ProVenEx Fund, Rockefeller Foundation - Value Chains report non draft... · ProVenEx Fund,...

OVERVIEW OF BUSINESS MANAGEMENT ASSISTANCE & LINKAGE STRATEGIES:EAST AFRICAN EXPERIENCES

ProVenEx Fund, Rockefeller Foundation

Market Matters, Inc. (www.marketmattersinc.org)Ralph D. Christy, CEO ([email protected])

Jeffrey C. Fine, Consultant ([email protected])

August 2004

Overview of Business Management Assistance & Linkage Strategies

Market Matters, Inc. Page 2

Contents

Acronyms ....................................................................................................................................3

Part I. Introduction .....................................................................................................................4

Part II. Business Management Services and the Investment Cycle ......................................7

Part III. The Consultant Relationship: Key Generic Factors .................................................8

Risk (to Cost) Ratio...................................................................................................................8

Specialization and Business Flow.............................................................................................8

Experiential Knowledge and Domain Expertise ........................................................................9

Mentoring versus “Training” ......................................................................................................9

Open and Closed Professions ..................................................................................................9

Bureaucratic and Market Risk.................................................................................................10

Incidence of Risk.....................................................................................................................10

Vetted and Non-Vetted Information.........................................................................................11

Part IV. Classifying Business Service Providers ..................................................................12

Part V. Findings: Factors Shaping the Market for Business Services...............................14

The Business Environment .....................................................................................................14

The Real Cost of Investment...................................................................................................16

Supply Chains and the Demand for Business Services..........................................................17

Horticultural Products: Flowers, Vegetables and Fruit .......................................................17

Commodities Improving Food Security – Starchy Staples ..................................................20

Maize...............................................................................................................................20

Other Cereals:.................................................................................................................23

Other Products ................................................................................................................24

Donor Support for Strengthening Business Management Services........................................26

Trends in Providing Business .................................................................................................27

Part VI. A Roadmap of the Market for Business Management Services.............................32

VII. Implications for ProVenEx and the AAC .........................................................................36

Appendix A: Terms of Reference ...........................................................................................41

Appendix B: Individuals Consulted .......................................................................................43

Appendix C: Companies Surveyed . .......................................................................................45



Acronyms

AAC African Agricultural Capital (Fund)ACDI/VOCA Agricultural Cooperative Development International/Volunteers in Overseas Co-

operative AssistanceADF African Development Foundation (US Government)AMSCO African Management Services CompanyAPDF African Project Development Facility (World Bank Group)CNFA Citizens Network for Foreign AffairsDBL Double Bottom Line, referring to a firm seeking high social as well as financial

rates of return from its investmentsDFID UK Department for International DevelopmentEPRC Economic Policy Research CentreICIC Inner-City Initiative for CompetitivenessICT Information and Communication TechnologyIFPRI International Food Policy Research InstituteKEPHIS Kenya Plant Health Inspectorate ServiceKIPRA Kenyan Institute for Public Policy Research and AnalysisNARO National Agricultural Research Organization (Uganda)USAID US Agency for International DevelopmentWFP World Food Program



Part I. Introduction

Toward implementing its strategy for foodsecurity in Sub-Saharan Africa, the Rocke-feller Foundation has initiated two venturesfeaturing capital investment based on acommercially dictated relationship. Eachinvolves the provision of loans or equity, asopposed to grants, the more conventionalmodality used by the Foundation. One suchventure is ProVenEx, a venture capital fund,whose principal activities have hitherto beenconfined principally to the United States. Asa so-called “double bottom line” (DBL) un-dertaking, ProVenEx seeks to obtain socialas well as financial returns from its invest-ments.i The second, the African AgriculturalCapital Fund (ACC), with an initial capitali-zation of $5 million, is being supported alsoby the Gatsby Charitable Trust of the UKand INCOFINii and plans to initiate activitiesby January 2005. As an investment vehicle,it “will target its investments in companiesinvolved in plant breeding and seed produc-tion, grain handling and marketing, agricul-tural production, and peripheral busi-nesses.” In contrast to ProVenEx, it willprovide “soft” capital, in terms of the periodof repayment and possibly direct and indi-rect subsidization of various activities asso-ciated with vetting and managing specificinvestments.iii

An immediate motivation for the RockefellerFoundation has been more systematic andeffective utilization of past investments inagricultural research. It prompted invest-ments by ProVenEx, approximately twoyears ago, in two seed companies in Kenyaand Uganda toward accelerated diffusion ofnew maize varieties that, it was anticipated,would raise the productivity and output ofsmall-scale producers, increase their in-comes, and enhance food security (ruralincomes) both for them and the generalpopulace. The mixed results obtained fromProVenEx’s investments suggested thatcapital per se was not the only requirement.Also necessary were a range of services invetting and managing the investment in

question. Consequently, Professor RalphChristy of Cornell University and Mr. JeffreyC. Fine were asked to conduct an overviewof “business development services” inKenya and Uganda, with particular refer-ence to those most pertinent to investmentin enterprises within the agribusiness sectorin both countries. As stated in the terms ofreference:

We believe that in order to be successful inour investments, capital must be paired withappropriate management assistance andaccess to value-added business networks.The AAC will be pursuing this strategy andProVenEx has attempted to combine thetwo on a customized basis in most of its in-vestments, but has found that efforts to doso in its investments in eastern Africa to beparticularly challenging.

The consultants were assigned two principalobjectives, namely:

• To inform ProVenEx and the AAC ofcurrent and emerging best practices inproviding business management assis-tance to companies in Africa, and po-tential service providers and partners forfuture and existing investments; and

• To prepare a document, a summarizedversion of which would comprise part ofbackground materials that will be dis-tributed to participants attending a Sep-tember 2004 workshop for investorsseeking financial and social returns enti-tled Building the Blended Value CapitalMarket.

In the first instance, the consultants weredirected to focus on business services as-sociated with investments in those com-modities, namely maize, other cereals, cas-sava, and bananas, currently of most im-mediate interest to the Food Security Pro-gram as well ProVenEx because of its ear-lier investment in two seed companies and



continued interest in investing in other busi-nesses in the staple food chain.

Nonetheless, other considerations have in-formed this study. One is the broaderbenefit of being a “player” in agribusiness.Such involvement can unveil factors bearingon the outcomes of more conventional ac-tivities undertaken by the Foundation. Onesuch case, highlighted later in this report, isthe impact of existing institutional arrange-ments and procedures for the certification ofnew seed varieties on their adoption bysmallholder farmers, as well as seed pro-ducers and distributors. Such informationcan in turn inform the Foundation’s supportfor more basic agronomic research in Kenyaand Uganda. Also useful are the insightsobtained from a commercial perspective.One such example is changes in valuechains and how these in turn affect innova-tions in products and production processes.Although horticultural products are not acurrent focus of Foundation supported re-search or proposed investment, develop-ments in their export, discussed later in thisreport, are relevant insofar as they affectfarmers’ incomes, and the opportunity costof cereal production. Furthermore, the fac-tors prompting these changes highlightother challenges specific to investmentsaimed more directly at improving food secu-rity through higher productivity and in-creased output of cereal crops.

The next three sections of this report pro-vide greater clarity to the term “businessservices” In Part II, we identify the principalones associated with the investment cycle.These are itemized according to two phasesof the cycle, namely vetting an opportunity,and managing the investment. Those per-taining to the third phase, namely exit fromthe investment, have not been covered, be-cause of the more immediate interest ofProVenEx and the AAC in the first two, andthe paucity of actual examples within EastAfrica. Part III looks at business servicesfrom a different angle, systematically ex-amining those factors bearing on the con-tractual relationship between client and

service provider. Except where these serv-ices are provided “in house” by the investor,this relationship entails the engagement ofone or more “consultants.” What consid-erations shape the business practices ofboth client and contracted consultant are, aswe demonstrate later in the report, abso-lutely essential toward understanding the“market” for business services in the region.Furthermore, they explain, to a significantextent, why past efforts to improve it havefailed, and why ongoing ones are likely toprove only partially successful. Part IVcompletes this multi-dimensional overviewby categorizing the companies offering vari-ous business services associated with theinvestment cycle. Our terms of referenceproposed a classification based on thehosting or supporting agency, viz. aca-demic, not for profit, commercial, and donor.To some extent, this distinction has beenretained. However, to take proper accountof the factors dictating the business prac-tices and prospects of consulting firms, thisinitial classification has been somewhatmodified.

Our findings are presented in two majorsections. Part V looks at those factorsshaping the market for business services. Itbegins with an appreciation of the businessenvironment. We then proceed to examinewhat the latter implies, in terms of cost ofthose investments most likely to be enter-tained by ProVenEx and the ACC, and thelikely consequences, in turn, for underwrit-ing the cost of associated business serv-ices. Subsequently, a more nuanced viewis obtained by examining how the demandfor different services varies among valuechains. Whilst our treatment, because oflimitations in time and budget, cannot beexhaustive, the analysis does point toproblems specific to those commodities inwhich ProVenEx and the AAC are planningto focus most of their effort. Based on theseresults, we then proceed to look at variousdonor supported interventions aimed at im-proving business services. We concludethis part of the report with an assessment oflonger term trends in service provision.



Part VI sets out, as requested in our termsof reference a “road map” for businessmanagement services. It draws on themodified classification presented in Part IVand the findings in Part V. Whilst our sur-vey’s coverage, both in terms of firms pro-viding services and clients demanding them,is necessarily limited, the results, in ourview, are sufficiently robust to set out theprincipal implications. These are presentedin Part VII under two headings. The firstconcerns a strategic approach allowingProVenEx and the AAC to underwrite thecost of the business services they will likelyrequire in conducting their investment ac-tivities. The second is a specific recom-mendation, in line with our terms of refer-ence, for redressing gaps in the provision ofbusiness services revealed by our study.

i The Boston Consulting Group (2002) Assess-ing ProVenEx Performance and DeterminingDirections for the Futureii Incofin was established in 1992 as a 'co-operative association with a social purpose'(CASP). As an investment company Incofin isdedicated to the promotion of local entrepre-neurship in the southern hemisphere. Seehttp://www.incofin.be/iii The Rockefeller Foundation and the GatsbyCharitable Trust (March 2004) African Agricul-tural Capital: Dossieriv Fine, J. C. and Rostenne, J. (1995) Africans inConsulting: Findings, Issues and ResponsesReport for the International Development Re-search Centre of Canada. Perwit Internationalv Discussions with Moses Kibirige, APDF, Kojo,ADF, Davindar Sikand, Aureos Capitalvi Discussions with Eric Naivasha, K-Rep, Jamesand Elizabeth Ssemwanga, Sunita Kapila, Mo-hammed Farid, Ashington Ngigivii Barbara Steenstrup, Rosemary Ndirituviii Gladys Makumiix Stephen New, Joanx Interviews with Farid Mohammed, Karim So-mani, Amin Shivji and William Kalema



Part II. Business Management Services and the Investment Cycle

In anticipation of our analysis of the “mar-ket” for business services associated with

the investment cycle, we have set out aninitial listing below.

PHASE I: VETTING THE OPPORTUNITYInitial scoping • Overview of the market including value chain analysis

• Assessment of the policy environment; identification of key political risks,and institutional constraints

• Examination of actual and potential competition in terms of firms, productsand processes

• Study of environmental guidelines and opportunities• Initial assessment of competitive (dis)advantages

Due diligence • Detailed in-depth examination of the investment including corporate-relateddocumentation

• Collection of additional background concerning the firm’s reputation and pasthistory

• Collection of information concerning other activities of the firm’s ownersPreparing the deal • Preparation of business strategy

• Preparation of business plan• Preparation of financing strategy

Finalizing the offer • Preparation and negotiation of terms and conditions for the investmentPHASE II: MANAGING THE INVESTMENT

Board and corporateGovernanceManagement • Representation at and systematic follow-up to Board decisions regarding

policies, strategies and operationsLegal • Recruitment, mentoring and monitoring, as necessary of executive person-

nel responsible for overall firm management, personnel, finance (strategyand control), marketing, ICT, etc.

ExpansionFinancingProduct • Operating capital, cash flow, loan financing, reinvestmentOutcomes • Quality and standards compliance

• Sales, gross earnings and costs, net cash flows, returns to investmentPHASE III: EXIT STRATEGY

Beyond the scope of this study.Table 1. Business services and the investment cycle.These services draw upon formal qualifica-tion in such areas as finance, accounting,marketing management, economics, andlaw. Aside from an academic grounding inone or more of these disciplines, however,possibly a more essential prerequisite, andone to which we shall refer in our report, isexperiential knowledge. As the term sug-gests, it is knowledge obtained from actualexperience. How one obtains such knowl-edge, e.g., through structured mentoring byand/or informal consultation with more sea-

soned professionals, is especially importantsince many services do not require priorformal qualification in a “closed” professionsuch as accounting, engineering, law andarchitecture. Finally, provision of theseservices will often draw, but only selectivelyand for limited periods, on particular domainexpertise and knowledge. For example,vetting of a proposed investment in a seedcompany will require expert knowledge ofbreeding, processing, packaging and certifi-cation of the product in question. .



Part III. The Consultant Relationship: Key Generic Factors

Typically, and certainly for most of servicescovered in our field study, their provisionentails a contract between a client and con-sultant, which may be a single individual ora firm. Even where the putative clientclaims to possess most of the services in-house, some outsourcing, also involving thecontracting of one or more consultants, isinvariably necessary.

What generic factors, generic insofar asthey apply across business sectors, and thegamut of services listed earlier, shape thecontractual relationship between client andconsultant? Here we draw on the results ofan earlier investigation of the consulting in-dustry in Africa, further refined by the find-ings of our own field studyiv.

Risk (to Cost) Ratio

The first is risk – in relation to the cost in-curred in “getting it wrong.” A useful anal-ogy for explaining this concept is the di-lemma confronting an individual informedthat he has a life-threatening brain tumor.The surgeon with more than twenty yearsexperience in successfully performing thecomplex operation required to remove thetumor demands a fee of $100,000. Thewould-be patient is then approached by amuch younger colleague, who offers toperform two operations for the price of one.Another physician, within the same hospital,is also prepared to throw in cosmetic sur-gery along with two operations. In such cir-cumstances, the patient, provided he hasthe necessary means, will undoubtedly optfor the experienced surgeon since the costof a failed operation would literally be fatal.

Although the choice among consultants toperform various services associated withthe investment cycle involves less dramaticchoices, one can well envisage some wherethe cost of incompetence can be very high,to the point of imperiling the investment in

question. This cost must be balancedagainst the price demanded for the servicein question. Put somewhat differently, theunderstandable desire to minimize the costof business services must be qualified bythe need to minimize key risks.

