Wednesday, October 17, 2007

Final analysis: is investing in an African firm worthwhile?

Hello everyone, this installment is the final entry for my thoughts thus far on uventure capital. Again I have been tardy in adding this posting so I apologize to those who were waiting. I also want to thank Adapted Consulting for their feedback and support. As always feedback is welcome.

Final Thoughts
Groupe Zirasun presents an interesting example of an African company that could create a fantastic marginal return on invested capital. The potential that Groupe Zirasun has also reinforces the difficulty North American investor have/would have, identifying good opportunities for investment in Africa. If a North American knew to search for Groupe Zirasun, which in itself is very unlikely, the company’s website ( contains no financial data. Groupe Zirasun is not listed on any foreign exchange. The average North American investor has no way of performing a traditional evaluation of Groupe Zirasun. The inability of the North American investor to compare Groupe Zirasun to other potential investments essentially precludes investment. When I began this project I thought that I could encourage investment by bridging this information gap but soon realized I was wrong.

I falsely assumed that I could approach the problem from a different perspective, but still a perspective familiar to North Americans, and justify taking an equity stake in Groupe Zirasun. However, I soon realized that an African company in a developing nation could not be compared on similar risk metrics because of issues such as reliability of data, scale of economic data in relation to developed countries. In fact, it was very difficult to compare Mali to other “developing” nations because of the size of Mali’s economy as compared to that of any of the BRIC countries. As a result, I was led to the conclusion that even traditional thinking on investment into developing countries would not completely apply to smaller, impoverished nations. Soliciting investment in these countries can only be done with the offer of returns from a source not observable under traditional methods of examining companies and economies.

Defining investment in regional terms, instead of by individual country, simplifies the task of enticing individuals to invest in developing markets, and ultimately will provide companies in developing markets with greater access to capital. Adapted Consulting is not large enough to facilitate large-scale regional investment across a number of industries. However, by offering investors returns generated through their ability to identify companies with above average potential, Adapted hopes to prove that there are profits to be made in seemingly unattractive markets. An ideal outcome to Adapted’s plan would be instant acceptance by investors. A more realistic outcome is that the learning curve will be slow. As companies like Adapted help institutional investors to identify opportunities a trickle down effect will likely expose the mainstream investor to opportunities in Africa. Despite the uncertainty of acceptance, the mere process of attempting non-traditional investment should generate feedback sufficient to create a working model that will eventually help to build wealth in some of the world’s poorest nations.

Tuesday, October 2, 2007

Putting the criteria to work: the evaluation of a West African IT firm

Hello again, internet troubles and moving places delayed this posting again. I thank those of you still reading the blog for sticking with me. My intention is that this installment shows how I intended to apply my criteria to a potential site for investment. Next week I will include the conclusions I have drawn from what I have written. Again all feedback is welcome.


The Evaluation of an opportunity: Group Zirasun
To test the criteria, we have used an opportunity that has already been explored by Adapted Consulting, that is the investment into Groupe Zirasun. This is a good example of a company that suits their investment interests. To analyze it using this framework, we have evaluated Zirasun using the four investment criteria that were developed earlier, which have been restated below. This provides us with a good basis for evaluating the criteria as this firm is well understood by Adapted Consulting. The goal of the criteria is to answer the larger question: can additional capital and management training enhance the target company’s value?

(photo: Moussa, manager/owner of Zirasun)

Evaluation Criteria of for (µ) Micro Venture Capital Investments:
  1. Is there an opportunity for management/human resource training to increase profitability?
  2. Is there a sufficient market, both current and in terms of growth potential, for the goods and/or services the organization provides.
  3. How susceptible is the organization to the primary risk factors and impediments to success in their country?
  4. Does the organization operate in a manner consistent with C.K. Prahalad’s Twelve Principles of Innovation for BOP Markets? If not, can the organization be changed to do so?

Criteria 1: Human Resource improved proved productivity potential

Is there an opportunity for management/human resource training to increase profitability?

