Mwiya Musokotwane - Building a New City in Zambia and Portfolios Across Africa (Frontier Markets Podcast #13)

title: Mwiya Musokotwane - Building a New City in Zambia and Portfolios Across Africa (Frontier Markets Podcast #13)
author: Frontier Markets Podcast
publication: Frontier Markets Podcast
published: 2023-06-19T08:00:00
source_url: https://podcasts.captivate.fm/media/1ccbc9a6-15fc-43be-947c-1b5a8f56652c/Mwiya-Pod-converted.mp3

word_count: 10770

Hello, and thank you for joining me on the Frontier markets podcast. I'm your host, Krishan, and my guest today is Muya. Now, the only way I can describe Muya is as a modern day industrialist, financier, and perhaps most excitingly, city builder, focused on Zambia. Muya, thank you so much for making the time for this podcast. I don't think I can do justice to the kind of portfolio of products you've been working on in the last decade. So I'm wondering if you could kind of get into it and share an overview of, you know, Nekwashi, Theb Investment Management, Frontier Capital Partners, and all these other projects you've kind of been engaging in in the last decade. What kind of, you know, origin story behind that is and how you've got to where you are today. Sure, thanks for having me. It's a pleasure to be here. So, on the last, but nine years almost, I've been involved in a large-scale real estate development in Zambia, Krishan, and the best way to think about is we're building a private city, and the core of this is trying to build a knowledge economy in the private city. Outside of that, this city is being built by Tebe Investment Management, which is a company I founded about a decade ago. In addition to that, I'm co-founder of Frontier Capital Partners, which is an investment firm looking at investing in real assets across Africa. My partner is a nice other company almost five, six years ago, and we've been looking at various opportunities in the real asset space, mostly in tourism, energy, and agriculture. And then I'm also a partner and sort of operating lead at Akili Ventures, which is an investment-holding company that has portfolio in several African countries. The best way to think about Akili is it's a full-stack venture builder. So, it builds businesses from the ground up, which can partner with existing businesses to scale them up, or repurpose them. We have been looking at various investments across a place like Kenya, Uganda, Ghana, Senegal, Nigeria, Zambia, and it's a very exciting business to be a part of as well. Fantastic. The development started about nine years ago. I'm wondering, could you share the story of what those nine years have kind of entailed, what some of the key milestones you guys have reached are, and what some of the key challenges you faced in those nine years? Yeah, sure. So, you know, the things that we've been focused on developing over those nine years have been, sort of like infrastructure-related, building roads, building streets, building water infrastructure, power infrastructure, built a dam, built public parks, built a school, built a technology to support the virus, sort of like parts of this business. So, payments, for instance, EdTech. Yeah, so, you know, it's, it's been a love, like, physical movement of earth in order to build the city. The biggest challenge we've had is just like building in Zambia the last decade. It's been quite challenging because Zambia's economy imploded about six years ago. So, dealing with that lost undertaking, something very cupped to intense. It has been quite challenging. Interesting. How, could you share more context on like the recent economic history of Zambia in the last 25, 30 years? Sure. So, Zambia got its independence almost 60 years ago. And this was in a cold war context, right? So, number one, and I think this was true for a lot of countries across the world, what was formerly, you know, sort of like colonial Asia and colonial Africa, you get independence by your very cynical and skeptical of the West because you've just spent 70, 80, sometimes, you know, more than 100 years under the suzerainty, right? So, it's quite skeptical about their intentions. On the flip side, the East is quite eager to, you know, gain your favor and provide various of means of support. So, scholarships for your students, they help you with infrastructure and things of that sort. So, in that context, Zambia swung left and became a socialist country. And it remained socialist for almost 30 years, during which time Zambia's economy imploded because productivity levels came down. It's access to ports will seriously curtailed via the south because Zambia at that time was still southern Rhodesia and embargoed Zambia. So, Zambia didn't have access to, you know, the ports in South Africa via Zambia. And so, that really constrained Zambia's ability to export goods. And so, it's economy effectively imploded. And then post that the second 30 years involved the restructuring of Zambia's economy, liberalization. So, basically, the formation of actual markets. And the economy recovered quite significantly as a resource of these interventions up until about 10 years ago. Zambia went on a various of dead binge that resulted in its fiscal situation deteriorating quite significantly. So, we experienced three cycles of devaluations over probably six years. And significant amounts of inflation. And there's a consequence purchasing power in rural terms diminished quite aggressively. So, countries now in a situation where it is starting to deal with the problems of the past. So, it's debt is the government's trying to negotiate for a restructuring of the debt because what a new government come in. And that restructuring of the debt should give some fiscal space that allows more stability in the government's finances. And hopefully that then allows private players like ourselves to be able to operate this economy with less stress. Interesting. I have a friend who's family does business in one of those businesses in Turkey, another business in Pakistan. And they've gone through cycles of devaluation and changes in currency as well. Also, in Pakistan's case, they have another sovereign debt situation. They've been to the IMF, you know, 17 times or something. We were talking about how, you know, the most successful business operators in these regions seem to find a way to adapt nonetheless. And I'm wondering, you know, given that you guys are pushing forward and persisting, what is the motion to adapt look like? Like, how do you navigate, for example, those devaluations and other external factors impacting, you know, the efficacy of a project? Well, I think for the most part, you know, once you're fully committed, you have very little room to maneuver. You, you know, you either swim or you sink, right? And so primarily, that means by which you ensure that you can swim involve being able to adjust your business model and your revenue levers to accommodate the new reality, right? So for instance, in our case, that meant, you know, going from five year payment plans for our plot sales, right? Because we sell our properties on payment plans. So we went from offering people five year plans to offering people up to 20 year plans, right? And what this allowed was for our, our customers to have smaller, monthly amounts to pay us, right? Versus the larger amounts. So that accommodated the new economic reality. That on a net net basis, obviously means that you need a higher