Tuesday, 21 May 2013
Capital: What does Omidyar Network Africa do and why are you visiting Ethiopia?
Malik Fal: Omidyar Network Africa is an investment firm that is particularly interested in, not just investment opportunities for the company, but also entrepreneurship in general. We know there is a lot of interest in entrepreneurship around the world. We know Africa is at a critical juncture of its history, because of the boom in resource, and governments are beginning to understand the challenges entrepreneurs face.
Even though there is a lot of interest in this area, there is actually very little information [good quality information] about what to do to improve the opportunities for Africans and improve the economic performance of the continent. We therefore commissioned a study, along with the Monitor Group, to do research across six African countries and understand the challenges and the whole situation of entrepreneurship in those countries.
The study was commissioned around August 2012 and took two months. The first result of the study was presented at the Africa Entrepreneurship Summit held in Accra, Ghana, last year in October.
There was also another summit where a lot of people have discussed the results of the study. From the results we obtained and the discussions in Accra, we conducted further research and have published a report. We decided to go to three African countries with the report and held a meeting in Johannesburg, South Africa, went on to Nigeria and finally came to Ethiopia to present the report.
Capital: What were the criteria for selecting the countries you did a study on? Why specifically the six countries?
Fal: Africa is huge. Africa has more than 53 countries now. It is very difficult to sponsor a study on the level where all countries are included. So, first we wanted to include countries that are important in their respective regions. The idea was to get regional diversity and work on countries that would give us a good view without commissioning a continent wide research.
Capital: What do you think African countries need to work on to further develop their economies? What do their respective governments need to do?
Fal: For Africa to progress economically, some industries need to perform better, especially the export industry. In Ethiopia, for example, you have major export components such as coffee, leather and flower; this is just among the many components the country exports that could potentially be developed.
In general there are two types of companies. The first is entrepreneurship at the highest level of key sectors, such as the export industry. Then there is also entrepreneurship at the small-to-medium level. The industries we are talking about call for a lot of investment, skill and strategy. The companies that are operating in the country also need to have an environment that makes it easy to operate in and be able to find customers locally as well as internationally; basically be able to do all the things companies do to operate.
The Ethiopian government, from what we have seen and from what we have read, has committed itself to accelerating entrepreneurship in the country for obvious reasons. One of the reasons is demography. There are a lot of young people and it is very important to create opportunities for young people as well as inject income into the economy. We have no doubt that the government is dedicated to accelerating entrepreneurship.
The issue comes with being precise, strategic and knowing where exactly the areas of intervention are. It is not about just the government when we say this, it’s about all stakeholders. The two main problems around entrepreneurship in Ethiopia are financing and business support services.
In financing there are very complex factors that need to be handled, and to handle them correctly, stakeholders need to understand that financing means many different things for entrepreneurs, depending on where the entrepreneur is. If you are out of school and just starting out, or if you are an established exporter, there are a lot of different types of financing needed at different stages. Ethiopia suffers from the same problems many countries suffer from, which is the fact that the banking sector is not the main sector to provide financing.
The banks are not equipped to provide finance for entrepreneurs. If you have a hundred thousand birr and you give it to the bank, you want to make sure when you go back to that bank, it will be able to give you your money back. If your bank starts lending your money irresponsibly to ‘start-up entrepreneurs’ and loses your money, the bank is going to be closed. The complexity of financing is about understanding things like debt capital, equity capital, what kind of organizations are there to provide it, etc.; that is the eco-system that needs to be developed in Ethiopia.
Ethiopia is scoring very low on what we call different sources of finances that should be resolved.
Capital: What would you say are the strengths of entrepreneurship in Ethiopia, as well as other challenges it faces?
Fal: The positive thing we have seen has to do with the culture of entrepreneurship. Entrepreneurs are highly respected in the country. We should not take this for granted, because in some countries that is not the case at all. Like I said before, the infrastructure is very positive. We know the Ethiopian government has poured in a lot of money in the infrastructure sector.
In the area of skill and talent, Ethiopia is sort of in the middle-of-the-road. There are two things we need to look at. One is that, if you want to start a business in Ethiopia, how difficult is it to find talented and skilled people to work with you, and the other one is, do you find a lot of well-trained and well-prepared young people to operate in a small and growing business.
When young people come out of universities, they say, we will go work in a bank, go work for the government or go and work for a big NGO. Everything is already organized, they go, people show them their desks, they tell them what they need to do and who their boss is, and everything is already organized.
School systems, generally speaking prepare young people for what I just stated. What we are seeing now is, in order to have good exciting entrepreneurs, a school must equip the students with different sets of skills, because when you work for an entrepreneurial company that is just starting out, you need different sets of skills, because nothing is organized.
What we are saying is that Ethiopia, when it comes to availability of people who can manage new companies, is kind of in the middle. When we asked if the school system is preparing young people to go into entrepreneurial ventures, we also found that, it too, is in the middle. These are some of the challenges that we have seen.
Like I have mentioned before, the big challenges include financing first and foremost. The financing sector in Ethiopia is not sophisticated enough and there aren’t a lot of options to really begin to develop a good financing community.
Entrepreneurs are experts in one or two things; if you have studied IT in school, then you will become an expert in that area. But when it comes to building a business there are a lot of different elements that go into it. You need to manage finance, hire people, you need to have systems, and there are a number of things you need to do to build a good business out of a good idea. Everybody can have a good idea, but to transform that good idea into a business and into a profit year after year is a different thing. It is a different skill.
