How to succeed as a franchisee

Turning a start-up franchise business into a success is tough, but possible. Learn from an expert the keys to striking gold.


By Jeremy Lang

If you’re the kind of guy who likes to go to sleep early, don’t buy a restaurant franchise. I am stating the obvious? Perhaps, but you’ll be surprised how many first-time franchisees make the mistake of buying a franchise that simply does not fit their lifestyles.

In the world of start-up franchising, it can easily be a fatal mistake to make, because there is so little room for error. Very few people who buy their first franchise have the resources for a second chance once they’ve found out that the franchise they had set their heart on is actually not the right fit.

Lifestyle preference is only one of three pillars which prospective franchisees must consider to make sure that the franchise they choose is the right fit for them. The other two are skills and personality.

The skills set of the entrepreneur is the most important. First, there is the technical know-how related to the specific industry, such as a beauty salon or a service station. You’ve got to be able to choose a franchise for which you either have a natural skills set, or one in which you’ve had previous experience in.

Irrespective of the industry, a franchisee will always have to be a jack-of-all-trades to a certain extent - the HR person, the salesperson, the office-manager person and the tea lady, so you’ve really got to have a good general hybrid of skills such as:

• Good management ability, which is the core of what the franchisee is signing up for
• Sales skills, because your whole enterprise revolves around your ability to secure business
• An eye for detail and practical problem solving skills. Because you will be fulfilling multiple tasks in your business, you have to know as much about all the different systems as possible
• Networking and relationship-building skills for forging ties with your clients, staff, suppliers and franchisor, and
• Practical problem-solving skills. You are going to be faced with many challenges every day. You will have to be decisive, and think quickly to find solutions to problems.

This list is true for any start-up business, franchised or not, but there is one set of skills particular to franchising: the ability to follow the rules of the concept. Franchising is a recipe that requires strict adherence by franchisees, otherwise the service or product will start differing from branch to branch, and the collective power of the brand will suffer. If you are not somebody who likes to operate your business under a strict set of rules that you have not created, then franchising may not be for you.

Being a successful franchisee not only has to do with skills, but also with personality. Prospective franchisees need to be honest with themselves about their personality. A generally introverted person should shy from retail or service-heavy businesses such as restaurants. Similarly, a sociable, outgoing personality will become frustrated in a desk-bound business where there is little interaction with clients.

Although nothing can replace common-sense self-knowledge, I would suggest doing a personality test such as the Myers Briggs test, more to help you think through what you already know about yourself rather than teach you about aspects of your personality that you didn’t know.

The unknown usually lies on the side of the franchise. A first-time franchisee who knows himself well could still be in for a nasty surprise when it turns out that the franchise requires an approach, attitude or trait that he simply isn’t comfortable with.

There are two methods of avoiding this mistake. First, speak to the franchisor that you have your eye on. A reputable, established franchise group will have a very clear idea of what kind of personality and skills set are required to make a success of their concept. Some will have formal descriptions and even tests as part of their assessment process.

Most importantly, speak to the franchisees in the group that you want to join. If possible, work-shadow franchisees who are hands-on involved in the management of their businesses for a week or two. The exercise should leave you under few illusions about whether you are up to the task, and whether the work and lifestyle suit you.

Jeremy is regional general manager of Business Partners Limited.

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Below are links to some franchise opportunities on the Frontier platform

International financial services company is seeking a master licensees in Africa

Investors sought for expanding popular fast food franchise in South Africa

Top 6 private equity deals in Africa

Consumer-facing sectors are proving to be the most compelling for private equity in Africa, as demonstrated by the type of deals in July.

The Abraaj Group invests in Tunisian private hospital

The Abraaj Group announced its funds had acquired a majority stake in Polyclinique Taoufik S.A., the second-largest private hospital in Tunisia with 164 beds.

The investment will help the hospital to consolidate it’s strong position in the market by further increasing patient capacity and adding new services, upgrading and renovating the hospital, and investing in human resources and training.

To implement its growth strategy for Clinique Taoufik, Abraaj will draw on its extensive experience in the healthcare sector, gained from investing in businesses across the Middle East, North Africa and Turkey.

Population growth in North Africa is expected to reach 190 million by 2020, and with life expectancy also on the rise there is potential for further demand for quality healthcare services.

Tunisian healthcare sector made up almost 7% of GDP in 2013.

The investment is the sixth by Abraaj in Tunisia. It’s portfolio includes baked goods company Moulin d’Or; Unimed, a leading player in sterile form pharmaceutical products; and Plastic Electromechanic Company (PEC), which specializes in plastic injection, the assembly of electrical equipment and harnesses, and medical products.

AfricInvest Group and FMO form SFC Finance

AfricInvest Group and FMO (The Netherlands Development Finance Company) are part of a consortium which created SFC Finance, a senior secured lender providing funding for growth or expansion to small and medium enterprises (SMEs) in Africa.
SFC Finance will structure its loans with tenors adapted to the cash generation capabilities of its customers. Shareholders committed equity of US$20-million, alongside an initial US$50-million debt facility extended by the Overseas Private Investment Corporation. 

