Investment Profile: ZamCan Farms

Fourth Watch Global Analytics is an active investor in ZamCan Farms (Zambia) Limited through its investment firm Fourth Watch African Investments. ZamCan Farms is a newly-formed joint venture company in partnership with a Zambian registered business known as Karea Farms.

ZamCan Farms runs a mixed farm in the Fatima area of Ndola, Zambia. The farm has previously been operated by Karea Farms for several years. Current products include cabbage and other vegetables, poultry, and pork. In the future ZamCan hopes to add fish (pond farming) to its production. Although small by commercial standards, the farm has been growing steadily through the solid management and aggressive re-investment by the original owners. Through this joint venture, it is hoped that additional investment by Fourth Watch African Investments will help to accelerate that growth further. Fourth Watch will also bring in consultants to improve crop yields and growth rates for the farm.

Why invest in agriculture in Zambia/Africa? Zambia has abundant unused agricultural land, and current farming methods are in large part quite inefficient. Despite abundant, fertile land and a large surplus labour pool, local food production falls far below what is needed. This results in substantial imports of expensive protein (fish and chicken) from as far away as South Africa and China and hinders the development of local value addition. Vegetables are mostly grown during the seasonal rains, and are therefore expensive and in short supply during much of the year. This has the following negative consequences for health and economic development in Zambia:
- negative impact on CO2 emissions due to the long-distance transport used to import food
- minimal access to protein for most of the population (too expensive)
- vitamin deficiency for large parts of the year due to shortages of fresh vegetables
- serious nutrition issues (stunting, malnutrition, and high rates of child mortality)
For more info on this, see further this report from UNICEF Zambia:
http://www.unicef.org/zambia/5109_8461.html

ZamCan Farms hopes to address these issues by using modern intensive and sustainable agriculture techniques to reduce net CO2 footprint for food, improve access to affordable locally-grown protein, and provide year-round production of nutritious fresh vegetables for local markets. In the process, the farm can also create sustainable local employment.

After receiving a fair return on our original investment, we hope to eventually transfer ownership of the farm back to our Zambian partners, giving opportunity for the development of Zambian investment capital. In its place, we then hope in the future to recycle our original capital into starting or scaling up other Zambian businesses with local partners.

ZamCan Farms Limited is a private company and we are not looking for additional equity partners at this time. If you'd like other information about this venture, please contact Jerome.

Investment Profile: Diligence Limestone

Fourth Watch Global Analytics is an active investor in Diligence Limestone (Zambia) Limited through its investment firm Fourth Watch African Investments. Diligence Limestone (Zambia) Limited is a startup company that was formed in 2014. It is owned in partnership with five Zambian entrepreneurs. The principal line of business at this time is Diligence Brick & Block.

Diligence Brick & Block runs a factory in Ndola, Zambia that was commissioned in October 2014 and has been in continuous operation since then. Diligence produces hollow blocks and paver stones from limestone and cement, supplying the construction industry in the Copperbelt province.

Why construction products, and specifically blocks and pavers? The rapid economic growth of this region has created a shortage of high quality construction materials. Properly engineered blocks made with hydraulic press and pneumatic vibration are particularly hard to come by. By providing another option for local engineers and builders, we are able to remove one constraint on economic growth in the area. We use a labour-intensive operational design to help absorb some of the surplus unskilled labour in Ndola, offering fair compensation in excess of all minimum wages. In this way we provide another indirect stimulus to local economic growth.

After receiving a fair return on our original investment, we hope to reduce our holdings in Diligence Limestone in favour of our local Zambian partners, giving opportunity for the development of Zambian investment capital. In its place, we then hope in the future to recycle our original capital into starting or scaling up other Zambian businesses with local partners.

Diligence Limestone Limited is a private company and we are not looking for additional equity partners at this time. If you'd like other information about this venture, please contact Jerome.

Refining the Focus

Over the past few months, we have been refining our focus here at Fourth Watch. Although always open to other consulting opportunities related to the background and skills of the directors of Fourth Watch and our close associates, we are putting most of our effort behind a few projects that we feel have the opportunity to make a positive impact in Africa.

Focus Area:
Driving Impact Investing in the Natural Resource Sector in Sub-Saharan Africa (particularly South Africa and Zambia)
Three Stages:
1) Deal Sourcing
2) Project Design
3) Impact Evaluation

As always, a lot hangs on the definitions above, so here is a bit of elaboration.