One limitation for Groupe Zirasun is their current human resource management system. Due to cash flow constraints workers are often hired on an ad hoc basis from a pool of workers who are loosely affiliated with the company. As would be predicted, these working conditions are not conducive to encouraging high levels of productivity from workers. In other words, to expect full commitment from employees an employer must offer full commitment to those employees. In a report prepared by students at the Schulich School of Business, recommendations to improve conditions included: modest employee bonuses near holidays, profit sharing schemes, modest commissions on new contracts secured by Groupe Zirasun. These incentives will increase employee comittment and also address the company’s cash flow problems, as all incentives are based on new business generation.

To lend legitimacy to any of these recommendations, Groupe Zirasun must formalize human resource practices. Included in this change would be a set of practices for future hiring and training on how to create an environment conducive to innovation. Having a formal HR structure would not only increase productivity, and therefore profitability, but also give Zirasun a basis for future staffing decisions. For example, more formalized tracking of employee sales, productivity, and costs would give Moussa access to better information regarding the need to hire based on workload.(photo: Zirasun's offices in Bamako, photo credit Moussa Keita)

Employee incentives, hiring practices, formalized methods of tracking employee hours and productivity, are examples of programs that Adapted Consulting could help to implement. Without outside evaluations to act as a guide for improvement Groupe Zirasun would not effect these necessary changes. Therefore the answer to the first question is yes, management training can increase profitability. However, cash flow remains the major issue. Cash flow could not only help with HR policies but by allowing increased marketing efforts, which in turn would lead to increased sales, and increased cash flow.

Criteria 2: Market Growth Potential

Is there a sufficient market, both current and in terms of growth potential, for the goods and/or services the organization provides?

Although a traditional top-down approach is a departure from the methodology recommended in this paper, it is important to look at growth sectors in the Malian economy.

The Malian economy experienced a growth rate of 6% in 2005; growth in 2006 is estimated at 5 per cent and is expected to be around 4.7 per cent per year in 2007 and 2008. Drivers of growth are expansion in the mining sector and an increase in ‘food-crop’ production. While there is potential to mine a number of resources in Mali, gold is the most important metal to the country’s economy. More than 85% of the 102 mining permits granted in 2005 were for gold[1].

Increasing energy prices are cause for concern in Mali. An electricity shortage already exists in Mali, as energy prices increase it becomes more costly for industry to gain access to increasingly costly inputs. As in the entire African region increasing energy prices create the risk of widespread inflation. As would be expected, net oil importers are hurt more by rising costs than oil producing nations. Mali is an oil importer but fortunately, increases in gold prices have helped to offset these costs[2]. Global demand for energy, Mali’s own shortage of electricity, and conditions in Africa as a whole suggest that energy consumption will be a concern for businesses operating in Mali for the foreseeable future.

“African countries need to husband their resources much more carefully to pay for the key goals of reducing poverty and raising the quality of life for their populations.”[3]

Outside of natural resources the Malian government is taking steps to bring about structural reform. Improvements to the road network, banking sector, and programs to increase the role of the private sector in the national economy should stimulate growth. The government is also investing in the travel/tourism industry in the form of favourable tax treatment and the creation of Compagnie aérienne du Mali, which offers direct flights from Paris[4]. There has also been a trend for citizens of Mali to form organizations to limit corruption in the country. “Various associations have come into being, including, amongst others: i) TransparencyMali; ii) the national watch for the fight against corruption; and iii) the Malian network of journalists against corruption.”[5]

How does Groupe Zirasun stand to benefit from the economic trends described above? Increased transparency in financial institutions, better road networks, and increased foreign investment will lead to economic growth. OECD projections show continued growth near 5% annually for the next 3 years. Obviously a growing economy is good for any company operating in Mali. However, Groupe Zirasun may benefit more than most from this growth.