Debt financing for SMEs in Africa is poor, particularly the lack of credit facilities with repayment schedules that reflect company cash flows, a factor which has inhibited their growth. SFC Finance will address these needs, and also SME governance and environmental and social responsibility.

Amethis Finance announces final closing at US$530m

Private investment fund, Amethis Finance, saw final close of their first fund at US$530-million, which included institutional investors from Europe, US and Africa, together with close to 40 European and US entrepreneurs and family offices. 

Amethis has already made five investments since announcing their first close 18 months ago, in fast -performing companies in Kenya, Ghana, Cote d’Ivoire and Mauritius - in the banking, oil and gas, retail distribution, and logistics sectors. 

The Fund's shareholding structure mixes classical institutional investors (banks, insurance companies, fund of funds) with successful private entrepreneurs from the manufacturing and services sectors who are investing often for the first time in Africa and are looking to know better the continent. It assists its investors in their expansion, notably through co-investments.

Economic models are rapidly changing in Africa, with consumer and retail oriented companies taking advantage of those evolutions. This rapid growth is creating significant capital needs for local companies, and Amethis’ strategy is to foster long-term ties with well-established, high-growth African businesses that need long-term capital. 

Private European and US entrepreneurs and family offices are increasingly investing in Africa, and see the continent as the next world frontier for growth.

DPI and PIC in consortium acquisition of RTT

Development Partners International (DPI), through African Development Partners II, and the Government Employees Pension Fund (GEPF), represented by the Public Investment Corporation (PIC), acquired 80% of the RTT Group, Africa’s largest privately owned parcel distribution company, for an undisclosed sum. Ethos Private Equity leads this consortium.

The investment will expand RTT's offerings, and help to tailor services to specific customer needs.

RTT is a market leader in third-party logistics and distribution, and a forerunner in break bulk and express distribution. The company operates across sub-Saharan Africa, comprising over 120,000m2 of warehousing and cross docking facilities. RTT has a combined fleet in excess of 1,200 vehicles and employs close to 5,000 people. Revenues exceed R2.5-million per annum.

Fusion Capital buys equity stake in Kenya’s first free newspaper

Fusion Capital acquired a 40% equity stake in Xtra Publishing Limited, a free newspaper and digital content company in Kenya. 

Xtra will leverage free print and digital services in an attractive new media hybrid model. The company launched the region’s first free newspaper in March and is already the third-largest newspaper in Kenya. The newspaper will be supported by online and mobile services targeted at the young professional demographic. IPSOS/Synovate readership surveys confirm that the newspaper has secured the young, urban professional readership, providing near zero wastage for advertisers.

The investment by Fusion will be utilized in advancing IT and editorial systems, and for working capital requirements.

Kenya and East Africa is showing encouraging trends in digital news and entertainment dissemination. The statistics show impressive growth with Internet usage having doubled between January 2010 and 2011, from 3 million to 7.5 million users. Usage further increased by another 65% between October 2010 and October 2011, rising to 14.3 million users.

That figure corresponds to over 36%of the population having access to the Internet (WAN-IFRA 2012).

Helios Investment Partners and IFC in US$630-million equity fundraising round for Helios Towers Africa

Telecommunications towers company, Helios Investment Partners, and the International Finance Corporation (IFC) participated in Helios Towers Africa’s latest equity fundraising round, which raised US$630-million in new equity resources from existing and new shareholders.

Existing shareholders including Quantum Strategic Partners, Helios Investment Partners, Albright Capital Management, RIT Capital Partners and IFC, added to their current stakes and are now joined by new shareholders, Providence Equity Partners and IFC African, Latin American, and Caribbean Fund.

Helios also expects to complete negotiations shortly on new and extended debt facilities of over $350-million with a strong syndicate of international and local lending institutions.

Following this latest injection of capital, Helios will have raised over $1.8-billion in external financing since inception in late 2009 to fund acquisitions and organic growth.

The telecommunications towers industry in Africa has huge potential. There is need for 100,000 Points of Service (PoS) to merely satisfy demand for 2G coverage and associated capacity demand over the next five years. This PoS requirement is underpinned further by the growing demand for 3G and 4G data, which is driving the need for significant additional infrastructure capacity and in-fill across the continent.

Helios owns over 7,800 towers in Africa.

Ten tech startups to watch in Ghana

By Mfonobong Nsehe

The Meltwater Entrepreneurial School of Technology (MEST), an entrepreneurial school founded in 2007 by Norwegian software entrepreneur, Jorn Lyseggenhe, is helping to train young and intelligent Ghanaians (and from this year, Nigerians) to become software entrepreneurs. Since founding the school, 139 students have graduated and 13 companies have been founded by these people. Collectively, these companies now employ over 70 people.

MEST is a tech entrepreneurial school and incubator with an interesting model.

