Small-Scale Financing Takes Hold in Africa

							Small-Scale Financing Takes Hold in Africa

By Henri E. Cauvin
http://www.globalpolicy.org/
New York Times
December 17, 2001

N. Justin Chinyanta saw the outlines of an opportunity almost a decade ago. Africa's
markets were opening up in a big way, and capitalists were looking to cash in. The big
ones, especially from overseas, would find their own way, but the little, local ones
could not go it alone. They would need financing and advice. So Mr. Chinyanta, a
young Zambian banker, and a few of his colleagues at Citibank founded their own
financial services firm, which would come to be called Loita Capital Partners
International, to help small and midsize businesses get their start. While trends in
Africa's financial sector are hard to track, the demand for the services of niche firms --
like Loita, based just north of here; Business Partners Ltd., another South African
company; and the African Banking Corporation, in neighboring Zimbabwe -- appears to
be growing.

Smaller businesses, from snack shops and roadside filling stations to coastal fishing
vessels and tobacco-exporting ventures, are particularly important to the region
because they are efficient at creating jobs, say African development groups like
Business South Africa. With one in four workers unemployed even in South Africa, the
region's biggest, strongest economy, the people who are willing to finance small
businesses are an increasingly important element in Africa's economic development

"The country is extremely dependent on unlocking the value of the emerging
entrepreneur," said Michael Mendelowitz, chief executive of Theta Investments, a unit
of African Bank Investments Ltd. of South Africa that provides financing and
management advice to a range of small businesses, with an increasing focus on
fledgling building contractors. "If we don't get that model right, given the levels of
unemployment and the lack of growth in the formal sector, we're going to have
systemic employment problems in this country."

On the whole, Africa remains an impoverished place of vast potential and enormous
obstacles. In most countries, economies are simply not growing fast enough to face
the social ills, like hunger, illiteracy and AIDS, that have built up over decades. Even
where economic growth has been more encouraging -- as in Mozambique, where the
economy grew 7.5 percent in 1999 and even 1.6 percent last year despite devastating
floods, and Uganda, which grew 7.4 percent in 1999 and 4.7 percent in 2000,
according to the World Bank -- the problems are too entrenched to heal in just a few
years. That is particularly true as the global economy slumps. Last year, as growth
began to slow, foreign direct investment in Africa fell for the first time in several years.

What firms like Loita have to offer, Mr. Chinyanta said, are years of experience and
contacts in first-world finance coupled with an insider's knowledge of third-world
business. The trick, he said, is to provide financing that will yield respectable returns
while conforming to "local market sensitivities." In Malawi, for example, Loita helped
two tobacco traders, Clive Douglas Le Patourel and Michael John Gange-Harris, start
their own company after their previous employer, Intabex Holdings Worldwide, was
bought out. With $3 million in financing arranged by Loita, Mr. Le Patourel and Mr.
Gange-Harris founded Africaleaf. "It was not secured or guaranteed by anything," Mr.
Le Patourel said of the loan, "because quite honestly we weren't in a position to do so."
The bet paid off. Africaleaf repaid the loan and now routinely arranges financing
through Loita's office in Malawi.

Loita and the others all said they were profitable -- Business Partners, for example,
said it netted about $7.5 million last year -- though they all said that the risks were
great in a region where entrepreneurs have little business experience, bureaucracy can
be stifling and corruption is common. "I think there's room in the market for more
people to play, but it's not an easy playing field," said Jo' Schwenke, the managing
director of Business Partners, a company that invests $15,000 to $1.5 million each in
small and midsize ventures. "You've got to really know what you're doing."

Many of these homegrown lenders are small -- the African Banking Corporation has
about $300 million in assets, said Douglas T. Munatsi, its chief executive -- but say this
is an asset in itself. South Africa's big banks, which have been expanding throughout
Africa, and certainly bigger international banks like Barclays and HSBC, would not want
the small deals he does. Once the investment companies become involved, they often
offer smaller clients sophisticated ways of raising capital. Loita, for example, has sold
currency-linked bonds denominated in United States dollars for clients in Malawi,
Uganda and Zambia, letting them borrow on local markets at a benchmark
international interest rate known as Libor, or London interbank offered rate, that helps
them cover expenses.