volume of sales to support, sort of like Pa, right? Casual. So that puts a lot more strain on your marketing and sales conversion channels. But that's just the reality, you know? So that's what we did. And I think that worked quite well for us. Fantastic. Oh, narrowing in on the payment plan apparatus. I'm wondering, what do you, I had a conversation with a mutual friend of ours, Curtis Lockhart at the Charles City Institute recently. And one of the things that he was talking about was mortgage infrastructure across the continent as a whole, really. I know every, every market has its own nuances. I was wondering, what are your kind of thoughts on the current state of that right now? Could you just repeat that question? Yes. So what are your thoughts on the current state of the art when it comes to mortgages in various African countries? Got it. So there really isn't much of a mortgage market in many African countries. For instance, in Zambia, there are probably fewer than 70,000 mortgages. And one of the reasons is that in many African countries, interest rates are just far too high to support like mortgage origination. So for instance, in Zambia, interest rates on a mortgage would typically be around like 20% per annum at the low end. And the average person just does not find that attractive and more should they, because it means by the time they finish paying for their home, over say a 15 year term, they would have actually paid several times over the value of their home in mortgage repayments. So most people intuitively understand that that sort of capital is just too expensive for that sort of investment. And so instead, they just use the equity to build their homes or the short term money. So for instance, they might use the equity to build a home up to a certain level, say, for instance, that could be to build until they have to roof it. And then to finish off all the interiors and plastering and all those things that might take a short term, say three to five year alone from a bank, to finish up those portions off. And so as a consequence, basically saying that they don't overexpose themselves to leverage. So the reason why interest rates are generally high is that in many African countries, the government is the largest borrower. And the capital pools available to it to borrow from are quite limited. So like savings depth isn't very significant. Pension usage isn't very broad. Insurance pools of capital aren't deep enough. And so what this means is that in the scarcity of capital, the price of money just is higher. And because that's risk-free money, it means that any capital exposed to risk ultimately is a cost that is a premium above risk-free. And the floor on that is going to be quite high. So we're talking 15, 20 percent. And therefore the interest rates on mortgages are likely to be 20, 25 percent per annum. And that's what I think causes that constraint. Interesting. I know that Charlie Robertson sites fertility is one of the key levers for increasing savings depth in particular domestic savings depth within a region, therefore lowering cost of capital. I'm wondering are there any other hypothetical experiments or levers that you see as being possible for unlocking capital and a lower rate for this particular use case in these regions which now have this higher cost of capital? So I think part of the challenge has been that the financial system for a long time didn't really bank the informal sector. And as a consequence, pools of capital which do exist, remained and banked. And we're not offering a compound compounding effect that the rest of the system would benefit from. Now with the emergence of things like mobile money, I think that will change because people will demand for yield on their money. And increasingly that is the case. So if you look at Kenya as an example, there's a lot more depth in the financial services ecosystem because of the extent which mobile money is a part of the everyday lives of pretty much everyone. Right. And even people with very low amounts of savings still want to gain a yield on their money. And so they use financial services products to achieve that. And I think it's one of the reasons why Kenya's mortgage market is actually deeper than Zambias, despite them not being so different from our sort of like general perspective. Interesting. And so one thing you mentioned when it comes to the Nakhwashi Roadmap was building certain types of tech in-house that specifically will service the city. One thing I think you may have mentioned was Fintech as well. Is that a lever that kind of exists for you guys in terms of not just additional revenue, but also the capacity to underwrite things better and therefore unlock mortgages for users Sasha home buyers in your city? Indirectly so one of we we attempted an experiment a few years ago where we partnered with talent incubators for lack of better term. And what they were doing is enabling Zambians to participate in a sort of like coding bootcamp where at the end of the bootcamp they would have learned how to code right and then they'll get jobs with global technology businesses. And the goal in sort of like trying to facilitate for that was to enable these people to earn higher incomes than that would be typically available in Zambia at sort of like the level of experience. And then for those higher incomes to be pulled together in sort of like a credit union and flat credit union to be a means through which sort of lower cost financing would be extended to these folks and therefore would have solved for the affordability issue that exists in the rest of the economy. The challenge of course was that COVID happened and then this sort of like sees to be a priority for us in our partners, but that was the intent. Interesting. One project that comes to mind here that isn't income-based but is somewhat similar is a geofinance. We had the founder of geofinance Zach Marx on the podcast recently and one of the things that he was talking about was he previously worked at a micro lending company that has fairly extensive operations across Asia and across Africa. They have probably lent I think five billion plus dollars which in the grand scheme things is not a massive amount but it's pretty significant for micro lending firm. And one of the things that he's spoken about is it's generally difficult for foreign money to find itself. The right railroad so to speak to enter these markets and then therefore go to those who would use it most efficiently be it for consumption like like housing or be it for in their case they're focused on kind of small to medium sized businesses within these regions that can't typically get backgrounds. In terms of exploring other foreign capital pools is that something that is a part of the longer term road map here as well one and two it strikes me that Naquashi in general and kind of like your your ethos is very much influenced by you know networks and Silicon Valley and elsewhere. And I think that's fantastic in terms of you know importing ideas, external capital etc. Could you kind of share more on that philosophy sash approach that you have coordinating these these outside forces to help with with your projects. Yeah I mean so from where we are sitting the the challenge has always been that a project like this requires significant sort of like scale capital and that sort of capital is not available or least historically has not been available in Zambia