This factor is especially pertinent to the se-lection of service providers for ex anteanalysis of a proposed investment. Fundmanagers typically refuse to delegate thistask to others.v Where they do, only certainservices are outsourced, e.g., due diligenceof the firm in question, and then only tofirms with a well established track record.Noteworthy in this regard, is that no locallybased African firm among those covered byour inquiry has ever been involved in pro-viding services relating to the initial stage ofthe investment cycle, except in a subordi-nate role. In contrast, many have beencontracted to conduct evaluations ex postfacto, after the critical decisions have beenmade, when the results of an unsatisfactoryproduct will do much less damage.

Specialization and Business Flow

Obtaining the necessary experiential knowl-edge to the point – in terms of our earlieranalogy – where one is entrusted with theriskiest operations – is especially difficult forindependent African firms. Many do recog-nize the need to specialize in particularservices and sectors. On the other hand,they must cover their operating costs also.Consequently many are forced to undertakea broader range of assignments than theywould prefer, or even attempt to supplementincome from consulting with that from otherventures.vi In one case, a reasonably well-established Kenyan consulting firm haslaunched a venture to provide communitymobile phone services. Also informing theirbehavior, which runs contrary to their ownprofessional appreciation of the need tospecialize, is the fact that most clients are



not prepared to recognize – and suitablycompensate – hard-gained expertise andexperience. Donors, typically the principalcontractors, directly or indirectly, of busi-ness consulting services, apply predeter-mined rates for “local” and “regional” con-sultants, regardless of what we have termedthe “risk ratio” of the assignment in ques-tion.

Experiential Knowledge and DomainExpertise

Formal academic and professional qualifi-cations are often but not always a neces-sary condition for undertaking a particularservice. More important, especially for un-dertaking critical services within the invest-ment cycle, is experiential knowledge, oftenconfused with domain expertise. The latterrefers to expert knowledge, which, as notedearlier, may be needed to provide variousservices associated with the investment cy-cle. One such example, revealed by ourstudy, is technical knowledge of processesfor producing high quality and tasty bananajuice. Clearly, it is needed to evaluate pro-posed investment in a plant producing thisproduct. What proved equally significant, interms of appraising the investment, is thesupervisor’s and manager’s accumulatedexperience, through past jobs, in operatingand maintaining the equipment in question,as well as other processing related activi-ties.

In general, our inquiry did not reveal anymajor difficulty in obtaining access to do-main expertise, provided the need wasclearly recognized and the client was pre-pared, as well as able, to pay for the servicein question. Much more opaque was thesituation with respect to experiential knowl-edge. Often its importance was not properlyrecognized or downplayed by purchasers ofbusiness services. A likely explanation isthe fact that experiential knowledge, al-though critical to ensuring the quality of theservice in question, is not systematicallydocumented in ways that can be easily ac-cessed and validated by would be clients.Put somewhat differently, solid professional

performance, especially by African profes-sionals and firms, is not always recognized,systematically documented and suitably re-warded through expanded opportunities toprovide progressively more strategic serv-ices.

Mentoring versus “Training”

Experiential knowledge cannot be acquiredthrough the formal courses, workshops andother schemes introduced by various do-nors wishing to improve the quality of busi-ness services. Much more important isprofessional mentoring. The multinationalfirms covered by our survey invest consid-erable effort, not only in the initial recruit-ment of professionals, but in systematicmentoring, typically by cosseting them withmore experienced staff in the execution ofspecific assignments.vii Thus a relativelyjunior consultant, involved in conducting thedue diligence review of an investment iden-tified by ProVenEx, worked with a moresenior colleague and had her reports re-viewed regularly, in terms of content as wellas presentation, by a senior Partner in thecompany, prior to their release.viii The sameapplies to those not-for-profit organizationsseeking to improve the quality of businessservices being offered to clients. Aside fromretreats and in-staff training, more attentionis being paid to the systematic, ongoingmentoring of staff.ix Unfortunately, none ofthe African firms covered by our study,faced as they are with a continuing need tocover their fixed operating costs, are able tomake similar arrangements. Indeed, manyhave been forced to operate with only a tinycore of full time staff that simply hasn’t thetime or resources to mentor more juniorcolleague who, in most cases, are not actu-ally bona fide members of the firm.

Open and Closed Professions

Professionals offering business servicesmay formally be qualified in what are termed“closed professions”, where the right topractice is subject to officially recognizedand legally enforceable certification. Suchcertification, as opposed to domain exper-



tise, is not always necessary to provide highquality business services. Formal qualifica-tion in accounting, for example, is a veryuseful asset in analyzing financial state-ments concerning a proposed or ongoinginvestment. It may not be necessary forassessing the overall financial soundness ofthe investment in question. The consultantsinterviewed during the course of our studyhave been formally educated in a variety ofdisciplines in the natural sciences, socialsciences, engineering, the humanities andbusiness. Subsequently, and not surpris-ingly, many have felt the need for furtherformal exposure to business finance. Onthe other hand, few supported any sugges-tion of transforming business consulting intoa closed profession by imposing legally en-forceable, formal certification as precondi-tion for offering their services. At firstglance, this stance seems to contradict awidely recognized need to provide qualityassurance to prospective clients by compel-ling “consultants” to acquire formal qualifi-cations and adhere to a code of profes-sional practice. However, there is little con-sensus concerning the specific competen-cies and practices most likely to ensurequality. Furthermore, one faces the chal-lenge of actually applying and enforcing anyprocedures involving certification and acode of practice. Past experience in Kenya,reported later in our study, points to the highprobability of mismanagement and, moreimportantly, the unlikelihood that any suchsystem will actually lead to a tangible im-provement in the current situation. As weshall suggest in the concluding section ofthis report, a more effective alternative isavailable for ensuring quality and reducingthe risks currently perceived by clients inpurchasing business services.

Bureaucratic and Market Risk

ProVenEx and AAC operate in the world ofmarket or commercial risk. Failure to ac-quire the right business services, especiallyfor those involving a high risk ratio, can leadto serious financial loss or even total failureof the investment. However, most of theeffective demand for business services in

both Kenya and Uganda originates in thepublic sector, and is underwritten by the in-ternational donor community. Commercialrisk is thus tempered and often subordi-nated to other considerations, political, legaland organizational, prominent in the worldof bureaucratic risk, one in which the “riskratio” associated with specific services isoften quite different. For investors operatingunder conditions of market risk, the cost of“getting it wrong” is financial loss and some-times ruin. For a donor, it will be a failedeffort, with useful “lessons to be learned”the next time round. Clearly this distinctiondoes not necessarily apply across theboard. For example, our field study re-vealed several instances where a companyseeking a loan or injection of equity wasprepared to cut corners, in terms of con-tracting strategic business services, i.e.,those with a high risk ratio, but the would-beinvestor, although drawing on public funds,insisted on paying the costs necessary tominimize risk.

The different conditions prevailing in theworlds of market and bureaucratic risk aremost revealing at the level of individualbusiness service provider. With some nota-ble exceptions, they purport an ability to op-erate in both worlds. In practice, only a mi-nority are entrusted with strategic businessservices by those clients who truly do oper-ate in world of commercial risk. Again, theissue is not one of formal training or ac-creditation. Underlying client preference aresuch considerations as a provable track re-cord and experiential knowledge acquired inthe same market environment.

Incidence of Risk

Also important in the selection of businessservice provider is the question of who willbear the cost of failure to deliver the agreedproduct. Does the onus lie on the client orthe provider? In the case of individual pro-fessionals as well as the smaller, invariablyAfrican firms covered in our study, it falls onthe client. This awareness creates a majoradvantage for larger, better resourced firms.Independently of the quality of service actu-



ally delivered in practice, they will be ex-pected to redress failure, for example byreplacing an unsatisfactory lead consultantor redoing a report. Implicitly this “insur-ance” is built into their fee structure. For asimilar reason, they are the preferred choicein undertaking those services, within theinvestment cycle that have a high “risk ra-tio.”

Vetted and Non-Vetted Information

Invariably overlooked is the critical impor-tance of vetted information, namely infor-mation that is filtered by a trusted source.Such vetting is undertaken in all activities,be it the purchase of a motor vehicle orhousehold appliance, the selection of aphysician or school, or even the choice ofan evening’s entertainment. Instinctively,much more weight is assigned to informa-tion, which has been filtered through aknown and trusted source. In appraisingthe capability of business service providers,ready access to such vetted information as-sumes paramount importance in reducingrisk as well as time. Aggravating this prob-lem in Kenya and Uganda are various fac-tors: a continuing turnover in projects andpersonnel; the implicit weight assigned tobureaucratic, as opposed to commercial riskin selecting consultants; and the inability todocument systematically experientialknowledge pertinent to a given businessservice. Compilation of firm registries orlists of consultants does not solve thisproblem. Nor does more formal “training.”They do not address the need for reliablyvetted information, especially with respect toexperiential knowledge. The prospectiveclient must still confront the task of vettinginformation, typically by referring to trust-worthy sources. Solving this problem is es-sential to improve the supply of business

services by rewarding quality and achieve-ment and punishing incompetence.

These generic factors were reflected inquestions posed, over the course of the fieldstudy, to both clients and suppliers of busi-ness services:

• The number of core staff in the firm andtheir experiential knowledge (in terms ofcareer history, as opposed to formalqualifications);

• Whether the attested range of corecompetencies was narrow or large –and whether the firm/individual was in-volved in other businesses;

• The mix of clients from the public andprivate sector;

• The likely “risk ratio” associated withpast assignments, notably whether thefirm or individual had been involved inex ante or ex post assessments of spe-cific investments; and

• The processes used by clients to vetbusiness service providers.

The results obtained from our inquiries areset out in Parts V and VI. iv Fine, J. C. and Rostenne, J. (1995) Africans inConsulting: Findings, Issues and ResponsesReport for the International Development Re-search Centre of Canada. Perwit Internationalv Discussions with Moses Kibirige, APDF, Kojo,ADF, Davindar Sikand, Aureos Capitalvi Discussions with Eric Naivasha, K-Rep, Jamesand Elizabeth Ssemwanga, Sunita Kapila, Mo-hammed Farid, Ashington Ngigivii Barbara Steenstrup, Rosemary Ndirituviii Gladys Makumiix Stephen New, Joanx Interviews with Farid Mohammed, Karim So-mani, Amin Shivji and William Kalema



Part IV. Classifying Business Service Providers

The taxonomy set out in our terms of refer-ence asked us to differentiate among busi-ness service in terms of whether they werelocal or foreign; commercial, public (aca-demic) or not for profit; and finally, private ordonor financed and managed. This initialclassification was somewhat modified toaccommodate some of the generic factorsdiscussed in the preceding section. Themodified classification of providers is set outin Table 2. The one anomaly is the cate-gory “bilateral donor initiatives,” since itcontains clients for business services.However, since the initiatives in questionare also engaged in strengthening businessservice providers, they have been includedas a separate category. Finally, academicinstitutions providing business services arerepresented by the Tegemeo Institute ofEgerton University, included within thecategory of African firms.

Information concerning business serviceprovision was collected from the sample offirms listed in each category as well as thecross section of clients. These are listed inAppendix B.

The weighting of the generic factors foreach category, although generally sup-ported by our findings, does not always ornecessarily apply to a specific firm. Thus,the agencies listed within the category of“international NGOs” do display importantdifferences, especially with respect to thedegree of commercial risk characterizingtheir services to date. Likewise, the individ-ual consultants listed in our sample do havea well established track record. However,this group also contains what some Ugan-dan clients euphemistically term “brief caseconsultants,” so called because their officeconsists of a briefcase and mobile phone.Some of them, one presumes, may be goodprofessionals. As a group, however, theymust be carefully vetted, especially with re-spect to core competencies and experientialknowledge.

The results of our inquiry are set out, as re-quested in our TOR’s, in the form of a “roadmap” in Part VI. Before doing so, however,we first present our findings concerning thebroader factors shaping the market in whichbusiness service providers must operate.


CATEGORY RISK VETTED INFORMATION BEARING OF RISKCommercial Bureaucratic High Low Provider Client

Fund Managers1 X X X

Multinational Firms2 X X X

Multinational Donors3 X X X

International NGOs4 X X X

Bilateral Donor Initiatives5 X X X

African Firms6 X X X

Individual Consultants7 X X X

Table 2. Classification of Business Service Providers (The footnotes below list the firms sampled in this study.)

1 Aureos Kenya2 Deloitte and Touche, IBMGlobal Services3 APDF, AMSCO4 Technoserve, FINTRAC, CARE Kenya5 USAID KBDS, ADF, DFID BSMDP, Swisscontact.6 Ssemwanga Group, Integral Advisory, UMACIS, K-Rep Advisory Services, Tegemeo, Pipal Ltd.7 H. Mule, N. Mule, S. Kapila


Part V. Findings: Factors Shaping the Market for Business Services

In this section, we first present our findingsconcerning the overall environment in whichbusiness is conducted. We then considerits implications for the investment process,including the type and cost of services as-sociated with the investment cycle. Next wefocus on the role played by supply chains ininfluencing the demand for business serv-ices. This expanded appreciation of thefactors affecting demand then allow us toappraise the different strategic approachesbeing adopted to improve the supply of suchservices, both in terms of quality and ex-panded access by clients. Finally, we singleout some important trends in the actual pro-vision of business services.

The Business Environment

Conducting business in Kenya and Ugandais tough. Even locally born business peoplewho have returned from abroad to pursuewhat they perceive to be promising oppor-tunities have frequently underestimated dif-ficulties arising from the business environ-ment.x Given the focus of our own inquiry,we single out those aspects especially ger-mane to business management services.

One important feature is the scarcity of an-other type of capital -- social capital. Al-though market economies centre on com-petition, other relationships and ties, relig-ious, ethnic, cultural, intellectual, philan-thropic and recreational, condition its fierce-ness. Indeed, cultivating such ties is oftenimportant in establishing useful businessrelationships.xi Concern has been voiced inNorth America regarding its perceived ero-sion during the second half of the twentiethcentury.xii In Kenya and Uganda, the stockof social capital is low because of misgov-ernment, internal conflict, tribal and ethnicdivision, and corruption. Many entrepre-neurs are confined to networks defined byfamily, clan or immediate location. Conse-quently, they are restricted in their businesscontacts and access to information, and

more importantly, reliable means of vettingit. Collaboration in business ventures or anassociation sharing mutual interests can bea time- consuming and difficult process.

Another problem is the difficulty encoun-tered in enforcing contracts. Clearly the ruleof law and a structured judiciary exist inboth countries. In practice, seeking re-course through the courts for redress, e.g.,for professional malpractice or a brokencontract, takes time and money, without anyassurance of satisfactory recompense at theend. One such case involved a Ugandanseed company, which believed it had exclu-sive rights to the distribution of a new vari-ety of seed. When the company’s managersuddenly decamped, along with the seed, toa new firm, the company in question learnedthat its Memorandum of Understanding withthe government research agency may nothave ensured legal exclusivity and that re-course to the courts would be protracted,expensive, and possibly unsuccessful in theend. In such circumstances, information willbe confined to a very small circle of confi-dants, defined by kinship or longstandingfriendship. Conversely sharing it with “out-siders” will usually require the careful culti-vation and testing of a business relation-ship.