Natural Resources - It is our opinion that it is very important to African development to move beyond the current model in many countries where the main driver of economic activity is primary resource extraction. In other words, mining or forestry (clear-cutting) activities where the raw material is extracted, prepared for shipment, and sent overseas for any subsequent secondary processing or value-added activities. In this model, the country gets some royalties for the resource and immediate and short term employment is created, but there is little lasting value added to the economy of the country. In most cases, the capital required is not available in the country, so the profits are also all exported to the international investors who provided the capital. It is our desire to move beyond this model and focus on projects that create a more sustainable development model. The natural resources sector allows for a great scope in such projects. We are currently looking at projects in agro-forestry, aquaculture, game farming, and eco-tourism. Although there aren't any on our radar at the moment, we are also actively looking for opportunities in agriculture.

Deal Sourcing - This is a service we can provide to international investors that are looking at making large investments into the above-stated focus areas and in the countries listed above. Through our strong network of local contacts throughout Sub-Saharan Africa, we are presented with a steady stream of investment opportunities. We welcome any suggestions on opportunities from readers, who can contact us at the email address listed on this site. Fourth Watch Global Analytics conducts its own preliminary due diligence on promising investments, and then presents them to funders. Many impact investing funds are currently experiencing a shortage of qualified investment leads, and we specialize in connecting the two.

Project Design - Most of this work occurs on the target investment side. When we have a project that has good potential, we often still need to redesign and repackage the investment in a way that it will be ready for funders to come in and do their own due diligence. For example, we can assist with designing such features as environmental remediation programmes, employee profit sharing systems, training and education programs, community building programs, and the design of innovative financial structuring that will retain or return majority ownership to local ownership or even employee ownership through a cooperative model.

Impact Evaluation - Fourth Watch and some close associates are designing social and environmental measures for our own investment deals, but are also interested in any opportunities to assist funders with designing customized measurement systems. We have the capacity to work on both design and implementation. We prefer to manage the ongoing monitoring and evaluation ourselves or through trusted associates contracted to provide such services. We are also open to discussing contracts to reliably manage monitoring and evaluation projects for impact investments that were sourced and placed by others. Although our specialty is on social and environmental measures, we also use associates to monitor financial performance.


So, with all that said, it is interesting to note that our best efforts at this point are going towards designing what we feel will be a very innovative impact investment. We are attempting with one of our projects to provide a template that can be followed by others, showing that it is possible to do resource extraction in a different way than that which I critically described earlier in this post. Is it possible to do a mining investment with a positive triple bottom line designed right from the start? Can it be done in a way that provides a net environmental benefit? Can profits and ownership be retained within the country? Can jobs be created that live well beyond the project? Can employees feel safe, valued, and personally connected to a mining company? We hope to answer yes to these questions, and in the coming weeks hope to share more details about the project on this site. Obviously here at Fourth Watch we do not shy away from a challenging project - let us know if you have such a challenge for us, and stay tuned for more information!

Cape of Storms Strikes Again

Because of the rainy weather in the long and wet Vancouver winters, weather reports out of Cape Town often make me homesick for my two years that I spent living there and studying for my Masters in Development Finance. August is one month where this very rarely happens, and often the reverse is true. This week has been no exception, as the winter storms on the Cape have been very fierce indeed.

Here is a picture I came across on my internet news scanning this morning of the recent shipwreck of the Kiani Satu:

I am very hopeful that the quick reactions to clean up the environmental damage are successful and that they are able to prevent significant damage from occurring in the nearby tidal estuary.

Cape Nature Article

Zambia Rising

I recently returned from a visit to Zambia and was struck by the speed with which the Africa Rising phenomenon is becoming evident there.

For readers who aren't aware of what I mean with the term "Africa Rising", I am speaking of the growing belief that the coming decades will see accelerating progress in combatting development challenges in Africa, and that economic growth will lead to the emergence of a middle class and major reductions in poverty. Those who hold this belief cite such statistics as the following:
- decline in rate of malaria deaths by 30% in many of the worst affected countries
- rate of new HIV infections dropping by up to 74%
- increasing literacy rates
- improving stats on infant and maternal mortality rates
- increased political stability and growth in democratic systems
- massive increases in real income
- sustained GDP growth of well over 5% in most countries
- exponential increase in foreign direct investment

Of course, massive poverty still exists and there are many cases of entrenched conflict (e.g. DR Congo), corruption, and neo-colonialist resource stripping by foreign companies. The evidence of improvements, however, has been noticed by many and reported in popular press to the point that old stereotypes are rapidly fading.