and so it sort of sort of been a very pragmatic and rational thing to do to look elsewhere in the world especially amongst people who are very sympathetic to the charter city movement to see if we can raise money from them. And for very specific things we have you know been fairly successful at doing that so for instance the school has been to a large extent financed by angel investors from you know places like the US like Silicon Valley the Gulf so you know that's been super like useful on the back on the other hand rather. The more capital intensive things that we do are entirely locally funded and we've been using on capital from sales of property to finance those type of components of the larger scale project. In terms of how I think sort of foreign money can be more involved I think one of the things I've learned is that having high degrees of alignment in purpose is probably the answer to that and you know initially I thought that Web 3 could be a means through which those flows could be redirected to Africa but now I don't necessarily think that's the case and I think it's because even within the context of the Web 3 movement a lot of the places that people allocate capital are quite mimetic right so by that I mean you know like digital art was you know a fad and lost it was raging people were really happy to apply a lot of money through getting use of like non-fundable tokens right the NFTs and if you were an artist in Africa you were probably able to sell quite a lot of your art in exchange for for ETH or things like that but that didn't particularly last long right so because funding charter city projects is still very niche even in Web 3 it's unlikely that that will be where the foreign money comes from what I'm starting to see though is that there are other ways potentially of redirecting capital and I actually think green economy is probably right now the most straightforward because there's quite a lot of capital that's going into things like Reforestation and Afforestation and I actually think that on the basis of things of that sort you can actually build settlements there wouldn't be like very large scale cities there'll be smaller agglomerations but you know there'll be agglomerations which are funded in order to help keep these forests sustainable right and the same one good true of blue carbon right so you can have settlements on lakesides or oceans and that could help finance the development of smaller towns to make sure that the communities that are there feel the benefit of having these carbon projects in the communities so I think it's things like that where there's a fundamental need for capital to be deployed in a very specific sub sector of the economy and then that deployment of the capital requires an agglomeration of people to ensure that the investment remains solid so another example of this would be mining right so if you have a large scale mine in the middle of nowhere you know you need to build a town to support the miners who will work in the mine right so the mine will probably have maybe some like 10,000 people living and working in its vicinity and that's a pretty meaningful town right but it exists solely because this large scale capital investment has forced it into being and I think that that ultimately ends up being how these things get developed education is another example of that and that's why in our case we're looking to build a university in and schools fantastic can you share more on the philosophy behind the education institutions you're building in Nakhashi like kind of wet like just the ideas that are going to behind that one but also yeah the main purpose is on the ideas behind that yes sure so the main purpose behind the idea of the university is that at the school that you know we're designing and building a city for a hundred thousand people and it is important for those people to have social amenities available to them that enable them to have a sort of like holistic life here and some of those amenities include things like you know wastewater treatment or electricity but education is another one right and so we see education proficient as part of our mandate as a service provider to our community in terms of the overall philosophy what we're trying to do is really scale up the quality of talent that is coming out of Zambia and so the philosophy of our schools are largely centered around this what we call an explorer ethos and the explorer ethos is largely about having curiosity having so finite systematic ways to solve problems to improve yourself to be your best to be autonomous as opposed to sort of like very dependent so you know with the school at least we found that that's been very effective in in building very adventurous very capable youngsters and it's something we want to see happen of the university as well and so get started building that incredible how do you set performance goals or how do you kind of measure the feedback loop for human capital development within a region that's a big question so within the context of say the school we measure human capital development on the basis of academic outcomes right so A what is the average grade of our students right what is the average you know like ability for this person to understand the content that taught not from a root basis but from a sort of like first principles basis so you know that's that's about testing right from a societal basis I think ultimately this is expressed through the sophistication of a society itself A B it's ability to develop its own systems it's ability to like create its own public goods without overreliance on so like foreign labor right and so if you look at a lot of countries in Africa you will note that a lot of the like the large infrastructure projects aren't only just funded by foreign capital but the labor is often also foreign so I think what that signals is that locals aren't participating in the skills transfer that you really ought to and and so they aren't learning how to build so the infrastructure that the society needs just exist so I think I think skills would then become the basis for that right so I think a lot of people would say things like productivity is probably good measure for it but if the productivity is all the rented right because of all the skills I held by non-residents then you might have a very productive society but it's not one that can actually produce for itself do you see what I mean totally so in that case how do you align the needs of a labor market that for example entails or requires or benefits from a lot of additional infrastructure investment and a lot of those hard skills how do you align and see you know that specific mandate or requirement of skills sets with the content that the explorer school kind of teaches do you have a lot of control over the sit-by and the curriculums and stuff and you focusing a lot on hard skills of that sort or is that something that's kind of coming later in the pipeline that's a mix of things we teach the Cambridge IGCSE curriculum so it's a standardized international school curriculum that we teach but we make augmentations to that on the basis of our like school ethos right all that is expressed in things like the extracurriculars that we offer learners it's things like our pedagogy all right so how we do the teaching it's things like the supplemental classes we give which aren't part of that curriculum so for instance we recently