Further complicating the business environ-ment is the continuing divide between thebusiness community and government. Pub-lic policy, especially in Uganda, has clearlyrecognized the strategic role the privatesector must play in generating economicgrowth as a precondition for national devel-opment. Operating cultures, however, differenormously, with considerable suspicionprevailing on both sides of the divide. Apublic official may interpret what an entre-preneur considers to be a publicly spiritedrequest as an attempt at personal enrich-ment and all too frequently, as an opportu-nity for “rent seeking.” Often regulationsmay be introduced without prior dialogue


with those businesses most directly affectedby them.xiii In other cases, the business in-terests of politicians or the personal agen-das of bureaucrats may have unduly influ-enced government measures, for examplethose aimed at liberalizing the seed marketin Kenya. Not all the blame can be ascribedto the government side of this divide. Busi-nesses are often not prepared to provide,for taxation or even statistical purposes, acomplete and accurate statement of theiraffairs.xiv As well demonstrated by recent,highly publicized cases of corporate non-disclosure, illicit practice, and malfeasancein Europe and North America, such prob-lems are not confined to East Africa, nor arethey necessarily forestalled by more strin-gently enforced regulations. However, thenet effect in East Africa is to significantlyraise the cost associated with any invest-ment, in terms of the time required to ex-tract, validate and cross check essential in-formation.

An immediate consequence of the lack ofsocial capital, the difficulty in enforcing con-tracts, and the continuing divide betweengovernment and business is the corre-sponding importance of relationships withinfamily and ethnic groups. As one Ugandaninformant stated, “in conducting businesshere, relationships are everything.”xv A posi-tive manifestation is the enlistment of dias-poras as resources in developing new prod-ucts and mobilizing capital. One such ex-ample is the export of Asian vegetables byKenyan Asian businesses, initially to the UKand subsequently to Europe and NorthAmerica.xvi Likewise, their Ugandan coun-terparts are attempting to develop overseasproducts for various horticultural products.xvii

Undoubtedly, over time Ugandan and Ken-yan African diasporas will begin to play asimilar role, although not necessarily withinthe agricultural sector. As automatic “out-siders,” such investors as ProVenEx andthe ACC should be aware that for a localcompany, a relationship is not defined solelyin the terms of the investment itself. Thecultivation of mutual trust will take time.

Somewhat paradoxical therefore is theseeming predilection on the part of manylocal companies to enter into hastily into aninvestment agreement without careful pe-rusal or clear understanding of its terms andconditions.xviii A possible explanation is thatin a world dominated by donor financing,based on very concessionary terms, theborrower may not fully understand theharder, commercial terms being offered byan agency often linked to a well known do-nor. Another, perhaps less generous view,is a borrower’s belief that the lender may beunable or unwilling to enforce the terms of acontract. A third is that for the borrower, thecontract may signify the start of a relation-ship, with specific terms and conditions be-ing adjusted over time in light of actual de-velopments. Once again, these possibilitiesunderscore the need to “front load” the in-vestment cycle, by taking the time neededto ascertain, not only the objective factsconcerning the borrower’s company andintended plans, but also what the borrowerreally understands to be the nature of thebusiness relationship.

Within more developed financial markets,venture capital funds, including “doublebottom line” variants such as ProVenEx,occupy a well defined niche. Unfortunately,this is not the case in Kenya and Uganda.Financial liberalization has included the re-moval of ceilings on interest rates for loansand savings, discontinuation of enforcedpurchases of government securities bycommercial banks and other financial insti-tutions; and termination of government di-rected lending to specific sectors and stateowned companies. However, many of thebenefits foreseen by critics of “financial re-pression” have failed to materialize, partlybecause of inadequate and tardy regulationof the banking system.xix Another reason isthe high transactions costs associated withthe provision of loans, because of inade-quate information concerning would be bor-rowers. Most commercial banks pursuevery conservative lending policies, confiningtheir activities to large, well-resourced cli-ents, trade financing, and short term over-drafts. Terms can be onerous, not only be-


cause of high real interest rates and theshort lending period, but requirements forcollateral, which can often exceed the over-all assets of the borrower. Furthermore,rates can fluctuate unexpectedly and some-times in the opposite direction of the BankRate.xx Banks also reserve the right to callloans unilaterally, thereby increasing therisk assumed by the borrower.

Under such circumstances, the seeminglyhard terms associated with ProVenEx andother venture capital funds may not appearthat onerous, especially if the borrower be-lieves that the investment agreement signi-fies the start of a business relationship andthat its specific terms and conditions areopen to renegotiation. Another implicationconcerns the heightened importance of re-tained earnings. Even if firms obtain fundsfor the initial fixed investment, they will needto rely heavily on retained earning to financea significant share of their operating costs.Consequently, accurate projections of sales,expenditures and net cash flow become es-sential in evaluating a proposed investment,since there is only limited recourse to thebanking system should it prove necessaryto supplement retained earnings with addi-tional borrowing. This situation suggeststwo responses. The first is to address – atthe outset – the possibility of requiring addi-tional working capital, possibly through theparticipation of other investors. The secondis to – once again – “front load” the vettingphase of the investment cycle, especiallythrough a very careful assessment of likelyoperating costs, and simulating differentscenarios with respect to the time requiredto reach the breakeven point, in terms ofcash flow. Contingency planning is advis-able since scaling up to full production canoften be delayed by factors not foreseen byeither the company or the investor.xxi

The environment is even tougher for inves-tors in agribusiness, the proposed focus ofboth ProVenEx and the AAC. Beyond theuncertainties imposed by nature, there areother risks created by the policy environ-ment. Since these will be discussed ingreater detail in our discussion of supply

chains, we confine ourselves to singling outits principal features. One is extreme interseasonal price volatility for maize, becauseof the lack of support prices for producers inone country (Uganda), and misguided andunder-financed interventions in another(Kenya). Compounding the problem areexisting obstacles to the movement of grainbetween the two countries. For seed pro-ducers, there is the further complication ofdifferent national regulatory policies andenforcement procedures. Although stepshave been taken very recently to addressthese problems within a regional framework,for the foreseeable future, investment inmaize production, in contrast to other agri-cultural products, will remain very risky.

The Real Cost of Investment

Aside from heightened risk, the principalconsequence of the business environmentis the increased cost of vetting and manag-ing investments. Because of the lack of re-liable and readily verifiable information,considerable time is required to collect andvet it. Also important, in this regard, is theneed to tap local knowledge, ranging fromthe reputation, track record and businesspractices of a given firm, to conditions likelyto affect local production and productivity.Time must also be allowed to create an ap-propriate business relationship, and to en-sure that the client is fully aware of theterms and conditions governing the provi-sion of capital. Further downstream, theinvestment must be continuously monitoredbecause of high probability of unforeseen“shocks,” arising, for example, from unex-pected changes in public policy. Another,also additional to those services normallyassociated with the business cycle, previ-ously listed in Part II, will be the necessity tomonitor cash flow and expenditures closely,and to anticipate the need for additional fi-nancing downstream to cover operatingcosts.

The net result will be a need to spend moretime – and money – on business services,than would customarily be the case in moredeveloped economies. Furthermore, much


of this expenditure will be up-front, prior tothe conclusion of any deal and disburse-ment of any funds. One must therefore an-ticipate that a considerable amount ofmoney will be spent vetting – and rejecting– prospective investments. Hence the over-all average cost per completed – but not asyet – successful deal will be quite high. At-tempting to cut corners, by short circuitingthe vetting process, or reducing costs byhiring unvetted or inexperienced providers,i.e., purchasing “two operations for the priceof one,” to undertake services with a highrisk ratio, would be extremely unwise.

Consequently, ProVenEx and the AAC havefour possible choices. The first is to in-crease the minimum size of any investmentto reduce, in relative terms, the cost of as-sociated business services, whether sup-plied in house or contracted. The second isto reduce the desired rate of return, therebycreating greater latitude, especially in termsof the period over which the investment is tobe serviced. Whilst this possibility is clearlybeing entertained by the AAC,xxii it might notbe an option for ProVenEx. The third is toconfine investments to safer prospects, viz.well established, larger firms with provenproducts and processes. Doing so, how-ever, might well raise the legitimate ques-tion of the “value added” being provided byboth ventures in terms of promoting smallerscale producers. The fourth is to seek part-ners, especially those willing to underwritemany of the up-front costs of vetting pro-spective investments. What our findingssuggest in terms of these four choices is setout in Part VII.

Supply Chains and the Demand forBusiness Services

In examining supply chains, our aim is todetermine how they might affect the de-mand for business services in the followingways: the type and frequency of service; therelative importance of experiential knowl-edge and domain expertise; the principalclients; and the source of payment. Putmore formally, to what extent does the “de-mand” for service vary according to the na-

ture of the supply chain. For reasons oftime and budget, our analysis centered ontwo broad product groups. The first is cere-als, and more specifically maize, because ofthe immediate interest of the RockefellerFoundation’s Food Security Program. Thesecond is horticultural products, the fastestgrowing part of the agribusiness sector inboth Kenya and Uganda. Currently they areKenya’s prime export earner, outrankingtea, coffee and tourism. Not unexpectedly,it is a sub-sector that has not only attractedconsiderable investment, both foreign andlocal, but is also one characterized by someinteresting innovations in handling and mar-keting. Over the course of the study, we didcome across other agribusiness invest-ments, e.g., in silk yarn production inUganda, which were also examined in termsof their implications for various businessservices. In these cases, however, we didnot delve as deeply into the associatedsupply chain.

Horticultural Products: Flowers, Vegetablesand Fruit

In both Kenya and Uganda, a significantproportion of marketed produce is exported.That portion destined for local consumers ismarketed under very different conditions.Comparing these different chains, admit-tedly in a stylized fashion, provides illumi-nating insights in turn into the way valuechains can affect the demand for services.

From January 1, 2005 all fruits and vegeta-bles exported to the European Union, theirprincipal market, must obtain EUREPGAPcertification indicating that they satisfy in-dustry- determined standards for productquality and safety. Among these are maxi-mum residue levels (for pesticides and her-bicides) and an ability to trace the product tothe point of origin.xxiii To be labeled “or-ganic,” products must be certified at thepoint of origin by agencies accredited by theindustry.

For small and medium scale producers,Euregap certification constitutes a signifi-cant barrier for entry into a lucrative and ex-


panding market. At the same time, how-ever, viewed from an industry perspective, itsolves difficulties created by the “free riderproblem,” which has plagued efforts aimedat ensuring high quality and timely deliveryfrom small holders. In many instances,such activity has been undertaken byNGOs, such as CARE Kenya, working withfarmers associations. All too frequently inthe past, an association’s efforts have beenundermined by “free riders”, namely mem-bers who decide to sell to purchasers otherwith whom their association has arranged aforward contract. An associated problemhas been irregular or sub-standard quality.Such behavior undermines the group as awhole. With the advent of EUREPGAP, thefree rider problem will become far less diffi-cult to manage, since delinquent farmerswill have no attractive alternative purchas-ers of their produce. To cite one example, afarmer in Central Kenya who decides to sellhis avocadoes to an unofficial “broker,” typi-cally a buyer with a small pickup truck,would receive only 20% of the price obtain-able were he to sell to the buyer designatedby his association, simply because the latterwill be certified as having met EUREPGAPstandards. After January 1, 2005, theavocadoes sold to the unofficial broker can-

not be exported to the European market.xxiv

The key player within the chain becomesthe buyer/exporter, who can arrange marketcertification and export the product toEurope. Purchasing from small-scale pro-ducers becomes easier because there is amuch greater likelihood than beforehand offulfillment of a forward contract in terms ofvolume, timing, and quality. In effect, weobserve four emerging trends, each givingrise to different possibilities for the supplyand payment for business services

The first is growth in exports of the currentline of products. This task is undertakenprimarily by Kenyan wholesalers who havethe necessary contacts and experience.More recently, at least one such firm, EastAfrican Growers, has been expanding itsactivities to Uganda. The exporters typicallyhave the expertise, contacts and credibility– as well as the motivation – to arrangeEUREPGAP certification.

The second is “backward integration,” at themoment only being undertaken and on atrial basis by a minority of export firms, no-tably East African Growers, to secure moreproduce from small scale producers. At theinterface between producer and exporter,

Producer

International Markets

1

2

4

3 Exporter

Figure 1. International Supply Chain.


there is a distribution of the associatedservices between two principal players,typically an international NGO and the ex-porter. The former often focuses on organ-izing the producers, a task that is now beinggreatly simplified by EUREPGAP certifica-tion. The exporter, aside from purchasing,certifying, transporting and marketing theproduce, is now beginning to supply techni-cal support, e.g., on agronomic practices,inputs, e.g., fertilizers, and technical adviceto producer groups and associations ear-marked by the NGO. Both parties recovertheir costs from the margin between thefarm gate price paid to farmers and the pur-chase price, net of shipping and othercharges, obtained in Europe. Still in itsearly stages, this arrangement is not withoutits problems. The exporters to whom wespoke admitted that it has taken longer thanexpected to ramp up deliveries from smallscale producers and to recoup their up-frontinvestment, e.g. in equipment and extensionservices, and operating costs. Likewise,those NGOs working with producer groupsare still in the early stages of rectifying thefree rider problem and organizing othersmall scale producer along similar lines.However, other exporters are closely moni-toring the activities of these “early adopt-ers.” Success will stimulate them to follow.In some cases, the companies in questionwill require additional capital to finance aninitial investment.xxv

The third and fourth trends comprise whatmight be termed lateral expansion (hori-zontal integration), into other fresh productsas well as processed ones. These are be-ing undertaken at the exporter (3) and pro-ducer (4) levels by both the exporting firmand international NGOs. At present, onlythree products, namely fresh green beans,avocados and roses account for 80% ofKenya’s horticulture export earnings, total-ing between $250 and $300 million annu-ally.xxvi Consequently, there are efforts toexpand into other products where smallscale producers potentially have a competi-tive advantage. More difficult will be theeffort to increase exports of processedproducts, e.g., dried fruit.xxvii Indeed, proc-

essing capacity in Kenya has stagnated forthe past decade.xxviii Not surprisingly, initia-tives observed during our field study fo-cused on organic dried fruit. Aside from thepossible advantage of a “niche” market,such decisions may be influenced by theneed for organic certification, a procedurewhich, much like EUREPGAP, greatly fa-cilitates the organization of small holderproduction by reducing the free rider prob-lem.

