Few would believe that a province in one of the poorest countries in the world is home to several successful enterprises.  Despite a poverty rate of 65 percent, environmental degradation, malnutrition, and inadequate energy supply, the Musanze district in northern Rwanda demonstrates hope for areas facing a similar situation.  With low purchasing power, lack of market access, and underdeveloped infrastructure, impoverished regions appear to be poor destinations for private business investment. However, it is worth considering that these challenges actually afford tremendous opportunities, not only for business development but for community transformation as well.  As Bill Gates says, “[Social business] is how people can benefit when businesses find opportunities that have been missed.”[1] Economist Paul Polack adds, “The problem is that 90 percent of the world’s designers spend all their time working on solutions to the problems of the richest 10 percent of the world’s customers.”[2] Why doesn’t business target the other 90 percent when it seems intuitive to search for untapped markets?  By exhibiting just a few of the businesses in Rwanda’s Musanze district, I will argue that it simply makes sense to look for opportunities in unlikely places where the gravest problems exist.

One of the worst problems facing Musanze is malnutrition. Fortunately, a business called One Egg was able to find locally available resources and sustainable solutions to this problem.  One Egg is a private company that raises chickens and was founded by an American entrepreneur who had a vision of creating economic opportunity and jobs in Rwanda.  His vision began with a social conscience, but he chose to go the for-profit route for the purpose of sustainability.  As One Egg states on its website, “When a hen house is built it creates jobs in the areas of construction, business, farming, transportation and animal care.”[3] The choice to use chickens as the main capital source was selected because eggs provide a means of income to employees and an affordable source of protein to consumers.  Each day, One Egg produces and sells 4,000 eggs.  The price of the eggs varies depending on the size: smaller ones sell for 50 Rwandan francs (Rwf), and larger ones sell for 55 to 65 Rwf.  Assuming basic math, this indicates that the enterprise is earning at least 200,000 Rwf per day from eggs alone.  In addition, One Egg also sells an average of 3,000 kilos of manure, which is collected from the chickens daily.  The fertilizer is sold for 35 Rwf per kilo and brings in 75,000 Rwf in added revenue.  Once chickens are no longer able to produce eggs, they are sold as well.[4]

As part of its social mission, One Egg engages in charitable giving to malnourished children whose families cannot afford ample sources of protein.  Donors sponsor children through schools, orphanages and hospitals; the funds go to providing the children with eggs.  This not only supplies protein to malnourished children but also creates additional jobs for those who deliver the eggs.[5] Although this part of One Egg’s mission is not-for profit, the sustainability of the company allows One Egg to take on other projects that benefit disenfranchised members of the community.  With this approach, the business is multifaceted and demonstrates that giving can be supplemented with a method of sustainable operations.  If One Egg was simply a donor organization, it would require considerably more donations to support daily operations and labor costs.  Clearly, profit can have other implications for a company’s social outreach.

Although poultry is not a unique endowment to Rwanda, there are other businesses in Musanze capitalizing on indigenous resources. One of Rwanda’s most distinctive companies is Horizon Sopyrwa, a subsidiary of Horizon Group.  Horizon Group Ltd. is a private, limited investment company that supports sustainable, profitable Rwandan businesses across various sectors.  The company targets sectors that are of “strategic and national importance” and that show promise for building Rwanda’s private sector and strengthening economic development.[6] One business that stood out as a strategic opportunity was Sopyrwa, a pyrethrum processing company.

Pyrethrum is a small, white flower that looks like a daisy and works as a natural insecticide.  The flower is difficult to grow because it requires specific environmental conditions, namely, volcanic soil.  Due to the specific growing requirements, only three areas of the world are known for pyrethrum production: China, Australia and East Africa.  Because Musanze houses part of the Virunga volcanic chain, the soil and temperature around the northern area is conducive to pyrethrum farming.  As opposed to other insecticides, pyrethrum is organic, leaves little residue, is harmless to humans and pets, and has a superior environmental impact relative to other pesticides.  Moreover, the uses are multi-purposed: Farmers can use pyrethrum for crop protection, individuals in residential and commercial areas can use it for pest control, and public health officials can use it to combat mosquito-produced illnesses.[7] With multiple functions, pyrethrum is proving to be both commercially lucrative and socially valuable.

