Post on 06-Dec-2014
description
TOOLKIT FOR DEVELOPMENT
OF A SUCCESSFUL MSME
FUND IN AFRICA
Team:
Melissa Brown
Nonya Collier
Andrew Deberry
Peter Isaacson
Margaret Lee
Babatunde Ojo
December 6, 2011
1
STRATEGIC ROADMAP
CompetitiveLandscape
ToolkitPartner Analysis
SectorAnalysis
FundStructure
CompetitiveLandscape Overview & SWOT of MSME Investing
VisionVisionVisionVision
Launch a
SuccessfulToolkit Framework to analyze a business
Partner Analysis Tools for Building A Partnership Business Model
SectorAnalysis Decisions for Investment Sectors
FundStructure
Criteria for Investment Structuring & Performance Measurement
Successful
MSME
Fund in
sub-
Saharan
Africa
2
RECOMMENDATIONS
CompetitiveLandscape
Geographic considerations are important, especially for ease of doing business
Toolkit Use a scorecard to vet potential investments
VisionVisionVisionVision
Launch a
Successful
3
Partner Analysis
Development finance institutions are ideal partners
SectorAnalysis
Top sectors include utilities, financial institutions, retail and tourism
FundStructure A debt fund structure offers the most advantages
Successful
MSME
Fund in
sub-
Saharan
Africa
OVERVIEW & SWOT
CompetitiveCompetitiveCompetitiveCompetitiveLandscapeLandscapeLandscapeLandscape
ToolkitPartner Analysis
SectorAnalysis
FundStructure
4
MSME INVESTMENT SPACE
MSME Investments
Investment & RiskManagement Skills
StandardizedMetrics
CompetitiveCompetitiveCompetitiveCompetitive LandscapeLandscapeLandscapeLandscape Toolkit Partner Analysis Sector Analysis Fund Structure
5
OrganizationalStructure
IndustryOrganizations & Association
MSME INVESTING IN AFRICA
Importance of Modern
Financial & LegalSystems
Presence of Oil & Other Natural Resources
Political and Resource Instability
South Africa, Mauritius,
North Africa
Congo, Equatorial
Guinea, Gabon, Chad
6
Financial & LegalSystems
Resources Instability
Government-ledPrivate SectorDevelopment
Intensity of Corruption
PhysicalInfrastructure
CompetitiveCompetitiveCompetitiveCompetitive LandscapeLandscapeLandscapeLandscape Toolkit Partner Analysis Sector Analysis Fund Structure
Senegal,
Kenya
Nigeria
FACTS ABOUT SMES IN AFRICA
Definitionof an SME
CongoCongoCongoCongo:
SmallholderFarms
BeninBeninBeninBenin:
Commericeis 50% of SMEs
South South South South AfricaAfricaAfricaAfrica
55% of Total Employment
Source: African Development Bank and OECD Development Centre, African Economic Outlook (2004- 2005).
7CompetitiveCompetitiveCompetitiveCompetitive LandscapeLandscapeLandscapeLandscape Toolkit Partner Analysis Sector Analysis Fund Structure
Definitionof an SME
Kenya: Kenya: Kenya: Kenya:
18% of GDP
NigeriaNigeriaNigeriaNigeria:
95% of MfgActivity
MoroccoMoroccoMoroccoMorocco: : : :
93% of IndustrialFirms
INVESTORS ARE….