For the same reason, a very different sys-tem prevails with respect to the productionof horticultural products destined for thedomestic market. Initially, because of theinterest created by recent investigations intothe impact of supermarkets in Kenya andUganda by IFPRIxxix and in Latin America byresearchers at Michigan State University,we anticipated that they might fulfill a func-tion analogous to that of EUREPGAP andorganic certification with respect to Euro-pean and other external markets. However,supermarkets in Kenya only account for anestimated 3% of horticultural produce mar-keted locally.xxx In the absence of a well-run and appropriately financed wholesalemarket, they currently rely on a small groupof commercial growers. Efforts to imposegovernment domestic health and qualitystandards appear impractical because offinancing and enforcement difficulties. Con-sequently, the task of integrating small scaleproducers within the value chain, along linessimilar to those for exported products, willremain a major challenge.

In terms of the type, supply and payment forvarious business services, we offer the fol-lowing observations.

• Access to domain expertise, on produc-tion, export regulations, certification,product standards, overseas clients etc.is not a problem for exported products.Such expertise can be readily obtainedby the major players and provided tosmall scale producers. Over time, withgrowth in the number of exporters andproducers, we can anticipate that someservices, e.g., technical support and


even equipment supplied to small scaleproducers will be increasingly outsour-ced by companies to independent localproviders. In all likelihood, professionalswho have previously worked for export-ers and/or international NGOs willlargely staff such firms.

• Virtually all of the necessary services,including those with a high risk ratio, areembedded or closely integrated withinthe value chain itself. Where additionalservices are required, e.g. bookkeepingfor producer associations, they are ob-tainable locally.

• International NGOs involved in this foodchain have been adapting their operat-ing culture, moving from what someterm “development” to a “commercial”orientation. Likewise, they have begunto specialize in specific types of serv-ices. This trend is consistent with ourearlier observations in part 2 concerningthe generic factors determining upwardmobility in service provision. CAREKenya, for example, is now focusing on“production facilitation,” abandoningearlier attempts provide extension sup-port to farmers and identify markets, asopposed to marketing firms, for theirproduce. Technoserve is developingworld class expertise in the production,processing and export of specific prod-ucts. Because of the mandate of its cur-rent project, in Kenya FINTRAC hasbeen applying expertise in processingas well as the production of horticulturalproducts. Both Technoserve and FIN-TRAC are also marketing such expertiseto various clients in the region andelsewhere.

• Less obvious, but possibly of greatestsignificance over the longer term is thefact that this group of NGOs is becom-ing an extremely effective incubator ofbusiness service providers to smallscale producers. A growing of theirprofessional staff is recruited locally.Coming from a range of backgrounds,notably financial institutions, they ac-quire experiential knowledge throughexposure to different problems posed byproducers, exporters and new marketing

opportunities. Their work is mentoredand they have access to domain andexpert knowledge. Over time, some willundoubtedly seek to operate independ-ently, possibly in competition with theirformer organization. How well thisgroup performs this important function,of broader benefit downstream to theagribusiness sector, will depend on thecontinuing shift to a commercially ori-ented culture.

Commodities Improving Food Security –Starchy Staples

Any products that can raise the incomes ofsmall scale producers invariably improvefood security, as do processed products,that generate employment, especially in ru-ral areas. In this section, we look at directlyconsumed commodities. We first examinemaize, the principal staple produced andconsumed by Kenyans, and a major exportcrop, although not a primary staple food, ofUgandans. We then look at some other ce-reals. The third section comments on sev-eral other agricultural products, observedduring our field visit, which can enhancefood security by raising the incomes of smallscale farmers. During our account, we con-sider the implications for both the demand,as well as supply, of various business serv-ices.

Maize:xxxi The Rockefeller Foundation’s in-volvement in developing new varieties ofmaize dates back more than a half century.Within East Africa, growing frustration overthe slow dissemination of new varieties de-veloped at national research centers andelsewhere prompted investment by Pro-VenEx in two seed companies. The Foun-dation has attempted to accelerate the dif-fusion of new varieties and technologiesthrough some novel means, including creditguarantees for stockists of seeds and fertil-izers, both in East Africa and Zimbabwe.

Having completed an admittedly simplifiedoverview of the market for maize, both re-gionally as well as Kenya and Uganda, ourprincipal conclusion is that commercial in-


vestment in inputs, specifically seed, ishighly risky. It will remain sub-optimal untilcertain “structural” impediments, in publicpolicy, regulatory policy and public agen-cies, are redressed. Furthermore, given thesmall size of the national markets and theiropenness to cross border movements ofboth maize and various inputs, such meas-ures will need to be taken in concert by allthree East African countries. Indeed, theneed for a regional approach has been ex-plicitly acknowledged by the recent spate ofmeetings among agricultural ministers andthe expressed aim of liberalizing the grainmarket under the auspices of a revived EastAfrican Community. Whilst there are un-doubtedly important lessons to be learnedfrom the ProVenEx investments in the twoseed companies – an exercise outside theTOR’s of this study – it is clear that accessto various business services over the in-vestment cycle – with one possible excep-tion – was not a significant factor in ex-plaining their outcome. The one exceptionwould be more careful vetting of the institu-tional environment shaping the performanceof the maize market and the various playerswithin it. It would probably have reachedtwo principal conclusions. Firstly, that thelikelihood of accelerating the rate of diffu-sion – even if the investments in questionhad proven successful, would be low, with-out major changes in the policy and regula-tory framework. Secondly, because of sub-optimal conditions stemming from the cur-rent policy framework, the risky nature ofthe investments would require a high de-gree of flexibility with respect to their fi-nancing arrangements.

Maize production fluctuates considerably,over the calendar year (due to two growingseasons), across the East African region,and within countries. Aside from drought,whose impact could be tempered by moresuitable varieties and fertilizer applica-tions,xxxii there is the impact of conflict. Re-cent announcement of a peaceful settle-ment of the conflict in the southern Sudanand Northern Uganda could divert sale ofUgandan maize previously purchased bythe WFP to other purchasers. Shortages in

any given location are aggravated by thehigh cost of storage, including wastage, andtransport.

The structure and regulatory framework ofthe maize market differs considerably be-tween Kenya and Uganda. In Kenya, onlyan estimated third of the amount producedis actually marketed, the remainder beingconsumed on or near the shamba. Fur-thermore, the number of hectares devotedto purely commercial production has beensteadily declining.xxxiii In contrast, since theprincipal staple food in Uganda is matoke, amuch larger proportion of the maize crop isproduced for sale.

Depending on price fluctuations in the localmarket, considerable non- or under-reportedmovement of grain between the two coun-tries occurs. During periods of shortage, ithas been alleged, Kenyan authorities turn ablind eye to inflows of maize from Uganda.In times of surplus, there are attempts toimpede such movements, on grounds ofsafety, which as recent events have dem-onstrated, are grounded in reality.xxxiv

Whilst price volatility is considerable in bothcountries, measures for providing a mini-mum or platform price for producers differconsiderably between the two. In Kenya,the National Cereals and Produce Boardcontinues to play the role of residual buyer,both to maintain a strategic surplus and toguarantee a minimum price for farmers. Ill-timed interventions, it has been alleged,have aggravated price fluctuations. Also,the Board is also under financed; most re-cently it stated that it would make paymentsdue to farmers in seeds and fertilizer. Ananalogous body does not exist in Uganda.Instead, there is an initiative to introduce aminimum price guarantee scheme for grainproducers. It would be operated by the pri-vate sector, with initial financial support, it ishoped, from donors.xxxv

Given the very different nature of the localmarkets, the porous frontiers, and the likeli-hood that some area within one or more ofthe three countries of the East African


Community will be experiencing a shortageof maize at any given time, the most prom-ising approach is to develop a single marketfor the region. It would require the removalof both formal and unofficial impediments tothe movement of maize, as well as othercereals, and the harmonization of measureswith respect to guaranteeing minimum floorprices for producers. Talks have com-menced among the ministers of agricultureof all three countries and the aim of estab-lishing a single regional market for cerealsis on the agenda of the East African Com-munity Secretariat.

Until then, the volatility of price movementsin the maize market will continue to beborne by input suppliers, including seedproducers. Their situation is aggravated byother factors. One is the unsettled situationin the Kenyan market where the productionof high and medium altitude hybrid varieties,accounting for an estimated 80% of all pur-chased maize seed, has been dominated bythe Kenya Seed Company. Its quasi-monopoly position has been protected, ithas been alleged, by the stringent rein-forcement of import controlsxxxvi and dilatoryapproval of new varieties in both countries.The Kenya Seed Company was recentlyrenationalized on the grounds that its origi-nal transfer to private ownership in 1997was illegal. This recent measure is widelyviewed as being politically motivated, sincethe principal shareholders were the formerPresident along with several close politicaland business colleagues. There has beengrowing doubt as to whether the AgriculturalDevelopment Corporation, the currentowner of the company, will be movingquickly to privatize it again.

With respect to seed production, KEPHIS,the government agency responsible for li-censing new varieties, has recently agreedto inspect and license Ugandan producedseed in Uganda, provided the costs are fi-nanced by the seed producers in question.Whilst Uganda has its own certificationagency, unlike KEPHIS it is not accreditedinternationally. The seed industry in bothcountries contends that although a step in

the right direction, this measure is inade-quate. KEPHIS, they contend, is undulybureaucratic and inadequately resourced,both financially and in terms of staff, to dis-charge its mandate. It is difficult to arrangefor new varieties to be inspected and li-censed in a timely fashion. Seed compa-nies confront a major risk, since they mustinvest in breeding new varieties for at leasttwo years before applying for a license.Furthermore, they allege, KEPHIS has beeninconsistent in applying its own regula-tions.xxxvii The best solution, it is argued, isfor KEPHIS to outsource many of its func-tions, and to have the seed industry maderesponsible, in the first instance, for licens-ing new varieties. However, to be effective,such measures should be taken on a re-gional basis. Complicating the situationfurther is the intention of the Kenyan gov-ernment to review the 1997 Act, which es-tablished KEPHIS, with a view to its modifi-cation. This process will clearly take aminimum of one year.

Seed producers in both Kenya and Ugandaconfront a very tough and unpredictablemarket. Within Uganda, there are currentlyan estimated 11 companies. Aside fromquestions of competitiveness, businesspractice, and market acumen, their futuresuccess will hinge on such factors as thefate of the Kenyan Seed Company; the re-moval of impediments to the movement ofgrain and seed within the region; the possi-ble recasting of KEPHIS’s regulatory man-date and activities; and possibly, most im-portantly over the longer term, the introduc-tion of a harmonized and effective priceguarantee system covering all three coun-tries.

Undoubtedly the performance of the twoseed companies in which ProVenEx hadinvested has suffered from poor managerialpractices, although in the case of HarvestSeed, the Ugandan firm, its original planswere also derailed by a major drop in maizeprices, which in turn severely reduced thedemand for, as well as price of seed. How-ever, it is not immediately evident that thisoutcome can be traced to the lack of suit-


able business management services, asopposed to an unwillingness to compensateand utilize them effectively. Over the pastsix months, Harvest Seed has engaged aKenyan general manager, with over twentyyears experience in the seed and maize in-dustry in both the private and public sector.Likewise, it is now employing a new SeedManager, a Ugandan with over fifteen yearsexperience in seed breeding and other agri-business activities. It has also contractedtwo formally qualified specialists in seedbreeding. One is a recently retired re-searcher at the NARO and the other a lec-turer in the Faculty of Agriculture at Maker-ere University.

In the higher reaches of the value chain,there is no evidence of a shortage of thenecessary business management services.The structure and problems of the maizemarket, in its regional and national dimen-sions are well understood by local and for-eign business people as well as academics.Equally there appears to be a reasonablyfirm grasp, among the relevant players inthe private sector, of the skills required tointroduce and operate an effective priceguarantee scheme.Where the necessary business manage-ment services may be absent is at inter-faces at lower levels of the value chain,namely in the supply of inputs and in themarketing of output. However, it is impossi-ble to determine whether these stem princi-pally from fundamental distortions in themarket, or from an inadequate supply of thenecessary services. In the former case,measures aimed at improving the market’soverall efficiency and performance wouldreshape the current value chain, much ashas been the case for horticultural exports,in ways conducive to more effective accessby small scale producers. As to the latter,no firm conclusion can be drawn from ourown investigation. In Kenya, for example,we were informed by one NGO that it hadbeen a major innovator in supplying seedsand fertilizer to small scale producers, bydistributing them in small packets that couldbe marketed by stockists and bought byfarmers with very limited means.xxxviii How-

ever, the Managing Director of a Kenyanfirm, which is among the largest suppliers ofinputs, including irrigation equipment, tocommercial farms, stated that his companyhad been highly successful in distributingseed and fertilizer, also in small packets, tosmall farmers via stockists. Company saleshad rise from 100 metric tons two years agoto 270 last year; the target for the currentone was 700 metric tons.xxxix

The company’s sister firm in Uganda, how-ever, could not point to a similar success.xl

Distribution via stockists, it was claimed,was highly problematical and unprofitable,because of lack of credit worthiness, diffi-culties in securing payment, and problemsof adulteration, viz. reselling poorer qualityseed in the company’s own bags.xli On theother hand, another Ugandan firm believedthat it had been able to establish a soundeffective distribution system for a wide vari-ety of seeds and fertilizers through stock-ists. Clearly, the system could be strength-ened through a credit guarantee scheme,an initiative which is currently being consid-ered by the Rockefeller Foundation andUSAID, among others. However, we canadvance no definitive view as to whetherthis measure should necessarily be accom-panied by others aimed at improving thequality of business management services,for stockists and producers.

Other Cereals: Limitations of time andbudget did not allow us to devote a similardegree of attention to other cereals. Morelimited glimpses were obtained indirectlyduring discussions with consulting firms,NGOs, and in one case, a senior Ugandanofficial. Nonetheless, in providing illuminat-ing comparisons to the situation prevailingin the maize market, they offer further in-sights into opportunities for, and ways offacilitating business management services.

Upland rice production is expanding veryrapidly in Uganda. In the north, it is beingpromoted among small-scale producerswho are being resettled following extendedconflict. Elsewhere its expansion is beingfuelled by rapid growth in consumption


among higher income groups, especially inrural areas. Discussions suggest that thereis considerable scope for providing appro-priate services at various stages of thevalue chain, viz. production, cleaning, stor-age, transport, and distribution.xlii Whattypes of services are required and the vari-ous ways they can be supplied effectivelywill depend on approaches toward facilitat-ing the production and sales of small-scaleproducers as well as opportunities for pri-vate, and possibly joint public private in-vestments in such activities as storage,transport and marketing.

