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Interview with Vimal Shah, CEO, BIDCO – One of the largest and fastest-growing manufacturing companies in East Africa

By Dave Ramaswamy

Interview with Vimal Shah, CEO, BIDCO – an agribusiness company operating in Kenya, Uganda, Rwanda and Tanzania, and one of the largest and fastest-growing manufacturing companies in East Africa.

Dave: Kenya and East Africa are importing food products from China and other parts of the world, even though there is capacity to produce domestically. What are the policy and regulatory bottlenecks preventing entrepreneurs here from supplying the local market? Where do you see niches or opportunities where entrepreneurs can bypass and overcome these obstacles?

 

Vimal Shah, CEO, BIDCO

Vimal Shah, CEO, BIDCO

Vimal: Currently in Kenya, there are no policy or legal obstacles to producing locally and supplying the market locally, either from local production or by importation. What happens is, wherever you have competition and where people have economies of scale and scope, you’ll bring in productivity. We have a very liberal business climate. …We have nothing banned. Our tariff bands are zero, 10 percent, and 25 percent—25 percent being the maximum tariff. Zero is for raw materials manufactured here. Ten is for intermediate raw materials or products for processing for industry, and 25 percent is for finished products coming from anywhere in the world.

If you have a product coming from China, let’s say tomato sauce or tomato concentrate, and it’s got a 25 percent duty on it, even then, the Chinese product still does come out to be more price-competitive at times.

There’s nothing stopping us in Kenya from competing with that. We can actually start processing tomatoes here. It’s just that people haven’t put up those sorts of industries, number one. I think competitiveness is the key. If you’re competitive, you can actually bring in your products from anywhere and start selling them here. Local manufacturers or local processors need to be competitive on quality, price, and delivery. That has just not happened till now, and that opens up a huge amount of opportunity.

Dave: I’ll build on what you said in terms of value and price. How do Kenya and East Africa create value and retain value? For example, Starbucks sources green coffee from East Africa at between $3 and $4.5 dollars a kilo, and sells in America and Europe for between $30 and $40 dollars a kilo. So a lot of the value that originates in Africa is captured elsewhere. Ethiopia, a big raw coffee exporter and where the coffee bean originates, imports instant coffee from places like Malaysia and Singapore. So, where do you see the opportunity for African farmers to group together and retain more of the value they are producing?

Vimal: Brilliant question. I think what’s happened in the past is, a lot of this was controlled by countries in Europe who had colonies in Africa. Coffee and tea were traditional exports from Eastern Africa to those countries. Eastern African means Kenya, Uganda, Tanzania, Rwanda, Ethiopia included.

Traditionally, we’ve been exporting our raw materials because that was determined by the international market. Now the market was the “big boys” in Europe or North America, where they put up factories to produce instant coffee or roasted coffee, and the subsequent consumption happened in those markets. If you follow the coffee markets, there are about four or five major players, and they’re all located in Europe or the US. They never put up factories here in Africa.

It is now time for us in East Africa to put up those factories here, and to start niche brands, and start exporting to those markets … because even today, per capita consumption of coffee is not as big in Eastern Africa as [in] the US or Germany or other markets. We’ve been traditionally exporting these things, so the whole status quo [is unchanged]—the people who are exporters have remained exporters, and with all this, there’s only demand for green beans or raw coffee, and so that’s what we export. All the roasting plants have been overseas.
This is a challenge, but it’s a serious opportunity to start roasting plants here, coffee processing plants here, and then exporting those value-added products.

Our traditional focus in Africa has been in commodity exports. Freight costs have been expensive, but when you export raw or finished commodities, it is nearly the same cost. Value addition has been retained by people at overseas companies, number one. Number two, in terms of policy, we have restricted trade policies.

For example, Ethiopia cannot bring its coffee [into Kenya] because of logistics
issues. However, lately we’ve removed all barriers to trade, so you can actually bring in coffee from anywhere, process it here, and export it.
This liberalization trend is going to help people put up those sorts of factories here. Eastern Africa needs those sorts of factories. However, today there are four or five large companies, and unless they invest, nobody locally wants to take that step. African companies must come together and say, “Let’s start food processing here,” and then ramp things up. It’s a serious opportunity.