Development Actors
•Development Finance Institutions
•Community Development Finance Institutions
Private Investors
•Private Wealth Managers
•Foundations
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Institutional Investors
•Pension Fund Managers
•Boutique Investment Funds
•Commercial Banks
Corporations
CompetitiveCompetitiveCompetitiveCompetitive LandscapeLandscapeLandscapeLandscape Toolkit Partner Analysis Sector Analysis Fund Structure
SOCIAL IMPACT INVESTING IN AFRICA
10%
25%
43%
7%
5%
0% 10% 20% 30% 40% 50% 60%
Multiple Countries
South & Southeastern Asia
Africa
2%
18%
2%
5%
7%
9%
11%
57%
Other Asia
Transition Economies
Americas
Eastern Asia
Developed Economies
Social Impact Projects
FDI Flows
Source: UNCTAD database9
STRENGTHS & WEAKNESSES
Donor GuaranteedFunds
Remittances from
High Transaction Costs
Performance
Strengths
10
Remittances fromAbroad
Performance Measurement
Managing fromAbroad
Weaknesse
s
CompetitiveCompetitiveCompetitiveCompetitive LandscapeLandscapeLandscapeLandscape Toolkit Partner Analysis Sector Analysis Fund Structure
OPPORTUNITIES
Demand for FinancingOutstripsSupply
Warehouse-ReceiptFinancing
Under-utilization of
RiskManagement
Tools
11
The MissingMiddle
InadequateFinancial Facilities
Cluster Associations of
SMEs
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THREATS
Tax Regimes
Due Diligence
Legalsystems
Deal Sourcing
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BureaucracyAccess to FormalFinance
Financial Systems
High Default Risk
GEOGRAPHIC CONSIDERATIONS: CHALLENGE
OF BUSINESS IN SUB-SAHARAN AFRICA VS.
BRICS
Mauritius
South AfricaBotswana
ChinaChinaChinaChina
0
20
40
60
80
Business 2010
(Rank out of 183 Countries)
Most <----------------------------------------------------------------------------> Least Competitive
ChinaChinaChinaChina
GhanaKenya
RussiaRussiaRussiaRussiaNigeria
IndiaIndiaIndiaIndia
ZimbabweAngola
BrazilBrazilBrazilBrazil
100
120
140
160
180
WB DoingBusiness 2010
(Rank out of 183 Countries)
Source: World Bank
Note: Ranking Scale of 1 being the most competitive
13CompetitiveCompetitiveCompetitiveCompetitive LandscapeLandscapeLandscapeLandscape Toolkit Partner Analysis Sector Analysis Fund Structure
GEOGRAPHIC CONSIDERATIONS
0% 5% 10% 15% 20%
Access to Financing
Corruption
Inadequate Supply of Infrastructure
Inefficient Government Bureaucracy
Tax Regulations
Tax Rates
Inadequately Educated Workforce
Problematic Factors for Doing Business in SS Africa
14
Source: World Economic Forum Executive Opinion Survey, 2010
Inadequately Educated Workforce
Poor Work Ethic in National Labor Force
Inflation
Policy Instability
Foreign Currency Regulations
Crime and Theft
Restrictive Labor Regulations
Government Instability / Coups
Poor Public Health
% of Respondents
CompetitiveCompetitiveCompetitiveCompetitive LandscapeLandscapeLandscapeLandscape Toolkit Partner Analysis Sector Analysis Fund Structure
GEOGRAPHIC CONSIDERATIONS
Global Corruption Index : sub-Saharan Africa
vs. BRICs2008200820082008 2009200920092009 ChangeChangeChangeChange
Botswana 36 37 -
Mauritius 41 42 -
South Africa 54 55 -
Ghana 67 69 -
Brazil 80 75 +
China 72 79 -
Least Corrupt
15
China 72 79 -
India 85 84 +
SSA Average 117 116 +
Nigeria 121 130 -
Sierra Leone 158 146 +
Kenya 147 146 +
Russia 147 146 +
Angola 158 162 -
Source: Transparency International
Note: Ranking shows how one country compares to others included in the index, with 1 being the least corrupt, out of
180 countries
CompetitiveCompetitiveCompetitiveCompetitive LandscapeLandscapeLandscapeLandscape Toolkit Partner Analysis Sector Analysis Fund Structure
Most Corrupt
GEOGRAPHIC CONSIDERATIONS
Transparency International’s Corruption Index
Rwanda
Cape Verde
Ghana
Botswana
Mauritius
Namibia
Seychelles
South Africa 4
5.5
7
Score
Score
Score
Score
16
The Corruption Perceptions Index ranks countries based on how corrupt their public sector is perceived to be. The score indicates the perceived level of public sector corruption on a scale of 0 - 10, where 0 means highly corrupt. The rank indicatesits position relative to the other countries in the index.