The value chain assumes a very differentshape when the cereal in question, ratherthan being consumed, is used as an input ina manufacturing process. One such exam-ple is cassava. Outside of West and Cen-tral Africa, cassava is an “inferior” good, in-sofar as consumption declines as incomeincreases. However, because of its capac-ity to withstand prolonged drought, it can bea very timely reserve food for poor people.In Uganda, the African Development Foun-dation, a US government agency, is activelyexploring the possibility of using cassava asan input in brewing. The same ADF profes-sional has successfully exploited other op-portunities, e.g. use of cassava in manu-facturing adhesives, in West Africa. (Ironi-cally, he and the ADF have helped a localentrepreneur in Ghana invest in processesthat use maize for the large scale manu-facture of beer.) In Uganda, the ADF is alsoexamining possible purchase of millet andsorghum by SAB Miller for the production ofbeer.

As in the case of horticultural products, thekey interface in these emerging valuechains is the link between producers and, inthis instance, the manufacturer. The latterneeds credible assurances that projecteddeliveries from many small scale producers,in terms of volume, quality and timing, willoccur. The not for private agency, in thisinstance the ADF, has the task of providingthis assurance by organizing producers andfacilitating production. Addressing the “freerider” problem appears less difficult than in

the case of horticultural products destinedfor the domestic market, because of thelower – and fluctuating – value of theseproducts when consumed directly. How-ever, the problem is not totally eliminated;during periods of drought and food short-age, the producer may find it more profitableto sell the product in question on the localmarket.

Other Products (silk and banana): Duringour field investigation, we examined twoother agricultural products, whose valuechains provide illuminating insights into boththe need for, as well as supply of differentbusiness services. One of them, silk yarnenhances food security, since the produc-tion of cocoons could potentially provide animportant, supplementary source of incomefor thousands of small scale farmers inUganda. The second, banana juice, is ofdirect interest to the Rockefeller Founda-tion’s Food Security Program, which hasbeen strongly supporting the introductionand diffusion of new and more disease-resistant varieties of banana in both Kenyaand Uganda.xliii In both cases, the ADF hasmade the principal fixed capital investmentand facilitated, or directly supplied many ofthe necessary business services.xliv

The silk yarn initiative, Nobwe, is owned bya cooperative near the agricultural researchcentre, on the outskirts of Kampala, wheremuch of the initial research into the produc-tion of silk cocoons in Uganda, had beenundertaken. The Chinese equipment forproducing yarn from cocoons delivered bysmall-scale producers across Uganda, hasbeen purchased by the ADF, which has alsoarranged for localized training of the opera-tors and supervising production engineer.The yarn itself is attracting considerable in-ternational interest because of its high qual-ity. The ADF projects that small scale pro-ducers may earn as much as $35 per monthor $350 annually (unlike India, Uganda canproduce cocoons for 10 months a year),considerably more than the current averageper capita income. Facilitating production ofthe cocoons does not confront a “free rider”problem, since there is no value to be ob-


tained from an unprocessed one. Further-more, Ugandan professionals can providethe necessary expertise, including diseasecontrol, to producers. The enterprise, how-ever, confronts three other challenges. Thefirst is to secure the necessary marketniche, a task being handled by the ADF it-self, which is negotiating contracts with for-eign buyers. The second is to ramp up pro-duction, since the plant, although using vir-tually all the cocoons currently produced inUganda, is only operating at an estimated30 to 40% of capacity. To do so, it will needone or more additional investors willing tofinance operating capital. The third, andmost challenging, will be the need to re-structure management of the plant alongmore professional lines, and to strengthenits Board of Directors. These tasks will re-quire tact and patience, since the enterpriseis owned by a local cooperative.

In contrast, Jakana Juice is owned by a sin-gle Ugandan entrepreneur, who is wellversed in the processing and production ofjuice. The ADF has invested in modernequipment. Here again, ramping up pro-duction will require additional investment, inthe form of operating capital, which cannotbe secured from local banks on satisfactoryterms, especially with respect to conditionsgoverning collateral and the term of anyloan. Initially, the market will be Kampala,where there is rapidly growing demand forbanana juice. The ADF has been mentoringthe owner/manager and looking for addi-tional investment.

With respect to business managementservices, we have drawn inferences ex-panding on earlier observations made withrespect to maize and horticultural products.

The first is the importance, as repeatedlyemphasized by several informants, of es-tablishing a relationship, which graduallynurtures trust among the various partners inan investment. It is most evident in thecase of the Nobwe Silk undertaking, whichis owned by a local cooperative. The exter-nal investor, the ADF, has resisted thetemptation to impose peremptorily a major

restructuring of the management and board.Rather it is gradually, but persistently con-vincing the cooperative’s membership as towhy such measures are not only necessary,but will benefit them directly.xlv Such trustwill in turn make it much easier to introducefurther changes in the current set-up, as willlikely prove necessary with the involvementof one or more additional investors.

The second is the critical need for localknowledge, to establish the “seriousness”and validate the track record of the localentrepreneur or enterprise. In addition, it isespecially needed at the lower levels of thevalue chain, to provide the processor ordistributor credible assurances regardingdelivery of the product in question.

Less critical, it would appear, is access todomain and expert knowledge. In the caseof silk production, for example, there areUgandan professionals, including researchscientists, well versed in the production ofcocoons. Plant staff appear well trained tooperate and maintain the processingequipment. Likewise, the knowledgeneeded to use cassava, sorghum and milletto brew beer – industrially - can be providedby the manufacturer.

The fourth is the importance of mentoringover the course of the investment. It takesmany forms: ready support – and criticismwhere necessary – of the management;guiding a local board of directors, revisingbusiness strategies and plans to cope withnew developments and unanticipated set-backs; and coaching supervisory andmanagerial staff in the performance of theirduties. Needless to say, this critical functionrequires time – and therefore money. Theneed for mentoring, as we have observed,also applies to business service providers.In this regard, we already have noted howsome of the international NGOs, involved inagribusiness initiatives, have been providingit to more junior staff.

Finally, we observe the critical role playedby experiential knowledge. The ADF direc-tor, for example, “has been there and done


that”. He is, in his own words, “an honorarygraduate of the school of burned fingers.”Progressively, his own staff are acquiringthe type of knowledge, which cannot beobtained from formal training courses. Thelatter are useful desirable, e.g., to establishthe financial viability of a proposed invest-ment, or to systematically appraise financial,economic, environmental and political risk.However, it is experiential knowledge thatdetermines whether such formally acquiredknowledge is actually utilized most effec-tively.

Donor Support for StrengtheningBusiness Management Services

Our insights and findings provide a usefulvantage point for assessing attempts by theinternational donor community to strengthenbusiness management services, especiallythose provided by local professionals. Al-though not explicitly mentioned in ourTOR’s, this assessment provides additionalinformation on how they have affected thestructure and performance of the current“market” for such services.

Broadly speaking, they fall into three cate-gories: increasing the supply of would-beproviders; stimulating the demand for vari-ous services; and addressing issues of bothsupply and demand within the parametersset by specific investments.

An instructive example of an attempt toquickly raise the supply of providers is theWorld Bank “Voucher Scheme.” Initiated in1996, and operated through a governmentdepartment, it provided “vouchers” for smalland medium sized enterprises seekingtraining.xlvi Training was heavily subsidized,with the trainee being expected to pay onaverage about 10% of the estimated cost ofa given course. Bank staff deem it to havebeen highly successful, since the $11.6 mil-lion spent on the program was used to trainan estimated 30 thousand trainees in a widerange of business, vocational and technicalskills required by small- and medium-scalefirms.xlvii Furthermore, it was expected tostimulate the supply of various business

services by introducing providers to poten-tial clients, i.e. firms and individual trainees,who would then call on them to meet futurerequirements. To promote this outcome,the program established a National Asso-ciation for Technology Transfer and Entre-preneurial Training, which maintains a list ofregistered consultants whom it has “certi-fied” to provide different types of trainingand business services. Other, more modestdonor-financed initiatives have attempted toexpand supply by directly subsidizing thepurchase of business services, initially byindividual firms and professionals and, morerecently, because of cost constraints andthe desire for greater impact, by businessassociations.

The World Bank Scheme has been criti-cized for operational shortcomings.xlviii More relevant, for the purposes of our ownstudy, has been the fate of the Association,its registry, and virtually all of the would-be“consultants” listed in it. Few of the busi-nesses, or business providers in Kenyawhom we interviewed were aware of theregistry. Those who were, expressed con-siderable skepticism as to its usefulnessand the quality of those enrolled in it. Thereason, in our view, is quite straightforward.The putative clients still face the time con-suming task of vetting the providers in thelist, in particular their track record and expe-riential knowledge. Formal certificationdoes not provide any assurance in this re-gard. Not surprisingly, most of these con-sultants have found their certification val-ueless in terms of obtaining work. For whatwe might term serious, competent localconsultants, seeking to develop their clien-tele, the scheme has worsened their pros-pects of penetrating the market, since it isnow more difficult for prospective clients todetermine competencies among a muchlarger number of would be business provid-ers.

Two new initiatives, supported by USAIDand DFID, adopt a very different ap-proach.xlix They seek to promote providers,by increasing the awareness of businessesin selected agribusiness sectors of the


benefits to be obtained from their services,and also by subsidizing their purchase. Atthe same time, they avoid “embedding”themselves in the process by not investingin specific businesses. A similar approachhas been adopted, most recently in Tanza-nia, by Swisscontact, an NGO.l It appearsto be achieving positive and tangible results.In the case of the USAID project, would beconsultants are screened and pre-qualified.They are then invited to tender for specificcontracts. Typically of the ten or twelveproposals submitted in response to a re-quest for proposal, only a quarter are foundto be acceptable. The process has suc-ceeded in identifying some hitherto un-known Kenyan firms. Indeed, the value ofsuccessfully completing what is often asmall contract, in terms of broader recogni-tion by potential clients, is being increas-ingly recognized by these and other firmswho wishing to penetrate the market forbusiness services.

The approach addresses, perhaps inadver-tently, two important “generic factors” whichhelp promote success in business consult-ing. One is vetting, first undertaken bycareful pre-qualification procedures. Sub-sequently, the firm or individual in questionis vetted in terms of actual performance,which can then be referred to potential cli-ents. The second is mentoring. Relativelyinexperienced professionals receive guid-ance, not only in submitting a proposal, butalso over the course of the assignment it-self, including the preparation of a final re-port.

Long term success of this approach may becompromised by the limited duration of theprojects themselves. At present, there hasbeen no systematic attempt to formally rec-ord, store and update the vetted informationconcerning the consultants’ performanceand the outcomes of specific assignments.Indeed, there is a certain reluctance toshare such information across projects forfear that the individuals in question might be“poached”. Unfortunately, once the projectsthemselves have ended, this informationmay be lost or quickly lose its value through

failure to update it systematically. This out-come would be unfortunate, especially sinceits importance is recognized, albeit intui-tively, by a growing number of good localfirms. One of our recommendations, in PartVII suggests how this problem could be re-solved, in a way that mutually benefits bothclient and provider.

The third approach , exemplified by the ADFin Uganda, also works on the “demand”side. However, as an investor, the ADF it-self is deeply invested in the process. Asignificant proportion of the business serv-ices it requires, at both the vetting andmanagement stages of the investment cy-cle, are provided by a linked entity, theUganda Investment Trust.li There appear tobe sound arrangements for formal trainingand mentoring. Requirements for both willcontinue to grow as the ADF approaches itsself-imposed ceiling of 25 investments.lii Inaddition, the ADF is outsourcing certainservices, typically those with a low “risk ra-tio” to local firms vetted on an ongoing ba-sis.

Trends in Providing BusinessManagement Services

Donors have promoted SMEs in three dif-ferent areas: financial services, businessdevelopment services, and government-mediated business environment.liii Herein,we focus on the second area, business de-velopment services. We note two differenttrends among important providers of busi-ness services. The first is deliberate shift bysome international NGOs, namely Techno-serve, FINTRAC and CARE Kenya, and onegovernment agency, ADF, toward a morecommercial culture, by increasingly dis-tancing themselves from an operating milieucharacterized by bureaucratic risk andmoving to one in which commercial risk be-comes far more prominent. A defining fea-ture is a business and commercial ratherthan “aid” relationship with clients.

An immediate motivation is the desire for ahigher degree of self-financing because ofcutbacks in support from government and


private givers. However, this objective alsocoincides with growing realization of theneed for commercial acumen and expertiseto fulfill their corporate aim of improving thelives of poor and disadvantaged people inthe countries in which they are operating.Indeed, some have been severely criticizedfor past, ill informed interventions which, farfrom improving the lot of poor farmers, haveactually worsened it. One such intervention,among several mentioned during our fieldstudy, had “totally messed up the prospectsfor exporting mangos” in a district in easternKenya. The NGO in question had no realknowledge of the product or market, andhad failed to deal with questions of quality,delivery and handling. As a result, bonafide exporters ceased to operate in thearea.liv The organization in question hasrecognized its errors. Its strategic responsehas been threefold: to focus on one level ofthe value chain, namely the facilitation ofproduction; to hive off the provision of thesebusiness services into a separate, self-financing entity; and to develop a strategicpartnership, involving a private company, tohandle marketing and to supply technicalservices and inputs to farmers. Perhapsfortuitously, this new approach coincideswith the advent of EUREPGAP, which willgreatly simplify the longstanding “free rider”problem and thus facilitate the NGOs at-tempts to raise the volume of productionand improve quality. Overall, there is in-creased realization that a commercial ap-proach is much more likely to improve theliving standards of those people the NGO isseeking to assist.

Another NGO, Technoserve, as its namesuggests, focuses on supplying domain ex-pertise, but now increasingly on a commer-cialized basis. Some of its services topoorer clients are cross subsidized by reve-nue obtained from consultancies under-taken at market rates. However, virtually allentail a fee for service, to underscore thecommercial nature of the relationship withclients. The relationship, by imposinggreater accountability to clients for out-comes, heightens professionalism andhelps in recruiting promising young staff.

They in turn are acquiring experientialknowledge and are being well mentored intheir work by seasoned international profes-sionals. A similar approach has been ob-served in the case of both FINTRAC andADF, the latter all the more surprising be-cause it is a government agency. Untilabout three years ago, the Foundation hadbeing trying to strengthen local organiza-tions, including those more heavily engagedin social, as opposed to economic develop-ment. Under new leadership, and a busi-ness model, which we examine moreclosely in Part VII, it has focused on gener-ating income and employment throughstrategic investments in promising opportu-nities, and in supplying essential advisoryservices, including mentoring and counsel-ing in managing the investment. Whilst theADF devotes considerable effort to vettingspecific opportunities, drawing heavily onlocal knowledge as well as the expertise ofprofessionals recruited from business andfinance, it has not been risk averse in itsdecisions, contrary to the behavior onemight have expected from a governmentagency.

