While on the Rwanda portion of our study tour, I became intrigued by the concept of country branding while talking with our hosts at the Rwanda Development Board. Our speakers told us that this is one of their main initiatives in reaching out to the rest of the world to show the strides that Rwanda has made to make the country entrepreneurship-friendly.

I guess in the back of my head, I had known about this concept of countries branding themselves as seen from commercials on CNN for India or Dubai. But here was the budding thoughts of such a project in front of us. They were using a firm from London to help with this endeavor. “How cool!” I thought to myself. It seemed like a dream job come true being able to travel to different lands, get to know the culture and essence of a place, and then put together a marketing campaign to communicate this to the rest of the world.

Later that week, we met an entrepreneur who started a chic and trendy coffee bar/cafe called Shokola. He had studied design in England and had come back to Rwanda to lead the country branding efforts. While sipping cafe lattes at his restaurant, he informed us that the London representatives were at the table over from ours and that we were invited to attend 2 workshops on the country branding topic: one for business leaders and one for creative types. Now after two weeks of back to back meetings and networking events, I took him up on his offer (albeit masochistically) to attend an 8AM meeting the next day to discuss the essence of Rwanda and the brand positioning for the country.

Much to my surprise, the meeting was like a reprise of all the meetings we had attended the whole week in Rwanda. Familiar players, leaders in the community, who took time to speak to the MIT Sloan group were present all invested in representing Rwanda to the rest of the world. It was a very fitting and satisfying meeting for the end of our trip, to see speakers from OTF, RDB and the like all together in a connected community. And in fact, this was the very heart of the message about Rwanda, a country of involvement, community, and cooperation.

We talked about the images that one thinks of that brings to mind Rwanda. Is it basket weaving? rolling hills? gorillas? tiled roofs? Umuganda (the monthly day of service)? And what about the day when technology represents the country and not baskets? In sum, the campaign that we should expect to see will be rolled out around September, and will not merely be a 30 second spot aired on CNN. The stakeholders in the Brand Rwanda project are too invested in it to have that be the output. It may be a brochure, it may be an online campaign, but if anything can reproduce the energy that was in the room or how we felt participating  in umuganda the following day, then we can expect sheer brilliance.

MIT Sloan Students participate in umuganda

I recently realized that I have been exceptionally lucky in the past 12 months: I’ve had the chance to travel to 5 continents in that time.  Two of those trips were as part of the Access to Capital Study Tours.  Throughout our time in Kenya and Rwanda, a few people asked me what I thought the similarities and differences were between these two countries and Vietnam, Singapore, and Malaysia.  Having lived in India for two years before MIT Sloan, I also couldn’t help rolling India into these (admittedly muddled) comparisons.

There were many similarities.

Whether the Saigon Stock Exchange or the Nairobi Stock exchange, there is insufficient liquidity and low volumes of trading.  Banks are too conservative.  They require an excessive amount of collateral and charge such a high interest rate (in Rwanda ~19-21%) as to be a disincentive to equity investors.  Nevertheless, the other similarity was that there were no shortage of risk takers who were trying to push forward these markets by establishing private equity funds, providing un-collateralized loans, and offering consulting support to help SMEs move from S to M to L in both thinking and capabilities.

There were obvious (and expected) differences in the level of development between Malaysia and Singapore and Vietnam, Kenya, and Rwanda.  One small thing that I kept thinking about was the approach to the city from the airport.  When I was living in Hyderabad, they built a new airport which was much farther from the city center.  The “entrance” to the airport started about 2 or 3 miles from the actual structure and I am sure that those perfectly manicured roads and the strip of green garden that served as a divider were built for the express purpose of making sure that people who were new to the city would have a favorable impression.

When I compared what we had seen in Nairobi and Kigali to what I had first observed in Hyderabd, there were also a few surprising cosmetic differences:

1) A lack of car horn honking

2) Very few stray dogs (or stray buffalo for that matter)

3) Relatively little trash in the streets

On the face of it, these are the casual observations of a very limited data set (we spent most of our time traveling between office buildings in the centers of cities).  But I can’t help but think (and hope) that maybe these differences point to something more significant.  To some extent all of these observations are related to aspects of how “the commons” are treated by individuals and regulated by the government.

In addition, these kind of observations play a bigger role in the access to capital story than one may think.

These impressions, as superficial as they are, often have a significant impact on potential investors: “Do I feel safe?  Do the people in the street look happy or angry?  Could I picture coming back to this place a few times a year for board meetings? How easy is it to get around?  Are there places to stay where I’d be comfortable and places to eat that I would enjoy?”