CompetitiveCompetitiveCompetitiveCompetitive LandscapeLandscapeLandscapeLandscape Toolkit Partner Analysis Sector Analysis Fund Structure
D.R. CongoAngola
Burkina Faso
Côte d'Ivoire
Gambia
Guinea
Guinea-Bissau
Liberia
Mauritania
Niger
Nigeria
Senegal Sierra Leone
Togo
São Tomé and Príncipe
Cameroon Central African Republic
Mali
Chad
Republic of the Congo
Benin
Equatorial GuineaGabon
Kenya
Tanzania
Zimbabwe
Zambia
Uganda
Sudan
Djibouti
Eritrea
Ethiopia
Swaziland
Somalia
Comoros
Lesotho
Madagascar Malawi
Mozambique
1
2.5
20 50 80 110 140 170 200
Score
Score
Score
Score
RankRankRankRank
FRAMEWORK FOR EVALUATION
Microsoft Office
Excel 97-2003 Worksheet
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CompetitiveLandscape ToolkitToolkitToolkitToolkitPartner
AnalysisSectorAnalysis
FundStructure
QUALITATIVE FRAMEWORK FOR ASSESSING A
BUSINESS
•Education
•Experience
•Years of Operation
•Number of Employees
•Assets
•IT
•Contracts
Company Management
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CompetitiveLandscape ToolkitToolkitToolkitToolkit Partner Analysis Sector Analysis Fund Structure
•Revenues
•Profits
•Liquidity
•Debt
•Bank Accounts
•Demand for Product
•Joint Venture / Partnerships
FinancesProduct
USE CASE: REGMIFA
SSA RegionalMSME
StrategyRefinancing Partner LendingInstitutions
TechnicalAssistance
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MSME Investment
Fund
Assistance
Increase DevelopmentImpact while MitigatingRisk
CompetitiveLandscape ToolkitToolkitToolkitToolkit Partner Analysis Sector Analysis Fund Structure
USE CASE: REGMIFA: SAMPLE MSME FUND
SCORECARD
Example model
Qualitative and quantitative evaluation metrics
Numerical information about funds gathered, aggregated, and shared
Several fund segmentations provided
Use case in Uganda provided
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CompetitiveLandscape ToolkitToolkitToolkitToolkit Partner Analysis Sector Analysis Fund Structure
TOOLS FOR BUILDING A
PARTNERSHIP
BUSINESS MODEL
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CompetitiveLandscape
Partner Partner Partner Partner AnalysisAnalysisAnalysisAnalysis
ToolkitSectorAnalysis
FundStructure
PARTNERSHIP ANALYSIS
Why Partner?Why Partner?Why Partner?Why Partner?