“The idea was to get young graduates from Ghana who were passionate about technology and entrepreneurship. We wanted people who were interested in building a company. Our selection criteria was that each of them had to have a first degree from a University or higher institution of learning. Then we put them through rigorous aptitude tests and other screening exercises to get the very best out of the entire lot,” said Lyseggen, who was born in Korea but adopted by a family in Norway and has already sold two companies and taken a  third public.

MEST receives close to one thousand applications from hopefuls across the country every year. Lyseggen and his team meticulously review every application and then select no more than 20 exceptional applicants from the pool. On acceptance into the school, the successful applicants, usually referred to as ‘Entrepreneurs in Training’ (EITs) have to go through an intensive, rigorous two-year entrepreneurial training program that blends an MBA-type education with hands-on training in software development in a fast-paced, startup environment. The EITs learn everything from the fundamentals of business management, entrepreneurship and finance to communications and programming. These students are taught by teaching fellows that include business professors, MBA consultants and software geeks, who each bring several years of seasoned experience in the software and tech business in the United States, Europe and Asia. Together these teaching fellows prepare the MEST students for the global markets.

Students at MEST are all compelled to develop software applications that will provide solutions to pressing international problems - applications that must be launched in the global marketplace as real companies. This is the subterranean objective of the intense two-year training. The first year is mainly theory, but in their second year, students must form teams of three or four people and boot-strap their own software start-ups. For their final examinations, the students must present an investor pitch to a committee that includes Jorn Lyseggen, renowned venture capitalists and entrepreneurs. Based on the strength of the commercial viability of the start-up, it’s global appeal and other metrics, the students stand to receive seed funding from $30,000-$200,000 from MEST’s incubator, which is conveniently located in the same environment. When the ideas are funded, the newly-formed companies move into the incubator to start business. 

It’s a model that has worked well so far. Between 2008 and 2013, the Meltwater Foundation, chaired by Lyseggen, has invested over $1.5-million in these budding businesses. But it’s not just about the money. MEST graduates who receive investment gain instant access to a global network of advisors and mentors - many of whom are friends to MEST.

Prior to the 2013 graduation ceremony, some of the students pitched their business ideas to a panel for possible funding and a place in the MEST incubator. I had the opportunity to be a part of the investor pitches, and many of the students were eager to share the ideas of their young outfits with me. There were a few decent ideas that I have outlined below and think are worth watching closely.

Dropifi

Dropifi became the first African start-up to be accepted into 500 Startups, the renowned Silicon Valley-based seed accelerator and investment fund. Dropifi offers an intelligent contact form - a smart widget that helps businesses and companies better analyze, visualize and respond to incoming messages. With Dropifi, companies can view the social media profiles and demographic of message senders and analyze the emotions behind the messages.

Orgaroo

Currently in beta, Orgaroo is a web and mobile application that allows event planners and people who coordinate conferences, official meetings, trips and other related activities to seamlessly organize itineraries, manage activities, and keep attendees on track with real-time updates. According to its co-founder Selasi Tsikata, Orgaroo lets organizers import attendees’ email addresses from an address book in less than a second, plan the activities, events and travel information for each attendee, then add them to each person’s calendar.

Afriyage

Afriyage is a mobile app that offers first-time or regular travelers to Africa personalized travel suggestions based on a traveler’s preferences and interests. MEST graduate and Afriyage co-founder, Agana-Nsiire Agana, describes the app as “your intelligent personal travel assistant in Africa”.

ClaimSync

Claimsync is an end-to-end claims processing software that enables hospitals, clinics and other healthcare facilities all over the world to automate patients’ medical records and to process records electronically. Claimsync’s solution allows these healthcare providers to easily prepare medical claims and send electronically to health insurance companies. Claimsync also offers a platform whereby insurance payers can receive medical claims through their online dashboard and easily vet them for payment. With Claimsync, one can also search for patient records by name or membership number.

RetailTower
RetailTower’s e-commerce marketing software allows online merchants to easily list their online stores across all major comparison shopping engines thereby increasing exposure, driving traffic and improving sales. RetailTower submits data feeds of independent online stores to more than 15 shopping engines like Google, Amazon, TheFind, Shopzilla and Pricegrabber. Online merchants can track referral traffic from various shopping engines through RetailTower’s analytics platform. At the moment, RetailTower has over 11,000 merchants and integrates with the leading e-commerce platforms, including Amazon. The firm is even a preferred solutions provider for Amazon Ads.

Trokxi

Trokxi is a mobile and web-based application that provides you with estimated fares for public transportation and destinations around the world thereby allowing you adequately budget for your trip, as well as save money and time. The app also maps the major cities and their transport systems. It is now available only to Ghanaians, so it only maps cities in Ghana, but the founders plan to launch it on a global scale sooner or later.

