PanAfrican Investment Company was founded in 2012 by Ronald Lauder and Richard Parsons with the mission of investing in businesses that provide strong financial and social returns. Below, some of our high-level thoughts and lessons learned.
African economies are grabbing headlines and overtaking the BRIC countries as the hottest emerging investment markets.
As Brazil, Russia, India and China grow into more mature states, frontier investors are setting their sights on the exciting opportunities Africa has to offer.
Since our inception three years ago we’ve strictly invested in Africa, and we are seeing deals and capital inflows abound. Our mission statement has been prescient: “As PIC invests, Africa profits.” And we are indeed profiting — in more ways than one.
Our firm, PanAfrican Investment Co. (PIC), was born of the idea that capital put to good use in African nations will produce good returns. Good returns for us aren’t just financial, they are social, too.
We believe this is an important tenet of our investment policy because in an emerging marketplace such as sub-Saharan Africa, issues traditionally considered “externalities,” such as healthcare, education, access to food, corruption, and human rights issues, aren’t really externalities — they are intrinsic business issues tethered to productivity and profits. Our founders, Ronald Lauder and Richard Parsons, saw this tethering when they began researching the potential to invest in Rwanda years ago. That research gelled into our first formal fund under PIC’s umbrella.
Why the Need for SRI in Africa?
As mentioned above, progress in “externalities” go part and parcel with business progress. Without healthcare, there is no labor force. Without education, there are no business leaders. Without sustainable agriculture, there is no proper diet to be had and productivity wanes. Without corporate governance and fair labor, corruption emerges. And human rights abuses vanquish hopes and dreams for all. All of these factors need to be considered when investing in emerging economies like sub-Saharan Africa. In addressing these issues with collaborative capital, investment opportunities with attractive market rate returns (or above) present themselves.
Opportunities & Lessons Learned
To be sure, investing in Africa is rife with challenges and obstacles to go along with its opportunities. At the micro level, infrastructure can be poor and business management, accounting, and financial reporting often must be honed to be in sync with US standards. We actually see this as an opportunity: The more time we spend with our portfolio companies standardizing their corporate reporting and procedures, the more likely it is they will have an easier time raising their next round of financing, allowing us to realize the value we’ve helped to create.
At the macro level, conversations about investor fears often involve words like corruption and geopolitical risk. PIC factors in these concerns into its broader approach to investing. We won’t, for example, be involved in a large, politically tied and historically contentious extractive industry like mining. In our experience, the SMEs and the regions we target (relatively politically stable, e.g. Kenya, Rwanda) are generally under the radar of the words that scare away investors. And where there is fear, there is opportunity.
Further, many preconceived notions about investing in Africa are simply without merit — for example, deal flow. Some observers believe it is difficult to find and attract solid investment opportunities. We find the opposite to be true: our pipeline has continued to grow with ever more attractive deals. The continent abounds in entrepreneurs who need capital to fund their SMEs. Due diligence, too, is often thought to be challenging given the geographic reality that many businesses operate in remote areas, or places lacking basic phone or Internet service. Again, we have not found this to be true. While our team has had to work harder to conduct due diligence because of these challenges, the rewards of evaluating a business from the ground up have been worth it.
That said, we have learned that having a permanent presence on the ground provides intangible and tangible benefits to the investment process. It is important to spend the time and resources on the ground to figure out who’s doing what and where. To that end, PIC will open an office in East Africa in early 2016. Having a footprint on the ground helps ideas spawn, facilitates introductions and partnerships, allows for ongoing monitoring of existing investments, and speeds up the due diligence process.
Paths to Success: Hands-On Management
Our focus on management, operations, and networking continues to be critical to our success. As private investors, we seek passionate social entrepreneurs with innovative products, designs, and/or services. We are active shareholders who get involved in every aspect of the businesses our entrepreneurs run — from serving as human resources to help build the right management team, to sitting alongside the entrepreneurs to build their financial and operating models, to helping to market their products or services. PIC does anything it takes to partner with these entrepreneurs in order to create shareholder value alongside socially responsible business practices.
Take for example, Mobius Motors, founded by award-winning entrepreneur Joel Jackson. Mobius designs, manufactures and sells durable, affordable vehicles that are specifically made for Africa’s terrain. PIC led the Series A round for the company and obtained a board seat. Mobius stands to employ more than 1,000 Kenyans for production work and to create another 2,000 jobs for servicing and parts.
The impact goes further than job creation. Being on the ground as often as we are allows us to see beyond the headlines. For instance, while we read about all of the large infrastructure projects being done, we know that once outside of the big cities there are dirt roads that make it difficult to maneuver on a sunny day with the four-door imported cars being driven today — not to mention navigating these roads when it rains. Beyond job growth, this company is mobilizing people that need to get to the market or elsewhere for their livelihood by locally manufacturing cars designed specifically for Africa’s terrain. PIC’s capital allowed the company to produce its first 50 cars, of which 37 have already been sold.
We view ourselves as partners with the entrepreneurs in whom we invest. With Joel, we have lent our Rolodex to help facilitate introductions to licensing regulators and banks in an effort to provide financing for these cars. We are actively helping to prepare the company for its upcoming Series B financing, and are also making several introductions to potential new investors.
Or take biNu, a small company operating throughout Africa that has developed what we believe is a big piece of technology. biNu can turn regular/feature mobile phones into “smart” phones, allowing news, books or even fun apps like Facebook to be downloaded.
While services and infrastructure may be scant in many developing African countries, mobile phones are not. Connecting people to the outside world and in turn to information was a great goal and a powerful proposition for us. As a further layer, we were able to introduce biNu to African Ministers of Education and Technology, all of whom are in need of more books in classrooms, and face the cost-prohibitive challenge of getting deadwood books into classrooms. biNu provides an alternative via handheld devices.
We believe education is critically important to the growth and investment thesis of emerging economies. To that end we have invested in Bridge International Academies, a low-cost private school operator in Kenya, set to expand its operations further into East Africa and soon to enter West Africa. Bridge is receiving a great amount of press lately due to the recent $10 million investment by Facebook’s Mark Zuckerberg, and management reports that it expects to go public in 2017.
Paths of success like these are what we seek and celebrate. Connecting the dots for us isn’t just about portfolio management logistics, it’s about cross-marketing products and contacts to help people and create new possibilities. Mostly we look to invest in SMEs that stand to create job growth throughout the healthcare, education, manufacturing and technology sectors, but we are always broadening our horizons. We have to do so. Africa is diverse, dynamic and big. There is a plethora of investment opportunities. Success will take more than money and investments, however. It has to be linked to positive social change. We’re seeing both, and Africa is prospering and our portfolio is prospering. That’s increasingly headline-worthy news. As PIC invests, Africa profits.
Dana Reed is the Chief Executive Officer of PanAfrican Investment Co. LLC, a private investment firm founded by Ronald Lauder and Richard Parsons that catalyzes positive social impact across sectors in sub-Saharan Africa while seeking target returns of 25-30%. PIC is based in New York.