Leverage local and industry expertise, and established networks
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CompetitiveLandscape
Toolkit Partner Partner Partner Partner AnalysisAnalysisAnalysisAnalysis Sector Analysis Fund Structure
Increased access to funding
Access to technical assistance programs for MSMEs
PARTNERSHIP ANALYSIS
23
CompetitiveLandscape
Toolkit Partner Partner Partner Partner AnalysisAnalysisAnalysisAnalysis Sector Analysis Fund Structure
CENTER FOR GLOBAL DEVELOPMENT:
INVESTMENT TYPOLOGY
Ultra-High-
Net-Worth
Individuals
Development
Finance
Institutions
Foundations Values- &
Faith-
Based
Networks/
Funds
Retail
Investors
Large
Corporations
/ Financial
Institutions
Public
Institutional
Investors /
Sovereign
Wealth Funds
Primary Goal Application of
business
principles to
philanthropic
pursuits
Achieve
development
results without
sacrificing
financial
sustainability
High social
impact with
the discipline
of an
investment
Diversified
portfolio of
investments
consistent
with social
values
Achieve social
impact – view
investment as
akin to a
donation
Support for
corporate social
responsibility
(CSR) programs
Deployment of
set percentage
of capital in
socially
responsible
manner
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Risk / Return
Expectation
Moderate to
high, willing to
take more risk
for social
impact, but
expect a return
Moderate, need
to preserve
institutional
stablity, but
often « funding
of last resort »
Moderate to
high,
sometimes
can forgo
return for
social impact
Low, may be
willing to
trade off
return for
social
impact, but
seeking safe
investments
Low, because
vehicles available
to retail investors
cannot be too
risky by law
Moderate to
low, not willing
to take
inordindate
risks outside
core business
TBD
Examples Bob Johnson,
John McCall
MacBain,
George Soros
OPIC, IFC, FMO,
Proparco, DEG
Rockefeller,
Kellogg, Gates,
Skoll, Omidyar,
TIAA-CREF,
Thrivent,
MMA Praxis,
GuideStone,
Amana,
Saddleback
Buyers of /
Donors to Calvert
Community
Investment
Notes,
Microplace, Kiva
Cisco,
Storbrand,
Shell, Chevron,
Starbucks
CalPERS,
Government
Pension Fund of
Norway, Abu
Dhabi
Investment
Authority
CompetitiveLandscape
Toolkit Partner Partner Partner Partner AnalysisAnalysisAnalysisAnalysis Sector Analysis Fund Structure
Source: Acumen Fund
SECTORS FOR INVESTMENT
CONSIDERATION
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CompetitiveLandscape
Partner Analysis
ToolkitSectorSectorSectorSectorAnalysisAnalysisAnalysisAnalysis
FundStructure
FOCUS ON SECTOR VS. GEOGRAPHY
Upside protection:
Sector-specific
Expertise
Geographic-specific
Diversification
26
Focus:
Strengths:
Obstacles:
Works best with:
Business risk mitigation and comparables
Competitive advantage for SMEs
Market risk
Specialized staff in complementing countries
Partners and political environment
SMEs are country-distinct
High operational burden
Partnerships for sourcing and tech assistance
CompetitiveLandscape
Toolkit Partner Analysis SectorSectorSectorSector AnalysisAnalysisAnalysisAnalysis Fund Structure
PHILOSOPHY ON HIGH POTENTIAL SECTORS
Goal
Many jobs
Proxy
Labor intensive
Indicators
Low capital labor ratio
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High quality jobs
Valuable Output
High wages
High demand
High wages and training
High capital and growth rate
CompetitiveLandscape
Toolkit Partner Analysis SectorSectorSectorSector AnalysisAnalysisAnalysisAnalysis Fund Structure
SECTOR ANALYSIS OVERVIEW
HighestPotentialSectors
Employ low-skilled workers
Leverageabundantresources
Lowerproductivity
Less skilledworkers
28
CompetitiveLandscape
Toolkit Partner Analysis SectorSectorSectorSector AnalysisAnalysisAnalysisAnalysis Fund Structure
Lowdependency on infrastructure
Obstacles Across Sectors
Lessinvestment
Civic infrastructure
SECTORS WITH HIGHEST LABOR DEMAND
20
25
30
35
% of Total Labor Demand
% of Total Labor Demand
% of Total Labor Demand
% of Total Labor Demand
0
5
10
15
% of Total Labor Demand
% of Total Labor Demand
% of Total Labor Demand