These are superficial issues but they do shape how “investable” a country is and though there are massive, substantial issues, (lack of infrastructure (we heard that it costs $2000 to get a 40 foot shipping container from New York to Mombasa, Kenya–18,000Km–and $6000 from Mombasa, Kenya to Kigali, Rwanda–1,600 Km), access to quality education and health care, ease of starting a business, a robust and well enforced legal system, pervasive corruption, unstable governments, periodic political violence, etc.) one small take away from our trip was that there are great enterprises and Kenya and Rwanda are indeed “investable”.  This is not to say that Hyderabad does not receive more than its fair share of investment, far from it, but instead to highlight that one of the benefits of being able to go to these countries is the chance to think through what it may be like to do business in these places. And for the majority of our participants I believe we came away with the opinion that while it may be challenging it would be well worth the effort.

After 90 minutes of an easy plane ride, we arrived at the international airport of Kigali. Although it is raining season, the country of a Thousand Hills welcomes us with its brightest colors: a clear blue sky, deep green vegetation and an intense red soil. After dropping our bags at the hotel and changing to more professional outfits, we left to meet Eric Kacou, Serge Mushinzimana and Ashani Alles at OTF. They are delivering all week a basic training on entrepreneurship and we are part of a panel for Q&A with the 30 students on Access to Capital.

The session started by a quick introduction from everybody as well as an introduction to investment specific terms like VC, PE and other debt-equity structure. Then the discussion allowed sharing the challenges of access to capital in both Rwanda and the USA. It seems that the concept of equity financing in Rwanda is not very developed, understood or used by the entrepreneurs. Moreover the access to debt is limited by high interest rate and by the bank request for high collaterals. I felt the young entrepreneurs in the room could only rely on family money, if any, or on sustainable growth to start and grow their business.

Once the session with the students was over, we continued our discussion with Eric, Serge and Ashani. The theme of our exchange took an unexpected turn when we were challenged to consider the lack of Access to Capital as a “way out” for an entrepreneur in difficulties. Is Access to Capital the main issue for entrepreneurs in Rwanda? Is the lack of it part of a blaming scheme that allows entrepreneurs to put a name on all the difficulties they encounter? Could it be that the main challenge is to further develop entrepreneurial skills to minimize the need for financing and to better define the business plan to potential investors? This different approach to our topic added another level to our reflection. What if Rwandan entrepreneurs needed more training before needing more capital?

Although our study tour is focused on access to capital of the financial kind, we’ve come to realize that access to capital of the human kind is also a real issue facing businesses in East Africa generally and Rwanda in particular.

According to UNICEF, roughly 50% of Rwanda’s 10 million people are under the age of 18 (4.8 million in 2008 to be precise).  This figure presents both a huge opportunity and a huge challenge to Rwanda’s growing economy. We heard from the CEOs of two commercial banks in Kigali, both of whom cited training and development, as well as subsequent retention, as key challenges.

While institution-based and corporate training and development can and does happen in Rwanda, there seems to be a need for a greater quantity and variety of external development options.  In the U.S., for example, individuals and businesses can turn to any number of educational institutions, consultancies and professional organizations to provide ongoing training and development.

This is not to say that there are no options available today in Rwanda.  During our short stay we have already encountered two impressive examples: On The Frontier Group and the Technology & Business Incubation Facility.

During our first day in Kigali we visited On the Frontier Group’s Academy for Leadership in Competitiveness and Prosperity (ALCP).  This one-week course aims to provide business training and networking opportunities to a select group of young Rwandan business professionals.  We were able to hear about the business plans they are putting together and also to learn more about some of the challenges they face in accessing financing.  At the end of the session OTF Managing Director, Eric Kacou challenged our group to actively consider development hurdles beyond access to capital and financing.

Another example of an organization working to further develop Rwanda’s young population is the Technology & Business Incubation Facility (TBIF) at the Kigali Institute of Science and Technology (KIST).  During our visit there, we were able to hear from Rajeev Aggarwal, the Director of the Centre of Innovations and Technology Transfer (CITT), as well as several of the “incubates”, young entrepreneurs utilizing the facility to grow their fledging businesses while also developing themselves as business men and women.

I believe there are three basic components of any robust development and learning program: education / formal training, mentoring, and experience.  Programs like OTF’s and the TBIF provide elements of all three.  As the youth of Rwanda come of age and enter the workforce it seems likely that development programs such as these will become increasingly important, if not critical, to truly unlocking the value of Rwanda’s most important resource—its human capital.

The past 10 days have rushed by and the meetings, presentations, conversations, and side discussions have raised as many questions as they have answered.  Chief among them is the acknowledgment that access to capital is not the panacea for fostering economic development.  Money in the absence of good governance, a sound understanding of the fundamentals of business, and sufficient human capital is just numbers and paper.