  1. Mali has demonstrated a high level of acceptance for wireless technology. The CIA’s factbook states that as of 2005 there were 869,600 cellular phones in use versus 75,000 landlines, a ratio of approximately 11.6:1. The same ratio in Canada was 0.89:1. This discrepancy parallels the acceptance of mobile communications in general in West Africa. Mobile communications are so popular because of the lack of land-based lines of communication. In countries where road networks, banking systems and access to drinking water are issues, it is unlikely that government or industry will spend to develop hardwire communications infrastructure when a more practical, and cheaper, alternative is already available. Therefore, as foreign investors set up new offices in city centres or remote locations, companies like Groupe Zirasun will be called upon to provide communications solutions. Groupe Zirasun can view the communications of mining companies who will have to operate in remote locations, as strong opportunity for growth.
  2. The demand for electricity in Mali means that companies who can provide services that use a limited amount of energy, or are self-sustaining, will be in greater and greater demand. Groupe Zirasun’s experience in dealing with communications systems based on alternative power sources should create an opportunity in dealing with SMEs. In particular, Groupe Zirasun is uniquely positioned to take advantage of e-agri business development.[6]
  3. Groupe Zirasun, with the help of Adapted Consulting, will have a great deal of exposure to, and understanding of western style business practices. This means they will be more prepared to deal with the demands of foreign investors, both in terms of service delivery and in terms of business to business interaction.
Criteria 3: Are the barriers to enter this market too high?

How susceptible is the organization to the primary risk factors and impediments to success in their country?

The major risk factor in the Malian economy is the exposure to commodity prices. Gold and cotton prices are particularly important for economic growth. In addition to commodity prices Mali is also heavily reliant on foreign aid. Mali is also landlocked. Due to the economy’s heavy reliance on exports, port access is critical. In 2004, turmoil in Cote D’Ivoire limited Mali’s access to ports in that country and economic growth slowed as a result. Despite efforts of the Malian government to improve the road network leading to a number of ports in neighbouring countries, the 2004 experience shows the economic vulnerability created by being landlocked.

How do these risk factors affect Groupe Zirasun? The economic slowdown that would be created by not having access to ports would affect demand for all goods and services. However, Group Zirasun has almost no direct exposure to the problem of limited port access. As a service provider operating entirely within West Africa, port access only becomes a problem deliveries cannot be made by overseas suppliers. As is in the case of port access Groupe Zirasun has only indirect exposure to fluctuations in commodity prices. However, since foreign investment in mining will be a large source of foreign investment large fluctuations in gold prices will reduce the number of potential new clients for Groupe Zirasun.

Criteria 4: Can the organization be structured to better serve new markets?

Does the organization operate in a manner consistent with C.K. Prahalad’s Twelve Principles of Innovation for BOP Markets? If not, can the organization be changed to do so?

The most applicable of Prahalad’s principles of innovation are:

i) Focus on price performance of products and services – by hiring interns and introducing pay incentives unique among Malian companies, Zirasun can achieve very good price performance.

ii) Innovation requires hybrid solutions. BOP consumer problems cannot be solved with old technologies – Zirasun’s strength relies on delivering unique, flexible technological solutions.

iii) As BOP markets are large, solutions that are developed must be scalable and transportable across countries, cultures, and languages – The Groupe Zirasun offering to their customer offers precisely this

iv) All innovations must focus on conserving resources: eliminate, reduce, and recycle – in a recent analysis conducted on Groupe Zirasun a recommendation was made to operate as an internet café during downtime to supplement overhead charges, thereby reducing

v) Deskilling work is critical – the goal of Adapted consulting in their assistance to Groupe Zirasun is to develop a system of accounting where work can be deskilled and compartmentalized so that even otherwise untrained interns can perform Zirasun’s accounting tasks.

vi) Products must work in hostile environments – Groupe Zirasun specializes in delivery of Internet Communication Technology to isolated regions of Africa, their solutions must work in hostile environments or they will not/would not have been able to do any business.


[1] OECD’s African Economic Outlook 2007, Subsection on Mali,
[2] OECD’s African Economic Outlook 2007, Subsection on Mali,
[3] OECD Development Centre, Policy Insights No.47, April 2007,, site accessed August 2007.
[4] OECD’s African Economic Outlook 2007, Subsection on Mali,
[5] OECD’s African Economic Outlook 2007, Subsection on Mali,
[6] Venture Assessment Zirasun, December 2006 – Crespo, Howard, Lagarde & Tunnah