These organizations may be termed “earlyadopters” insofar as others are monitoringtheir activities. Should they prove suc-cessful, not only by becoming more self-reliant financially but also in significantly im-proving the living standards of poor people,their strategic approach, centering on com-mercial relationships with clients and localbusinesses, will be increasingly emulated byothers.

A step in the opposite direction was ob-served in the case of two other organiza-tions that until comparatively had been op-erating within a culture of primarily commer-cial, as opposed to economic risk. Both hadbeen established to complement anothereffort, the African Enterprise Fund of theIFC, established in the early 90s to financethe start up of small and medium sizedbusinesses. The AEF, it had been deter-mined, was unable to disburse its funds be-cause of the lack of sound projects. Thisconclusion prompted establishment of the


African Project Development Facility, whichidentified promising investments and as-sisted small and medium sized businessesin attracting investment, not only from theAEF, but other sources as well. Becausethe APDF was financed with “soft” money,from bilateral donors and the World Bankgroup, these services could be heavily sub-sidized. A parallel organization, AMSCOwas established to help recruit experiencedmanagers for both these and other localbusinesses, and to provide targeted trainingfor employees.

Very recently, AMSCO has undergone amajor restructuring. Its headquarters havebeen moved from Amsterdam to Johannes-burg and many of its branch offices in Sub-Saharan Africa have been closed. (It con-tinues to operate its Nairobi office under theauspices of a UN financed project.) Possi-bly one reason for this restructuring is aperception that there may be other, lesscostly ways of addressing shortfalls in man-agement. Another may be a realization thatstrong professional management, whilstclearly very important, is only one determi-nant of business success.

The APDF, we were informed, is increas-ingly confining itself to a “wholesale” as op-posed to “retail” role, dealing less with indi-vidual firms and increasingly with businessassociations.lv This shift apparently hasbeen prompted by the desire of supportingdonors for greater “impact.” At first glance,such reasoning appears justified since theaverage number of “deals” being finalizedannually, in terms of an actual investment,has typically averaged between three andfive per investment officer. Instead, staffcould be working through groups of firms,i.e., associations, providing guidance basedon their professional and experientialknowledge. Moreover, the APDF will bedrawn increasingly into “knowledge net-work” activities of the World Bank Group,e.g., in maintaining an open electronic reg-istry of business service providers. Also, itwill become increasingly engaged in formaltraining of local business providers.

In our view, this new orientation may be astep in the wrong direction. Some of thebusiness investments identified and vettedby APDF staff have helped stimulate thegrowth of new product lines, notably in hor-ticulture, in both Kenya and Uganda. Like-wise, until comparatively recently, APDFstaff have been among the earliest to iden-tify promising prospects in processing, in-cluding some examined over the course ofour own study.lvi The functions of workingup potential investments in small and me-dium scale enterprise and linking them topotential sources of financing, a void cre-ated by this new orientation of the APDF,will not be easily filled, at least in the shortterm, by commercially oriented NGOs andinvestment funds. With respect to strength-ening business management services, oneof the reasons advanced for this shift in theAPDF’s priorities, our own analysis wouldargue that this aim is unlikely to be achievedthrough more information and formal train-ing. An open registry of service providerscomprises unvetted information. The would-be purchaser must still address such con-cerns as track record and experientialknowledge, especially for services involvinga high risk ratio. More formal training, aswe have observed elsewhere, does not ad-dress such problems, which are preciselythose locally based providers must sur-mount to operate successfully. Finally, asAPDF staff, many of whom are very highlyregarded for their acumen and profession-alism, become progressively removed fromthe “rock face,” namely direct involvement inspecific projects, their experiential knowl-edge will begin to erode and they will beless able to mentor local professionals ef-fectively. x Interviews with Farid Mohammed, Karim So-mani, Amin Shivji and William Kalemaxi For example, membership in a Rotary Club orsimilar charitable organisation in the UnitedStates.xii Among the underlying factors cited by Putnam(“Bowling Alone: The Decline of Social Capitalin the USA”) are urban sprawl, television, and toa lesser extent, greater engagement by womenin the work force.


xiii Eric Nesbitt of Kencall Ltd. noted that theKenya Communications Commission was intro-ducing a detailed set of regulations governingthe licensing and operation of call centres in theabsence of any in-house expertise or prior con-sultation with the Kenyan industry.xiv A question, often posed in jest, but also withintent, in conducting due diligence, is which setof books or accounts should be reviewed.xv Dr. William Kalema, UMACISxvi Sunita Kapilaxvii One such example, among several revealedby our study, is the export of dried fruit toEurope and Canada.xviii Kojo Osae-Addoxix Both countries have experienced serious bankfailures including the aborted privatisation of theUganda Commercial Bank.xx One recent such episode in the Uganda wasattributed to the drop in the property market, ne-cessitating banks, for whom real estate remainsthe principal form of collateral, to raise their in-terest rates, roughly at the same time that theBank of Uganda was lowering its bank rate.xxi Production at the Nobwe Silk Yarn factorywas delayed by more than six months becauseof the outbreak of SARS which prevented theChinese engineers from travelling to Uganda toinstall the equipment. Achievement of full scaleproduction at the Jakana Juice factory has beendelayed by power outages, caused by individu-als attempting to tap power from the mains sup-ply (and electrocuting themselves in the proc-ess).xxii Lawrence Cockcroft, Principal Advisor to theGatsby Charitable Trust, UKxxiii EUREPGAP certification is contingent uponcompletion and verification of a checklist thatconsists of 254 questions, 41 of which are con-sidered "Major Musts" and 122 of which areconsidered "Minor Musts." Another 91 are"Shoulds," which are recommended but not re-quired practices.Some of EUREPGAP's food safety requirementsinclude:• The product must be traceable to the regis-

tered farm where it was grown.• Purchased nursery stock must be accompa-

nied by officially recognized plant healthcertification, and quality guarantees must bedocumented.

• Plantings of Genetically Modified Organismsmust comply with existing regulations in boththe country of production and the country ofthe final consumer.

• A recording system must be established for

each field, orchard or greenhouse.• A crop rotation plan must be in place or, in

its absence, a justification must be made.• Dates, quantities, method of application and

operator details of fertilizer applications foreach field must be recorded.

• Fertilizer must be stored in a clean, dry,covered area separate from nursery stock,fresh produce and pesticides.

• Protection of crops against pests, diseasesand weeds must be achieved with minimumpesticide input and recognized IntegratedPest Management techniques must be usedon a preventive basis.

• Chemicals banned in the European Unionmust not be used on crops destined for salein the European Union.

• Records of pesticide applications must bekept, including information on the date, crop,location, trade name, operator's name, justi-fication, quantity and machinery used.

• The grower and/or supplier must be able toprovide evidence of residue testing.

• The source of post-harvest product washingmust be in compliance with microbiologicalaspects of European Union regulations onwater potability.

• Each certified producer must complete oneinternal audit a year which tests for compli-ance with EUREPGAP standards, and cor-rective actions must be taken where neces-sary.

See: http://www.eurep.org/about.html

xxiv Nipul Dodhia,East African growersxxv One such case is VegPro, which is currentlyexploring the possibility of establishing, with do-nor support, a strategic partnership with CAREKenya to expand production for export by Ken-yan small holders.xxvi Steve New, FINTRAC and Kenyan Horticul-tural Crops Development Authorityxxvii One such case is AMFRI Farms in Uganda.xxviii Steve New, FINTRAC noted the recent clo-sure in Thika of one of Kenya’s few remainingfruit processors.xxix IFPRI Forum (Dec 2003) Will SupermarketsBe Super for Small Farmers?xxx Steve New FINTRACxxxi The authors wish to acknowledge the insightsprovided by Gem Argwings-Kodhek of the Te-gemeo Institute, Steve Collins, Chief of Party,USAID supported Kenya Maize Development


Program, and John Magnay, Chief ExecutiveOfficer, Uganda Grain Traders Ltd. Amongst themany reports relating to the regional and Ken-yan maize market we note in particular:Gem Argwings-Kodhek, Tegemeo Institute andDr. Josephine Songa, Kenya Agricultural Re-search Institute (July 2003) Food SecurityTheme: Kenya Country Study Report preparedfor the Rockefeller FoundationKenya Ministry of Agriculture et al. (March 2004)Strategy for Revitalising Agriculture: 2004-2014xxxii Paul Seward, FIPS notes that the shortageof phosphorus in many soils hampers root de-velopment, making the plant unduly vulnerableto drought.xxxiii Steve Collinsxxxiv In June 2004 over 100 people in WesternKenya were poisoned by aflotoxin in contami-nated grain allegedly imported from Uganda.xxxv John Magnay, CEO, Uganda Grain TradersLtd.xxxvi In the case of FIKA, a Ugandan seed com-pany and seed from Malawi, also produced withassistance from Monsanto.xxxvii One example cited the fields of a majorseed farm, owned by a prominent Kenyan politi-cian, were too close in proximity to neighbouringones growing open pollinated maize.xxxviii Paul Seward, FIPSxxxix Shaul Moran, Amiran Kenya Ltd.xl Ze’ev Shiff, Balton Uganda Ltd.xli The problem of adulterated seed and fertiliseris a serious concern confronting all legitimateagricultural input distributors in Uganda. Com-panies keep close count, for example, of thebags used for packaging. Often they are im-printed in Nairobi to prevent illicit traders fromsecuring them. Many of these activities areconducted in the location in Kampala called“container city”.xlii Vincent Musubirexliii For reasons of time and budget, we were un-able to look at some other banana products, in-cluding purée, chips, and dried (fruit).xliv Kojo Osae-Addo of the ADF, and Joan Ru-taroh of the Ugandan Development Trust verygenerously provided the opportunity to look atboth projects.xlv For example, by demonstrating that “it is bet-ter to obtain 60% of net profits than 100% ofnothing”.xlvi World Bank (September 1996) Kenya: Microand Small Enterprise Training and Technologyhttp://www.worldbank.org/education/economicsed/finance/demand/case/kenya/kenya_index.htm

xlvii World Bank (May 2002) Small Business De-velopment Services: Kenya Voucher Programhttp://www.worldbank.org/wbi/B-SPAN/sub_kenya_voucher.htmxlviii Some of our informants alleged that therehad been considerable corruption, since wouldbe “consultants” had to provide public officials akickback (from training fees) in order to be certi-fied and have trainees register for the programthey were planning to offer.xlix The information was kindly supplied by DavidKnopp, Chief of Party, USAID Kenya Develop-ment Services Program, Kevin Billing, andWanjiku Guchu, DFID Business Services MarketDevelopment Project.l Ralph Engelmann, Swisscontactli Because the ADF is a US government agency,it is much easier to engage full time Ugandanstaff on a de facto basis through a local not forprofit company. Likewise, since US governmentgrants cannot be repaid to a governmentagency, ADF loans are repaid to the Trust.)lii This ceiling is predicated on five new invest-ments annually with an average duration of fiveyears.liii Oldsman, E. & Hallberg. K. Framework forEvaluation the Impact of Small Enterprise Initia-tives.liv H. Mulelv Annabelle Appleton, Lovelace Kwasa-Onyango, and Olivia Randria-Harvellvi APDF staff played a major role in identifyingopportunities for the export of flowers, in par-ticular roses, and various vegetables. Theyhave also identified promising opportunities, e.g.in dried fruit and juice, which are now beingtaken up by some of the other agencies men-tioned in our study.


Part VI. A Roadmap of the Market for Business Development Services

The market for business development serv-ices (BDS) is fragmented, especially in lowincome countries. We attempt to map BDSby benchmarking selected organizationsoperating in Kenya and Uganda. (See Ap-pendix C.) In Figure 2, each organization ismapped along two axes. The position of thebubble along the horizontal axis indicateswhether the activities of the organizationconcentrate mainly in matured or missingmarkets. (“Matured markets” are typicallyfound in developed or OECD countries.These markets are characterized by well-functioning pre-market conditions (legal andregulatory systems, infrastructure). Missingmarkets are typically found in developingcountries (countries with less than $745GNI/capita), and are characterized by pre-market conditions that are fragmented andnot well established, including poor infra-structure, weak legal and regulatory sys-tems.) The position of the bubble along thevertical axis reflects activities that can rangefrom research, where studies and analysisfocus on the discovery of knowledge, to out-reach, where dissemination of the findingsand information sharing are the main objec-tives. With the exception of ICIC, none ofthe BDS organizations are closely con-nected to major universities or research-based institutions. ICIC has primarily a do-mestic focus that extends information andservices to small businesses in urban areas.

Our principal findings can be summarized interms of a stylized “road map” (Figure 3),which expands upon on the classification ofservice providers presented earlier in Part IIand in Figure 2 above. The vertical axisdenotes client confidence. The most im-portant indicator, in this regard, is the will-ingness to entrust to the provider tasks thathave a high “risk ratio”. Put simply, the costto the client of “getting it wrong” will be sub-stantial. Consequently, the provider, as inthe case of our mythical neurosurgeon, cancommand very high rates for services ren-dered, and the outlook for the enterprise isquite positive. Among the contributing fac-tors are the following:

• A high degree of experiential knowl-edge, as signified by a track record thatcan verified readily by the client fromtrustworthy sources;

• Likewise, verifiable specialization andclient skills in specific services;

• Ready access by the provider to domainknowledge, either in-house or from othersources acceptable to the client;

• Reduced risk to the client, in the eventthat the provider fails deliver the desiredproduct. In such situations, the provideris able and willing to rectify the situation.

Client confidence contributes to the likeli-hood of the firm’s success in supplying suchservices, as indicated on the horizontal axis,“Provider’s prospects.”


ACDI/VOCA

FairTrade

RuralCoalition

ICIC

Land-Grant& Private

Universities

IFPRI

Approtech

Care

Amsco

CNFA

Technoserve

MissingMarkets

MaturedMarkets

Swisscontact

KnowledgeDiscovery

InformationDissemination

APDF

Localconsultants

ADF

Internationalconsulting firms

KIPRA

EPRC

Tegemeo

Figure 2. BDS Organizations in Knowledge and Information Provision


Figure 3. Client confidence and Provider’s prospects.

Within Group A fall two types of firm. Thefirst is “fund managers”. Their positioning isachieved by limiting themselves to specificareas of expertise, notably in the restruc-turing and recapitalization of firms, whichthey have concluded can be made commer-cially viable. Most of the associated de-mands for services, especially those with ahigh “risk ratio”, are met by in-house profes-sionals. They can be appropriately com-pensated through the gains obtained fromthe investment. Understandably fund man-agers are usually only prepared to considerinvestments much larger than those involv-ing small and medium size firms.

Also lying within Group A is the APDF.However, its perceived level of competenceto prospective clients, for reasons advancedearlier, may well decline.

