South Africa’s largest pharmaceutical manufacturer, Aspen Pharmacare, may have announced a relatively tepid set of annual results for the year ended 30 June 2019, but the anticipation of a reduced debt load freeing up cash flows pushed its share price up 12% the day after its results announcement.
Kenya’s James Mworia: Develop local talent to avoid visa issues
The CEO of investment firm Centum has had a stratospheric rise at the company. He is now building up a $500m fund to target mid-cap companies in East Africa
TAR: Is there a capital drought in Africa? Or is it a project drought?
I think there is more of a shortage of market-validated and feasible projects. The project development lifecycle if you are doing, say, infrastructure projects is a very long one. So although there are many projects that have been mooted, the process from conception to financial close – getting all the ducks in a row – is a very long one. We are not moving fast enough in getting to bankability. There are issues with changing regulations. Governments – that’s one issue. Then on the company side, companies that can absorb large pools of capital are also not that many. So the only opportunity you have is replacement capital, and a lot of businesses are held by families (see page 107) and they are not selling.
In Nairobi, it can feel like there are more malls than there are shoppers. Is there a risk of a bubble in the property sector?
These developments are cyclical. What tends to happen is pent-up market demand. The development side responds with an assumption of that growth. And from the point where the decision is made to the point where the developments come on stream, it’s anywhere from three to six years. In that period, you can have a lot of supply arriving at the same time, which is not a coordinated supply – it’s market supply. We have the same problem with hotels. The supply side may have run ahead of demand, but the gap I don’t think is that big.
What are the most dynamic areas outside the capital?
We invest across the board. We are investing on the coast in Mombasa. That’s a residential development called Vipingo. It started a year ago. We have so far sold over 400 residential units. We are also building an industrial park, and we have our anchor customer for that. We have our own desalination plant, [and we are] investing in a private port plus an urban road. We have also sold a site for retail and lifestyle. We have sold a site to a developer for a hotel. So that is coming along well. We also have bottling plants scattered across the country – a plant in Nyeri, a plant in Eldoret, one in Kisii. Our banks are also across the whole country, so while we have the headquarters in Nairobi, we operate nationally and regionally.
How did you go beyond the borders of Kenya? What has worked?
What we have tended to do is to help our portfolio companies to expand. Our strategy is that once you have scale in your own market, then you expand in the region. That has worked for us [with insurance company UAP, publisher Longman and asset manager Platinum]. What has not worked is where we have developed companies from scratch. Greenfields just don’t work. They have taken a lot of time and scaling up is difficult. Maybe at that early stage you need an owner-manager, an entrepreneur who is there, because you don’t have processes set up and all the rest. When you do put those processes in, it increases the costs, which increases the break-even level. So perhaps the conclusion is that it is best run by an entrepreneur-type leader and our capital is best deployed at a different level.
Do you share the optimism in the East African Community?
We used to have East African Airlines and several other regional companies. In the 1970s, we were actually a lot more integrated than [we are] today. My own feeling is that in reality we are falling back. We used to have it, but not any more, for various reasons. The political unity that was there is not what it was.
How do you navigate this? Obviously you want to have regional investment.
Yes, and that’s part of the challenge. Obviously you remain apolitical. But if you look at how companies have established themselves, they are not regional companies. They are companies with a regional presence. You’ve established a stand-alone unit in each country, but they’re not – to an extent – integrated. We are not there yet. Each of these companies has a national approach.
Do you find difficulties in, say, getting senior appointments confirmed in a country like Tanzania? How do you manage it?
Regional work permits is an issue across the board, even for us in Kenya when we try to bring expatriates into our some of our portfolio companies. For example, a school we developed with an international partner, trying to bring in some of their teachers from other schools, and we had a big challenge with work permits. So the work permit issue is not just between East Africans, it’s also outsiders coming in, and that’s likely because of unemployment. What we’ve done to mitigate it is that we developed talent centrally that we intend to locate in other countries. So if you want to do business in Tanzania, I have several people, And we’ve employed Tanzanians, working for us in Kenya and other places.
How far down the track are you looking with that strategy?
So we started at graduate level, entry level. […] I have even taken people I have hired from other countries who have developed to a certain level and then I have placed them or got them senior jobs in their home countries at other companies, with the intention that when we are ready and I go to that market I will be able to say “Come back”. I know I will need this person in the future. If you don’t have talent, you can’t execute strategy. It is a big portion of a CEO’s job. I can delegate operations, but you must own strategy, you must own talent.
James Mworia spoke to The Africa Report during the Africa CEO Forum in Kigali