% of Total Labor Demand
Low-Skilled
High- Skilled
Medium- Skilled
29
CompetitiveLandscape
Toolkit Partner Analysis SectorSectorSectorSector AnalysisAnalysisAnalysisAnalysis Fund Structure
SECTORS THAT PROMOTE JOB GROWTHIndustryIndustryIndustryIndustry Growth rate Growth rate Growth rate Growth rate Capital Labor RatioCapital Labor RatioCapital Labor RatioCapital Labor Ratio
Electricity Gas and WaterElectricity Gas and WaterElectricity Gas and WaterElectricity Gas and Water
Financial / Business Services, Financial / Business Services, Financial / Business Services, Financial / Business Services,
Insurance, Real EstateInsurance, Real EstateInsurance, Real EstateInsurance, Real Estate
Wholesale and retail TradeWholesale and retail TradeWholesale and retail TradeWholesale and retail TradeTop
Hospitality and TourismHospitality and TourismHospitality and TourismHospitality and Tourism
Agriculture: tea, tobacco, sugar, Agriculture: tea, tobacco, sugar, Agriculture: tea, tobacco, sugar, Agriculture: tea, tobacco, sugar,
coffee, cottoncoffee, cottoncoffee, cottoncoffee, cotton
ManufacturingManufacturingManufacturingManufacturing
HealthHealthHealthHealth
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CompetitiveLandscape
Toolkit Partner Analysis SectorSectorSectorSector AnalysisAnalysisAnalysisAnalysis Fund Structure
2nd
SECTOR ANALYSIS
Electricity, Gas, Water
Growth supports
growth of other industries
High wages for skilled jobs
Financial and Business Services
Low variable costs
High consumer need
Wholesale and Retail Trade
Uses labor at all levels
Local wage growth
Hospitality and Tourism
Driven by skills,
information and innovation
Variety of business models
Agriculture
Reduceddistribution
costs
Abundance of commodities
Health
High consumer need
Large donorsupport protects
fin.downside
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More diverse consumer needs
High fixedcapital needs
Unskilled labor
Currency risks
Regulatory environment
High goods and transport
costs
Large untapped markets
Seasonal demand changes
Industry-level economies of
scale
Dependence on
infrastructure investment
Inevitable croprisk
Slower agricultural
labor productivity
High imports for equipment/
supplies
High skilledlabor and
capital needs
Strengths
Weakness
CompetitiveLandscape
Toolkit Partner Analysis SectorSectorSectorSector AnalysisAnalysisAnalysisAnalysis Fund Structure
INVESTMENT STRUCTURING
&
PERFORMANCE MEASUREMENT
32
CompetitiveLandscape
Partner Analysis
Toolkit SectorAnalysis
FundFundFundFundStructureStructureStructureStructure
DEBT FUND STRUCTURE
•Effective for agricultural financing
•Very risky
•Potential for corruption
Short termLoans
<12 MonthsDebt
CapacityCapacityCapacityCapacity
Business fundamental
InterestInterestInterestInterestCollateralCollateralCollateralCollateral
33
Months
•Better ability for social impact
•Aligned incentives withdebtor
•High monitoring cost
Long termLoans
3 – 7 Years
CompetitiveLandscape
Toolkit Partner Analysis Sector Analysis FundFundFundFund StructureStructureStructureStructure
Debt Fund
InterestInterestInterestInterest
Fixed rate @ inflation + 500bps
CharacterCharacterCharacterCharacter
Management quality
CollateralCollateralCollateralCollateralAsset Debenture
Inventory
Future sales contract
EQUITY FUND
Advantages Disadvantages
34
CompetitiveLandscape
Toolkit Partner Analysis Sector Analysis FundFundFundFund StructureStructureStructureStructure
MEZZANINE FUND
Advantages Disadvantages
Structured Note with Long Term Debt and Percentage of Sales
35
CompetitiveLandscape
Toolkit Partner Analysis Sector Analysis FundFundFundFund StructureStructureStructureStructure
PERFORMANCE MEASUREMENT
Financial Return
•Determined by spread
Social Return
36
•Jobs created, retained
•Female employment generation
•Value creation
• Increase in tax revenue
•Environmental impact
•Reach of economic impact in community
• Increased training for entrepreneurs
CompetitiveLandscape
Toolkit Partner Analysis Sector Analysis FundFundFundFund StructureStructureStructureStructure