started doing a money management series of classes with our students and you know these are really young kids like eight year olds six year olds fantastic but they're asking a really good question so for instance a bank is our partner on that it's called standard bank and they sent us some sort of financial literacy experts to do so help the kids and the kids asked very interesting questions like before you teach us tell us about your own investments like why should we trust you what you have to say like what have you invested in you know and are you happy with it and I think that's the sort of like mindset we're trying to build where the kids just don't accept what they're told because the president is older always in a position of authority then they sort of like break down what they're told to a fresh principal's basis in order to understand whether it's credible or not and then build a framework for for understanding it you know and and so you know those are things that we're doing outside of just the curriculum is it's just the approach that we've taken nice it seems that those kids have done more detergents on standard bank than most LPs in Web 3 funds did in the last couple of years which I think is a very good sign I love to hear that okay so if we're moving on from the Kwashi project actually before we move on I'll ask one final question in the last so so we were talking about the kind of landscape of building these kind of core pieces of infrastructure that enable the city to exist you mentioned here water treatment facilities power plants etc in terms of the last year year and a half what are some of the big lessons you've learned beyond just navigating the economic downturn but what are the big lessons you've kind of learned in terms of you know operationally making these things happen in an effective manner or just things that have surprised you in the last year and a half I think the most important thing is resilience and like a willingness to just try new things and you know in pursuit of adapting because when an economy is changing quite rapidly and you don't know where your basis is anymore you have to recreate a new one and in doing so like you want to know until you do right and so the way you do that is by experimenting a lot right so you have to execute a wide range of experiments and you have iterate quite a lot until you figure out like what the new market fit is right and so that's the thing that we found to be very useful is adapting to figure out where the new fit is and you know in a sense we know this because people talk about product market fit all the time but sometimes what you know is lost is that you might reach product market fit right but if the market changes at the product has to change right and then you find the fit again and so I think that's the methodology that I'll suggest to anyone so like going through something like that. And just in terms of maybe more economic or pragmatic observations on the market for services that you guys have tapped into whilst building this city and kind of engaging in certain kind of core infrastructure building functions do you have any observations on that landscape any inadequacies that you think listeners would probably like to hear about sort of as they're kind of navigating opportunities to tackle something that may be broken or not as good as it could be. Do you mind reframing the question of course yeah so we were talking about power plants before for example right and we've you've engaged in kind of building other things for the city to kind of come to fruition and I'm wondering as you've looked at that landscape there are actually certain new business lines that you guys will want to kind of integrate into your own organization but I'm wondering in terms of opportunities that exist because the current provision of those services is not up to standard perhaps do you see any opportunities that exist around this space if that makes sense like any frustrations or difficulties with interacting with some of these services. Yeah for sure I think energy is like an obvious one so for instance in South Africa right now they have what what's called load shedding right so for six to 12 hours in a given day homes don't have access to power factories don't have access to power and that you know obviously is very disruptive to people's lives as very you know adverse to sort of like productivity but it's also a huge opportunity because it will take the state utility in South Africa several years to correct these so like structural problems that they are facing so you know the deployment of new power stations for instance right and that great opportunity for businesses to to solve that problem by providing off-grid solutions right or micro grids and I know that some people are doing this so you know they'll go to homes and they'll offer this off-grid kit and it's wrapped around a credit product so they're paying for it over five ten years so it feels like it's a utility bill even though it's just like advertising a capital investment of your own but the point is the person has power right so you know that's something like I did something I mentioned earlier in the conversation and it's something we're doing ourselves but it's not something that would it is something that doesn't have to be limited to Justin Quaschi that sort of product can be offered anywhere where people need energy and they need it to be reliable and they need it to be affordable so you know that's an example the second example would be around things like property tax collection a lot of municipalities in Africa are really bad at collecting taxes and that's something that will become quite good at doing in terms of like collecting money that's put to us by our customers and you know that's a technical problem right so in our case we feel like you know if councils were really serious about remedying their collections capabilities all they need to do is just use tech to enable that capacity to be developed on the back end though people would definitely be expecting services to be given to them but again the tech is a means of ensuring that people have got a means of requesting service provision and so like being able to complain on it's not provided to them so you know again technology is unable for for capacity in that instance I think those are like examples of ways that you know these these problems could be solved for very interesting I think a few companies come to mind here as not necessarily solutions here inspirations perhaps one is you know like in America turbo tax is a very big thing in contrast in the UK it's not because the government's kind of got it simpler I would say to file kind of tax system but in in the same way that a lot of pieces of software find themselves in different forms in emerging markets say in India WhatsApp's very popular right I wonder whether there's some inspiration that can be taken from a combination of as you mentioned turbo tax in terms of tax payments but then also wrapping that around that stronger feedback loop or some as you mentioned core communication channel with governments that sounds very exciting and hopefully some enterprising listener can reach out to you maybe try out with you guys at some point I don't know two other cool companies here one is Odyssey Energy Partners they have a cool it's almost like angel list but for bottoms up off-grid energy provision and so the idea