Dave:    In the five East African countries you mentioned, where do you see each of their comparative advantages, and in which food crop or commodity?

Vimal: I think the whole of East Africa is pretty rich in agribusiness opportunity. They can start doing a lot of things. However, in Uganda the costs have been higher for fertilizer and stuff like that, but fertilizer isn’t used there. It’s still mostly organic agriculture. Whereas in Kenya, we’re bringing in fertilizer from overseas, so there’s a need for a local fertilizer factory.

Tanzania and Uganda also have land tracts available for doing large-scale agriculture. However, it doesn’t need to be agriculture alone. A lot of times efforts have been along the lines of “let’s produce maize.” And then “let’s find a market for maize.” I’m saying we should look at maize and say, “Make it into flour. Make it into different value-added products. Make it into snack products. Make it into finished products that people will consume and then sell to those particular markets.”

The view of the full crop value chain is what I would encourage. Then look at your consumption niches for crops. What are we consuming right now? A lot of the raw materials, like wheat and maize, we consume locally by processing. But the finished products—the snack products—we still import. We’re importing the real, higher-value-added products because there’s been no economical scale or scope to produce them here.

Now in Kenya, we’ve got the East African market. We got the whole of the COMESA [Common Market for Eastern and Southern Africa] markets, right down from Zimbabwe up to Egypt and Libya. We could start exporting [to] these, too, so we could become regional players.

Having said that, the intra-regional trade within Africa has been a problem because of logistical problems. Logistically, it’s more expensive to export from here in Kenya to Egypt than it is from here to China because the trade flows and related costs favor products from China. Even with the USA from East Africa, our cost of freight is too high because there is no big two-way trade. So this is an opportunity that favors local production.

Dave: Wealthy Americans have something in common with poor Africans—both eat whole foods. In the case of wealthy Americans, there’s a need to shop at a “Whole Foods” store, while in Africa it grows in your back yard.

Vimal: We do consume mostly organic food products.

Dave: Organic, yes. And also ancestral and traditional grains. Some of the “gourmet” items in American supermarkets are grains like sorghum, millet, teff, and unrefined red palm oil originating and consumed in rural Africa. Wheat and rice are sold much cheaper compared to these foods. Where do you see opportunities for African farmers and entrepreneurs to capture some of these niche, high-end overseas markets, using traditional African crops?

Vimal: The gap has been in terms of the African farmers and producers not knowing where the market is, what the market size is, and the value to be captured. Traders come out and buy these products, and then export them in bulk. These middlemen have been making a lot of money out of this. That’s why you see the price of a Starbucks coffee being four or five dollars. It may cost them maybe five US cents for the coffee content. The cost for marketing, location rental, ambience, etc.—this makes the value added overseas much higher.
It’s not only about the US. I think it’s about the whole world. Consider teff right now—you’ve got a lot of Ethiopians, a million, two million Ethiopians in the US, and they need teff in injera every day. They don’t have production elsewhere, so that’s an export commodity from Ethiopia.

Maize flour that we make ugali from in Kenya—a lot of the Kenyan diaspora don’t get it overseas, so they take it back with them. There’s been no real export of that. Every one of those examples is linking markets to supply, and thus supply chains become tighter—and, of course, becoming more competitive is serious opportunity.

Organic stuff from Africa can go out and be still organic and be consumed at a much higher price. … But traditionally, Eastern Africa hasn’t known America as a market. We’ve been traditionally linked to Europe and now Asia, because we’re nearer geographically, and also because of the colonial legacy. The US has always seemed far away, and so has Australia. Now that we’re opening up trade with the US through AGOA [the US African Growth and Opportunity Act], there’s a serious opportunity to match overseas demand with the supply here.

Dave: People talk of having bankable projects. For its Power Africa initiative, USAID appointed transaction advisors to structure specific projects and make them bankable for financiers and see them through financial close. How do we make African agribusiness projects bankable?

Vimal: If you look at the whole value chain, right from the farm gate up to the finished product being processed, you can see each step, and see where a lot of value is added.

