As the CEO of the African Economic Challenge Fund, Victoria Sabula looks for innovative companies to fund. In this episode, IFC speaks with Sabula about what it means to support local businesses across Africa, what investment can do for a community and how to get more African businesses “investor ready.”

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Jasmin Baoumy (JB): Hello, and welcome to this season of Creating Markets. I'm your host, Jasmine Baoumy, and on today's episode, we're diving into job creation, innovation and sustainable incomes in Africa with Victoria Sabula.

Victoria Sabula (VS): Okay, so I'm Victoria Sabula, and I am the CEO of the Africa Enterprise Challenge Fund, popularly known as the AECF.

JB: Okay, so, you're going to hear us refer to the AECF a bunch of times in this episode. And so just to quickly get this out of the way, the AECF is a development institute, and it works to support innovative businesses to create sustainable and resilient jobs in rural areas of Africa. On today's show, we're going to ask Victoria three big questions about her work. One, how did we get here? Two, she's going to tell us what's going on in the industry right now. And then three, what do you see for your industry in the future? But first, I wanted to get to know Victoria just a little bit better, and break the ice. So I have so many questions, and I probably could talk over a coffee with you for hours. But I also want to just look back at this last one and a half years during the pandemic--a lot of us picked up weird things. What's your hobby that you picked up during this pandemic?

VS: One is my friends think I'm a very boring person. They make fun of me a lot about that. But I love to work out, you know, and I think I picked endurance running. So instead of just, you know, running for my 5k, I actually challenged myself and I actually got to be able to do 15k you know, and that has been very great. And then of course, because I have some young people in my house, they introduced me to TikTok. And because we were all together, they would have me and their dad to do some TikTok videos. And that really takes a lot for me to do that. Because I'm kinda like a bit tight some of the time. So that would be great actually. They're very proud of themselves.

JB: So are you from Nairobi? tell me where you're from.

VS: No, I'm actually not originally from Nairobi. So I was born in the Rift Valley, and specifically a district or a county by the name Kericho. It is a tea growing area, it is in the highlands. I'm a rural born girl.

JB: What was your upbringing? Like? Like, was it on a farm?

VS: Yeah, you know, it's very interesting when I hear people say, so you grew up on a farm. So for most of us, Kenyans who grew up in rural Kenya, we just grew up in the rural village. And my growing up really was, you know, in a setup where you live as community, most of your families have been born there, you know, many generations. I come from a family of nine siblings. And, flanking us on the left and right is another like about seven families, that are brothers and sisters of my dad and grew up to totally in the village, went to schools in the village. Maybe the reason why I'm very passionate about education and creating opportunities for rural communities today is because I grew up seeing poverty, I go back to those villages and I see poverty. The schools don't have infrastructure, and I say, how come things are not changing as quick as we would like to see them? I was lucky that my mother was a primary school teacher. And so even though I definitely grew up in, you know, low income rural households, we were not really at the bottom of the pyramid, I think because just that bit of my mother teaching helped us to be able to understand the importance of education, and she pushed for us to do our best, throwing us to recite poems, whenever guests from the city will be visiting the rural schools. And that really helped me to know that oh, I could speak in public. Oh, I could actually learn more by reading books that were made available.

JB: That, that's amazing. Well, maybe let's start with the AECF. So can you tell me what does it do? Where did the funds come from? And yeah, what do you do there?

VS: Yeah. So AECF was set up way back in 2008. And in 2005, the Commission for Africa recommended a $100 million fund funded by developed countries to support private sector initiatives in addressing poverty in Africa. And in 2008, AECF was launched at the World Economic Forum in Cape Town, and received an initial funding of 35 million from the UK Government and the Netherlands. And the real purpose actually, for setting up of AECF was to make market systems work for the poor. And we provide patient capital to highly innovative early stage and growing enterprises that are hidden gems, poised for greatness, but that struggle to access funding from traditional sources of finance. You may know that it is something that is spoken about over and over is just the lack of funding, sufficient funding for SMEs and MSME’s, really, in Africa today, and we were then set up to help to bridge that gap.

JB: Victoria and her team work to find companies that might struggle for one reason or another, to get investment to take them to the next level. And in the last 10 years or so, they have invested in 339 companies in sub-Saharan Africa, many of them are in the agribusiness and renewable energy sectors.