Group B, comprising international consultingfirms, formally detached in recent yearsfrom parent consulting firms, is positionedsomewhat lower. Client confidence may besomewhat lower because of restructuring.Since restructuring is likely to continue forsome time, the outlook for some local fran-chises is also somewhat less certain. Aspreviously indicated in Part 2, these firmshave well developed skills, which can beapplied to tasks at the management stageof the investment cycle. Less certain aretheir capacities for those associated withup-front vetting of an investment.

Group C comprises those multinationalNGOs operating on increasingly commerciallines. As we observed earlier, some arerestructuring their corporate culture and ac-tivities more rapidly than others, and there-fore attract a higher degree of confidence interms of perceived competence. Further

D

Low High

High

Low

Provider’s Prospects

Clie

nt c

onfid

ence

in p

rovi

der

C

B

A


upward movement will continue to dependon increased specialization in specific ac-tivities and associated business services, aswell as careful recruitment and systematicmentoring of staff.

Within this group, we single out the AfricanDevelopment Foundation, because its modeof operation comprises a model commend-ing itself to other providers, as well asagencies seeking to stimulate investment insmall and medium enterprise, and tostrengthen the provision of business serv-ices to them.

Because it is a US government agency, andtherefore unable to receive repayment of itsloans (including interest), the ADF estab-lishes “trusts”, viz. not for profit agencies,within each of the countries in which it oper-ates. Aside from being able to accept suchpayments, these Trusts employ local staff tovet and monitor investments. Thus, ADF’sdirectly engaged employees, highly sea-soned professionals typically contractedfrom the financial and business worlds,have ready access to local knowledge. Inturn, they are able to mentor both staff ofthe “trust” and the enterprises in which theyare planning, or have made investments.Our understanding is that the ADF plans toinvest more heavily in promising staff and toupgrade formal qualifications in recruitingfuture members.lvii

The model appears promising, not only as amodality for investing in small and mediumenterprises, who are normally eschewed bydomestic banks and investment houses, butas a means of nurturing local providers ofbusiness management service. The latteracquire experiential knowledge, not throughsome formal accreditation, but by actual ex-posure to the various problems entailed invetting and monitoring investments in differ-ent lines of business. Furthermore, theyhave access to expert knowledge and arementored in their work. This direct link,between investment and business services,is one that could presumably be replicatedin variants of this approach.

Group D consists of local consultants, com-prising both individuals and independentlocal firms, the target group of donor fi-nanced efforts for “strengthening capacities”to provide business services. Although asizeable portion of those whom we con-tacted are clearly competent, client confi-dence, as adjudged by willingness to entrusttasks with a high risk ratio, is very low. Ourfindings confirm the reasons, first advancedin Parts II and III, for this situation.

• Prospective clients face high transac-tions costs in obtaining reliable vettedinformation concerning a firm’s track re-cord and capabilities. They invariablyresort to better known and proven pro-viders. Consequently, these firmsand/or individuals are unable to acquirethe experiential knowledge they need toboost client confidence.

• The incompetence of some of thesefirms tars all of them with the samebrush.

• Engaging local firms typically places theclient at risk, in the event of failure toobtain the contracted service. Providersin this group are usually unwilling or un-able to rectify the problem – at their ownexpense.

• Because of fluctuating and uncertainrevenues, many of these firms are un-able to specialize in particular services(unlike some of the multinational NGOscovered by our study). They also don’thave the resources, in terms of time ormoney, or sometimes the in-house ex-perience, necessary to mentor morejunior staff.

As we noted at different points in this report,more formal training, compilations of con-sultant registries, and various types of “cer-tification” do not address these more fun-damental concerns. Other efforts, notablythe DFID and USAID financed programs fordeveloping businesses services, do so im-plicitly and sometimes inadvertently, e.g., byvetting and mentoring local firms and pro-fessionals and by expanding opportunities


for them to acquire experiential knowledgethrough exposure to actual investments. Aproposal for building on these and othersuch efforts, in order to facilitate - in termsof our diagram -upward and horizontal mo-

bility for the competent professionals withinthis group, is presented in the next part ofour report. lvii Eric Hyman

VII. Implications for ProVenEx and the AAC

The principal conclusions to be drawn fromour analysis of the market for business de-velopment services appropriately deal withdemand and supply conditions, namely,ProVenEx’s and AAC’s need for such serv-ices and secondly what measures they,along with other like-minded investors,might take to improve their quality and de-livery.

Because of the risky business environment,further heightened by the deliberate deci-sion to invest in small- and medium-sizedfirms engaged in agribusiness, the likelyneed for, and therefore cost of such serv-ices will be high. Trying to cut corners atany stage of the investment cycle couldprove very expensive in terms of a failedproject. Overall cost is even higher whenwe factor in those proposals that have beenvetted and are subsequently rejected. Inrelative terms, i.e., in relation to the averagesize of a successful investment, and a real-istic estimate of the likely net rate of the re-turn, the cost of such business servicescould prove prohibitively expensive. Notsurprising, therefore, is the fact that theirprovision is subsidized heavily by donors,as in the case of the APDF, ADF and, inseveral instance, by the Rockefeller Foun-dation itself. As a “double bottom line”venture capital firm, ProVenEx does not, wepresume, have this option. As a “soft capi-tal” initiative, the AAC may have somewhatgreater latitude and can source many of thenecessary services in-house. Nonetheless,it will still confront difficulties in financingtheir cost and, at the same time, achieving apositive, albeit more modest, return on itscapital.

In our view, the most promising solutionis to partner with other initiatives pre-pared to consider investments in agri-business, and also in a position to un-derwrite, or better still heavily subsidizethe cost of the business services asso-ciated with them. In this regard, we havelooked at three possibilities - local banks,APDF, and ADF - each representing a dif-ferent category of strategic partnership.

The first is a local financial institution spe-cifically targeted toward assisting small andmedium scale enterprise.lviii However, thedegree to which such institutions can subsi-dize such services is limited by the under-standable concern of their shareholders.Furthermore, the type of investments inwhich they can engage, in terms of sectorand lending conditions, is constrained, notonly by the relevant banking legislation andCentral Bank regulations, but the overalllevel of risk under which they are operating.Further, we note that some of these institu-tions have limited capacity to provide theservices needed to vet and monitor invest-ments in small and medium scale enter-prises in the agribusiness sector. In otherwords, to partner with ProVenEx or theAAC, they might well need to have suchservices subsidized.

The second is the African Project Develop-ment Facility, a World Bank affiliate that hasplayed a leading role in developing new ag-ribusiness products and exports in bothcountries. It has indicated its willingness topartner with ProVenEx, AAC, and othersimilar ventures, by providing expertise andvarious instruments for vetting and manag-ing investments.lix It could also facilitate


partnerships with potential financing part-ners. However, as the APDF shifts, to useits own terms, from a retailing to a whole-saling function, and becomes further re-moved from the “rock face” of direct in-volvement in specific projects, its stock oflocal and experiential knowledge is likely todiminish.

The third is the African Development Foun-dation, which appears to have developed anapproach that not only combines both formsof knowledge, but keeps deepening and ex-panding them through ongoing engagementas an active investor in small and mediumsized firms. It is also able to subsidizemany of the associated business services.Its own investments invariably require sup-plementary financing, usually for operatingcapital. Its aims, needs and mode of opera-tion appear complementary to those of bothProVenEx and the AAC. Our one qualifica-tion concerns the fact that the ADF is a USgovernment agency and as such, is subjectto “politically inspired shifts” in corporatestrategy and executive leadership. Conse-quently, a broader agreement or under-standing, as opposed to partnering in one ormore specific projects, may be desirable.

More generally, we can highlight the princi-pal considerations that should inform thesearch for partners able to help underwritethe cost of business services.

• A strong and continued local presence;• Shared aims of raising the living stan-

dards of poor people, including theirfood security;

• Active involvement in identifying andfinancing investments;

• A willingness to invest in small- and me-dium-scale enterprises engaged in agri-business;

• Evidence of local and experientialknowledge, as well as timely access toappropriate domain expertise;

• The financial capacity to underwrite thecost of business services associated

with vetting and managing such invest-ments; and

• Financing requirements, as an investor,which complement the activities of Pro-VenEx and the AAC.

Turning to the second major – supply-related – conclusion, we note from our roadmap (Figure 3) that local firms are least wellpositioned, in terms of “client confidence” tosupply those services associated with ahigh risk ratio. What can ProVenEx and theAAC do to rectify their situation?

An intriguing possibility identified by ourstudy is to create a data bank of provenproviders of specific services. This un-dertaking would require collaboration withother like-minded users of business serv-ices to overcome a classic “externality”problem. At present, every user separatelyunderwrites the cost of vetting local provid-ers, by testing their competence throughperformance in specific assignments. Un-derstandably, individual users are often un-willing to share such information with othersseeking good, reliable, locally based con-sultants. However, this up-front cost couldbe internalized if a group of users, compris-ing investors and donors supporting busi-ness service development, agreed to col-laborate in sharing such information amongeach other.

The shared task would be the establishmentof a data bank of information concerningcompleted assignments. Analogous to thatof a credit bureau, it would gather informa-tion on the specific types of work under-taken, types of domain and experientialknowledge they entailed; and actual out-comes in terms of timeliness and compli-ance, or otherwise, with the scope of workand terms of reference. Access to the in-formation base would be limited to thosepaying for its maintenance and also willingto provide data according to an agreed for-mat. The methodology for collating, updat-ing and retrieving information could beadapted from that used by some large inter-national consulting firms, who customarily


invest considerable effort in managing suchknowledge as part of their overall strategyfor competitiveness. As in the case of acredit bureau, the data bank would be man-aged at arm’s length i.e., not by the usersthemselves, and certainly not by an asso-ciation of business consultants.The value of the data bank lies in the factthat the information it contains has beenvetted in terms of actual performance andoutcomes. Competent local individual pro-fessionals and firms will respond, as in thecase of the USAID initiative for strengthen-ing business management services, wheremany are prepared to undertake relativelysmall assignments, for little or no gain, inorder to obtain experience and raise theircredibility as well as visibility. The proposedinitiative would overcome two unfortunateshortcomings of this and similar donor sup-ported initiatives, namely their limited dura-tion and the lack of a systematic and effi-cient mechanism for sharing this informationwith other would be users of business serv-ices.

The data bank would assist local firms intwo important ways. First, it would weed outincompetent firms and professionals. Touse a metaphor from the insurance world –it would penalize severely those who suffertoo many road accidents. At some point,the risk of using such firms will simply be-come too high. They will go out of businessor confine themselves to those tasks with amuch lower risk ratio. Secondly, local firmswill not only be motivated to specialize inspecific tasks, for fear of causing a “roadaccident”, but also because of the likelihoodof steadier work in these more specializedareas. The process will become self-reinforcing: more business increasing expe-riential knowledge and client confidence,generating in turn more work.

Business providers in our group D, con-sulted over the course of our field study,responded very positively to the proposal.They noted, intuitively in many cases, that itaddressed the principal constraints imped-ing their further upward mobility within themarket. Conversely, they expressed well-founded skepticism regarding the likelypositive impact of further “training”, evenwhen subsidized by donors, the compilationof “yet another” registry of local consultants,or proposed affirmative actions in hiring lo-cal firms, because such efforts in the pasthave failed, with very few exceptions, tocontribute to tangible and lasting success.Indeed, the firms in question indicated thatthey would be more than willing to pay forformal staff training, provided they couldperceive a likely benefit in terms of in-creased business. What was needed was amechanism that would recognize, documentand record actual performance, allow themto specialize within their respective areas ofcompetence, and instill greater confidencein clients through growing recognition oftheir ability to undertake assignments withprogressively high risk ratios. Likewisesome of the donors engaged in strengthen-ing “local capacities” expressed interest inthe proposed approach and are prepared tocollaborate with users such as ProVenEx,AAC and others.

We believe it warrants serious considera-tion. lviii For example, the Centenary Bank in Ugandaor K-Rep Bank in Kenya. Information concern-ing this segment of the financial system waskindly provided by Nick Mbuvi, the incomingManager for Barclays Bank, Uganda.lix One of these is a “diagnostic tool”, which hasproven very effective in vetting potential invest-ments. (Moses Kibirige)



Appendix A: Terms of Reference

Background: The Rockefeller Foundation’sProgram Venture Investments (ProVenEx)effort makes investments in businesses andpublic-private ventures that further one ofthe Foundation’s areas of work in Food Se-curity, Health Equity, Working Communitiesand Creativity & Culture. (For more infor-mation on the areas of work covered undereach of these four program Themes, pleasesee www.rockfound.org.) ProVenEx makesinvestments for both financial and socialreturns.

The Foundation’s mission is centered onenhancing the lives and livelihoods of poorand excluded people. As a result, ProVe-nEx focuses its investments in businessesthat address an important unmet need bypoor people. Many of these sectors face adearth of capital and private sector activity,but nonetheless face the same – if not more– management challenges than businessesworking in conventional commercial sectors.

Over the past six years, ProVenEx has in-vested capital in 11 businesses in the USand eastern Africa. It is contemplating ex-panding its efforts in eastern Africa. Nearterm opportunities that are being led by theFoundation’s Food Security program includethe African Agricultural Capital (AAC) Fund,an investment fund to invest agribusinessesserving smallholder farmers that is beingsponsored by the Foundation, the GatsbyCharitable Trust and Incofin.

We believe that in order to be successful inour investments, capital must be paired withappropriate management assistance andaccess to value-added business networks.The AAC will be pursuing this strategy andProVenEx has attempted to combine thetwo on a customized basis in most of its in-vestments, but has found that efforts to doso in its investments in eastern Africa to beparticularly challenging.

We are interested in commissioning one ortwo consultants to review current efforts to:a) provide business management assis-tance and b) build professional businessmanagement capacity in emerging econo-mies, with particular attention on efforts un-derway in sub-Saharan Africa. In this re-gion, the foundation has a particular interestin the agriculture sector.

Purpose: The purpose of this review istwofold: 1) To inform ProVenEx and theAAC of current and emerging best practicesin providing business management assis-tance to companies in Africa, and potentialservice providers and partners for futureand existing investments; and 2) A summa-rized version of the review document will bepart of background materials that will bedistributed to participants attending a Sep-tember 2004 workshop for investors seekingfinancial and social returns entitled Buildingthe Blended Value Capital Market. TheRockefeller Foundation, the InternationalFinance Corporation and the World Eco-nomic Forum are sponsoring the workshop.

A summarized version of the review docu-ment may also be posted on the RockefellerFoundation web site.

General categories to be covered. At themoment, we are breaking the area of busi-ness management assistance into the fol-lowing sections, but we encourage the con-sultants to suggest alternative approaches:

• Entrepreneurial capacity building: Thefocus here would be on entrepreneursstarting up business ventures or socialenterprises, the specific types of skillsrequired therefore, e.g. writing businessplans, developing business strategies,executing on those plans & strategies,building a value-added board, hiring ateam, fund-raising, etc.

