT Sector Development Project. It’s bilateral collaboration project between the Tanzanian Ministry of Communications, Science and Technology of Tanzania (MCST) and Ministry for Foreign Affairs of Finland. The project’s overall objective is “a strengthened Tanzanian information society with enhanced capacities to contribute to the achievement of the Government’s socio-economic development goals.”

Meeting with Tech Enthusiasts at the Buni Collaboration Space

Buni is a collaboration hub/tech meet-up space similar to the iHub in Nairobi. It is a facility that allows people interested in tech and entrepreneurship to meet and provides wireless internet for its members and has a back-up power system.

We were greeted by Brian Paul and Jumanne Mtambalike, the Innovation Space Managers. After a short introductory meeting, the team was introduced to groups working in the collaboration space and we administered additional surveys.

The team met many interesting entrepreneurs and aspiring entrepreneurs all working on innovative products. We will introduce some of these tech enthusiasts and describe some of their projects in the next blog post.

An innovative financing model for African Entrepreneurs: SliceBiz

My trips throughout the African continent confirm the emergence of young local entrepreneurs who are tech-savvy and have rapidly embraced and adopted new technologies. These advances in information and communication technologies open the door to a myriad of new business opportunities for young Africans. I have personally met with entrepreneurs who are bringing a local twist to fields as diverse as technology, finance, education, agriculture, and health.

However, for a continent with so much potential, Africa risks missing out on growth opportunities because of a local environment that makes it difficult to fund grassroots innovation.

SliceBiz is an Accra-based startup that was founded to address this challenge. Its founders are William Edem Senyo, a Ghana-based businessman who previously worked in banking and in the non-profit sector, and Heather Cochran, a former social worker from California. This start-up emerged out of Hub Accra and has very close links with the staff.

William and Heather aim to jump-start the African start-up sector by adapting the crowdfunding model that has already proven popular in the North America and Europe through online services such as Kickstarter, Indiegogo, GoFundMe as well as others.

HubAccra in the Osu Area of Accra

SliceBiz provides an easy-to-use web-based investment platform that can be used by anyone to make ‘micro investment’ transactions. Users create an “angel investor” account linked to their mobile money accounts, bank accounts or credit cards. Investors are then asked to provide between $250 and $100,000. Smaller sums can be sent via mobile, while larger ones will still rely on more traditional means.

It’s an interesting hybrid approach. SliceBiz uses accredited investors in Angel Networks to validate companies by allowing angels to first provide part of the startups funding before turning to the larger middle class group to ask for smaller investments. This approach leverages the investments of recognized business leaders while, at the same time, keeping the threshold of investments low enough to encourage a wider public participation and spreading the risks.

SliceBiz ensures cyber security and protects both parties against any potential fraudulent transactions. Unlike some other crowdfunding services, SliceBiz's model requires the start-ups to exchange a stake in their business in return for the investment. Additionally, SliceBiz will ask for equity in any business that manages to raise capital with its help, and also plans to charge an additional matchmaking fee.

Recently, SliceBiz was selected as the best start-up out of 14 competitors at the Accra Startup Weekend event hosted by VC4Africa. They also were selected as one of the top three entrants in the Apps4Africa event in 2012. SliceBiz is now aggressively moving forward and is engaging with investors and other members of the financial sector in New York. This innovative business model offers the potential to address the financial capital challenges facing entrepreneurs in Africa and is definitely a start-up to watch in the coming years.

Hub Accra: Coworking, Innovation and Entrepreneurship.

On previous blogs, I have described visits to several tech hubs and incubators across the African Continent. I recently visited Accra, Ghana and previously wrote about a recent visit to the Meltwater Entrepreneurial School of Technology (MEST). This blog introduces another tech hub in the booming Accra Entrepreneurial Ecosystem, Hub Accra.

After spending a few days with the staff and entrepreneurs at MEST, I had the opportunity to visit Hub Accra and interview a different group of entrepreneurs. Hub Accra is located on Klannaa Street in the booming and trendy Osu District of Accra. John-Paul Parmigiani, Hub Accra’s Chief Executive Officer, graciously hosted me during my visit.