In that sense, you need to have other support organizations to help you on areas beyond your expertise. That, I will say, is severely lacking in Ethiopia.
Capital: What was the most surprising finding on Ethiopia when you did the study?
Fal: The infrastructure bit was very surprising, because we always had the idea that it was a country that is very fragmented, where it’s hard to move around and communication is difficult, but the result of the study shows that entrepreneurs are very happy with the infrastructure that is in place compared to other countries. Entrepreneurs in South Africa rated their infrastructure the worst, while Ethiopian entrepreneurs were happy with theirs. That was the biggest thing we were surprised about.
The culture was also a bit of s surprise as well, because we also saw Ethiopia as one of the countries that come from a very socialist background, a lot of bureaucracy and so on. So we felt that entrepreneurship would still be seen like the bad guy. But that is not the case at all.
Capital: What exactly do you think you or your company is contributing to entrepreneurship?
Fal: We are a venture capital firm. We work with companies that are usually two to three years old and are sort of established and need that second round finance. In many African countries it is very difficult to get that second financing, but we provide this kind of capital. We are a support-based company. We also come from a very technical background so we finance a lot of incubators. We have financed an incubator in Kenya that is actually doing very well, also in South Africa and Nigeria as well. We are putting in our own money to promote these kinds of things.
The whole research we did and presented is also one way we are contributing. We are willing to put money in doing research.
Capital: Do you plan to invest in Ethiopia? And if so, how much will you consider investing?
Fal: It depends on what opportunities we see. I am hoping to find good opportunities because this is a big and important country, referred to as the sleeping giant of Africa.
Capital: When do you think you will be ready to invest?
Fal: We are ready now; the capital is already there and it is just a question of finding the right companies. Right now, we are recruiting a team; these teams will help us locate the companies that are good opportunities to invest in.
We don’t have a budget for each country. That is not how it works. If tomorrow, for example, we find an Ethiopian entrepreneur that has a really cool product that we think can have a huge impact and we think it’s a good opportunity, we can put in USD 2 million right away. The money is not the issue; it is finding the right place to invest it in.
Capital: What is the most you have invested in a country so far?
Fal: So far in Africa, we have invested around USD 46 million, but when it comes to the biggest investment, I think it is the Bridge Academy, which is a low-cost private education business in Kenya. We invested about USD 7 million on it.
Capital: It would be interesting if we could have an idea of the estimates on the amount you are planning to invest in Ethiopia.
Fal: So far we have invested 46 million, like I said. We are currently planning to invest USD 12 million next year in different countries; of that, USD 5 million will be invested in Ethiopia; that is what we are thinking about. We are planning to invest around USD 35 million in Africa per year, so between two to three years, we will probably invest around USD 8 to 12 million in Ethiopia.
Capital: Have you done similar research before this elsewhere, as the one you have presented here in Ethiopia?
Fal: It is the first time we have done this kind of research.
Capital: Are you in contact with the Ethiopian Chamber of Commerce and Sectoral Associations (ECCSA) and do you have plans to work with it?
Fal: We don’t have direct contact with the Ethiopian Chamber. We commissioned the study and we wanted to share the study. We could have just said that we have commissioned it and we are just going to make it available online and say whoever wants to take it can take it. We could have done just that, but we felt that it was important to engage countries. We are not present in Ethiopia, we don’t have an office. We had to partner up with other organizations so that they can connect us to different bodies, be it from the government side, or otherwise.
Capital: Do you plan to open an office in Ethiopia?
Fal: Well, we don’t quite know yet. We certainly know we want to open an office in East Africa, but we haven’t decided on which country yet.
Capital: Do you have any plans to provide advice to entrepreneurs in Ethiopia?
Fal: It is not our business to do that. We do advise our own investees a lot. We engage with them on a regular basis, but we don’t have the resources or the time to advise all entrepreneurs, although we do fund organizations that have incubators. If we find an incubator in Ethiopia, we might invest in that; that way we are sort of reaching out to a lot of entrepreneurs.
Capital: Any final comment?
Fal: Getting the motivation, desiring to drive or bring about change is very important and there seems to be that momentum in Ethiopia, both in the private and public sector. It is not just about enthusiasm; it is about being smart on where we need to focus on to get this right. It is about being open to learning. If you want to move fast and create an eco-system, you need to understand where to focus on.
Typically, if I can be transparent about it, what happens is that, the way we make decisions in Africa is very shallow. For example, when different reports, be it from the World Bank or elsewhere come out, I have actually seen ministers of countries saying: ‘Oh! We are almost the last country! We need to do something.” Then they quickly do a couple of reforms so that they can just start to look good and so that they are not embarrassed. Some ministers get personally embarrassed, not because they are thinking for the good of the country, but because they don’t want their personal image to be spoiled or tarnished. We need to change this; we need to be far more systematic. Governments need to speak to entrepreneurs in order to find out what their problems are. But most of the time, governments don’t even talk to them; therefore, they don’t know what the problem is. They just come up with different reforms that sometimes are important, but sometimes are not that important.
What we are saying is, let it be systematic, so we can really understand the issues that need to be addressed in a thoughtful systematic manner.