• Professional management capacitybuilding: Here the focus would be on



building management capacity to sus-tainably manage business growth &scale-up. Specific functional areas in-clude: financial controls, managementinformation systems to gauge progress& inform management decision-making,accessing distribution channels, marketanalysis, organizing the business, hu-man resources management, etc.

• Access to regional & global businessnetworks and supply chains: The ideahere is how to connect entrepreneursand business managers in resourcepoor settings such as Africa with con-tinuous, on-going access to: Potential customer, distribution,

supplier or other value-added busi-ness relationships, and

Best practices and innovations inmanagement happening locally, re-gionally & if appropriate, glob-ally…including access to a networkof seasoned executives formentoring, advice, board develop-ment, etc.

Experienced business managersand entrepreneurs with practical ex-perience who could provide ongoingmentoring or advice along both gen-eral management and specific func-tional areas ...in much the same waythat successful entrepreneurs &business managers in the US andEurope surround themselves withvarious advisory committees ofhighly experienced people with rele-vant domain expertise.

Deliverables: The review will be in theform of a written document or Power Pointpresentation. The focus should be on sub-Saharan Africa, but the review should alsocover efforts underway in emerging econo-mies globally to the extent they providerelevant models for Africa.

The review should cover the following is-sues and areas:

• An analysis of a market-driven supplychain, focused on not more than 3 or 4product areas, including maize and ba-nanas/matoke. Other products areas ofinterest to the foundation include rice,cassava, sorghum, beans, and vegeta-bles. This supply chain analysis wouldidentify the specific functional and man-agement skills required at each step ofthe chain and any existing sources oftechnical assistance for these requiredskills, including how this assistance isdelivered and a sense of how effectivethese strategies have been.

• A general landscape of the institutionsworking in this areas, the particularfunctions they perform, and modes ofdelivering services; in particular, ananalysis of key lessons learned and asense of what has or has not worked.Examples include: Academic institutions of excellence,

e.g. business or managementschools, executive education insti-tutes; specific functions or skills be-ing developed through their courses.

Non-profit consulting firms or NGOsproviding business technical assis-tance, e.g., Technoserve, Swiss-contact, FoodNet, CARE, etc.

For-profit consulting firms such asMcKinsey, Deloitte & Touche.

Institutions operated by or affiliatedwith multi-lateral or bi-lateral donoragencies such as the APDF, AM-SCO, African Development Founda-tion.

• An analysis of where the key missinggaps are and the possible strategies foraddressing these gaps given the infor-mation in #1 and #2 above.

The most helpful way to organize the infor-mation in sections #2 through 4 abovewould be to categorize them under thecategories proposed above in Section C 1.through 3.



Appendix B: Individuals Consulted

1 Appelton Annabelle African Management Services Company (AMSCO) [email protected] Argwings-Kodkek Gem Tegemeo Institute [email protected] Billing Kevin Business Services Market Development Project (BSMDP) [email protected] Black Lucas CARE Canada [email protected] Buranhung Joseph Uganda Gatsby Trust [email protected] Cockcraft Lawrence Gatsby Trust UK [email protected] Collins Steve ACDI/VOCA [email protected] Connell Martin Calmeadow [email protected] DeVries Joe Rockefeller Foundation [email protected] Coogan Tom African Development Foundation [email protected] Dodhia Nipul East African Growers Ltd. [email protected] Engelmann Ralph SwissContact Nairobi [email protected] Ferris Shaun Foodnet Network [email protected] Fung Bernard Sainsbury UK [email protected] Gecau Cathy AMSCO [email protected] Githendu Mukiri Harvest Farm Seeds Ltd. [email protected] Greene Edward AMSCO Nairobi [email protected] Guchu Wanjiku Business Services Market Development Project (BSMDP) [email protected] Hyman Eric African Development Foundation [email protected] Jakana Dan Jakana Juice [email protected] Kaddu T. Harvest Farm Seeds Ltd.22 Kakkad Bharat IFC [email protected] Kakwenzire Joan Poverty Alleviation, Office of the President, Uganda [email protected] Kalema William UMACIS Ltd. [email protected] Kanyi Daniel APDF [email protected] Karanja Capt. Freshco Kenya Ltd. [email protected] Kapila Sunita Consultant [email protected] Kashangaki John K-Rep Advisory Services Ltd. [email protected] Khor Jackie Provenex [email protected] Kiarie John Deloitte and Touche [email protected] Kibirige Moses International Finance Corporation [email protected] Kibugu Erastus Technoserve Kenya [email protected] Knopp David Kenya Business Development Services Program [email protected] Kwasa-Onyango Lovelace AMSCO [email protected] Lynam John Rockefeller Foundation [email protected] Mabirizi Frank National Planning Authority, Uganda [email protected] Lacey Melba Michigan State University (MSU) [email protected] Matlon Peter Rockefeller Foundation [email protected]



39 Makumi Gladys Deloitte and Touche LLP [email protected] Mbure Gitau ACDI/VOCA Headquarters [email protected] Mbuvi Nick Barclays Bank of Uganda Ltd. [email protected] Mohammed Farid Pipal Ltd. [email protected] Moran Shaul Amiran Kenya Ltd. [email protected] Morjaria Raj Aureos East Africa Fund [email protected] Muhara Johnson Equatorial Nut Processors [email protected] Mule Harris Consultant and farmer [email protected] Muranga F. Isabirye Dept. of Food Science and Technology, Makerere Univ. Uganda [email protected] Musubire Vincent Vice President's Office, Uganda [email protected] Mwadime Sonia Amfri Farms Ltd. [email protected] Naivasha Eric K-Rep Advisory Services (Africa) Ltd. [email protected] Ndiritu Rosemary Deloitte and Touche Kenya [email protected] Nesbitt Eric KenCall EPZ Ltd. [email protected] New Steve Horticulture Development Centre (HDC) [email protected] Ngigi Ashington Integral Consulting and Advisory Services Ltd. [email protected] Ngumi Joseph National Ass’n for Technology Transfer and Entrepreneurial Training [email protected] Njinju Alex Kenya Business Development Services Program (BDS) [email protected] Nyakoojo William Victoria Seeds Ltd. [email protected] Nyoro James Tegemeo Institute of Agriculture Policy and Rural Development [email protected] Nzioka Timothy Kenya Gatsby Trust [email protected] O'Brian Kathleen CARE Canada [email protected] O'Brien Dennis CARE Kenya [email protected] Odo George CARE Kenya [email protected] Okot Josephine Victoria Seeds Ltd. [email protected] Osae-Addo Kojo African Development Foundation (ADF) [email protected] Randria-Harvel Olivia AMSCO [email protected] Rosen Harold IFC [email protected] Rutaroh Joan Uganda Development Trust (UDET) [email protected] Seward Paul Farm Input Promotions Africa Ltd. (FIPS) [email protected] Sharma Dev CARE Canada [email protected] Shiff Zeev Balton Uganda Ltd. [email protected] Shivji Amin AMFRI Farms [email protected] Sikand Davinder Aureos Kenya Managers Limited [email protected] Solomon George East African Growers Ltd.74 Somani Karim Harvest Farm Seeds Ltd. [email protected] Ssemwanga James Ssemwanga Group [email protected] Ssemwanga Elizabeth Ssemwanga Group [email protected] Steenstrup Barbara IBM Global Services [email protected] Waweru Robert Deloitte and Touche (Uganda) [email protected] Wilton David IFC [email protected]



APPENDIX C. Companies Surveyed in the Benchmarking Analysis

NAME AMSCO (1989) APPROTEC (1991)MISSION To assist private sector companies, particularly small and medium enterprises, to

become globally competitive and sustainable.To promote sustainable economic growth and employment creation in Kenya andother countries by developing and promoting technologies that can be used bydynamic entrepreneurs to establish and run profitable small scale enterprises.

PRODUCTS Activities include 1) company analyses to identify long term potential and majormanagement needs; 2) recruitment/ secondment of managers for senior positions;4) customized training of local managers and staff to improve the efficiency andpromote good leadership qualities and good corporate governance; 5) subsidizingmanagement development programs and manager’s salary for client companies;and 6) assisting in raising funds for client companies.

Programs: 1) Market research – identifying high potential small scale businessopportunities for entrepreneurs; 2) Technology design and promotion - developingtechnologies and business packages, and marketing the new technologies to localsmall-scale entrepreneurs; 3) Training – training local manufacturers to produce thenew technologies, and assisting small scale entrepreneurs in adopting new tech-nologies; 4) Impact assessment - monitoring the cost-effectiveness and impact ofits programs.

GOALS To supply experienced managers and technical personnel to small and mediumsized African enterprises in order to:1) improve management capacity, and2) assist in improving the competitiveness and sustainability of African companiesso as to bring them up to international standards.

To apply Approtec’s technologies, expertise and methods throughout Africa to sup-port programs in agriculture, shelter, water, sanitation, health and relief.To create new jobs and to help establish highly profitable new small businesses inAfrica.

GEOGRAPHICAL 39 African countries Kenya, Tanzania, USCURRENT BUDGET (1998) $19.2million for 10 years (2003) $2million per annumFUND SOURCES International Finance Corporation (IFC)

African Development Bank (AfDB)7 Bilateral Development BanksIndustrial Council for Development ServicesUnited Nations Development Program (UNDP)Multilateral DonorsService fees

Department for International Development (DFID)USAIDNetherlands GovernmentPrivate DonationsProduct SalesQuality inspection, marketing, training and consultancy fees

Contributions 100% 49%Gov Grants 0% 0%Prog. Services 0% 26%Investments 0% 0%Special Events 0% 0%Sales 0% 25%

FUNDS%

Other 0% 0%# OF STAFF 24FT 80FT, 7 BoD



NAME CARE (1945) CNFA (1985)

MISSION To serve individuals and families in the poorest communities in the world, to pro-mote innovative solutions and advocate for global responsibility and facilitate last-ing change by: 1). Strengthening capacity for self-help and 2) providing economicassistance.

To promote greater understanding and involvement among America’s private sec-tor and economic leaders and the world’s growing economies.

PRODUCTS CARE USA classifies its program activities into three major types: (1) emergencyrelief, (2) rehabilitation, and (3) development. It designs and manages community-based projects in areas such as education, health care and economic develop-ment.

1) Agribusiness Partnership Program; 2) Agribusiness Volunteer Program; 3) De-velopment Education; 4) Citizens Network Corporate Sponsor Program; 5) CitizensNetwork Agribusiness Alliance (CNAA)

GOALS To stimulate economic growth and policy reform in the world’s transitional econo-mies.

GEOGRAPHICAL Africa, Asia, Europe, Latin America and the Caribbean and the Middle East Southern Africa and the Newly Independent States (NIS) of the former Soviet Un-ion

CURRENT BUDGET 523,305,000 (2003) (2000) $8,470,742FUND SOURCES Individuals, U.S. corporations, foundations, governmental agencies, the European

Union and the United Nations.Government grants and public support.

Contributions 35.838%(19.115% Direct Public & 16.723% Indirect public support

0.118%

Gov Grants 63.45% 97.014%Prog. Services 0% 2.568%Investments -0.08% 0.218%Special Events -0.066% 0%Sales -0.147% 0%

FUNDS%

Other 1.005% 0.082%# OF STAFF N/A



NAME FAIR TRADE (1999) RURAL COALITION (1978)

MISSION To raise consumer awareness about improving people’s lives through Fair Trade(FT) alternatives by 1) gathering and compiling research and data about FT; 2)providing information about FT to the public, the media, and Ft advocates; and 3)galvanizing FT organization and individuals seeking to get involved.

Working for a just & sustainable food system that brings fair returns to small farm-ers & rural communities, ensures just & fair working conditions for farm workers,protects the environment & ensures a safe and healthy food supply to consumers.

PRODUCTS Books, videos, speakers, brochures. Programs: 1) Equal access to agriculture programs & opportunities to broadencollaboration among minority & limited resource farmers, increase their participa-tion in USDA programs; 2) The supermarket - to increase health & economic vi-ability of on-line network & Internet; 3) Community responsive Partnerships forEnvironmental Justice: partnerships between rural community organizations, sci-entists, and health professionals to identify, quantify, and develop solutions forenvironmental hazards in rural communities.

GOALS To provide Fair Trade education and networking opportunities. 1) To development and implement progressive policies responsive to rural needs;2) To develop the capacities of rural organizations and people to work effectivelyfor, and to sustain, institutional and systematic change.

GEOGRAPHICAL Americas, Asia, Europe US and MexicoCURRENT BUDGET (1999) $15,895 (2000) $590,712FUND SOURCES Ramsay Merriam Fund and supporters/members 1) USDA, 2) National Institutes of Environmental Health Sciences

Contributions N/A 29.323%Gov Grants N/A 67.531%Prog. Services N/A 0%Investments N/A 0.065%Special Events N/A 0%Sales N/A 0%

FUNDS%

Other N/A 3.082%# OF STAFF N/A 16 BoD, 6-10 FT, 1-5 PT.



NAME SWISSCONTACT (1959) AUREOS CAPITAL (2001)

MISSION To promote sustainable development (socially, ecologically and economically) inselected southern and eastern countries. Cooperation with local partners is a prior-ity for Swisscontact, as our leading principle is: "Helping Others to Help Them-selves".

To be the market leader in the provision of private equity to small and medium-sized enterprises in emerging markets, to deliver attractive financial returns, and toadd value for clients and investors; realizing this strategy with dedicated peopleand a strong local presence, that continuously develop a culture of professionalismand excellence.

PRODUCTS Education and Training, Enterprises, Savings and Credit, Environment Equity fund management for small to medium scale private companies in emergingmarkets.

GOALS To fight against world poverty through continuing education and vocational training,to ensure that, even in the poorest countries, people can raise their standard ofliving.

To make investments in small- and medium-sized enterprises in emerging markets, that wish to expand.To finance local management buy-out teams acquiring businesses.To maintain a strong local presence, and continuously develop a culture of profes-sionalism and excellence.

GEOGRAPHICAL Africa, Asia, Central America, South America, Eastern Countries (e.g., Albania,Russia).

Central America, Sub-Saharan Africa, South Asia, Pacific Islands

CURRENT BUDGET 32 Mio CHF (2003) (2003) $313million per annumFUND SOURCES Various private businesses, associations, foundations, public donors as well as

private benefactorsNorwegian Investment Fund for Developing Countries (Norfund)CDC – Capital for DevelopmentOther European Developmental InstitutionsLocal Financial InstitutionsInternational Development BanksInternational Private Institutions

Contributions 7.434% 100%Gov Grants 78.965% 0%Prog. Services 0% 0%Investments 0% 0%Special Events 0% 0%Sales 0% 0%

FUNDS%

Other 13.961% 0%# OF STAFF 86FTca. 70 and ca. 260 local engaged staff 86FT

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