is if you're a solar developer a winds developer or any other type of bespoke developer they give you access to one software that allows you to manage that entire process formal cogently with less paperwork and just everything being integrated into that kind of context but also on the back end of that they built several streams of financing that can feed into that which therefore hopefully can accelerate the development of these types of energy products that you've mentioned final one that I'll mention here that I think is also interesting for listeners to check out is B box they have this type of integrated packaging of kind of bespoke energy solutions as well that fits very much in this given that I feel like this is a fantastic segue to move on to front account partners and the kind of investment motion for looking at real assets not just in Zambia but across Africa as a whole can you share more on the kind of growth of the portfolio there and the types of like one or two case studies of investments you've made at front account partners yes sure so you know some of the things are looking at there and you know we'll spend quite a lot of time diligence in deals as opposed to actually making them and one of the reasons is that we wanted to a build a framework for understanding how to evaluate the good deals from bad and for sort of like determining how to allocate capital as well because there's unlimited potential opportunities right but there's limited ability to allocate capital so the way we've sort of like been thinking about how we want to run our business in that particular instance is it could be very well informed about what value looks like so that being said the sort of deals that we've been diligence in and are making are mostly in the tourism space so looking at a few hotels mostly boutique style hotels in Zambia we've also been looking at energy so providing all alternatives to charcoal because you know Zambia's most common energy form is actually charcoal because most households are poor and be informal and and so charcoal usage is pretty high but that means that you know deforestation is a sort of consequence of that and so one of the things we've been looking at is how we could provide substitutes to charcoal that are a sustainable and then be fit with them so like budgets that people are used to and and also don't require significant capital investment by the customer so for instance cook stoves are like a common solution that people usually think of but in our view the problem of cook stoves is that they tend to be expensive and be the capital cost of gas it's typically a little bit too high for poor households to afford so we're looking at ways of like dealing with that so yeah I think that has meant that we've been focused a lot on and so like on the tourism side it's much more straightforward so we're looking at three deals one in the Laura Zambia's National Park or GMA rather so far it's a it's a lodge a second as a hotel in Musaka and the third as a hotel in the north of the country fantastic and in that case I feel like what what one question here is what are some of the lessons you've learned as you've been building that you know free worker capital allocation and as you've been engaging in that kind of diligence emotion has anything particularly surprised you as you've kind of gone about that in terms of opportunities that surprise you or risks that you weren't aware of before that you now have kind of become far more intimate with yeah I mean like COVID was a very sort of like high-opening experience granted it was like super outlier experience as well so we went from being really hot on tourism to being not sure about tourism because the world closed up and now we're kind of like hot on tourism again you know in the process of not being hot on tourism when it up exploring other things like okay what about carbon markets right because we have quite a lot of land that we've been aggregating and I said another thing I forgot to mention we've been aggregating a lot of rural land and so the thesis there was that as the population of Zambia and Africa at large it increased there's going to be a so a disproportionate effect on the capital value of land in general and so anyone that's holding significant amounts of it you know Stanstice of like seeing significant capital appreciation on that on that books from that but you know the question then becomes how do cash flow it right and there's a bunch of different things you can do you can so let's look at pastoral farming as a means of unlocking value and we've actually sort of like been experimenting around that with the gold farm that we own you can do dairy and we've dealt just quite a lot of dairy transactions ended up sort of like pausing and actually making one we have also explored carbon and you know that's one we actually like quite a lot so we expect to be spending a lot of time aggregating forest land for that purpose interesting what are your thoughts on the state of agribusiness across the continent as a whole one narrative that I hear is that both West Africa and East Africa but in particular West Africa is incredibly fertile and it's not performing in terms of its output in yield as one would expect given its geological kind of fertility and in contrast one thing that I kind of found interesting I've been reading this book recently on the history of commodity trading and it spoke about you know these these market leaders that own 50 60 percent of the U.S. market and the kind of Western markets Cargill, Louis Dreyfus and a couple of others and it spoke about in the last 30 years there've been a couple of agribusiness firms that have emerged from Asia as they've kind of engaged in formal mechanized agricultural practice as well and they've engaged more urbanization and so they've got three or four kind of regional winners that also have this global basis I'm wondering what are your thoughts on the nature of agribusiness entrepreneurship consolidation or just opportunities is that some of you guys are looking at is that something you find interesting? Yeah I think it's that super interesting and for a lot of reasons I think you've just alluded to them like a whether growing population in many countries equal to like really fertile soils so like the base layer of the opportunity stack is there I think what often isn't appreciated is just how technical farming can be and the skills you know often just aren't there right so here's an example right a dairy farmer in Wisconsin in the US farming hosting cows you know can expect yields of 40 50 liters per day per cow you are lucky to get 15 liters from the same sort of like cow type in Zambia oh wow yeah and if you're really good farmer maybe you're seeing 30 liters that's really really impressive right and the reason is the genetics you know in in the US is just like better be the so like feed is much better see the like managerial standards are far better and the level of mechanization is also significantly better so like the like the cow is literally on on a schedule that is very tightly managed and you can have one farmer easily managing three four five hundred cows by themselves in Africa you probably have like 10 shepherds in cowboys or whatever you want to call them managing the same number of cows so I think that speaks to productivity and skills in particular so I think that's you know where a lot of the assumption start