FreelancePro.Me

Richard Brandt, the Ghanaian co-founder of FreelancePro.Me, describes the site as ‘the LinkedIn for freelancers’. FreelancePro.Me is a website that allows freelance writers, programmers and designers to create a professional reputation profile by aggregating their testimonials on multiple freelance sites like odesk, freelancer, elance and LinkedIn on one singular platform. With all their testimonials from multiple job sites aggregated on one channel, freelancers find it easier to promote themselves to prospective clients and secure more jobs.

mPawa

Founded by Maxwell Donkor, mPawa is a mobile application developed for Africa’s blue collar recruitment sector. mPawa provides companies and individuals with access to a pool of blue collar workers. The app connects employers to blue collar workers such as construction staff, plumbers, mechanics, electricians and the sort. mPawa supports the posting of jobs and then notifies blue collar workers on the availability of new jobs based on  geographic location, job preference, wages and other metrics, thereby getting blue collar workers into a centralized location and allowing employers to easily reach them.

Saya Mobile

Saya has developed a free group messaging application that works on feature phones with internet access. Saya also works on Java, iOS, Android and the Blackberry platforms. The app connects users with their phone contacts and Facebook friends.

Leti Games

Leti Games is a mobile game development company. The arcade and strategy games Leti develop are usually set in traditional African settings complete with African heroes and elements such as elephants, hyenas and other animals, giving the savvy gamer an experience like no other. Leti has thousands of users and their games are available on Apple’s App store for a small fee.

Mfonobong Nsehe chronicles the stories of successful African enterprises and entrepreneurs for Forbes.com

The hottest selling oil and gas products in Africa

The oil and gas sectors will continue to thrive due to the rising demand for energy on the continent.

By John-Paul Iwuoha

The severe shortage of electricity in many parts of Africa is causing people who can afford it to spend more on petrol and diesel to generate their own electricity. Millions of individuals and companies in Africa now spend a lot of money every year on oil products like petrol (gasoline), diesel and kerosene to provide their own electricity, and the demand is expected to continue increasing. 

There are more than five major products that result from refining crude oil, but I will focus on the top four that are highest in demand and most popular with consumers in Africa. There are many other products that are applied for various uses such as road construction, aviation and marine fuels, and in chemical and manufacturing industries.

Petrol

Petrol (technically known in the oil business as Gasoline, Premium Motor Spirit or ‘PMS’) is one of the most popular and widely consumed oil products in Africa. It is estimated that Africans consume more than 100 million litres of petrol every day. The number of vehicles (especially private cars) is increasing across Africa. The volume of petrol Africans buy will continue to increase as more people buy cars or depend on petrol-powered buses and other means of transportation. The electricity problem is also likely to encourage the petrol business as most individually-owned power generators run on petrol.

Diesel

Diesel is technically referred to in the oil business as ‘AGO’, an abbreviation of ‘Automotive Gas Oil’. It is commonly used by heavy-duty engines which power many of the large trucks, tankers and trailers that transport heavy goods (and people). Diesel may not be as popular as petrol (or gasoline) but it remains a very important fuel to the economy. It helps to move most of the heavy goods (like agricultural produce, building materials, imported goods and raw materials) that drive trade and commerce. There is growing potential for trucking and haulage businesses across Africa. As the demand for trucking and haulage increases, so will the volume of diesel that will be consumed. Diesel is also commonly used as fuel for bigger power generators that produce electricity for factories and medium-large companies. As more of these factories and companies demand more electricity and (if) the electricity supply situation worsens, the demand for diesel is also likely to increase.

Kerosene

Technically known as ‘Household Kerosene (HHK)’, Dual Purpose Kerosene (DPK) or Paraffin, kerosene is one of the most widely consumed fuels in Africa. It is commonly used in homes and households to provide heating, lighting (in kerosene lamps) and for cooking food. Especially in low and middle income households, kerosene remains the cleaner, more effective and often cheaper alternative to charcoal and firewood. Kerosene is very likely to remain a hot-selling fuel as environmental awareness discourages more people from destroying our forests to produce wood for firewood or charcoal.

Cooking Gas

Cooking gas, also known as ‘Liquefied Petroleum Gas’ or LPG is expected to become the preferred fuel for household cooking and heating in Africa’s future. Although cooking gas is not yet as popular as Kerosene in many parts of the continent, it is considered a cleaner, more efficient and cheaper option than kerosene. Unlike Kerosene, charcoal and firewood which produce soot and other harmful particles when they burn, cooking gas burns more efficiently and is much safer for the health of humans and the environment. 

As more Africans join the economic middle class and migrate to the cities, the demand for cleaner and cheaper fuels like cooking gas will surely increase. Climate change concerns and a growing consciousness to preserve our natural environment will lead to higher adoption of cooking gas as the preferred fuel for households.