VS: We want to look continually at this at the sectors that are actually most inclusive of the beneficiary groups that we care for. And for us, that is usually women, youth and persons living in fragile contexts. Very specifically, and this one, you will allow me to just start with their statistics. So 600 million people in the sub Sahara do not have access to electricity. And what that means is that they are not able to capitalize on their own giftings and talents because they just don't have that energy that would be able to help them to improve their lives. When it comes to agri, you would know that 60 percent of our employment in Africa is actually catered from the agri sector. And so for us, we primarily are in these sectors because we think number one that in today's times it is very important for every one of us to have ability to have lighting, to be able to cook using clean cooking solutions that are not, you know, destructive of of our health or you know, are time consuming or expensive. When it comes to the agri sector. We have seen how SMEs create employment, they contribute to the incomes of the countries, they bring in innovation.

JB: Okay, so this sounds great when Victoria speaks about it. But I wanted to know, what exactly does this look like. And so I asked Victoria to tell me a real story about a real business that the AECF has invested in, and what this investment looks like on the ground.

VS: I will share the story of AfriFruta in Mozambique. As we all know Mozambique has definitely had challenges over time whether it is matters relating to insecurity or just the volatility of the currency. And so businesses struggle to access capital in this particular market. So we found AfriFruta. AfriFruta is based in Imbhane, you know a district in Mozambique, it is actually a rural area. And they had identified farmers you know that were farming e mangoes and coconut and they were doing a processing for export. They were using you know rudimentary tools at the time, your traditional firewood and drums, and we supported them to put up an ultra-modern processing facility that has actually gone on to support over 3,000 farmers. They presently are employing over 200 people. Of course there are high seasons are and low seasons, but the interesting thing is that at the time when we met them they were doing a turnover pie of about $34,000. As at the end of 2020, they were doing a turnover of about 200 and 54,000, and that is in a period of four years. So when you see a company that had potential to scale to do more, and they just needed, you know, capital injection, for them to be able to realize that potential and getting to see them actually realize this potential. But most importantly open an opportunity for the farmers in Imbhane to actually access export a market because they do export to the Netherlands, which means that opportunities are opened beyond the local consumption that would, for example, be, you know, available to to the farmers. You will find SMEs operating, you know, within communities, they are very agile, they will, you know, hire women, they will hire youth, but most importantly is that they present private sector benefits to the underserved communities and the underserved groups.

JB: Okay, that is a huge task. You already mentioned a challenge, which is it's hard to find investor-ready businesses. Are there any other main challenges in terms of the investment ecosystem for agri businesses and renewable energy in Africa?

VS: Wow I find pattern recognition is a challenge. And I will explain, investors come to the sub Sahara and there are specific things that they want to see, they want to see if you are, you know, educated in the West. They want you to see if you can, you know, just sweep up, you know, financial models. And what that does is that it excludes a lot of local businesses, because the reality is that the African entrepreneur has not had the same environment, the same education system, the same support as that foreign business. We even see in our own portfolio, we have a lot of foreign-owned businesses, they know to pitch, they know to put together a business plan, they know where to get the necessary expertise for financial modeling. Yet the local entrepreneur also comes with particular competitiveness and advantages. They understand the local environment, they understand the political environment, they actually understand the market, they also are more resilient during COVID. They stayed put when the foreign owners sought to fight into, you know, refuge back at home. So, I see that we need to be a little more open to trusting the local entrepreneur, of course, adding then technical support to the capital that we provide to them as as investors and walk the journey with them because for the sub Sahara, it's it's a game of time, you don't come in and you know, your closed ended fund five years, you want to have made your returns, you will just reach a particular crop, you will not reach the ones that are hidden, and they are, you know, nearer the bottom. So we need to deal with that because we need to include more local businesses and enable them to access capital for their growth plans.

JB: How has the pandemic affected the way that the AECF does business?