There are three major pyrethrum processing plants in East Africa, one of which is Horizon Sopyrwa.  At present, Horizon Sopyrwa holds roughly 5 percent of the total global pyrethrum market and the pyrethrum from the company is said to be of superior quality to that of its competitors.  This is why Rwanda’s pyrethrum is popular in Europe and America.

Pyrethrum cultivation is organized into 5,600 hectares of land, which is tilled by approximately 70,000 families in northern Musanze.[8] Once the plants have been harvested, they are sold to cooperatives (24 in total) that prepare the flowers for transport to the refinery.  The result is a supply chain in the production process, which creates more jobs and income at different levels.  Cooperatives pay the farmers 1,000 Rwf per sack and then sell the dried flowers to Sopyrwa for 1,035 Rwf.[9] Thus, cooperatives receive marginal profit, and Sopyrwa receives supplies ready for processing.

Horizon Sopyrwa’s impact is felt in both a micro and a macro sense.  Sopyrwa’s output is primarily geared towards exports, which contributes to Rwanda’s trade profile, but the company is also hoping to expand business within Rwanda.  As new factories and businesses enter the Musanze area, Sopyrwa is signing contracts to supply them with pyrethrum for various purposes.  Sopyrwa is also hoping to sell pyrethrum locally so they can have an impact on communities that could benefit from disease protection and crop cultivation.[10] With pyrethrum growing only in a few countries, Sopyrwa has an excellent opportunity to boost Rwanda’s competitive capacity on a world scale.

A new company that also shows strategic promise is SOGEMR, a private micro-hydro development business.  Although its current hydroelectric project is still under construction, there are many reasons to be optimistic about the potential effect SOGEMR could have.  Only 20 percent of East Africa’s total hydropower potential has been tapped.[11] By 2020, however, hydropower is expected to account for nearly 80 percent of East Africa’s total power.[12] Receiving financing for hydro projects is difficult because of the capital intensity and high risk involved.  In addition, there is frequently a low return on equity, and banks are reluctant to invest in volatile regions.[13]

Because Rwanda has demonstrated stability post-genocide and has a relatively positive record of intolerance to corruption, it could be the next safe investment location for hydropower. Currently, only 6 percent of the entire population has access to the national grid in Rwanda, and the capacity of hydropower that has been installed is underutilized and in poor condition.  Within the next decade, Rwanda will require more than three times the energy it currently has the capability to produce as the population grows and moves to the cities.[14] Fortunately, there are around 100 potential sites for small hydropower plants, and about a fourth of those could possibly be connected to the national grid.[15] The problem is that the appropriate government framework for hydropower installation is lacking; the skills required at the Ministry of Infrastructure to create a national plan are underdeveloped.[16] If more Rwandans are to have access to quality power, new approaches will have to be taken.

Still, SOGEMR offers numerous economic benefits as a private company.  SOGEMR’s Musarara 1 plant, which is presently under construction, is highly labor intensive.  There are several parts to a hydropower plant, which for SOGEMR consists of a silt basin, canal, pipeline, turbine and power station.  For the plant that SOGEMR is building, a canal is needed to route the water from the point of intake to the pipeline.[17] Approximately 200 workers are needed during construction of the canal in addition to the 100 workers needed to construct the turbine.  At the peak of construction, it is estimated that up to 400 workers will be required.[18] Before SOGEMR’s undertaking, workers mainly labored in agriculture or had little means of subsistence.  Although the labor to construct the project is only temporary, the money generated will benefit the community.

If all goes according to plan, Musarara 1 could also be connected to the national grid, in which case SOGEMR could sell energy to the government and bring power to districts beyond Musanze.[19] Even though Musarara 1 is initially more expensive to construct because of the higher quality materials used, it will likely prove inexpensive in the long-run since the materials are more durable.  Besides the construction materials, SOGEMR also has an incentive to maintain the plant due to the profit incentive.  If the plant is not producing energy or is underutilized, SOGEMR will take in less revenue and have a harder time repaying its loans.