Tips for succeess in the oil and gas business 

You may need a lot of start-up capital

Most entrepreneurs often do not consider the oil and gas business because they think it’s exclusive to the ‘big boys’ who have a lot of capital at their disposal. While this is not entirely false, it is not impossible for individual entrepreneurs and small businesses to play in the oil and gas business. You don’t have the money? Start small. Look for like-minded partners to invest or you could consider other proven ways to raise capital for your business. You could start a low-capital kerosene retail business in your neighbourhood or invest in a cooking gas refilling station. If you can find the capital, you could become a supplier of diesel or petrol to businesses in your area who will need it to power their generators.

Watch out for the risks

While there is money to be made in the oil business, you shouldn’t forget that the products you will be dealing with are very high inflammable. So, safety should always be a priority for you. Applying safety procedures at all times and using the right safety gear (like fire extinguishers etc.) are very important. Theft and loss (through spillage) are also common ways to lose your products. Taking out an insurance cover is always a good strategy to protect you in this regard.

Get the necessary licenses and permits

The oil and gas sector is usually well-regulated. In most countries, a permit or license may be required for anyone who wants to start an oil and gas related business. You will need to contact the relevant government office in your country to find out the required registration, licenses or permits for businesses that operate in the oil business. If you don’t comply with the rules, your products may be seized, you could pay a fine or serve jail time for running an unauthorized business. In countries that offer subsidies to operators in the business, it may be difficult (if not impossible) to claim these subsidies if you’re not registered with the relevant government agency, trade or workers’ associations.

It works best if you can find a niche for yourself

There already exists a huge demand for oil and gas products on the continent. However, there is a lot of competition because it’s relatively esasy to start if you have the capital. To avoid the crowded marketplace and unhealthy competition, this business will work better if you can find dedicated customers or an undersupplied area of town and dominate it. For these two customer segments (dedicated customers and areas suffering from scarcity of oil products), there is a good potential to make more profit. Rich homeowners, businesses, factories, schools, office buildings and shopping malls are just some examples of customers who can become dedicated to a supplier who can meet their needs for petrol and diesel. You just need to think of creative ways to separate yourself from the crowded competition.

Browse insights, credible business opportunities and investment opportunities in the oil and gas sectors here 

John-Paul is chief editor at www.smallstarter.com, Frontier's content partner. 

Prospects for cement companies in Africa

Free download report: Outlook for the cement industry in Africa

Cement companies are expanding their footprints and investing in more capacity to meet the rising demand for cement in Africa.

In East Africa, old and new players are jostling for a share of the booming market, with Kenya and Tanzania attracting the most interest from investors.

In Southern Africa, cement companies are expanding to take capture growth opportunities in the region's massive pipeline of infrastructure and housing projects.

In West Africa, companies in Nigeria are taking advantage of government incentives to increase cement production.

Imara Securities looked at the sector recently and compiled the cement outlook report that we are now sharing with you.

Download the report  to get comprehensive information on:

• Regional consumption and production trends
• Drivers of consumption
• Opportunities for investment
• Risks for investors
• Top industry players and other Pan African companies to watch

To access this report you must be a Frontier member. Click on this link to sign up and get immediate access.

Visit www.frontiermarketnetwork.com to read some country-specific articles on cement production.

Top 5 real estate opportunities in Africa

Commercial property development in Africa provides the opportunity for good returns.

By Kurt Davis

Of the near 23 million m2 in shopping malls in Africa, 21 million m2 sits in South Africa and 0.5 million m2 is in the rest of sub-Saharan Africa. Similar figures are found in the office space sub-sector – 2 million m2 in sub-Saharan Africa (excluding South Africa) as compared to 4 million m2 in North Africa and 15 million m2 in South Africa. Navigating a blank slate in many instances, real estate investors approach the continent with the mixed ambition of Michelangelo and Donald Trump. Yet, as any veteran real estate investor will characterize the “Africa opportunity”, commercial real estate can surely earn north of 25% per annum returns, but only after navigating unexpected hurdles, including poor urban planning, unfinished neighbouring infrastructure (i.e., unpaved roads), and unreliable local developers. If you can stomach the risk and find the right partners, these five countries offer the greatest opportunity:

Nigeria

On the surface, Nigeria is the real estate investor’s dream canvass. It is Africa’s second largest economy (soon-to-be first by many accounts) with burgeoning middle class. Its 170 million-plus population loves to shop and consume. As companies flood the market, office space is lacking, such that prime office space rents as high as $85 per square meter, according to local renters.

The Ikeja City Mall, a 28,522 square metre mall in Lagos, which was backed by London-based private equity firm Actis in 2011, is unofficially considered the second mall to open in the country. Numerous malls have opened throughout the country since 2011. Even the recent boon in commercial space might not meet Nigeria’s rapidly growing demand.

Still, investors must approach with caution. Corruption and regulatory ordeals come without warning. Joining with a strong local partner is accordingly necessary to avoid the downward spiraling effect of a reactionary approach amongst unexpected obstacles you can assume to come.