Hub Accra in the Osu District of Accra

Hub Accra is a not-for-profit organization; they charge members modest fees for membership and also rent event space. John-Paul describes the hub as a “startup ecosystem.” The hub evolved out of a Certificate in Entrepreneurship Program offered by Open University of West Africa (OUWA). The Entrepreneurship Program attracted students from across Accra to study at OUWA’s Internet café campus, which is also located in Osu. These students met at the campus to access online lectures, and organically-formed teams to work on numerous group projects. Staff members of OUWA identified an opportunity and established Hub Accra.

Hub Accra has grown to host over 20 startups and quickly moved from normal operational hours to become Ghana’s first 24 hours, 7 days a week co-working space. John-Paul explained that many of the local entrepreneurs would come to the hub after school or after work, and this schedule resulted in requests for later operating hours.

Hub Accra is now housed in a separate building adjacent to OUWA, and features collaborative workspaces, internet access, and conference rooms. The second floor hosts space dedicated to the rapidly growing startups.

Over the course of the past year they have hosted numerous events, instituted programs, held workshops, brought in speakers, and established partners within the local community and across the world. During my visit, Hub Accra’s staff hosted a visit of MBA candidates from the University of Texas’ McCombs School of Business.

John-Paul Parmigiani, Hub Accra’s CEO briefing students from the McCombs School of Business at the University of Texas in Hub Accra’s main meeting room.

Educate, Incubate, Invest!

John-Paul explained that HubAccra has “developed a three-phase impact model to help early stage entrepreneurs harvest their innovation and become investment-ready.” This model is known as, “Educate, Incubate, and Invest!”

Educate: OUWA is the primary partner in the education phase of the model. Located next to the hub, OUWA provides low-cost, online classes for Hub Accra’s members. A goal of the educational component of the model is to spark an interest in lifelong learning for the entrepreneurs, as well an awareness of various opportunities online for continuing education.

Incubate: Hub Accra has initiated an accelerator program for high-impact entrepreneurs with high growth potential – giving entrepreneurs daily structure and instruction on how to move forward with their ideas.

Hub Accra’s Collaborative Network

Invest: Once participants have graduated from either the incubator or accelerator programs, Hub Accra’s co-founding partner, SliceBiz, a micro-investment crowdfunding platform that provides seed funding, (I will introduce Slice Biz in more detail in my next blog post.) can gauge the investment readiness of their startups. Startups that show great potential with innovative business models will have the opportunity to raise seed funding through the SliceBiz platform.

Incubator Program

As stated in the three-phase model, students who complete the certificate in entrepreneurship have the opportunity to enter Hub Accra’s incubator program, “Startup West Africa.” John-Paul’s plan is to enroll approximately ten startups biannually in the program. He anticipates that the average entrepreneur will progress from the entrepreneurship program through the incubator/accelerator to investment in approximately 18 months.

Hub Accra’s 2nd Level Working Space for firms in the Accelerator Program.

The incubator program meets several times per week offering workshops, team-building exercises, business plan development assistance, and connections to industry professionals for mentorship. In return for the services provided, entrepreneurs are asked to reserve up to 5% equity in their company for Hub Accra or pay modest fees to contribute to the sustainability of the hub’s business model.

The Way Ahead

John-Paul is dedicated to expanding Hub Accra’s presence and deepening its impact in Ghana. Within the next few years he hopes to shift to a larger facility that is specifically built for their needs, to truly leverage the current momentum, and realize the potential of their model.

This new hub will feature fully developed educational and investment facilities as well as ample space for startups to grow. John-Paul anticipates offering office space to key partners to operate out of their Hub to nurture the community. He would also like to provide living space to house entrepreneurs, entrepreneurs-in-residence, and international guests.

His goal is to accommodate approximately 40 startups concurrently in this co-working space, spawning 100 sustainable businesses over a five-year period. He estimates that these startups will employ approximately 400+ people within the first five years of operation.

In my next blog post, I will introduce the innovative SliceBiz platform.

Access to Growth Capital for SMEs: Capital Markets?

I have been slow to follow-up on my impressions of the entrepreneurial environment and the challenges facing SMEs in Accra, Ghana from my trip in May due to additional travel requirements.

As part of desire to learn more about access to capital for SMEs, I visited the Mr. Ekow Afedzie, the Deputy Managing Director of the Ghana Stock Exchange (GSE). We met at Cedi House, a large modern high-rise in Central Accra that houses the GSE.