Just over ten years ago, the Economist magazine published a cover story on Africa entitled "The hopeless continent".


A decade later, they were big enough to admit that the picture had changed substantially, and the continent was indeed finding reason for hope and optimism. The cover story a couple of years ago was entitled "Africa rising".



Many others have piled on in the press in their rush to voice agreement, including Time magazine, The New York Times, and The Times.

An excellent book has also been written on this topic and with the title: "Africa Rising: How 900 million African consumers offer more than you think" by Vijay Mahajan.
 

Mahajan breaks down this phenomenon in very readable terms and then goes on to outline how businesses can take advantage of the massive opportunities that will come from not just the rising middle class in Africa, but also the mass of people at the bottom of the economic pyramid who are also making economic progress and who collectively represent a massive amount of potential purchasing power for consumer goods and services.

So, on my visit to Zambia I was very curious to see if there was any evidence of this progress and to see what the environment felt like.

Soccer Stadiums

Soccer (football) is the most popular sport across Africa. The stereotypical image of African football is a bunch of shoeless boys playing on a dusty field with rusty colonial-era goalposts and a ball made of twine and some wadded-up rubbish. Although I did see a couple of those fields in the rural areas, I was quite impressed with the following two stadiums. When the big game is on, these two beautiful stadiums full up with locals who have a few Kwacha to spare for admission.

Levy Mwanawasa Stadium in Ndola (Copperbelt):

And the Gabon Disaster Heroes National Stadium in Lusaka:

Shopping Malls & Strip Malls
In the last couple of years South African commercial real estate developers showed up in a partnership with some of the rapidly-expanding South African power retailers and have built several shopping malls in Zambia's major cities. There are four in the capital Lusaka, and I also visited a beauty in Ndola, and several more are in the planning stages.

One of the largest is the Manda Hill shopping centre in Lusaka. Walking through there was a sort of weird time warp back to my couple of years that I was in Cape Town. It was also interesting to note that there were many local Zambian entrepreneurs that had set up shop in Manda Hill as well. The parking areas were very busy, and the mall had a lot of people in it. One thing I took note of was that I didn't see a single other white person for the first five minutes until I saw a safari tour operator in the bank's waiting area. Not an expat to be seen - all the shoppers were part of the Africa One and Africa Two market segments that Mahajan writes about in his book. And they were spending real money and generating more economic activity, employment, and tax revenue for the government.

Manda Hill interior:

Manda Hill exterior:

I don't want to be accused of only showing one side, so here is a more typical shopping experience that most Zambians still make use of. In Manda Hill you can go to the Spur restaurant or Nando's, but a lot more Zambians go for a drink or bite to eat after work at a place like this roadside pub with the refreshingly honest name: "The Easy Come Easy Go Roadside Pub".

And to pick up the groceries, they might more likely pick up some vegetables at a stand like this in an informal market, and perhaps also buy a few things for the house at a shop like the "The Lord is my Shepherd Hardware Shop". More and more, however, will buy such necessities at a shop like the South African owned Shop-Rite in a commercial shopping centre.

Homes
I spent a few nights in the homes of middle-class Zambians. Things are fairly simple inside, but they are gradually adding new appliances, upgraded (functioning?!) toilets, and even artistic decorations for the walls. Repainting the home to more modern or preferred colours? Probably almost unheard of a couple of decades ago, but now the Builder's Paradise shops seem to be thriving in service of such growing consumer preferences.

All around the major cities I saw evidence of new construction such as these small but sturdy homes, probably destined to be owned by semi-skilled workers in the Africa Two category.

Most Zambians, however, live in rural villages and in homes that look something like this. Many do not yet have access to clean water or toilets, but the government is beginning with efforts to push such services out into rural areas and to upgrade slums outside the big cities. I saw many shiny new water wells while on my way through the country.

Here's another view of a rural setting, with some more typical homes along the road. This is the stretch where I saw the twine football match on the dusty pitch.

As the economy grows and these people move beyond subsistence agriculture, it is likely that more solid structures will arise here and more people will have access to proper water and sanitation. They will create jobs in construction and for municipal service workers as they build, thereby fueling more economic growth.