Kenya

The growth of Kenya’s middle class and the country’s robust economy bids well for commercial real estate. The country may not see the same growth in malls experienced in South Africa. But the country is starting to hit a similar trajectory as economic growth projects well for the long term and tourism tries to find its footing again after terror threats. Office rents and space have moderated, as reported in local daily, The Star, and will exceed demand by 2016. But, as one local investor characterized it, building malls surpasses office spaces on the investor’s profitability meter based on consumer spending and natural returns per annum that follow from it.

Angola

Often loss in the discussion of burgeoning economies is oil giant Angola. A growing middle (and upper) class in Luanda makes the country an attractive hub for commercial real estate investors. As oil prices stay high, global companies flock to the country to capture a piece of the consumer market. Data on office space remains opaque but local developers estimate that rents for prime office space goes as high $100 per square meter.

The growing pockets (and expanding tastes) of Angolans have sprouted new malls with luxury occupants. The Sky Gallery, scheduled to open in June, will include Prada, Armani, and Gucci brands among many others. Once the mall reaches full occupation, the total cost of the project could exceed US$85-million, according to sources associated with the project. Investors warn, however, that these success stories should not obscure the ‘true’ challenge in Angola of finding a dependable and capable developer who can navigate the country’s ‘unclear’ property laws.

Tanzania

Offshore natural gas and a growing middle class underscores the changing real estate landscape and the country’s global reputation. Yet, as a country on U.S. President’s Barack Obama’s Africa tour, hotel supply barely met demand. The situation will gradually worsen as the gas comes out of the ground.

Prime office space rents as high as US$45 per square meter and new businesses are starting to arrive, so expect the price to increase. Accompanying high class apartments and condominiums for executives operating in these new facilities rent out as high as US$8,000 per month. Rapid urbanization in the financial capital, Dar es Salaam, and improved infrastructure has gradually created fertile ground for commercial property. Still a relatively new concept, local investors predict a rapid boon in a high rise commercial headquarters and multi-story malls in the near term.

Ghana

Prime office space in Ghana may be of interest to real estate investors, as rent go as high as US$50 per square meter. But it is not office space that has real estate investors giddy. One single mall dominates the discussion in Ghana. The Accra Mall, which reportedly attracts nearly 4 million visitors per year, is so busy that locals suggest carpooling to the mall on weekends as parking is limited. The West Hills Mall, which would be completed by the end of the year, should relieve congestion at the Accra Mall. But, if real estate investors are only partly correct in their projections, both malls will be clogged on the weekends and a third mall will ‘supposedly’ be required to ease the congestion.

This article is re-published with permission from Frontier's content partner Ventures Africa

View Frontier's database of business and investment opportunities in property/real estate sectors.

Water producer's success story in Ghana

Voltic's successful distribution strategy primed it for investment from leading brewing and beverage company, SABMiller.

By Tielman Nieuwoudt

In the early 2000s, Voltic Ghana’s leading bottled water producer faced a common problem encountered by many beverage companies in emerging markets. How to sell water to the bottom of the pyramid (BoP) with hundreds of informal vendors already selling sachets at cut throat prices? The BoP water market held significant potential, but with low prices and little brand loyalty among consumers, it was viewed as a segment with high volume but with very low value. At the time, Voltic’s focus was concentrated on higher income Ghanaians servicing high-end outlets including hotels, bars and restaurants.

Rethink the business strategy

The company clearly had to rethink its business strategy in order to compete. Voltic realized that transporting water from centralized bottling facilities to the respective markets and high traffic areas was costly. Furthermore, with smaller package sizes the transportation cost per liter would increase, as sachets (or pouches) are not really known for stowability. Poor infrastructure and transport utilization in emerging markets likely compounded the problem. So, Voltic took a radical step to decentralize its bottling through more than a dozen franchisees and in the process, brought their water product closer to the market.

Selecting the right partners and sharing cost

Franchisees are local entrepreneurs with the ability to invest and grow the business. This includes bottling (including quality control) and distribution. In this partnership, Voltic pays for just over half the capital cost, with the rest of the costs covered by the entrepreneur. Voltic and the franchisees split the operating margin.

Branding and pricing

Voltic introduced a new brand called Cool Pac and priced it at a slight premium above the numerous informal competitors. In the BoP segment where water functions more as a commodity, Voltic changed all of that with a strong emphasis on the brand and quality. Even though Voltic outsourced bottling and distribution, the company maintains close control over all brand building activities.

Route-to-Market

The sachets are distributed using a network of informal street hawkers. Sachets (500ml) are sold to consumers for $0.03 per sachet  on a cash and carry basis. Today more than 10,000 street hawkers sell nearly 480,000 Cool Pac sachets daily.  Following Voltic’s success, in 2009 Voltic was acquired by SABMiller.

Seven top tips from investment experts

Frontier, in partnership with private equity firm, Jacana Partners, brings you expert advice to help get your business off the ground and ready for investment.

Building a business in Africa is not easy. It takes years of practice, not to mention a certain amount of trial and error. SME-focused private equity firm, Jacana Partners, canvassed its experienced senior team members to provide you with valuable tips that can help to build your business and get you ready for investment.