breaking down the second thing is food in sorry for the noises my son that's a wonderful toy so food is food products are typically exported in Africa so you know that's problematic because it means that you are so if you're a foreign investor and you're looking to like participate in the aggregate space you are going along on the local currency in a very material way right because your project will probably take you know eight ten years to sort of like cover it's it's costs it's capital costs and during that time period of time we're gonna be exposed to inflation you're gonna be exposed to you know foreign exchange movements you know because you've gone super long and I think that is probably one of the biggest reasons why you're not seeing as much investment in in the spaces you would expect what's the reason behind the non exporting the typical practice of not exporting agriculture real products from Africa well there are some exports taking place so for instance like this honey you know is often exported exactly cashew like coffee so it's not a universally true statement like there are cash crops which are exported but then if you're you know like a dairy farmer odds are you producing for the local dairy processor right if you're like a vegetable farmer odds are you're producing for local consumption and that's what a lot of like the opportunity appears to be for people is that they're saying okay the demographic structure is such that you want to invest in agriculture because you've growing demand for food right and actually if you want to have like a if you want a structure portfolio in a way that is a risk of you're probably better off investing like coffee plantations or or something of the sort and then maybe hedging the you know to hedge your local currency exposure on things like maybe like dairy you have the cash crop okay interesting are there any folks that you think are putting out particularly valuable guides all thoughts on agribusiness as a whole as I'm just getting started in learning about this space it does any recommended resources would love to you know take a look at it so could you repeat the question oh yeah are there any resources that you've found particularly useful for learning about this sector in particular yeah I think McKinsey is quite good so like they do a lot of like research papers the World Bank is also quite good they do quite a lot like to sponsor quite a lot of research and ag in Africa FAO's website is quite good you know and offers a lot of like random information that you know you don't really expect there yeah I think those are like top three Harvard Business Reviews case studies are also quite useful we've like leaned on not quite a lot so for instance we learned about a business in Argentina called Chris suit so CRE SUD and that they're like a large agribusiness they farm more than one million acres of land across Latin America they used to have a large dairy business and they've structured a lot of the investments in the sort of thematic I mentioned before where there are portions which are domestic facing like for instance they might be producing sugar right now before consumption like domestically but then there will also be portions which are export focused so beef in their case you know and then they also like do you risk the ag by thinking about it as a real estate investment so they'll buy they'll improve their cash flow it and they might sell right and then just rinse and repeat so they also develop commercial property as a consequence because they see agriculture as a real estate business and so they're like you know in some instances you might not actually buy a piece of land to use for agricultural purposes but you might put residential housing on it and we quite like that view of you know farming as a real estate opportunity as opposed to just a vocation so yeah HBR is quite good awesome I will check those out I appreciate you sharing that case study I think we should leap preferably into the future and dig into Achilles ventures and the portfolio you're building there and the companies that you're kind of spinning out and investing in could you share one or two companies that you think are symbolically emblematic of what Achilles is trying to do as a full stack venture firm sure so Achilles invested in this business called brass banking in Nigeria so it's basically a revolute for small businesses small medium size businesses I'd even start up in Nigeria in addition to this company has recently rolled out I get an a perversion of revolute but for professionals and you know it's it's focused around the needs of professionals in Nigeria so you know basically trying to solve banking you know and by saying you know the traditional banking doesn't really think about the needs of a small business so like a clear example that would be saying most businesses have to figure out how to run payroll right so you might have you know banking relationship but then you use some other sort of piece of software to run payroll and then you end up having like this mix of licenses and and apps that you're using to do these different things and they've just rolled that entire process into one experience so I think that's the sort of like thing that Achilles wants to be involved in right things that are things that transform people's lives for the better using tech so right now something that is like super exciting the la working one is building a sort of banking venture for Uber drivers in West Africa and again that's you know quite interesting because it's doing this in a way that is quite unusual by partnering with several other stakeholders to not just bank these Uber drivers but also provide them sort of EVs so the cost of their so like operating expenses would come down because the swapping expensive fuel for cheaper electricity we're providing them access to capital to buy a car which the typical them to before and we're doing this with like Uber's complexness not Uber so that's a really interesting business because it's quite socially transformative across several layers so you know those are two examples of some of the things that Achilles involved in exciting what do you think most people get wrong about early-stage venture investing in Africa? I think it's still very early right so there's been a lot of hype over the last several years you know people you know really excited about the fact that Africa now has a few unicorns and there's obviously a lot of talent the thing that I think has been missing is volume of exits has been low and so I think Africa has to start proving that as a capital destination it's worth the risk that people are taking on it and that's not happening at the sort of like volumes one would like so I hope that over the next couple years we should be seeing more exits the problem right now is that there's a timing issue because when a down market a lot of like exciting businesses are like five six years old so they're on the age where you'd have expected an exit to be taking place but the market timing isn't just quite there yet so you know that's something that I find concerning then I hope people can sort of overcome that so yeah I think that's one thing the second thing is Africa is like quite atomized so you know it's 54 countries with very different laws there are very different markets and therefore building at scale in Africa is quite challenging because you have to you know do with 54 