challenges Archives - African Financial & Economic Data

04 Oct

Tanzania: overcoming financing challenges to launch cashew business

Tanzania. Within two years of starting his business, Fahad Awadh had been named one of 30 entrepreneurs to watch in Africa by Forbes magazine, and also received a US$500,000 grant from the Africa Enterprise Challenge Fund.

Awadh is the founder of YYTZ Agro-Processing, a cashew production company that focuses on exporting high-quality nuts from Tanzania, while working closely with local farmers to ensure they are sufficiently included in the value chain.

In 2014, Awadh began looking for a business venture he could invest in – something that entailed value addition in Tanzania.

“I was looking for something with export demand and I came across cashew by looking at what Tanzania produces a lot of, that is exported and valuable,” says Awadh, whose first major entrepreneurial venture was a clothing business he founded with friends while studying at York University in Canada.

“I didn’t know much about cashew so I dug deep and found that while Tanzania is one of the largest cashew producing countries in the world, about 90% of its cashews are exported in its raw form to India and Vietnam where they are processed and re-exported to developed markets. That really stood out for me.”

To understand the ins and outs of the industry, Awadh left Canada for Tanzania to conduct research on cashew production.

“I visited cashew farmers and regulatory authorities because I needed to understand the domestic market supply and the global trade of cashew,” he says.

Awadh also travelled to Vietnam, one of the largest cashew exporters in the world. Here he visited manufacturers of processing equipment and the factory of a reputable cashew producer. These visits exposed him to global best practices, which he later implemented in his own business.

Cashew farmer training in Tanzania
“Understanding the global market and what consumers want helped me make informed decisions about how I am going to process these cashews,” says Awadh. “I knew that if I was going to process in Tanzania, it needs to be mechanised, automated and efficient.

20 Sep

The budget bank rattling South Africa’s financial sector

STELLENBOSCH, South Africa (Reuters) – A budget bank is booming in South Africa’s economic slump, challenging the decades-long dominance of the “big four” lenders and prompting a price war that is driving down banking costs in a country where many people can’t afford an account.

Capitec Bank has doubled its customer numbers over the past five years and quadrupled in market value, even as South Africa’s economic growth has stalled and the country has slid into recession, squeezing household incomes.

It offers a single “no-frills” bank account with low fees, as well as unsecured loans to customers including low-income borrowers, but steers clear of the more complex financial products offered by rivals.

This model has insulated it from the downturn, which has constrained mortgage lending and vehicle finance, key business areas for the four biggest banks: Standard Bank, FirstRand, Barclays Africa and Nedbank.

Those four heavyweights have reigned unchallenged over South Africa’s financial sector since the 1990s.

But Capitec, whose shares have risen more than 300 percent since 2012 and over 30 percent this year, now has a market value of 103 billion rand ($7.9 billion) – closing in on the number four lender Nedbank, which is worth 110 billion rand.

The Stellenbosch-based bank, which launched in 2001, has 9 million customers, of which 4 million are so-called primary clients who have their salaries deposited into these accounts.

“Most of them we’ve taken from other banks,” Capitec Chief Executive Gerrie Fourie told Reuters in an interview, saying that his bank attracts 100,000 to 150,000 new customers a month.

“The economy is helping us,” he added. “People have started questioning why they have to pay banking costs.”

There are clear risks to the bank’s business model of offering unsecured loans to lower-income borrowers without any other forms of lending to counter any losses, according to industry experts.

Capitec’s rise is nonetheless forcing its rivals to respond. They are all fighting back with their own no frills accounts aimed at hard-pressed consumers.

15 Aug

Tony Elumelu on the challenges of growing a pan-African company

Policy uncertainty, labour mobility restrictions and foreign exchange issues.

These are some of the challenges foreign companies can expect to encounter as they grow their businesses across the continent, according to Nigerian businessman Tony Elumelu, chairman of United Bank for Africa (UBA). Headquartered in Nigeria, UBA has a presence in over a dozen African countries. Elemu was speaking during the recent Afreximbank annual general meeting in Kigali, Rwanda.

Elumelu, who is also chairman of diversified investment company Heirs Holdings, used UBA’s experience of expanding to Zambia as an example of how changing policies can cause havoc for companies. When UBA decided to enter the Zambian market, it took into consideration the size of the Zambian economy (its GDP) and the minimum capital required to obtain a banking licence. “We did our feasibility and went to Zambia based on that… The capital you deploy is a function of the size of an economy,” explained Elumelu.

However, relatively soon after it opened shop, Zambia suddenly changed the capital requirement to US$100m, significantly higher than the original amount. Although UBA did end up staying in Zambia, Elumelu conceded that “it was a major issue”.

A second cross-border business obstacle is restrictions associated with moving staff from one African country to another. “We can’t be talking of intra-African trade when labour is not as free and mobile as it should be,” said Elumelu

Only 10 of Africa’s 55 territories grant either visa-free entry or visas on arrival to all Africans. In fact, it can be easier for Americans or Europeans to travel the continent than for its own citizens.

However, to overcome this challenge, UBA established its own internal training programmes. “Where we’ve had human capital issues, we’ve set up an internal academy, an internal school – where you hire people, you train them in school, and they are able to deliver.”

Elumelu furthermore highlighted foreign exchange-related constraints in some African countries.

He concluded by saying successful businesspeople look to find opportunities in challenges. “They don’t run away from problems or challenges, they think of how to mitigate challenges.”

Source fromHow we made it in Africa