We’ve been rightly challenged to think about economic development as a complex and dynamic system.  While we are chiefly focused on one part of that system, the flows and structuring of capital from investors and banks to entrepreneurs and enterprises, in countries such as Kenya and Rwanda we have to drag our focus beyond our chosen spot-light and into the interwoven aspects of culture, history, infrastructure, regulation, and a collection of other crucial issues.  I can’t say we’ve even grazed many of these issues let alone understood their nuances but one area worth comparing and contrasting between Kenya and Rwanda is the culture of entrepreneurship, arguably a necessary precondition for access to capital to even enter the picture.

There seems to be more similarities than differences between an American and a Rwandan who are contemplating starting their own business: what will I sell, who will I compete with, what price should I sell at, where should I start, and what if I fail?  In speaking with fledgling entrepreneurs at the Kigali Institute of Science and Technology (KIST) we saw that these are the questions they are asking and answering themselves.  When pressed for where the inspiration to start a business came from we heard “I’ve just always known that I wanted to do my own business” to “I studied to take a different job but there are no places available so I have to start my own business”.  Though these young entrepreneurs live in a country with a government which is verging on the fanatical in its desire to facilitate the registration of and incentives for businesses, entrepreneurship and risk taking do not come easily to most.  The associated risk, the separation of personal finances from those of the business, and the conceptual and physical connections with broader markets are all obstacles to embracing the promise of future self-made success.

Added to this is the fact that the country, its psyche, and economy are heavily skewed by a seemingly permanent international development (governmental and non-governmental) presence which some we have met have claimed makes up to 50% of the government’s budget and keeps wages artificially high as there is a disproportionate number of ex-pats looking for drivers, maids, and office workers.

Despite these issues, I am optimistic for three reasons.

First, with a tip of the hat to System Dynamics thinking, there is a lag in the reinforcing feedback loop between the tremendous work the Rwandan government is doing to facilitate the ease of doing business (24 hours to register a company, tax incentives in almost every industry, and ranked #1 on the ‘Doing Business’ Reformers list put out by the World Bank) and the broad population taking advantage of this legal environment to start their own enterprises.  In time, the demonstration effect will be powerful and many will seek to take the jump towards setting up their own businesses.

Second, the banking sector is working together and working to actively make access to affordable capital a reality.   All of the 7 commercial banks in Rwanda have professional, seasoned management at the helm.  They are setting up a credit bureau to facilitate ratings for borrowers and to drop interest rates for the worthy so that bad lenders expenses are not externalized to all.  Furthermore, at least the two heads of the commercial banks we met with, displayed a passion towards their role in development, a willingness to invest in mobile banking innovations to meaningfully reach the unbanked, and an understanding that capital without capabilities is not the answer.

Third, demographics.  The horror of history is a smaller part of the individual (if not yet the collective) consciousness.  Rwandans “have known the darkness of the night and this is why they are embracing the promise of the light so fully,” in the words of an official from the Ministry of Economics and Finance.  Small steps, the cleanliness, the compulsory (and actual) use of helmets on all motorbikes, the safety in the streets, and the increasing number of expats that are less focused on genocide and health (though obviously paramount to a mentally and physically functioning society) than on enterprise creation are all moving Rwanda towards a brighter future.

The challenges are still at times seemingly insurmountable, but if the promise of entrepreneurship as an engine for broad-based economic prosperity can not catch fire here then we had better collectively go back to the socio-political and economic drawing board.

On Thursday March 18, our group had lunch with Peter Mwangi, the CEO of the Nairobi Stock Exchange (NSE).  I had been excited about meeting Mr. Mwangi prior to our arrival in Nairobi – I mean, how cool is it to meet the head of a stock exchange, even if it is small by world standards?  However, after spending half a week meeting with entrepreneurs and hearing about their difficulties accessing capital, I realized that my contained level of excitement to meet Mr. Mwangi was grossly undeserving, and that we were in fact meeting with one of the most important people in the economic development of Kenya, and of East Africa as a whole.

Let me explain.  Our group had spent the better portion of six weeks studying the ability of Small and Medium Enterprises (SMEs) to access capital to fund growth.  Kenya, by virtue of the government’s strong investment in education, has a wealth of human capital, but not enough opportunities for its highly talented workforce.  Entrepreneurs like the ones we met with  (Ariff Shamji of AAA Growers, John Waibuchi of Virtual City, Karanja Macharia of Mobile Planet, and Nic Nesbitt of KenCall) have created thousands of jobs and have the ability to create thousands more, provided they have access to capital to fund the growth of their businesses.  Unfortunately, there is a complete lack of risk capital in Kenya.  Bank loans are prohibitively expensive (interest rates in the high teens) and often have strict collateral requirements, and equity investments are all but non-existent as trade sales are the only exit opportunities for most equity investors.