By combining the skills and expertise of foreign professionals with local talent, SOGEMR could prove an outstanding example of the benefits of social business.  While operating at profit, the company could provide a crucial resource of clean energy to homes, schools, and hospitals.  As many in the development field agree, infrastructure is the backbone of economic growth.  Having quality, environmentally-friendly energy is essential for further improving infrastructure, creating jobs, and sustaining livelihoods.  If the project is successful, the company could adopt more sites and contribute to Rwanda’s emergence as a hub for reliable East African energy.

While companies such as SOGEMR and Horizon Sopyrwa illustrate the advantages of capitalizing on distinctive resources, One Egg proves that we don’t have to search too hard to find economic assets.  Businesses of any size are always looking to satisfy demand where demand can be found, which often results from a need that is currently unmet.  With this in mind, the large, untapped populations of developing countries are a rich opportunity to target customers since the needs are unlimited.  Private businesses would greatly benefit from this realization by turning their attention from the top 10 percent of the world’s consumers to the other 90 percent of overlooked, potential customers.  The advantage of small to medium enterprises is that they possess greater capacity to transform local communities while simultaneously boosting a country’s regional and global competitive credence.  But it’s not just about making money or improving development statistics; on a basic level, it’s about the validation that workers earn a sustainable living independent of aid or philanthropy.  Social business turns ideas into solutions by reconciling virtuous motivations with sensible approaches, even in the unlikeliest of places.

For full report read: For-Profit Social Business by Alexandra Sing

ISOKO: Can you briefly introduce yourself and your work?

Reynolds: I am CEO of Scotiabank Europe Plc, a London based corporate and investment bank. I am currently on a 24-month sabbatical focusing on development efforts in Africa and India. My experience includes living and working in seven different countries, mostly in the developing world. I have seen the efforts and frustrations of the people of these countries as they battle to improve their livelihoods against often daunting environmental situations. I am a believer in helping entrepreneurs help themselves improve their economic and social standing and, in the aggregate, having an impact on their country.

My approach is to use my business experience to assist both the entrepreneurial community as well as poverty-alleviation focused NGOs. I am hopeful that these entities can accelerate their advancement by tapping into my experience as well as my network of qualified individuals and organizations.

ISOKO: Why is FDI important for Africa’s economic development?

Reynolds: Foreign Direct Investment (FDI) is one of the most potent tools for accelerating a developing country’s economy. It has direct, positive correlations to poverty alleviation, GDP growth and the advancement of skills for the workforce. The benefits of FDI are widely documented and also include technological transfers, creation of more competitive marketplaces, increased governance standards and enhanced foreign trade. The latter has significant, positive balance of payment implications and can help to decrease reliance on foreign aid.

FDI, being a major catalyst for development, should be an integrated part of a government’s economic growth plan and significant efforts need to be undertaken to create the right environment to attract such capital.

ISOKO: What are the key issues to think about in attracting FDI?

Reynolds: I see three types of FDI: natural resource based, infrastructure and the rest. In my experience, natural resource based FDI is much less selective than the others – they go where the resources are. FDI in infrastructure most often depends on the government being on one side of a key agreement as a supplier or customer; hence the credibility of the host government tends to be the largest factor in this type of investment decision. The ‘rest’ category would include the highly desired manufacturing and knowledge based sectors. These sectors are much more selective and basically can choose from a much broader list of candidate countries in which to invest. This means countries are compared against each other to see which one offers the best set of inducements, ease of doing business, safety of investment and framework for investment.

Much of the current FDI in developing countries has come through the purchase of indigenous companies by foreign entities. In the case of Rwanda, FDI will necessarily be more weighted towards greenfield-type activities. It is important to recognize the significantly higher risk involved in this type of investment. As a result, investors will be much more circumspect. The obstacles that natural resource FDI or acquisitions might withstand could well preclude greenfield investments.

ISOKO: In Africa/Rwanda, what policies or institutions have you seen as inhibiting potential investments? What social practices have you seen inhibiting FDI?