Take cotton, for example. We’ve been exporting it as raw cotton. From exporting raw cotton to exporting cotton as shirts with designer names on it, there’s a 1600 percent value add. That value-add hasn’t been captured in Africa because we’ve still been exporting raw cotton.

So some of these foreign companies need to bring their industries here—that’s the opportunity. A bankable project in this case will be linking with the high-end branded-name producers or sellers in the U.S., and making the products for them here in Africa, with our raw cotton and our talented labor force, and at lower cost than China. That would be amazing. Once you link up the whole value chain, it is almost bankable right away

You’ve got to have an off-taker for the branded products. We got a goal. We’ve got the AGOA. We’ve got duty-free access to the US. It’s an amazing opportunity to link all that up. What we need is that linkage. It becomes a bankable product in itself because the value added is going to be very high. You need to work out the details and the logistics, and make sure you’re tied to the final buyer or off-taker.

Dave:     Africa has a huge youth population. Historically, there’s only small amount of jobs available to them, and many of them, based on their parents’ advice, want to go into safe, secure government jobs. Yet there aren’t enough office jobs to be had, so the only solution is entrepreneurship. But many of them haven’t seen agriculture and agribusiness as viable alternatives.

What’s your advice to both the policymakers and to young Africans? How do we make the agribusiness sector attractive to young people? How do we set up structures so people have the opportunity to fail yet still recover and keep going forward?

Vimal: We’re giving today’s youth all these sophisticated gadgets and data. Therefore they don’t want to be farmers after they graduate, even if they drop out of school. They perceive agriculture as meaning “poor farming,” and they don’t see themselves fitting in that role, doing a low-tech activity. We’re going to have a serious shortage of people going into agriculture per se.

However, you can tweak that perception and say, “Fine, do agriculture, but add agribusiness to it—which means processing a crop or grain into a finished product, and branding it. Now you have a customer at the end. It’s a business.”
Then you’ll find a lot more people saying they wish to go into agribusiness. It’s not just agriculture. They’ll still get to use their technology. They’ll use all-new systems across the whole value chain, and that’s the amazing part. None of our children today grow up wanting to be poor farmers.

The whole move from agriculture to agribusiness has started to happen. If the McKinsey Report says 60 percent of the unused arable land in the world is still in Africa, that land needs to be utilized by Africans.

There are a lot of issues around land and the size of landholdings. That’s become a big issue. People are subdividing lands into smaller and smaller pieces, just for family to keep. That doesn’t add much value. You need to have commercial agriculture going at the same time you have agribusiness, through processing and branding happening. That’s going to make our youth want a piece of that. Use technology, use systems to make agriculture sexy. That’s the big challenge and opportunity.

Next is linking to markets. We’re today a billion people in Africa. We’re going to have 2 billion by 2050. The next billion people need to have food, clothing, and shelter. They need to be housed.

There’s going to be massive urbanization. The way the urbanized consumer is going to consume food products is going to be radically different. There will be more ready-to-eat, packaged foods. There will be fewer of the raw materials consumed directly. There are going to be fewer people on the farm producing stuff. The rate of food consumption per capita is going to go up.

We don’t have the local capacities to serve these rapidly urbanizing markets. So they’re being serviced by imports. The opportunity space for African entrepreneurs is massive.

Our liberalization focus is not for the world to export here, but to make it easier for [African] countries to trade internally within Africa, by removing the duty tariff barriers. There are no tariff barriers in East Africa anymore. Now what you have are non-tariff barriers, which is what we mean when we talk about obstructions to trade flows—customs and procedures where each country’s trying to say, “I want to protect my farmers.” We need to be open. We’re going to be a big market, and anybody in Africa can export to anywhere else within Africa. This will start regionally and then expand.

Dave: Where do you see opportunities for job-skilling at the high school level? Instead of a three- or four-year traditional college, perhaps having like a two-year community college, like we have in the US? Give students a feel of a local business, learning by doing, a combination of some morning theory plus afternoon practical hands-on training, like the German apprenticeship model? How do you see that playing out in Africa?