Mr. Mwangi is leading the effort to solve the problem of inadequate access to capital by establishing a Small and Medium Enterprise portion of the NSE, with lower listing requirements than currently exist for the main index.  I believe that the establishment of this SMEX will do wonders for the development of Kenya’s private sector by: 1) allowing existing SMEs to access the public markets for cheaper equity capital 2) unlocking a wave of institutional venture capital that has been waiting for viable exit opportunities 3) driving down the cost of debt in Kenya and 4) incentivizing even the smallest enterprises to keep clean books and formalize their businesses, thereby increasing the tax base of the country.  In many economies, SMEs have historically been a key driver of economic growth and after witnessing the wonderful entrepreneurial spirit and talent on the ground, I know that if Mr. Mwangi comes through with the establishment of the SMEX, it will be no different in Kenya.

We are now three days into our Rwanda visit, and I want to follow-up on a post I wrote earlier about technology in Rwanda. The article I referenced discussed Rwanda’s Development Board (RDB), and specifically their efforts in IT. We had a chance to visit RDB on Tuesday, and it was an incredible experience. You can literally walk into this building, run through two easy steps, and have an official business license within 24 hours. They told us that Rwanda is moving to an electronic system soon, so no paperwork will be necessary. They also put together a terrific document for foreign investors with useful data and instructions (we will post a link to this document once we receive it in softcopy form).

But the challenges on the ground are still significant, including on the technology front. For example, my Internet connection at our hotel is intermittent and painfully slow. And despite the fact that ATMs exist in Kigali, many of us were unable to withdraw any money. One of the leading banks in Rwanda told us that many of their rural branches still do not have electricity, let alone fully functional modern banking systems. During another meeting earlier today, the power went off and on half a dozen times, and the native Rwandans didn’t flinch.

The point is that Rwanda is doing a lot of great things, and many of those things are paying off. But the time to start a business is nowhere near a bottleneck in this country. Basic infrastructure is a bottleneck. Education is a bottleneck. And those issues cannot be solved overnight, no matter how pro-growth the government is. We’re told that power capacity will significantly increase in the coming years, fiber optic cable is being aggressively rolled out, and that even the ATM issue is close to being resolved. All of this should help, and I will anxiously watch Rwanda’s technological progress over the next decade.

After a fabulously successful week in Nairobi, we have just arrived in Rwanda. Rwanda is a country that hit the lowest low only a decade ago, but is working incredibly hard to develop as fast as possible.

Last summer Sarah Lacy wrote an interesting article for TechCrunch about the amazing technological progress of Rwanda. Like everything else regarding Rwanda’s development, its technological capabilities are being rolled out in a step-by-step, thoughtful manner. They are laying infrastructure such as fiber optic cable and computers, and training citizens at schools such as the Indian Institute of Technology.

I suspect that this will be a terrific medium-term and long-term investment for Rwanda’s future, especially as they try to develop more service-related industries. But other countries in the region, such as Kenya and Uganda, have a huge head start in terms of infrastructure, education, internal demand, and virtually every other ingredient in a successful IT industry. And as I discussed in an earlier post about Kenya’s efforts in BPO, East Africa has struggled to compete with lower-cost countries in Asia. It’s not clear how Rwanda will be able to overcome similar challenges.

Only time will tell how much government policy can accelerate technology development, but I suspect it will be decades before IT is an export-ready industry in Rwanda.

We are in our second whirlwind day in Nairobi. The team is still jetlagged after two consecutive red-eye flights followed by meetings with our case companies, but the adrenaline from meeting so many new and interesting people is carrying us through.

My team is writing a case about Mobile Planet, a Nairobi-based tech company which builds value-add mobile services in Africa. They are most famous for their SMS-based products marketed through the dominant Kenyan carrier Safaricom.

While sitting down with the founding team for a couple hours yesterday, I was blown away by their capabilities and entrepreneurial drive. They have a balanced management team that could more than hold its own in Silicon Valley. On Tuesday they were scrambling to get a new service out called Semeni, which is co-branded with Safaricom. Semini is essentially a simple way to create SMS groups. When you write a message to the group, the SMS will blast to everyone. While this type of service may not be popular in the developed world, it has a large potential market in Africa where mobile phones have a huge and growing penetration and SMS still reigns supreme as a cheap form of communication.

Companies such as Mobile Planet demonstrate that serious tech entrepreneurship is happening in Africa, despite the incredible business challenges. Check back for updates on some of our other case companies.

Hello from Rwanda! Unfortunately we unexpectedly didn’t have Internet access during our time in Kenya, and it’s been extremely spotty over our first day in Rwanda. We are only beginning to upload our blog content now. I will gather and upload several entries from the last week over the next day or two, so check back for updates. Due to bandwidth constraints we will probably not be able to post any photos or video until we’re back in the US next week. But we should have several articles posted up throughout the next few days!