Cedi House in downtown Accra

The GSE currently lists 37 equities and 2 corporate bonds. Interestingly, two individual stocks, Tullow Oil and AngloGold Ashanti Ltd., make up over 75% of the overall market capitalization on the Ghana Stock Exchange (both stocks are listed in London as well). If an investor could buy the Ghana Stock Exchange Composite Index they would have had a return of almost 80% in 2013.

The GSE Trading Floor during the Tullow Oil IPO

As illustrated in my previous post describing my meeting with the CEO of eServices Africa, accessing funds to expand a business operation has been a major challenge faced by today's business leaders in Ghana and other developing countries. To address this challenge, the GSE introduced the Ghana Alternative Market (GAX) in the first quarter of 2013 to offer an additional alternative for growth capital for SME's in the growing sectors of manufacturing, food processing, pharmaceutical, IT, agriculture and services.

Ekow explained that the GAX will be a parallel market that host SMEs and has a less rigorous standard for listing. He described the four main differences between the listing requirements for the main exchange and the GAX:

Lower stated capital requirement: A company applying to list on the GAX must have a minimum stated capital of only GH¢250,000 (approximately $80,000) at the time of listing.

Public Float: The public float of the applicant must constitute only a minimum of twenty-five percent (25%) of the total number of issued shares. Only twenty public shareholders are required.

Period of Existence Admission may be granted to a start-up company, provided the applicant submits to the GAX a 3-year business plan, demonstrating clearly the viability of the applicant. A company seeking admission to the GAX need not have recorded profits historically but must have the potential to make profit at least at the end of its third year of listing.

Cost of Listing: Listing and application fees have been waived. A GAX listed company only pays an annual fee of GH¢ 2,000.00 (approximately $650)

Additionally, the GSE has created the GAX-SME Listing Support Fund, which is a revolving fund to support the cost of raising capital, and defers many of the up-front listing fees. Companies listing on GAX can apply for funds and will then repay them upon completion of the IPO.

Ekow explained that there are currently 2 companies in process of registering for an IPO and have drawn funds for the Listing Support Fund. He also told me that 1 additional firm has drawn from the fund, and they have identified a fourth firm that has expressed interest in the GAX.

Many African Stock Exchanges have developed similar parallel SME Exchanges but most are in their nascent stages. For instance, the Nairobi Stock Exchange, one of the most active on the continent (excluding Johannesburg), has one stock listed in the Growth Enterprise Segment.

Ekow emphasized that the GSE is "not in a hurry and is taking its time" with the GAX to ensure that they achieve their long-term agenda which is to enable SMEs to access long-term capital. He further explained that many of these firms will have a slow growing process in order to 'formalize their business." He cited that many of these businesses have bookkeeping and record keeping challenges, in some cases have issues with clear land titles, and many have lapsed professional and other licenses.

Prince Kofi Amoabeng

The important role of SMEs in emerging markets such as Ghana has long been recognized. The GAX is definitely a step in the right direction but is not the only step required to address the many challenges facing SMEs in an Emerging Market. Many SMEs in Ghana do not aspire to publically list their shares and, in many cases, there is a cultural bias against giving up control of even a percentage of a firm. The key to success for alternate exchanges like the GAX will be an event that causes a local paradigm shift. I believe it needs to be a highly publicized IPO that resonates with business-owners and the public-at-large in Ghana. There had been some hope that the IPO of UT Bank, with its well-known and charismatic founder Prince Kofi Amoabeng, on the GSE in 2008 would have sparked an interest in local equities but it does not appear to be the case. Who will be Ghana’s Steve Jobs?

Another firm in the “Missing Middle”

During my visits to Sub-Saharan Africa, it is readily apparent that micro-businesses are abundant in developing countries but there are far fewer small and medium-sized businesses (also referred to as Small and Medium Enterprises, or SMEs). The Center for International Development at Harvard estimates that SMEs are responsible for over 50% of the GDP and over 60% of employment in developed countries, but in low-income countries they are responsible for just 17% of the GDP and 30% of employment. Economic development specialists commonly refer this difference as the “Missing Middle.”

Typical “Micro-businesses” in Accra

Almost three years ago, I was introduced to Kojo Hayford, the Chief Executive Officer (CEO) of eServices Africa Ltd, a business process outsourcing (BPO) and IT Consulting and technology firm based in Accra. I was able to interview him and learn about his business and his journey as an entrepreneur. I was fortunate on this visit to Accra to stop by the eServices offices and catch up with Kojo and see what has occurred over the past three years.