governments whereas India right doesn't have those same sort of like challenges you do have states and you know the states can have very different situations and regulations as well but at least at the same time it's it's like a common market right so I think that is another challenge people don't fully appreciate well when Africa has been compared to periods of the rest of the world that the jurisdictional disadvantages that we face here are still quite significant interesting so do you think in lieu of one jurisdictional complexity and two maybe slightly smaller market sizes do you think that the model of swinging for public markets exits is the right approach for venture capital within these markets or do you think something that kind of segues to more middle market cash flowing PES firms is a more realistic option for building these types of companies in these markets I think PES also has these problems because because of the way this all like global P ecosystem is funded at the moment and you know it's the same problem VC has so most VC's allocating capital in Africa are funded with capital that's not domiciled here right so it's European money it is US money and more than not the funds themselves are either European or American right the same is true of most PE houses I love the capital outside of South Africa a lot of the capital in PE is not African right and that means you are dealing with effects devaluation potential you are dealing with the ability of a market to absorb your dollars so 500 million dollars for instance in the context of the US isn't a lot of money 500 million dollars in the context of Africa is a lot of money right and the very few tickets that you can actually even write at that scale in Africa like a business that has a value of two three four hundred million dollars in Africa is a big business in Africa but it's tiny in the context of the US or Europe so aggregating those sorts of deals is quite challenging and I think the way you resolve that is something that Helios has been doing quite nicely so here this is an Africa for this PE fund and instead of thinking about private equity in the traditional so like buy out paradigm where you buy a business and then you for like wait a couple years you know and then you exit and hopefully a the fact that it was a leverage buy out of the low cost of capital and it's a pinnacle to achieve some growth means that your IRR that looks really nice at the end of like a say seven eight years that model is very hard to do in Africa because A USD capital is cheaper than local currency capital but more like more often than not your business earns in local currency right so if you borrow a lot of USD in the buy out structure in Africa you're actually exposing your business to a lot of risk in a devaluation potential scenario you suddenly could be wiped out so you can't reuse that playbook instead what people are doing is they're aggregating a lot of small deals via what are known as investment platforms so an example that would be say a teleco towers business right so you buy a large teleco towers business in Nigeria and then you buy another business in Ghana you buy another one in Zambia you buy one in Kenya and all these you start aggregating them under a single like SPV or brand and then suddenly you've got quite a large player that you've built and this large player with sufficient scale and market so like share might be able to command a premium in its valuation because it's offering people something unique which is range right so you can exit from that large business that you've spent the last couple years building you can also use that scale to achieve better pricing in the pricing terms in negotiations with suppliers you can use that sizing to get better local currency financing terms so you know basically be guys are having to become operators in the context of Africa and that's something that we haven't quite seen happen in the venture space yet but I believe that it is more likely than not I think what we're gonna see over the next couple cycles is more venture studios that look like say rocket internet in emerging in Africa then is a like traditional venture fund structure that we've seen elsewhere in the world of course on that topic what are your thoughts on investor AB I know this is something we may have exchanged an email over when it comes to interesting and important high leverage structures for building companies in emerging markets do you have any thoughts on them they want to share so could you just look at that again yeah sure so do you have any thoughts on investor AB the Swedish company as an inspiration for these types of again this is different to the PE thing we mentioned before but as an example of conglomerate that is able to build its own infrastructure for additional things to be spun out of it I'm just wondering do you have any thoughts you'd like to share on that company yeah I love the business and you know it's actually an inspiration for a lot of the businesses I'm in so they all share a common motif which is they're all building portfolios of things right so type of investment management for instance you know it's it's looking at building in Kashi but you know we're starting to actually also develop other people's land you know as a developer so a building portfolios of these land development projects we're looking at sort of like common investments with other entities so Tebe and Frontier capital partners are co-developing the carbon projects I talked about earlier then the FCB obviously is looking at its own portfolio of things Achilles is a portfolio business and you know for me personally a lot of my thinking around how to construct these portfolios is a consequence of studying business like investor AAB where ultimately you're looking to figure out what your cash engine is and that cash engine then so that creates an internal fund that you can use to aggregate more investments right so you can then originate you can buy and and then you keep on growing the portfolio incredible I'm also very inspired by that firm um final three questions here so one is could you share your theory on the African development state I think you wrote a piece about this recently as well um yeah so that's a really big big topic and it's one I'm still thinking about quite actively and in many regards I think I think Africa is not in a very unique situation where it regards this issue if you think about what has happened in other countries in especially Asia I think they're having to grapple with the same questions so for instance if you look at these or like if you look at Pakistan right as a country it's actually not so different to Nigeria right you you have a sort of like ruling class that is you know cycling between military junters and democracy right you have these sort of like very entrenched political families that have been part of its look like chronicle right from the beginning to the current day and again it's very similar to a country like Ghana or or in Nigeria um if you look at Malaysia I actually think that they have like a political structure that is probably more reflective of what should be the case in Africa but is not where there is this balance between um the customary sort of like mobility uh was to a very much a part of day-to-day life in Africa but hold no formal like unconstitutional role in society um where is in Malaysia they do right and then that is