Reynolds: Firstly, I would like to say the Government of Rwanda has done a tremendous job improving the FDI climate. They have successfully moved up in the major metrics of doing business as measured by the World Bank and have addressed a number of other areas to encourage FDI.

I have talked to a number of companies that have invested and, probably more importantly, companies that considered investing but decided not to proceed. My assessment is then, of course, anecdotal. Nevertheless, it does suggest that there are some areas that merit further examination.

I have heard concerns with the lack of depth in the bureaucracy, the delay of obtaining decisions, obfuscated tax and VAT policies, a shortage of experienced general managers, the unreliability of infrastructure (e.g. power), and lack of jurisprudence in contract law or in the rule of contracts. I have often heard comments from investors that it was just too much effort and required too much management.

This later point is critical from the standpoint of foreign companies deciding to invest. After assessing risk and return, a company will look at the amount of head office management effort required and assess that against all the other competing investment opportunities.

ISOKO: Are there any other inhibitors to FDI that you would like to mention?

Reynolds: It would be highly insightful to approach these questions in a more formalized manner. As I indicated above, my views are based on a number of interviews I have conducted but, notably, they are not statistically valid. As well, there may be a gamut of inhibitors whose varying degrees of importance would provide guidance on where efforts should be focused.

ISOKO: What are the necessary steps for moving forward to mitigate these obstacles?

Reynolds: The basic tenet of a good FDI regime is the need to establish a transparent, broad and effective environment that enables investment. Supporting that is the building of human and institutional capacities required to implement the regime.

As mentioned above, the goal for a country should be to offer a very competitive environment. It is not realistic to believe that non-resource, greenfield FDI will flow to a country with apparent investment obstacles when there are so many other choices available.

In my experience, it is often the issues behind the issues, which organizations such as the World Bank measure, that actually hinder investment decisions. To move forward in Africa, greater clarity on the specific obstacles potential investors have experienced is necessary as well as an understanding of the relative importance of each factor (as a note, the World Bank ranks all factors equally). Once these have been identified, clear plans must be published on how they are currently being mitigated and will be mitigated further.

ISOKO: Why might Rwanda be especially poised as a laboratory for exploring these issues?

Rwanda has set clear objectives in its Vision 2020 for a viable private sector as the principle growth engine of the economy. The Government is fully onboard with increasing FDI as an important element of this goal and it has been especially successful in marketing itself as a potential FDI candidate.

To date much has been done and the Rwanda Development Board continues to move forward in this regard. However, by further studying the issues experienced by current and would-be investors as well as better understanding the relative importance of the issues additional guidance could be generated on crucial focus areas. An independent party might be better suited to this effort in order to extract the most real and meaningful data possible.

Development, on the other hand, is about societal and economic transformation through bottom-up entrepreneurial efforts. Making this distinction is critical for cultivating long-term economic growth.

In 2010, Sagamore Institute created the Bradley Project on Africa though the generous support of the Bradley Foundation. Drawing on the foremost figures in development economics, this project provided a blueprint for prosperity in Africa.

Now, as the leading African free-market think tank, ISOKO Institute picks up Bradley’s torch to break down old models of foreign aid and re-establish a new paradigm. Below is a resource comprised of articles, videos, and books to help curious minds navigate the shifting foreign aid conversation.

The White Man’s Burden

William Easterly’s book calls for a reassessment of the West’s approach to aid.
+ more

Dambisa Moyo’s Dead Aid
African author Dambisa Moyo argues that aid to Africa is doing more harm than help.
+ more

The Bottom Billion
Why the poorest countries are failing and what can be done about it
+ more

On Aid Versus Trade
Video: Former Nigerian Finance Minister Ngozi Okonjo-Iweala summarizes the aid versus trade debate.
+ more

‘Tis the Season to Be Giving?
Video: Peter Singer and William Easterly debate approaches to aid.
+ more

Glen Hubbard’s The Aid Trap
Hubbard offers perspective on giving.
+ more

Ted Talks on Investing in Africa
Videos: Ted Talk fellows highlight opportunities and the advantages of investment
+ more

IT IS to the middle class we must look for the prosperity of Africa, to paraphrase William Thackeray. Many countries are making a mint from commodities such as oil, copper and gold thanks to sky-high prices. But that is not enough to give Africa a permanent boost. Commodity markets are notoriously fickle and revenues can quickly be squandered.