Church
While growing up in Canada, I often heard at church about mission projects in Africa and other developing regions where funds had to be raised to help people build a church building. Later, in my teen years, I heard of a lot of people including some of my friends who went on "Missions Trips" to go help build such a facility. Our family also gave donations to help support missionaries who would go and serve people overseas.

So, when I went to church at the Woodlands Baptist Church in Lusaka on Sunday morning, at some subconscious level I think I was half expecting to see a Baptist missionary from Arkansas USA and maybe a few white financial supporters in nice suits on an inspection visit. Well, apparently Africa is rising in the church just as well as in the economy. I was the only white person in the place. The Zambian pastor gave a rousing sermon on the practical power of the Holy Spirit, and after the service he gave the pulpit over to a member of the council to talk about the building project. A-ha! Now the American benefactors would be revealed?? But no, the announcement spoke of thanksgiving that the people of the congregation had already managed to raise 80% of the funds needed for their new and expanded building on the new piece of land that they had purchased for themselves.

My church visit also gave other evidence of economic growth - the parking lot was not filled with donkey carts, but rather Toyotas, Land Rovers, and Tatas.

Roads
While driving around the country, I couldn't help but notice the roads we were driving on. Here was a real land of extremes. This particular road was beautifully new, wide, and smooth, with deep drainage gutters on each side. Unfortunately after a couple of kilometres it abruptly ended and became a dirt road with massive potholes. I was told by one person that the entire crew pulled up stakes and relocated to a municipality that was about to have a byelection.

The main highway coming into Lusaka from the Copperbelt. Smooth, divided, with passing lanes. Just keep an eye out for the sudden/abrupt appearance of axle-snappingly large speed humps at police road checks in the middle of a 100km/h speed zone. Driver beware.

A closer look may be needed to see the depth of the ruts in the road surface. Look at the right side of the picture to see how much the road surface has settled - there is still a lot of progress to be made in Zambia.

Probably a fairly typical Zambian road scene, complete with random dead dog. Well, actually, most rural roads aren't anywhere near this smooth.

 

 

So, the road system in Zambia has a lot of extremes. On the Africa Rising side of things, however, it should also be noted that the President has recently announced over 8,000km of roads are currently in the planning stage and about to be built. If only half of that number materialize, it will have profound benefits to the efficiency with which commerce can be conducted.

People
The best evidence that Zambia is rising can from my conversations with all the people From Africa One and Africa Two that I met. These people and their families had poured everything into education both in their own country and overseas, and were now helping others to do the same. Most of them had at least one entrepreneurial venture in progress outside of their main employment, with four or five other ideas or opportunities in backup. Buying a franchise shop, building a few rental housing units, partnering with a couple of others to develop commercial space, etc. These were people who could probably have a good job in a developed country if they wanted it, but they love their country and believe in its future. They are putting their money where their hearts are.

In all my conversations with these Africa Rising entrepreneurs and domestic investors, they described one major challenge that is holding back their plans and the growth of the country. A lack of capital. A handful of fortunate souls can access the modest funds in government programmes, and the rest can only access finance companies that offer lending rates at 60%/month or higher.

Are there opportunities for foreigners with capital to do good business in Zambia while making a positive impact on the country's future?
Yes.

Do I believe that Africa is rising and that Zambia will be on the forefront of that wave of growth?
Absolutely yes.

The price of participation in BRICS?

The United Kingdom's International Development Secretary Justine Greening announced that the UK's bilateral development assistance program will come to an end in 2015. This announcement came as quite a surprise to a lot of people in the international development community, and it seems also to the government of South Africa. The official diplomatic reaction from South Africa showed that they were seriously displeased.

So what was the reason for this displeasure?

First of all, what was it that the Rt Hon Justine Greening announced? She said that the bilateral aid program will be ended, but that existing programs would be gradually brought to an end with expected wrap-up by 2015. She also mentioned that the current program includes 19million Pounds/year, which is less than half of the 40million from ten years ago. The current program includes working alongside SARS to strengthen other tax services in Southern Africa, helping the SA Dept of Health to share knowledge of medicines to other SADC countries, and helping with the establishment of the South African Development Partners Agency (an agency helping RSA to share experiences in tackling poverty since the end of Apartheid with other African countries). The Rt Hon Ms Greening's announcement also indicated that this wasn't an end to their participation in South Africa's development agenda - she also said that the UK would now focus on technical assistance and skills transfer in the areas of health and economic growth, as well as boosting South Africa's role as a development partner in Africa. (read the official press release here)