sort of juxtaposed with a uh sort of like parliamentary democracy I think that's probably what we need to be seeing more of in Africa I think part of the reason why Africa is so like in this current situation is that it hasn't grappled with its own identity um because so much time will spend under so like colonial framework um sort of like denouncing those customary elements as being backwards and so a lot of African countries are striving to be like much more European in their development style um but they're not necessarily being true to their sort of culture and then the way they see the world um and you know an example of this is this right so like recently uh several African countries have gone to um you create in Russia uh zombie included to solve like advocate for peace right and part of the rational rational for uh doing this is to say that look your conflict is affecting global commodity prices especially food and that is affecting us right it's this creating inflation and it's making life quite miserable for many of us in Africa so can you resolve your problem so that you know we're okay and that is a very African way to like see the world right in that you're saying um look we're together in this problem we are party to your problem even though the quarrels not primarily ours and so we are asking you to consider us okay as you grapple with your with your conflict um that is not a European way to see conflict it is an African way of seeing conflict right but it doesn't necessarily grok with other people in the world right because I don't necessarily see the world that way um but it's I felt quite ironic because um in perceiving the world in our own culture terms we haven't yet quite got it to a stage where we can actually also perceive our own institutions on our own terms because then I think if we're able to do that it would force people to start learning how to build institutions proper as opposed to copying and pasting or so like being instructed on how to do it by multilateral organizations or think tanks or um you know not for profits also in the world which is kind of like the position of Africa is in now um so again if you look at India as a comparable um thank you got Sanskrit you know usage pretty much everywhere and so like these are like local um alphabet and I think that is in part um so like reaching to your own identity and starting to like build a civilization on your own terms um and I think that that is the substrate upon which a development state can then be built you of course there's also a very opposite um view of the world uh and I think the Singapore story would be the the opposite of this which basically says it doesn't matter you know what we wear it matters what we want to become and so we're going to copy from everywhere else where it's worked and we're going to be very diligent about following through on um the implementation of what we copy you know from end to end and we're going to do it very professionally I think that can work too um to the extent that you truly sort of like incorporate that way of thinking into how you do everything in your society um but I think that is predicated on having a very sophisticated and very able means of educating people and the problem is that we in Africa haven't quite gotten there because if we did then it becomes a very academic issue right whether you want to create your own institutions or whether you're on copy and paste you'll still be starting from the same base which is education um well yeah that's a long way of sort of saying like you know I think um one of the things that needs to be solved for is is education because that then has second order effects which are positive and that regardless of which path you choose to take you're creating a cadre of highly skilled individuals who are able to either build an institution from their own terms of reference or to copy it from someone else's terms of reference but in either case they're able to do it because they're skilled individuals I love that um it reminds me of this documentary I watched a while back called Sino-Futurism where it talks about you know they talk about development with Chinese characteristics and in this documentary in particular the thing that they point to is the sci-fi aesthetic of what China's technofuture may or may not look like and um I think that for various emerging regions be it China, India the various kind of you know potential superpowers within Africa like Nigeria, Ghana etc is a very compelling grant you know civilization building narrative in some sense um second question and penultimate question is who are some of the founders or entrepreneurs that have kind of inspired you or even people in general when it comes to how you think about your kind of daily life, your operations, your business and your kind of you know aims at building a legacy in the longer term. Great question. I think in terms of the AB and sort of like family that built it you know there's one group of people that you know I draw inspiration from especially given sort of like very long range thinking that they've been involved in so that's one one in Buffett is another you know again for the sort of same reasons very long range yeah so like the Wallenbergs and Buffett um JP Morgan is another John DeRoccafella is another yeah I think these are the sort of types that immediately come to mind um so you know and one of the reasons I mentioned these types of people is you know the the built their businesses and the context of like a sort of 19th early 20th century um world and I think that's the most of similar context to Africa um you know I can think of elsewhere in the world like Africa is set in the 21st century yet um if if you think about it's sort of place in the world today and the level of industrialization it's achieved it's much more so like 19th century um and and and so you know folks like those who work at the um very value guide of industrial development in their societies um or creating you know new financial systems um modernizing finance those are the sort of people I tend to draw inspiration from I love that in particular the term vanguard of industrialization or the industrial vanguard that's an incredible phrasing um final question for you is are there any recommended resources or cost action that you want to share with the listeners on this podcast yeah um I'll you know probably say you know if you can um like in understanding Africa like like read more resources on that medieval Europe you know around like the Renaissance period um read on like industrial stage um so like US and and and Europe because you find elements of all those times in Africa today right where like there's a re-emergence of identity um around art um so you know I think what's happening with um say Afrobeat is an example of that like Afrobeat is like huge everywhere in the world um but you know that's just Nigerians finding themselves um so you know that's like what happened in in Renaissance Europe um so there's this great book of the Medici for instance which I'd recommend Scott Medici um so yeah um those will be my recommendations quite vague I know um but you know that's I think thinking about things thematically as opposed to like super granular is probably like best all right fantastic well thank you so much for making the time for this podcast we are deeply appreciated awesome thanks for having me it was a was a great pleasure