How to Unlock Opportunities in Africa

Managerial capital that empowers micro entrepreneurs with business skills. Patient capital that takes a long-term perspective. Human capital that taps into local knowledge and helps create unique business models.

Innovative ways to tap into different kinds of capital to support economic development were the focus during a Rustandy Center cosponsored event on “Propelling Growth and Impact in Africa,” at Chicago Booth’s Robert Rothman, ’77, London Campus.

Kicking off the evening, Pradeep Chintagunta, the Joseph T. and Bernice S. Lewis Distinguished Professor of Marketing, shared research insights on the impact of remote coaching on small-business owners in Africa, a program run by Grow Movement. His research, based on a sample size of 930 entrepreneurs in Africa, found that one-on-one remote coaching led to a 28 percent increase in revenue as business owners adapted strategies in response to the coaching and consumers responded to the added value.

Pointing out that lack of business skills holds back many entrepreneurs in developing economies, Chintagunta said volunteer remote coaching could help unlock their full potential. “A significant share of FMCG [fast-moving consumer goods] are sold through small retail outlets in Africa. Even if you are a big multinational, 70 percent of future growth is going to come from these markets,” he said. “Future growth depends on the success of these small businesses.”

Following his presentation, Chintagunta moderated a panel discussion with Violet Busingye, cofounder and chief operations officer of Grow Movement, which provides remote coaching for small-business entrepreneurs in Africa and Asia; Chris Isaac, chief investment officer of AgDevCo, which invests in sustainable and impactful African agribusiness; and Kate Kuper, director at Bateleur Partners, which provides strategic counsel to people and organizations to increase social impact.

“Small businesses are the biggest engines for economic growth in Africa,” Busingye said, pointing out that local entrepreneurs create jobs while also tackling grassroots issues such as the impact of climate change and extreme poverty in their communities. She said she saw lots of opportunities for growth in Africa in areas such as fintech, medical supply chains, agribusiness, and education.

Isaac highlighted the need for blended finance and patient capital to drive change. “African countries can be globally competitive,” he said. “They can be the best producers in the world in macadamia, avocado, and a number of other crops. But you need patient capital to get there because you are not going to develop that capability overnight. As an investor, you can’t be in and out in six or seven years.”

Kuper said that Africa is full of opportunities, but local entrepreneurs often lack support from government and investors because of the reliance on traditional risk management norms. “Africa has no shortage of opportunities or great entrepreneurs. Providing pre- and post-investment support can significantly reduce risk,” she said, calling on governments and international investors to show more creativity in using private capital and leveraging the diversity of the ecosystem.

She cited Young Africa International, which uses local franchises to provide skills training and seed capital for youth, and DOT Glasses, which encourages micro entrepreneurs to distribute glasses, as examples of patient, flexible business models. “The challenge is to scale these models. How do you scale bespoke technical assistance? What is the right shape of capital that is required, that can be patient and flexible, and can also deliver returns in the medium to long term?” Kuper said.

Isaac said Hatch Africa, which provides small-scale producers with high-yielding, disease-resistant chickens, was a great example of impact investing in Africa. “It’s profitable, it drives incomes for farmers, and it improves nutrition outcomes at the bottom of the pyramid,” he said, while pointing out that the venture, founded by Rustandy Center executive in residence Dave Ellis, initially required patient capital to grow.

Isaac said there was a perception that funding in Africa had to be either aid, which seeks no returns, or private-sector investment, which often seeks a 15 percent return. “There is a whole swath of sectors between the two where you can expect returns, but not 15 percent,” he said, noting that investing in agriculture could generate returns of between 5 and 10 percent. He said development finance providers should be willing to accept modest returns to create businesses and jobs, and eventually leverage fully private capital.

Busingye said it was also important for investors to work with local entrepreneurs who could understand and navigate grassroots complexities. “Africa is full of diversity. It has 54 countries with different languages, culture, policies, and politics,” she said. “You really have to work with local people who understand the context and the political aspects. Local entrepreneurs are very resilient.”