This article is part of a series, which Frontier will bring to you over the next couple of weeks, in partnership with Jacana Partners. 

Setting up a business

Business plan ownership - Barnaby Terry, investment director, West Africa

Write the business plan yourself; don’t get advisers to do it – and make sure the senior team contributes and takes ownership of the document. The business plan is not just a document that private equity groups like to read, it’s the vision, the business case and action plan for your company. It’s an important exercise in determining the future direction of the business and ensuring the whole team is behind it.

Size matters

Is the market you are addressing large enough? And are you targeting a niche within that market? Become a market leader in your niche and progress from there. Remember that as a private equity investor, we eventually need to exit our investment in your company, so size of market is important to ensure you are of interest to an investor in the future. As a general rule, we would expect the company’s revenue to be at least five times the size of our investment in four years – so think big!

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Know your audience - Anthony Gichini, Partner, East Africa

The first thing you need to understand when starting a business is your customer market. What is their problem and what is your solution to that problem? It is a proven fact that people will pay a premium for a unique offering which makes their life simpler.

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Revenue counts most - Stephen Dawson, chairman and investment director, East Africa

In business plans the revenue number is the hardest to get right but by far the most important; spend 90% of your effort on the aspects that lead to the revenue number: market size and growth, competitor offerings and your competitive advantage,  pricing, marketing, converting prospects into customers, routes to market etc.

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Start-ups: simplicity is key - Christian Opoku Biney, Partner

When planning your new business, you need to focus on a simple product or service that has a clear value proposition and business model.

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Validation - Barnaby Terry, investment director, West Africa

To be successful, you must validate your offering with real customers before launch. This is an iterative process that takes time, and cash preservation is key during this phase.

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Don’t try and do everything yourself - Paul Fitzsimons, investment director, West Africa

Surround yourself with people with experience of the industry you are focussed on – you don’t have to agree with them but they can often have helpful insights or contacts, which could grow your business more rapidly than you can. You can also learn from their past mistakes, as opposed to finding out for yourself.

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Frontier Success Story

Africa has many indigenous and successful companies that have international reach. Download a complimentary eBook on the success story of Zambeef Group, and learn how your company can attain the kind of success groups such as MTN, Imara Group, Dangote Group, and Shoprite Holdings are enjoying on the continent.

Five top investment opportunities in Ghana

Ghana one of Africa's high-growth markets. Real GDP is projected to grow on average 5.16% per annum over the next five years. The West African country has maintained positive FDI trends in the recent past and has immense investment and business opportunities.

Power generation and supply

Ghana’s power sector has close to 2,500MW of installed capacity. Demand could exceed 5,000MW by 2016, driven by strong economic and industrial growth, population increases and government’s goal to be a major energy exporter into the West Africa Power Pool. Independent power producers are contributing to the current capacity, and are important in government’s bid to achieve its energy objectives.

Demand for energy is growing at a rate of 10% to 15 % yearly, but supply is not catching up. The government is consequently diversifying  the energy mix to ensure security, and is reportedly looking for investment into renewable energy projects to the tune of US$1-billion in the next eight years.

The renewable energy potential lies in wind, solar and hydro resources. More than 50% of installed capacity is currently provided by the large Akosombo and Kpong hydropower projects. Biomass also makes a significant contribution to the energy mix. West Africa’s second-biggest economy plans to increase the contribution of wind and solar power to 10% of the capacity by 2020 and enacted a Renewable Energy Law to enable the investment goals. 

It is estimated that, about US$9-billion is required in the short-term to finance the numerous initiatives in the energy sector, including oil and gas activities, which alone require over US$5.5-billion.

Companies can find a number of opportunities in generation, transmission and distribution of electricity, and supply of street lighting, energy-monitoring equipment to meet increasing demand for power monitoring and tariff analysis, and solar energy products and systems to off-grid communities.

A few foreign companies are planning big power generation projects in the country.

UK-based renewable energy investment firm, Blue Energy, announced it would construct a photovoltaic (PV) solar power plant in Ghana at a cost of US$400-million. Installation of more than 630,000 solar PV modules will begin by the end of 2013, and electricity generation will start early next year, with sections coming on stream as they are completed.  Blue Energy expects to power 100,000 homes when the plant reaches full capacity by October 2015, and claims it will be Africa’s biggest PV solar power plant.

Another recent big investor in Ghana’s solar energy space is Canadian solar company Siginik Energy Ltd, which plans to build a 50MW ground-mounted solar power installation in northern Ghana. It signed a power purchase agreement worth over $280 million, for 25 years, with the Electricity Company of Ghana Ltd., Ghana’s second largest utility.

Meanwhile Chinese Energy Company, Shenzhen Energy, is proposing to build a 700 megawatts coal-fired power plant that will cost US$700-million. Shenzhen, through its local unit Asgoli Power, entered Ghana in 2006 to build a 200MW plant that provides affordable energy to consumers.