In 2011, I learned that Kojo was a self-described “serial entrepreneur” and had been involved in IT Consulting since 2004. He attended college at Cal State-Sacramento and earned both a BS and an MBA. After spending quite a few years in the US, Kojo returned to Ghana and started an IT Systems Integration firm with Nigerian partners to address the huge gaps in enterprise wide solutions for the large government sponsored enterprises (parastatals) and large multinationals in West Africa. The company Tara Systems became the number one IT Company in West Africa. The rapid growth in Ghana brought with it major challenges some of it insurmountable.

Kojo in collaboration with Nortel Networks and a McLean Virginia company built the first fibre-optic backbone network using an existing dark fibre owned by Ghana’s power generation and transmission company This proof-of-concept network Ghana*Net generated investor interest in the US but was tabled due to the effects of the “dot.com crash.”

Based on this experience, he became aware of the “value of voice” in the enterprise and decided to move into the Customer Relationship Management and design and implementations of Call Center technology infrastructure sector. His first customers were Vodafone Ghana (then Ghana Telecom) and Millicom (tigo), two of Ghana’s leading fixed line and mobile phone service providers. Based on this relationship, eServices quickly morphed into the “service provider” business by investing in its own contact centre to provide services to tigo.

The eServices Africa Facility

Since we met three years ago, eServices has seen a steady increase in customers (they now include the National Health Insurance Scheme, other health care providers, the major electric utility, Barclays, Ghana Telecom, and Unilever, & quite a few other firms) and has grown organically. During my 2011 visit, eServices had approximately 25 employees and their estimated annual revenue was approximately $3M (US). The current headcount has increased to 160 FTEs. eServices has now occupied an additional floor in the facility in order to accommodate the growth of the staff.

Based on the current environment, Kojo is aggressively moving in the Health Care Sector. The Ghana National Health Insurance Scheme is being implemented and much of the future system will be digital. Kojo believes that he is well positioned to be a first-mover in the sector.

Kojo has also initiated a potential collaboration with the University of Ghana. Many of his employees are graduates of UG and he is proposing the joint development of a new facility adjacent to the university campus that will allow for internship programs and other collaborative efforts.

During my previous visit, Kojo told me that he was pursuing growth capital and had told me that his ultimate goal was to have an IPO on the Ghana Stock Exchange. During this visit he told me that he has decided to not obtain additional funding but might consider it in the future depending on available terms. At the conclusion of my visit, I again asked Kojo what his ultimate business goal is, and he confidently (again) stated that he wants to be part of the “biggest IPO ever on the Ghana Stock Exchange.”

By all impressions, this appears to be a well-run business with steady growth and it’s operating in a sector with great potential. So why is it challenging for eServices to access growth capital? Kojo stated in our interview that commercial banks are willing to talk about business loans now that he has a strong track record of contracts, but commercial loans are still very expensive, typically 25+%-inflation is approximately 14% so these are still very expensive loans in real terms.

This successful firm might be attractive to a Venture Capital or Private Equity Fund but there are not many funds that are interested in deals below $10M. The recent halt of fundraising by Jacana Partners, a PE firm that was focused on SME investments in Africa, doesn’t bode well for this space, either. It’s a common belief among investors that the overhead and administration costs are the same if the deal is “$100M or $1M,” so there is little incentive for the large VC and PE firms to look for smaller deals.

Additionally, the Harvard center states “For VCs, SMEs in developing countries are not the next Microsoft, meaning there is not a clear exit, nor exponential returns from a handful of successes to compensate for the failures.”

So, what is the model that addresses capital for the “Missing Middle?” There are emerging innovative business models like SliceBiz, an Accra-based “micro-investment crowdfunding platform providing seed funding for start-ups” but this model focuses on start-ups and doesn’t address the large number of SMEs that are growing, addressing the needs of domestic customers, and need growth capital. My guess is that these SMEs are a better risk for investors but tend to fall under their “radar.”

Is there a “SliceBiz for SMEs” on the horizon?

The Meltwater Entrepreneurial School of Technology-Accra, Ghana

Over the past two days, I had to opportunity to visit the Meltwater Entrepreneurial School of Technology (MEST). MEST was founded in Accra by Jorn Lyseggen in 2008. Lyseggen, a Norwegian, established an internet consultancy company in 1995, which has grown into the Meltwater Group, a software as a service (SaaS) company, providing cloud-based computing solutions to more than 16,000 global clients.

