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Matthew Davis CEO of RENEW has extensive experience working with U.S. and African government leaders and facilitating international business investments. He has traveled and lived in Africa and Latin America. As a management consultant he has advised large U.S. corporations, U.S. government leaders, African governments and African businesses. He specializes in strategic planning, and designing and implementing international investment strategies. Prior to founding RENEW LLC, Matt worked as a principal consultant at the Touchstone Consulting Group, a strategy and management consulting firm for the U.S. government. He has advised executives and government leaders on strategies for environmental sustainability, international development, health policy, information technology, and finance. Matt is a Charted Financial Analyst charterholder. Matt has an undergraduate degree in physics and a master’s of science in physics and business.
Capital: What is the main aim of the workshop?
Matthew Davis: To increase awareness in the business community, generally in the private sector, but also with government stakeholders and other financial partners about private equity, the benefits, drawbacks and how it works, so that overall Ethiopia, being the second largest country in Africa, can start attracting more private capital to the country to develop its private sector.
Capital: How do you evaluate the private equity investment in Ethiopia?
Matt: We have been here almost six years investing in Ethiopia; we were the second private equity firm here after Schulze Global Investment. Lately more and more are coming, so it is getting better. It’s still young; it’s still a new concept for many people here but as we get more success stories, more stories like Mama Fresh, more stories like Tebita, Desta, Tarara Coffee, these companies have attracted private equity and have grown successfully. The more that spread, people will learn and want to learn, the more money will come into the country to help grow the private sector.
Capital: How many local companies have integrated with private equity firms?
Matt: I don’t know the exact number, I would guess it’s still below 50 and so I don’t think there are many yet; there are hundreds in Kenya if not more so we are still young in that area. Renew has invested in seven businesses and hopefully we are going to close two more soon. Our goal is to get up to, again with an investment channel supported by the Canadian government, 20 investments within the next five years. We are already up there as one of the most active investment firms here but there is still a lot of room for us to grow and a lot of room for others to come and enter.
Capital: So can we say the flow of equity finance is growing?
Matt: Absolutely yes; there are now more and more equity firms opening up offices here. They used to just be in Kenya and fly here, but now they are saying that Ethiopia is a strategic country for the region and the continent and we want to open an office here and that is really good. We want to see more equity firms getting in and hiring staff and putting up an office so that they take Ethiopia more seriously.
Capital: How long have you been in this country doing business?
Matt: Generally our timeline varies because we are not a private equity fund; we are an angle network and we have a lot of flexibility. We could be with companies for ten to 20 years if we want. Generally with private equity funds you are looking for exits in five to ten years, we can stay shorter or much longer, it just depends on how the business is performing and what the shareholders want to do. Overall we are long term investors.
Capital: In which areas are you more interested in investing?
Matt: We really like manufacturing, agro processing; we like anything where we can add value to things that are being exported so we can bring in more forex into the country. We like any business that is substituting something that is historically been imported that we can manufacture here. So import substitution, export focused companies; Mama Fresh Injera is a classic one where you are taking Teff and you are baking it and exporting it to markets around the world. All of that is bringing in just pure forex into the country which is helping obviously with the country’s development.
Also, anything like the juice company we invested in Sadora, that company was a startup business, they have been trading juice and they said they should start manufacturing it locally, and then we got behind their company and their vision to do that here.
Capital: So what is the interest of the Canadian government?
Matt: The Canadian government is wonderful; the way Renew works is that; most private equity funds, they can’t invest below 3 million dollars, it’s too small. That is a big chunk of the private sector that doesn’t have anyone and the development community: USAID, DFID and the Canadian government know that is a problem and say how do we fix this?
So Renew partners with them and the Canadian government to help bring the amount of capital down so we can focus on the smaller companies and they do that by supporting the transaction costs and the operating expenses for a firm like Renew, to work here and focus on those SMEs and mid size companies.
Capital: There is a challenge with equity flow to Ethiopia; you have mentioned that the problem is much higher than other East African countries, why do you think that is?
Matt: I would break it into two challenges; one is that Ethiopia is still opening up its private sector to the international market. So, because of that, you look at Rwanda or Kenya, you can invest as a foreigner in anything; logistics, retail, telecom, banking, it’s pretty much all open.
When it comes to here, you only invest in certain areas, which limit the amount of money that comes in because it’s very much restricted to specific sectors. When the country is, and I believe it is, begins to open those up, you will see much more money come in. you will see more and more investors coming in and doing different types of businesses that are across many sectors and not just agro processing, manufacturing and kind of the key areas the government is encouraging.
That’s okay, the government has a purpose, they are trying to stimulate growth in certain sectors but that is one of the things that is keeping the money outside; it’s hard for foreigners to invest only in those specific sectors because many big private equity firms are doing telecom and banking and those are the two areas that are closed here.
The other thing is that most of the business community is still very new. They don’t understand private equity; most of the stories that are told about private equity are the bad stories; nobody really talks about the good stories that are happening right now. So people are afraid and they are nervous, they think the firms just come in and just leave; there is a lot of misunderstanding about it that these types of trainings are trying to help address. Let people ask questions about things they do not understand, and I think as people feel more comfortable and come to our office and say “I am confused” we love that, it is no problem, we answer those questions and they will start to tell their friends and more people will become more aware about equity as a source of capital for the private sector.
Capital: Some experts say that the main challenge for Ethiopian businesses is a management issue. What kind of support do you provide for that?
Matt: We are very focused on developing the management teams of the companies we invest in. We do that through setting up boards, strategic planning; the way I think of it is that a good private equity firm brings the capital plus a strong consulting firm and then you are working with that company to help them grow.
So we look at finance, we help train CFO’s, we have a program for that we run out of our office also supported by the Canadian government, that helps accountants and finance managers really start to operate like CFOs; looking into finances, doing forecasting, budgeting, learning how to run cash flow forecasts, really strengthening the inside of the company.
We also have a very successful executive program where we take our CEOs through a boot camp about how to do strategic planning, how to do market analysis, how to do sales, how to look at finance; all those things to help build their management capacity and we do recruiting, we help bring in the technical experts from overseas to help our companies grow.
Capital: How much have you invested in the country so far and you earlier mentioned that two more companies will join you, which companies are they?
Matt: I cannot mention the companies right now but we will make that official in due time. Our average investment size is around half a million dollars but that money has attracted well over 10 million dollars of more capital into our portfolio. So we generally say we have about 10 to 15 million dollars under management and each one of our equity investments are about half a million dollars each.