Conversation 4: David and Goliath: Linking to the International Supply Chain

GES 2015 in Nairobi
Conversation 4: David and Goliath: Linking to the International Supply Chain
Saturday, July 25

Moderator: Shelley Broader, Walmart

-    Jay Ireland, GE Africa
-    Monica Musonda, Java Foods
-    Kitili Mbathi, Standard Bank

Estimated number of attendees:  Approximately 85

-    GE has $3.5B in revenue, working in 25 countries in Africa; 
-    Java Foods is based in Zambia; Monica is a food entrepreneur
-    Kitili: Standard/Stanbic; 

Shelley: Entrepreneurs have a lot on their plate.  How important is a reliable supply chain to scale?  How?  Why?

Jay: Make it sustainable, consistent.  
-    In Africa, have to build a local presence, have to go beyond sales offices.  
-    GE has been in Africa for over 100 years, strong in South Africa and Nigeria before Kenya.
-    GE has $500-600M in investment in a few years in local assembly facilities and then will source locally.
-    How to get in: Have product or capability that can be done locally, then qualify (quality and financial).  Goal is supply chain for anywhere in GE, not just GE in Africa, same standards in Africa as anywhere else
-    Understand what you do and at the highest quality and look for opportunities

Shelley:  Perfect partnership to start business?  

Monica: Food retail 
-    Retail growth in Africa is at 15%
-    Concern: Need the right raw materials (…and not just maize)
-    Coordinate farmers and aggregation is challenging

Shelley: Example of a partnership?

Kitili: Second largest Coke bottler in Kenya.  Had a challenge when 25 largest distributors were selling on cash and constrained by working on small cash flow
-    Enter M-Pesa, good start but took 48 hours to get payment into their accounts. 
-    So designed a system with third party.  Trucks would have ID code, so would get instant confirmation and payment with a direct reconciliation. 
-    Also led to better resupply, so they sold more products
-    Also allowed  Standard to give them more direct financing, with more working capital for stock and to improve vehicles

Shelley: How to find credible financing at a reasonable rate?

Monica: Still a challenge for SMEs with limited working capital
-    Banks need to understand the sector better to discount the invoice rates.  For example can pay 30% on 60-day payment period.
-    Have a supplier fund (Mass Mart) and work with outside organizations to work with small agro-businesses and partner with the end user

Kitili:  We need to move from an asset backed system
-    Malawi example: Alliance One, worked with a client who works with small holder contract farmers on fixed price.  Bank then creates loan based on value of investment and backs sales with insurance (to cover difference with auction price)
-    Has led to better farm gate prices, but also has risk-sharing with industry due to volatility

Shelley:  Government role in trade? 

Jay and Shelley on PAC DBIA, focusing on agriculture

Shelley: Trade barriers: even with tariff-free textile raw material, transport takes so long they cannot work with Kenyan factories.  
-    Walmart can get material in days and to shelf in weeks, but with Kenya it can take months.
-    Problem is variance of days (not days itself).  At Durban Port can take 100+ days.

Jay: People and their capacity are key.
-    Critical skills gap has been discussed.  We are looking for technical people, and there is a lack of quantity of stem skills.  Kenya only graduates 4,000 engineers a year, 
-    Have a lot of university partnerships, training, mentorships, apprentices, sending abroad
-    Some are long term commitments (over two years), but expensive and cannot do it all themselves.  Above example was for 20 people, need 250 for the plant alone
-    Need to make sure the youth demographic dividend can be capitalized on…need the right training

Kitili: Pitching for financing, wide gap in skills…what are the key skills?
-    Understand the difference between how entrepreneurs and bankers see things.  Entrepreneurs are very optimistic, while bankers need to see the financials behind the optimism.  
-    Have your formal records and business plan clearly spell it out, banker then balances performance and business plan

Audience questions:
1.    For Standard Bank:  Tobacco is a well-structured industry and Alliance One is working, but could you go to new sectors? What collateral is needed, rates, etc?
o    Kitili: Key is to have credible end buyer with guaranteed end market and the work with the buyer to ensure the suppliers (farmers) have the right inputs.

2.    We have to reinvent the value chain organization for supply chain every time.  What is the best practice?  How do African entrepreneurs get to American markets?
o    Shelley: We are asking African nations to consolidate, but on the other hand each buyer would want their own standards.

3.    We need more internal skills.  We need African regional trade and African skills transfer.  Is there training and help to formalize and improve bankability?
o    Kitili: Yes.  Example:  Enterprise Uganda, an NGO for business plan development that also helps formalize the accounting systems to better manage cash flows.

4.    Supply chain management:  How can small companies work with international suppliers, as they do not exist locally. Typically have to go to China.  How do you manage quality?  How do we get past 100% payment required up front?
o    Jay: If you can get into our supply chain, you can leverage our skills, reputation, and volume.  Band together to get more volume (even think regionally), than approach the international suppliers
o    Shelley: Go for the long play, choose quality instead of price when it becomes a mutually-exclusive decision.

5.    Do you, the big suppliers, consider what we the entrepreneurs expect?
o    Jay:  Yes, but many challenges are hard to see, but do not overthink it.  Analysis by paralysis
o    Monica: I learned by doing with a safe, affordable product.  Once we panicked and spent on R&D based on some else’s idea and and got away from the basics.
o    Shelley: Also need to avoid putting Western perspectives on ecosystems that cannot support.  We meet suppliers where they are, not where we are.