VS: You know, this pandemic has really made us realize that you have to always be ready for what is around the corner. Because in 2020, pandemic hits and we still have businesses to finance, we work across the sub Sahara, we couldn't travel. And we needed to pivot our systems to be able to support their businesses, because it is a time when you they needed us the most if they were to continue having their operations open. But the other thing that we also did, which was very important, was that we quickly realized that other investors and financials were going to grow cold feet, because they then adopted a wait and see attitude, what is gonna happen. So we went to our partners and we asked our partners to help us on one thing we had surfaced, which was that the companies did not have working capital. It was their biggest struggle, so we ran two relief funds in 2021 for the agribusiness sector and the other for the renewable energy. And they were really hinged on supporting companies that had the potential to survive the pandemic, which means if you had a chance to survive, we were there for you. We did not want you to collapse and we saw the relief funds be very helpful for the businesses. But also most importantly, to retain employees and to continue to provide services that were really needed to be able to support the needs that were emerging at that particular time.

JB: So you already mentioned a challenge that you're facing right now, which is, local businesses aren't necessarily as prone to even apply for these kinds of funds as foreign businesses. So what would be a solution to remedy that?

VS: One I think is that we need to create funds that are specific to local, locally owned businesses. And what that means is that we will build into them more flexibility. And when I say we, I mean, all of us as players in the ecosystem. I think that we need to double our efforts in respect of investments readiness, meaning that we actually do pre-investment, technical assistance to businesses so that they actually build the capacity to be able to understand what investors look like, and they therefore get an opportunity to try the next. But also, I think we need to work with governments, local governments, for them to know the opportunities that exist for, you know, the businesses where, you know, in their vicinities, and they use the channels that they have in the systems, they have to spread the word. Because some of the time somebody says, “Hey, you know, I actually did not know that opportunity existed.” Because that way, you know, that you're continually scanning the space for the opportunities that are emerging, and you're gaining the courage to actually go for them.

JB: Basically, to make it more inclusive and give them space at the table, make them part of the entire landscape, right.

VS: And I've seen that actually work at the AECF where in some windows, what we do is we retain a particular percentage for either locally owned businesses, or for women owned. So in fact, for most of our projects, now, we actually retain, let's say, 30 percent of the funding to go to women-led or women-owned businesses. That way we expend more energy looking for those types of businesses, because we already have a port that is reserved for them, that actually has to be utilized. But also I just want to go back to what, for example, IFC is now working on for the program that we are implementing in Kakuma and Kalobeyei in Kenya, where there are three windows. One is a private sector window, it is targeting the bigger private sector that required to be de-risked for them to actually come into difficult geography. The second one is a social enterprises window that is looking at businesses that would be able to support the provision of public services. But the third window is a local enterprises window, and it has been carved out specifically for the local small business that I find is an inclusive model, because then nobody feels excluded. Everybody knows that, you know, I fit in, I am accommodated, and they know the conditions attended to the funding available. But most importantly, also, we are really educating the community around this opportunity so that they get to tap into it as much as they can.

JB: Looking at the future of renewable energy and agribusinesses in Sub Saharan Africa. Where do you think this is going? Why do you think people should be investing in it?

VS: So I like the question. To really be able to grow economies, you need big infrastructure projects. And so we need to think about how we de-risk for private investors through blended finance, and they are then able to invest in projects that have bigger capacity, because we need that bigger capacity that will be able to service our more communities, more people, more businesses, but also increase availability, accessibility, and affordability.

JB: So what do you say if you were to appeal to an investor who maybe is a bit more impatient but is still, you know, flirting with the idea of investing in renewable energy and agribusinesses in sub-Saharan Africa? What would be your winning argument to, you know, get them over the edge?

VS: Every woman, every youth, every young man in Africa is deserving of being given an opportunity. So we must sometimes just look over the challenges that exist and go straight into the opportunity and see how to be able to actually create a possibility out of it, the deserving underserved person who wants that opportunity.

JB: And that's it for this episode of Creating Markets. If you enjoyed my chat with Victoria, please like or subscribe to our podcast, tell your friends about us. Go back and listen to our other episodes. And we really, really appreciate your support.

IFC partners with AECF to implement an innovative project, the Kakuma Kalobeyei Challenge Fund. It aims to unlock the economic potential of refugees and their hosts in one of the world’s largest refugee hosting areas, and you can learn much more about the project in at the link in our show notes.

In our next episode, we're going back to India, and I'm talking with the fantastic Sairee Chahal.

Sairee Chahal: You can fight everything, you can’t fight markets. This is a large market. By all measures. I mean, this is a train that’s not going to stop.

JB: Once again, I'm your host, Jasmin Bauomi. This podcast is produced by Maeve Francis and Aida Holly-Nambi and me for the IFC communications team. And I'll talk to you again soon