The Meltwater School House in the East Legon area of Accra

I was hosted by Emmanuel Quartey, Director of Marketing and Communications for MEST's Incubator team. Emmanuel is a native Ghanaian, who graduated Yale, worked at a start-up in the US for a while, and then returned to Ghana to work at MEST.

I visited MEST to interview the entrepreneurs working at MEST and collect data in support of a project I am leading that is developing network models of entrepreneurial ecosystems. You can learn more about the research project at the Network Science Center at West Point blog.

MEST is drastically different than any other incubator than I've visited. There is a rigorous application process and accepted students participate in a two-year, full-time, fully sponsored training program in which the students – known as Entrepreneurs-in-Training (EITs) – learn about software development and entrepreneurship from Senior Faculty. This two-year program includes a full scholarship, three meals a day, free housing, and a monthly stipend. I have not seen such a lengthy, thorough, or rigorous program at any of the other incubators or accelerators I have visited over the past two years.

I enjoyed a traditional Ghanaian lunch with the MEST EITs

At the end of the two-year training period, the EITs have the opportunity to pitch a business idea with the goal of being accepted to the Incubator Program. The Incubator Program does not simply accelerate the portfolio companies, but provides a hands-on support system to the selected companies. These companies typically remain at the Incubator between 12-24 months.

A bridge spans a stream and connects the MEST School to the MEST Incubator.

The MEST Incubator has more than a dozen full-time staff in Ghana as well as members in the Silicon Valley. MEST provides the following resources to the portfolio companies:

Seed Financing- Typically $50K to $200K for a minority equity interest in the business.

Office space, conference rooms, and high-speed internet connectivity in a 5,000 sq ft. building in the East Legon area of Accra, adjacent to MEST’s main campus.

Full-time, on-site staff of business advisors and cross-functional experts who work day-to-day with the portfolio companies to support application development, marketing, sales and distribution.

Centralized suite of resources and shared databases to assist companies in accelerating sales, marketing, finance, and legal issues.

The MEST Incubator Building

A common area in the Incubator Building

To date, the MEST Incubator has invested in over 15 companies and backed more than 35 co-founders. Two of the most prominent are Dropifi, an online tool that helps businesses sort customer feedback online, and Saya, which offers an instant messaging and SMS service to feature phones geared specifically to emerging markets like Africa.

Outside of the Saya Office

Finally adding to the blog after a long absence... Ate dinner at a place I enjoyed immensely the last time I visited Accra 3 years ago. It's called La Tawala Beach in the La Beach area. It's changed an incredible amount in 3 years. The deck structures are new as well as the bandstand. Still have fantastic grilled chicken and fish...nothing fancy just good smoke flavor and pepper spices. As always reggae music... The full moon broke through the clouds right as I was leaving.

Access to Capital Challenges in Frontier Markets: Initial Public Offerings

As I stated in my previous post, one of the main aims of the African Securities Exchange Association is to enhance "the visibility of ASEA members at the international level with a view to attract capital inflows to African capital markets."

As part of my ongoing research and analysis on Entrepreneurial Ecosystems, I am trying to better understand, how fast-growing Small and Medium Enterprises (SMEs) become fast-growing Large Enterprises. The answer is usually access to capital for expansion. The challenge in Frontier Markets is what specific institutions are available (and willing) to fund this growth.

One avenue for growth capital in Developed Markets is the stock market. A firm sells a portion of its equity at an Initial Public Offering (IPO), gains the capital required for growth, and the process sometimes makes the founders and early investors extremely wealthy.

This has not been a common scenario in Frontier Markets, although, an article in Bloomberg today mentions that African bourses are forecasting an increase in IPOs in 2014. This increase is likely a result of the incredible yearly returns of many of African equities. For instance, Safaricom, a mobile phone company and mobile money provider in Kenya, has returned over 100% year-to-date.

The Abidjan-based Bourse Regionale des Valeurs Mobilieres, which trades securities from eight West African nations, is set for its first new listings since 2010 with two Senegalese companies and the Stock of Exchange of Mauritius may see 15 offerings in 2014, while the Nairobi Securities Exchange is predicting five IPOs.