The true test of progress is whether new riches trickle down from the elite to create a group of consumers large enough to sustain broad economic spurts in the service and manufacturing sectors. If so, a virtuous circle of yet more jobs, new government revenues and better public services beckons, eventually benefiting the poor.

This is indeed happening, according to a report by the African Development Bank. It says a third of Africans are now “middle-class”, defined as having between $2 and $20 to spend a day. A decade ago that was true of only a quarter of Africans. This change has occurred in a period of fast population growth among low-income families…

Read the full story here...

The Report: "The Middle of the Pyramid"

McKinsey Global Institute Lions on the Move: The Progress and Potential of African Economies

• With a sustained growth rate around 5 percent, Africa is one of the fastest growing economic regions in the world.

• African governments have instituted responsible policies that have improved economic and political stability on the continent.

• Current growth trends will continue to be supported by Africa’s wealth of natural resources, urbanization, and a growing middle class.

• Africa offers a $2.6 trillion business opportunity comprised of consumer industries, infrastructure, agriculture, and resources.

• African countries will experience various growth paths according to the type of economy they have now. These include: diversified economies, oil exporters, transition economies, and pre-transition economies.

Read the full report.

Accenture Expansion into Africa: Challenges and Success Factors Revealed

• South African businesses have an advantage in navigating into the sub-Saharan market.

• Africa’s growing market sectors include resources, telecommunications, financial services, and retail.

• Growth fueled by consumer demand, intraregional trade, a growing labor force, developing infrastructure, and a rise in foreign direct investment.

• Challenges include: understanding the local consumer, developing skilled labor, lack of infrastructure, and thick bureaucracy.

• Success strategies: Optimize local resources and partnerships, tailor business to be local, and develop networks across the continent.

Read full report.

Boston Consulting Group The African Challengers

• The top African economies are emerging as global competitors. These include: Algeria, Botswana, Egypt, Libya, Mauritius, Morocco, South Africa, and Tunisia.

• Between 2000 and 2008, most Africa equity markets outperformed global indexes.

• Foreign Direct Investment by African companies has risen by 81 percent annually since 2002.

• By drawing out 40 noteworthy African companies, the report discerned critical strategies and practices for doing business on the continent. These include: Optimizing the native advantage in resources, labor, and knowledge; Functioning in a business climate ripe for growth; Operating with the boldness to use the economic climate as an opportunity for innovation and growth.

• To become competitive globally African companies must: Manage volatility, raise productivity, expand outside Africa, boost human capital, create global brands, and benefit from state support.

Read full report.

Ernst and Young It’s Time for Africa

• Africa is only second in investor perceptions to China.

• Capital investments are forecasted to reach $150 billion by 2015 creating 350,000 jobs per year.

• Africans are leading investment growth—21 percent compound growth rate in Africans investing in other African countries from 2003-2010.

• Investors from developed markets represent the largest portion of investment, though emerging market investors are gaining strength.

• Foreign investors, African governments, and domestic companies hold the keys to unlocking Africa’s investment potential.

Read full report.

The following D-Lab documents describe the background and processes behind this simple, low-cost technology:

Background

Cast Corn Sheller: BUILD-IT

Corn Sheller: BUILD-IT

Sheet Corn Sheller: DO-IT

Corn Sheller Jig: DO-IT

Today, the project is implemented in developing countries across the world, including Rwanda. The following documents describe the background and processes behind this low-cost technology:

Background

The Process

Charcoal Press: BUILD IT

Charcoal Press: DO IT

“The Backbone of a New Rwanda”

Read President Paul Kagame’s ”The Backbone of a New Rwanda” published in Michael Fairbank’s In the River They Swim:

Click to read...

And Fairbank’s article published by the The Washington Post, ”Rwanda’s president leads an inspiring turn-around” :

Click to read...