Investing in Ghana-related Small and Medium-sized Enterprises
Investing in Ghana-related Small and Medium-sized Enterprises
Star100 recently launched a new ad hoc series looking at diaspora investing, to consider the make-up of the SME ecosystem in Ghana and how the diaspora might invest in it for financial return and social impact. The event had a panel discussion and audience Q&A.
This event held on 26 October at WeWork London, with introduction and panel moderation by Richard Tandoh. He explained that discussion would take an in-depth look at small-ticket diaspora investing in Ghana-related SMEs.
Panelists (L to R)
Richard Tandoh Chair @star100network [Moderator]
Nelson Amo Co-founder @InnohubConnect
Mike Mompi Co-founder @ClearlySo
Andrew Hunt Co-Founder @AdunaWorld
Panelists background:
Richard is a Business Analyst with a background in the Corporate Social Responsibility sector, who works with business and technical stakeholders at C-Suite across functions and project delivery.
Nelson is a business coach and has led several growth consulting projects in the profit and non-profit sectors in sub-Saharan Africa. He is also a Harambe Entrepreneur Alliance Fellow.
Mike is an Investor at the Global Innovation Fund, a developing markets-focused social impact investment fund. Prior to that, he served as Director of Impact Investment at ClearlySo, where he co-founded Clearly Social Angels,.the UK’s largest and most active network of individuals and families investing in businesses with an impact.
Andrew has raised funding from both angel investors and via two successful crowdfunding campaigns. In 2015, Aduna won the UK Business Angels Association (UKBAA) Social Impact Investment of the Year Award.
Panel Discussion:
Mike commenced the discussion by setting out the foundations to grow capital and make a social impact, laying out priorities;
1] Be informed – Inform yourself about the opportunities and the entrepreneur network in-country.
2] Be connected – Find out about the local investor groups based in Ghana and connect digitally.
3] Be involved – This is optional, but to be effective you’ll need to interact with stakeholders and funders and visit project site.
The panel moderation by Richard then drew out the salient points.
Growth sectors:
1. Diaspora should use their own approach to work with local enterprises to grow the value of the investment.
2. Look at the growth sectors, e.g.
Agrobusiness processing, value add to Morynga.
Food processing, daily consumer items like Mango can be upsold.
3. Look for niche sector, i.e. Catfish farming can be lucrative with min 60% return on annual (project) investment.
Finance:
4. Use debt or convertible instrument i.e. Joint venture and Revenue share for projects. This avoids possible low yields and complications from equity investment which arise from stakeholder issues.
5. Understand the implications of foreign exchange fluctuation on your investment and try to minimise this by having an export focused business.
6. Seek expert advise since investment issues in emerging markets can be difficult. e.g cost of due diligence is high, low (financial) market regulation, tight fiscal government controls on profit transfer overseas.
7. There is a marked funding gap with a capital deficit hence lots of SME are chasing few funds available. This has been exercebated by the high unemployment rate which drives increase of business startups which fail due to this gap.
Technology:
8. Need to manage expecttaions on investment in technology platforms and expect at least 3-4 years before payback.
9. There are no financila investments like the UK EIS and SEIS framework to make the tech sector investor friendly and Angel networks are only at the nascent stage.
10. Crowdfunding apps in Ghana are at the emerging stage however MTN Ghana recent IPO was done using only mobile money platform.
11. Also there is the issue of scaling, since Ghana has a small population and consideration would have to take in market expansion across West Africa markets, with difficuty entailed despite ECOWAS.
Commercial
12. There is no official support for SME business to get investment ready and business hubs are reliant on grants to provide pre-investment support.
13. The supply chain can be difficult to manage and affect operational cashflow adversely.
14. There is a risk/reward principle and a new entrant would expect to make some loss on projects j.e. first few years before making any traction.
Shared Experience:
Richard invited Star100 members to share their experiences of investing in Ghana-related SMEs, both individually and as part of a group.
1. Example was given of a ‘diaspora capital fund’ which started small with funding from family and friends. They have a social impact ethos and the concept has evolved along with a funding framework which allows them to use syndicates and be project specific. e.g. market focus on Agribusiness and Solar energy. They have been able to take on projects $100K – $1M based on timelines and dependencies.
2. Ghana based investor, who relocated five years ago, to manage culture, context and expectations around his portfolio. background with training entrepreneurs in S. Africa previously has stood him in good stead. Explained the main challenges to be 1] The Finance gap is quite high e.g. bank rtaes of 50% annual interest and 2] The skills gap is higher,e.g difficult to build good teams and find ‘quality’ entrepreneurs. Also major issues of Government bureaucracy and corruption has to be faced.
Highlights from Audience Q & A: Tips given
1. Check out the Angels networks (or Investment Clubs) in Ghana, activities are not under Government regulation. They cater to 1] High Networth Individuals (HNI) 2] Sophisticated Investors.
2. Use a Special Purpose vehicle (SPV) to support deal structure. e.g understand your business model.
3. Use five (5) year projection for evaluation and other mechanisms.
4. Important to keep in view issue of country currency, inflation and foreign exchange dependency.
5. Exit from investments can be affected by cultural issues and real issues of liquidity since there is no stock exchange for the secondary (SME) market. hence preference should be structured JV purpose.
6. Strive to get a good (high) return and impact investment, apply your value set to investment. Look for the micro-benefits and trickle-down opportunities you can create – “Doing well and Doing good”.
Good News:
1. Shared experience (see above) shows that obstacles can be navigated.
2. It’s about making local partnerships and using established business frameworks, with systems and process in place.
3. The trend and progress towards digitising across platforms gives transparency to business transactions and removes friction. This will boost the economy if it can be established by Government.