This is an interesting piece of news-I am especially interested in learning more about these firms. It will be an encouraging sign if they are businesses that have grown organically and are now “going public.” I will remain an interested observer to see how this optimism plays out over the coming year.

scene from tonight's gala dinner #ASEA2013

I am currently attending the African Securities Exchange Association (ASEA) Annual Conference hosted by the Bourse Régionale des Valeurs Mobilières (BRVM) in Abidjan, Côte d’Ivoire, the economic capital of Côte d’Ivoire and BRVM headquarters.

As part of my ongoing research work, I have been studying ways that growing businesses in Sub-Saharan Africa access the capital necessary to expand. Many practitioners envision local securities markets as a potential avenue. Insights from this conference will enable me to understand the current state of Frontier Capital Markets in Africa.

This year, the conference’s focus is a major theme for the continent’s economic future, addressing both African and international decision-makers: “From promises to achievements: the key role of capital markets”.

The conference is well attended and participants include leading policy makers, Central Bank governors, African and international financiers. The conference is being hosted at an amazing conference facility at the Hôtel Sofitel – Ivoire.

ASEA is the association of 24 securities exchanges in Africa. It was established in 1993 and its vision is to enable African Securities Exchanges be key significant drivers of the economic and societal transformation of Africa by Year 2025.

ASEA plan on achieving this goal by:

Enhancing the visibility of ASEA members at the international level with a view to attract capital inflows to African capital markets.

Providing an authoritative information portal on African public markets and provide aggregated statistics and information on African Exchanges.

Being a powerful lobbying and advocacy voice for Member Exchanges.

Promoting market development among Member Exchanges.

Promoting Capacity Building and Training for Member Exchanges.

Initiating Strategic Alliances on behalf of Member Exchanges.

My next post will analyze the efficiency and efficacy of the securities exchanges on the African continent.

Returning “Home"…The Diaspora

During my recent visits to the African continent, I’ve been fortunate to meet with members of the African diaspora who have returned to their family’s original homeland. The World Bank estimates that there is an African diaspora of 39 million in North America, 113 million in Latin America, 13.6 million in the Caribbean, and 3.5 million in Europe. This group is not monolithic - some were born and reared outside of their home country; many migrated to Europe, the United States and other parts of the world at a young age; while others arrived to attend college.

One night in Monrovia, Liberia, I was fortunate to meet two members of this group. The first is Mlen Too Wesley, an Information Technology specialist who grew up in Michigan and graduated from the University of Rochester. He originally planned on attending law school after college but decided to study and work in West Africa for a few years; first in Ghana and then moving to Liberia his family’s homeland. He has established himself as a local Information Technology expert and has successfully won numerous contracts with the federal government and local non-governmental organizations. MT, the name he goes by, is also now involved in an interesting start-up company that is exploring using mobile apps to cater to Monrovia’s growing middle class.

Chid Liberty

I also had the opportunity to meet Chid Liberty who is the co-founder of a company called Liberty & Justice. L&J is Africa’s first fair-trade-certified apparel manufacturer, making tops and bottoms for brands like Prana, FEED Projects, Haggar, and other large buyers in the U.S. The workers at the company's factories in Liberia and Ghana are 90% female, and paid 20% higher wages than their peers on average. Together, the employees also own a 49% stake in the enterprise, while L&J’s 51% is invested into community development.

Liberty & Justice Manufacturing Facility

Chid is the son of a Liberian diplomat and his family was exiled during the coup in Liberia in 1980. He lived abroad in Germany and the United States, where his dad taught African history. When Chid was 18, his father died, and he started to think about returning to Liberia. After a short career in technology and finance, Nobel Peace Prize winners Leymah Gbowee, President Ellen Johnson Sirleaf, and the Liberian Women’s Peace Movement, which helped end 15 years of civil war, convinced him to return to Liberia. “I just thought that was really cool from a social change standpoint. I was in Silicon Valley working with tech startups as a finance person, and I thought, ‘All right, well, I think I can apply that skill to providing economic opportunities for women’ and decided to come here and try, in an industry that I knew absolutely nothing about.” In addition to his work at Liberty & Justice, Chid serves as the Entrepreneur-in-Residence at the University of Liberia’s Monrovia Business Startup Center as well as on the Board of Directors of More than Me, an organization I profiled in previous post.

Liberty & Justice Manufacturing Facility

L&J Employees

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