And why was South Africa's government particularly unhappy about the announcement? First of all, the announcement was made at a conference of business leaders and African ministers in London. The South African government felt that this was an inappropriate time and place for such an announcement, and I suspect would have been somewhat embarrassed about finding out about it through the media and perhaps frantic phone calls from South Africans attending the conference, rather than through official diplomatic channels. South Africa's official statement was quite strong in voicing displeasure about the decision, and particularly with the manner in which it was communicated. Spokesperson Clayson Monyela said: "This is such a major decision with far reaching implications on the projects that are currently running and it is tantamount to redefining our relationship." The South Africans seemed particularly disappointed that Greening didn't wait until later this year to discuss it at a planned Bilateral SA/UK Strategy Forum. They made it very clear that they plan to make this a topic of discussion at that meeting. (read South Africa's official statement here)

The majority of large organizations such as Oxfam and ActionAid that put out an official response were either guarded or directly critical of DFID's move in cutting off aid to South Africa. Although the announcement was sudden and made in an unexpected way, it should also not have come as a total surprise. First of all, the UK has been reducing its bilateral aid to South Africa steadily for more than a decade. Second, other members of the BRICS grouping have been cut off in recent years including Russia and China, and a similar announcement about support for India was made last year. At Fourth Watch, we speculate on whether there is a link between this and South Africa's participation in BRICS. Could this be the price of participation in the BRICS grouping of rapidly growing economies? South Africa has been far from quiet about its participation, and made much of hosting the group in Durban recently. Perhaps all this talk about South Africa's economic growth also got the attention of those who have been asked to make cuts to the UK's bilateral aid programs. Even if there is no cause/effect relationship, at the minimum the South African government has provided the UK with a handy rationale for cutting the program.

Another observation that doesn't seem to have been picked up on by many is that these program cuts will hurt other African countries as much or more than South Africa. The entire program in its current format is about helping leverage successes in South Africa into other African countries. It's also surprising to us that no comments seem to have been made about the unilateral UK declaration on what direction aid will go in the future - there was clearly no dialogue with South Africa on what assistance is needed or wanted, and the wording of the UK's announcement carries the underlying assumption that the UK has superior knowledge on how to manage an economy - which seems slightly ironic given the two countries' recent relative economic performance.

All that said, we don't disagree with the direction that the UK is going with the program. The announced new focus does seem like a very sensible one from the outside, and one that will help development of the region as a whole. It's just unfortunate that they chose to announce it in such a unilateral and abrupt manner.

Oxford Visit

Today I'll be on my way to the airport to go to the UK. Over the next week and a half, I'll be attending some of the sessions at the Skoll World Forum for Social Entrpereneurs, the parallel OxfordJam conference, and then the Impact Investing Programme at the Oxford University's Said School of Business.

The main reason for the trip is so that I can attend the Impact Investing Programme. The curriculum includes a comprehensive overview of this emerging field, including impact investing deal flow, identification and analysis of investments, and an introduction to the latest tools for measurement of results against multiple (financial and non-financial) objectives. The instructors include tenured Oxford profs and some other international experts that have been brought in for this programme. It should provide a great opportunity for learning and for strengthening of professional networks for all the attendees.

Immediately before the course is the Skoll World Forum on Social Entrepreneurship. Since the main reason for coming was to attend the impact investing programme, I didn't want to commit to the full three days of the world forum conference immediately before the courses begin. I was excited to discover that I could just purchase separate tickets for the four keynote addresses, leaving most of my time free for preparation and to ensure I'm ready for the coursework. The keynote addresses should be great - the speakers include Jeff Skoll, Pamela Hartigan, Muhammad Yunus, and Kofi Annan.

I also discovered a fringe event called OxfordJam running in parallel to the main Skoll World Forum. OxfordJam is a free conference with a wide variety of talks by lesser known speakers than those of the World Forum, but some of the sessions looked to be quite interesting in their own right. Where time allows, I'll also pop by there for a few sessions and see what an un-conference looks like. OxfordJam also claims to have legendary social gatherings, so it might be a good place to take in a nightcap at some point as well.

During my time in Oxford I hope to post a few times to share some of the most exciting learnings. I'll also be pinging out regularly on my twitter feed, so if you want to catch a few nuggets as I share them out through that medium, follow me at @4thWatchGlobal.

Jerome