Africa Program Blog: Human Capital and Financing

How African Private Sector is Addressing Obstacles to Growth

“Welcome to our conference room,” Steve Beck said, beckoning to couches on the patio of his house-cum-office in Nairobi’s Karen suburb. “The heaters aren’t working at the moment, but would anyone like a Masaai blanket?” Looking out over his backyard, we got the sense this would be different from the other investor meetings we had already had.

Steve runs Novastar Ventures, a “venture catalyst” company investing in early-stage companies across the East Africa region, and he chatted with us about the gap he saw in the investment space, the opportunities for growth in the region, and the hurdles he and his investment companies face on a daily basis. Though the setting was unconventional, a couple of the themes he addressed were ones we heard repeatedly throughout our meetings across the continent.

The two main factors inhibiting private-sector growth are a lack of qualified personnel and a lack of capital. Time and again, investors and companies we spoke with talked about the importance of developing employees of all skill levels. Steve mentioned that Novastar was hiring a talent manager, not only to help recruit and train employees for Novastar but also to help their portfolio companies more effectively find the right talent for vacant positions.

At Emerging Capital Partners (ECP) in Kenya, they discussed the need to develop an in-house training program at Java House, one of their largest hospitality investments, not only to train managers but also to train wait-staff and all employees, many of whom had never eaten in a restaurant themselves.

In Lagos, Cardinal Stone is currently hosting the second class of their own manager training program, after which graduates are deployed to jobs in their portfolio companies, for long-term career growth. The Lagos Chamber of Commerce and Industry has a robust partnership with various universities to develop Nigerian business leaders. We also met with Andela, which trains software engineers in Nigeria, Kenya, and Uganda to work for companies across the globe.

At Naspers in Cape Town, we learned about the various online learning platforms available to employees of Naspers and all their subsidiaries and how ingrained the training culture has become, with many teams baking training requirements into employee KPIs.

As for the second challenge around access to capital, Steve said he and his co-founder were inspired to start Novostar because of a dearth of venture-capital funders in Africa; there are a lot of investors willing to offer seed funding, and the private-equity space is rapidly growing, but there’s a middle market that is still fairly empty. Novastar hopes to catalyze a venture asset class in Africa, while also generating social change through commercial investment and without sacrificing commercial returns. That said, Steve acknowledges it is a risky space: of their current investment portfolio, Novastar has been telling their own investors to expect a 50% failure rate.

As for the larger funders with whom we met: private-equity funds, the International Finance Corporation, and Naspers, they all recognize the opportunities for growth on the continent in a wide range of sectors, but need to weigh potential returns against the risks of investing in slightly more volatile markets: in Nigeria, for example, foreign-exchange rates pose a major hurdle to larger investors doing deals in US Dollars; while markets in Kenya and South Africa have shown recent volatility that has worried some larger companies. One of the advantages of these asset classes, however, is that they do tend to be longer-term investments, which can help calm skittish investors a bit.

Overall, the dual challenges African companies face of access to human capital and access to financing are difficult obstacles to overcome, but companies and investors are finding innovative ways to overcome these obstacles, and it’s been enlightening to learn about the developments across the continent.

– Medora Brown, Africa Track, Lauder Class of 2019


The post Africa Program Blog: Human Capital and Financing appeared first on The Lauder Blog.