Mining

With its political and social stability and strong mining infrastructure and services, gold-rich Ghana is a high-class target for mining investment.  As one of the most important producer nations for the global market – it is Africa’s second-largest gold producer, behind South Africa – mining is a major source of revenue for Ghana.

The country has diverse mineral resources, but the revenue balance is skewed towards gold. 14 of the 16 major mining companies operating in the country are extracting gold. Gold fields, AngloGold Ashanti, Golden Star and Newmont account for more than three-quarters of gold production. Other resources that are currently being mined include diamonds, manganese and bauxite. Deposit of Kaolin, silicon, limestone and other minerals exists.  The government is promoting the potential in these other areas with the hope of drawing interest from investors.

Gold prices soared in 2012, attracting attention to Ghana’s  deposits from big and small companies. This has also significantly increased illegal mining, which is now encroaching on the territories licensed to the majors, and using harmful methods to the environment.  

The falling prices of gold  could shift focus to other resources like limestone and bauxite. Limestone production would be potentially lucrative – the rising demand for clinker by the manufacturing and mining sectors (one million metric tons per year) could provide a ripe market locally and internationally.

Investment opportunities in the sector include production of industrial minerals for local and international markets, processing, provision of support services, e.g. contract drilling, contract mining, laboratories and geological services, manufacturing plants to produce key inputs and machinery for the mining industry.

Real estate and construction

Ghana’s growing population, buoyant economy and favourable investment environment make its real estate market increasingly dynamic. In spite of complicated issues over local lending and land ownership, demand for housing spans the entire spectrum of the population, from wealthy Ghanaians and a growing number of expatriates through a rising middle class to lower-income groups.

The current housing market boom began in the early 1990s when the financial sector was liberalised, and the sector’s expansion has since gone hand-in-hand with that of the economy as a whole.  With Ghana as one of the fastest-growing countries in the world, investors and authorities alike are realising the potential of the nation’s real estate sector.

Ghana has an encouraging framework for real estate investment, with freely-transferrable capital and profits, but projects have generally concentrated towards the middle and the top of the market, where margins are bigger and demand has remained relatively stable. As a result, a shortage of affordable housing is one of the biggest challenges facing the country. While the gap between supply and demand is most acute at the bottom of the income scale, there is also rising demand in the middle- and high-income segments, in which local and international developers are showing increasing interest.

One of the most significant drags on residential real estate growth has been the difficulty of obtaining a mortgage. But there is a growing willingness among banks and other lenders to provide home loans, whether through traditional mortgage structures or other forms of periodical payment.

Agriculture

Despite the changing demographics due to increasing urbanisation and industrialisation, agriculture still represents one of the largest GDP contributors in Ghana. The country is a major producer of a wide variety of cash and stable crops, including cocoa (second largest cocoa-growing country in the world), palm oil, maize, rice and cassava. Though maize and rice are primary staple crops, domestic demand has outpaced local supply in the past decade. Increasing production is a key part of the government’s long-term development plan.

A number of government- and private sector-led programmes could help boost production in the coming years. The World Bank, IMF and several pan-African NGOs are actively involved in the sector. The government continually engages major financiers to secure easier access to credit for farmers, which should decrease the amount of funding needed from international aid organisations and government sources.

The country is a major exporter of fruit and vegetables to EU markets. Other leading processed agricultural export products include tuna, cut fresh pineapples and tomato paste.

There are many opportunities for investors to get involved in Ghana’s agriculture sector such as commercial farming of crops and flowers, processing of produce and dairy products, supply of inputs, equipment, agrochemicals, veterinary drugs and animal feed, manufacturing of agri-chemicals packaging materials, cold chain systems and factory building and irrigation technology. Other opportunities include  capacity building for management and market-oriented enterprises, market intelligence research and development of agricultural finance and insurance. 

Insurance

The insurance sector in Ghana has grown rapidly in recent years. The fast growth and low entrance requirements over the past decade have resulted in a top-heavy sector, dominated by a handful of large firms and brokers. Competition is fierce, with over 40 insurance companies and 42 insurance brokerages. Corporates bring in the most business firms, but Ghana’s rising middle class is expected to boost the retail side. As new segments open up and the market continues to mature, smaller, more undercapitalised insurance companies are merging with competitors. 

The challenges facing the industry include under-pricing of policies and bad debts, which has badly affected insurance companies, forcing them to make significant underwriting losses.

The opportunities for strong companies and well-positioned new entrants are many. Micro- insurance initiatives in particular are set to tap into a massive, previously untouched market. The oil and gas sectors are expected to continue bringing in substantial amount of new business to insurance firms. The underinsured agriculture sector is another area.

The overall penetration is currently at almost 3%, and Ghana could play a leading role in the West African insurance market where total penetration is less than 1% in most countries, according to a report by international re-insurer, Munich Re. There are opportunities for companies to expand into the region.

Click here to view more business opportunities and investment projects in Ghana.