The following article is copyright © African Technology Forum. All rights reserved. This article appeared in Volume 7, Number 3 of ATF. Select this link to see the table of contents for this issue. Select this link to order this issue of ATF.
It takes a lot more than a good idea to develop a successful manufacturing venture. You need to know where to find the resources, both financial and technological, and you need to find the right people with the right skills to do the job. Knowing where to look for these resources can save you precious time and money, and earn you some valuable partners in the process.
Africa today is on the verge of its own industrial revolution. Across the continent--from Dakar to Mombassa, and from Cairo to Cape Town--African business men and women are launching ventures in the wake of recent economic reforms. In many cases these projects begin modestly, with startup capital of between $20,000 and $200,000. What makes these productive ventures different from other businesses (such as services) is the critical component of acquiring and maintaining equipment.
Demand for locally produced goods in Africa is bound to grow rapidly as we enter the next millennium with larger and more educated populations. In the future, it will become less economical for African countries to import all their manufactured goods because of the high costs and the need to employ and integrate young, technically trained professionals into the economy.
African entrepreneurs and their partners abroad can play catalytic roles in promoting industries in Africa. Potential venture partners in the US can offer much needed technical and financial support and, equally important, access to relatively inexpensive but critical technology and management expertise.
This article will guide you through five important steps to take in pursuing a manufacturing project in Africa.
It is not too difficult to find good projects in need of investment or other assistance. However, if you are starting from scratch with no leads, there are resources you can query to help you identify potential manufacturing ventures.
At this step of the project development process, you the project promoter must make a commitment to visit the targeted country to meet and strategize with your potential partners. This is highly recommended even if the country of operation is your home country. It is possible to start a project without local ties, but your risk of failure will be very high.
When a promising project has been identified, your next and most important step is to determine the feasibility of launching the venture. This step involves drafting a carefully detailed plan of action which reflects the venture partners' understanding of:
For those who need assistance in preparing feasibility studies, there are some resources that can assist in this process. As mentioned earlier, the Africa Project Development Facility was established specifically to aid in the development of project studies. Often, however, the APDF officers receive many more requests than they can handle, and you may have to find other assistance in such cases.
If the project involves US inputs with the potential of importing US-made equipment, the US Trade and Development Agency (USTDA) can provide grants to project promoters to conduct the studies. If you plan to approach the African Development Bank (ADB) for possible finance, you could also seek feasibility study funds from the ADB-USTDA Trust Fund, which was established to assist US-based companies in their efforts to participate in African projects. These grants are given on a matching fund basis.
Your next step is to acquire the necessary equipment for the venture and people with the right skills to manage the project and manufacture your product. One of the fastest ways to determine which technical inputs will be needed to launch a venture is to contact one of the many national industry associations in the US and ask to be put in touch with a company that already makes the same or similar product you plan to produce. There are a number of publications available at most public libraries listing the various industry associations and their contact information.
Once you have a rough idea of what technical skills and technology will be needed for your venture, the next task is to determine how to acquire these inputs. Equipment and machinery can be leased in some cases, but you may be required to purchase them because they are intended for overseas use. Industry associations are often good sources of information on suppliers of both new and used equipment.
You may also contact the US Department of Commerce or Department of Agriculture. Both have industry desk officers who may have the information you need. Along with providing information on specific companies that sell the needed technology, these two agencies also have specific information about major trade shows nationwide which you may choose to attend. Hundreds, and often thousands, of producers attend these trade shows, giving you the opportunity to meet with them and determine the best way to obtain the appropriate technology along with optimal after-sales service.
After-sales service is very important. When acquiring technology, make sure you get the guarantee of the seller to provide after-sales service and supplies. Many manufacturing projects have failed because of minor machinery breakdowns in which the project manager did not have access to the required service and supplies.
One useful source of technical assistance is the International Executive Service Corporation (IESC), an agency sponsored by the USAID and based in Connecticut. IESC places retired business executives in foreign companies for months at a time to assist in getting ventures off the ground. These volunteers have a variety of skills which are matched to the needs of the project.
There is also the African Management Service Company (AMSCO), a multilateral agency based in the Netherlands and managed by the World Bank's International Finance Corporation. AMSCO, like IESC, places capable executives in African companies to provide technical and managerial assistance.
Finally, you may wish to contact bilateral or multilateral institutions with offices in your country of operation. They can help you identify, and in some cases finance, technical consultants or staff for manufacturing ventures. These cases will depend largely on the agency and country you approach.
There is no substitute to having some capital of your own, but few people can afford to put up the full cost of a manufacturing venture. In many cases finance is available to offset some of the initial investment costs of establishing the operation. If you or your partner is based in the US, you can benefit from debt and equity financing available through the Overseas Private Investment Corporation (OPIC). OPIC's mandate is to provide project finance and insurance to investment projects in developing countries involving US-based principals.
Project finance is also available from the International Finance Corporation's African Enterprise Fund. This fund was established to allow the IFC to consider projects which are much smaller than those they traditionally handle. The African Development Bank's Private Sector Development Unit (PSDU) provides similar services to those of the IFC in that it is the ADB's private sector lending arm. Two key factors to note in seeking OPIC, IFC, and PSDU funding are: (i) that projects can take up to twelve months to get funded because these institutions pay a great deal of effort to proposals to ensure that the public funds they handle are invested properly; and (ii) larger project will receive preference over smaller projects since the same scrutiny will be applied to both projects regardless of size, but larger projects will have a higher revenue stream when the borrower begins to repay.
You can obtain alternative sources of equity and debt financing from emerging African venture capital firms, such as the Ghana Venture Capital Fund, or the New South Africa Management Fund in South Africa; and from merchant banks, such as Connecticut-based Equator Bank, which manages the Africa Growth Funds I and II, and Meridien-BIAO, which has branches all across Africa and will soon be headquartered in New York. In mid-1994, USAID announced the launching of the $100 million Southern African Enterprise Development Fund headed by Andrew Young, the former US ambassador to the UN. This fund will provide an additional financing source for manufacturing projects in the southern Africa region.
Despite the best intentions and thorough planning, unforeseen events can occur that will disrupt your project. These could be sovereign risks such as unanticipated instability in the government of your host country, devaluation of the local currency, or from labor unrest. Along with providing investment finance, OPIC provides political risk insurance for projects involving US-based principals. As mentioned earlier, the World Bank's MIGA also provides political risk insurance for projects in developing regions of the world, including Africa.
* Michael E. M. Sudarkasa, Esq. is President of 21st Africa Inc., an international business consultancy based in Washington, DC. He is the author and publisher of The African Business Handbook, a biennial resource guide.
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