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20 May 2014

Why Africa needs an intelligent capital revolution.

The most important solution to poverty has long been obvious: provide quality jobs and economic opportunities that give rising incomes and dignity.
But the ‘hijacking’ of the development agenda by a few interest groups has confused the issue. So it is refreshing to see the conversation around this crucial challenge shift for the better.
There is now an emerging consensus that entrepreneurship is an important key to prosperity. This is great news for Africa. But the word entrepreneur is overused and somewhat abused. There are few people who can identify a need, provide a product or service, turn a profit and create jobs in the process. All of this with limited capital.

Access to capital tops all surveys on the major constraints to business growth. In Africa, entrepreneurs routinely pay 10-24 per cent per annum for capital compared to 2 per cent for their counterparts in the United States and Europe. Even for those willing to pay such exorbitant interest rates, capital remains scarce.

The race to increase access to finance for business and citizens in Africa, however, is on. Money will sit near the top of the agenda for the upcoming Annual Meetings of the African Development Bank (AfDB) in Kigali, Rwanda this month.

And it should: money is critical for business and development alike. Yet with the unrelenting focus on money, leaders, business people and policy makers may be missing the complete picture.

What entrepreneurs really need is intelligent capital — the right combination of insights and capital. Seeking intelligent capital ensures that money comes with the right team, innovative strategies, skills and values to have maximum impact.

Running a business is hard. Running a business that prospers is rare. Running a lasting enterprise that lifts people out of poverty almost never happens. This is where intelligent capital comes in.

It is an enabler. It clarifies the business strategy, identifies the right staff and builds the systems. These three — Strategy, Systems and Skills — are the three keys to effectively execute the vision of any entrepreneur.

My firm, Entrepreneurial Solutions Partners, believes intelligent capital can deliver on its promise in Africa. We are working with two visionary tourism entrepreneurs on one of East Africa’s most ambitious tourism lodge projects.

In 2013, the region received about 5.1 million tourists from abroad. The sector contributes about five per cent of GDP and is a significant source of foreign exchange.

In Rwanda, it is the top foreign exchange earner. As a result, over two dozen lodges in the region are tapping into this opportunity. In this crowded market, only a clear strategy anchored on a unique tourism experience, great service and flawless execution can attract high-end visitors.

In the African Union’s newest member, Haiti, we find a good example of intelligent capital in an entrepreneur who runs KayTek, an innovative housing solutions and building materials company.

In the aftermath of the devastating 2010 earthquake, it became clear this horrific disaster was in great part manmade. Shoddy building materials and techniques escalated a relatively minor earthquake into one of the worst human tragedies in recent history.

Mathias Pierre, a home-grown entrepreneur, chose a different approach to “build back better” in Haiti. He settled on the use of cold-formed steel as a building material. CFS is widely used in high seismic and hurricane prone areas, but unknown in Haiti. 

The first step was to transform this vision into a well-costed and timed plan. This allowed him to raise innovative capital from local equity, commercial loans and international impact investing from the Clinton-Bush Haiti Fund. 

Given the challenges of introducing new technology in Haiti, KayTek made one strategic decision to thrive. Instead of building thousands of homes as planned, Pierre decided to build institutional structures, in particular, schools for over 4,000 Haitian students. This provided him with a foothold in the market from which his company can make a greater leap.
Intelligent capital makes for successful entrepreneurs that meet critical needs. As Rwandan President Paul Kagame puts it: "Entrepreneurship is the surest way of development. It's simply the backbone of everything!"

Eric Kacou is co-Founder of Entrepreneurial Solutions Partners (ESPartners), an advisory and investment firms providing Intelligent Capital to entrepreneurs and leaders in Africa and Haiti.


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