Vimal: An amazing opportunity exists in the learning and teaching fields. The raw talent we have in the youth of Africa, or the youth of Kenya, is incredible. They’re moldable, trainable. They learn pretty fast. We just need to expose them to the latest in technology, the latest in learning, and give them skills to do the right jobs.

A lot of [Africa’s] universities have been running curriculums based on the old British system or the French or the Portuguese system, and graduating students having a [BCom] BA, or a BSc degree. They’re producing more graduates, but they’re not appropriately skilled for the jobs of today and the future.

We need to “up-skill” them. So in educational institutions, there is huge opportunity because now Kenya has allowed privatized institutions. I say in education, but we’re also talking about health care and the whole space of up-skilling technology. Scientific agriculture, precision agriculture, needs to come into Africa. The minute we bring that in, we reduce crop wastage and become lean by growing more with less. We reduce the waste of the water and the minerals and organic content in the soil.

We have enough sun here. We have enough people here. We have enough land available. We have water available. We just need to use all of these resources in an efficient and effective manner toward producing first for Africa, and then exporting for the world.

The minute we get that done, and with the right logistics facilities—where you can store, export, and import various commodities—amazing things can be made here.

Really, landholding policies need to change. Small farms need to become commercial farms, instead of being divided or subdivided into even small plots for real estate, or lying fallow. They need to become viable. That’s going to happen here, and I think on a large scale, it’s going to feed the world.

Dave: I’ll build on top of what you mentioned—logistics – ports etc., which are a key complement to agriculture that people typically ignore. If you think of core development as a tripod, you have agriculture or agribusiness; you have infrastructure, meaning ports and roads; and the third piece is energy to store food, process food, to dry food.

I know there’s lot of pension fund money in Europe and US currently earning very low returns on capital and looking for a home. How can Africa create investment vehicles or structures to make a home for that capital?

Vimal: Africa needs to do whatever the US did to have venture capital, to have accelerators, to have incubators, stock options. There are three different types of investors. There are the startup financiers. They want high returns and don’t mind taking high risks. Then you have the second level who say, “Fine, I want lower risk,” and they’re happy with a corresponding lower return. Then you have the third type who are very risk-averse and want stable returns. Africa has investment avenues for all of them.

In fact, we can leapfrog over the latest models in the US or in the Europe, which worked, and we start doing it here. We just need to liberalize our capital markets. What is being done to leverage foreign capital can also be done to leverage local capital.

There’s enough local capital, and I think a lot of wealthy Africans have their money overseas, in places like Switzerland or Dubai. It needs to come back here to really make it productive. Once they have the security that the money being brought back home will not be in jeopardy, I think Africans would start investing in their own countries.

Dave:    Let’s talk about BIDCO and your operations from farm to plate.

Vimal: Soil to the frying pan, we call it. We’re capturing value, adding value, and giving jobs to lot of Africans.

Dave: Can you tell us about how you see BIDCO evolving over the next five or ten years, and what are your top three strategic priorities?

Vimal: Our goal is to grab, grow, and sustain number one market share in the African markets by 2030. That’s what we are aiming at. We’ve got 15 more years to go. We’ve got Sub-Saharan Africa as a market. This excludes South Africa and North Africa. With that, we’ve got to ramp up ourselves and do what we’re doing in FMCG areas.

We see ourselves playing a bigger role in the full value chain across Africa in the food, hygiene, and personal care space. That’s where we see big avenues for growth. We’re still expanding across Africa. We’re right now in Kenya, Uganda, Tanzania, and Rwanda, and now we’re looking at Madagascar. We’re putting up a plant there. We’re evaluating Ethiopia and other markets. I think going forward slowly we’re going to get to our goal.

At the same time, how we do our business is important to us. We call it “enhancing happy, healthy living” across Africa. Happy, healthy living means we want to do it the right way, number one, fully compliant with ISO 9000, ISO 14,000, etc. standards. We’re signatories to the UN Global Compact [which promotes responsible, sustainable business practices]. We follow all those principles. We believe that that’s the way to do it in Africa.

We do find that in certain markets in Africa, there is non-compliance in taxation. Those markets become difficult for us to operate in. We’re waiting for them to mature and become more transparent, more open, before we enter them.
Having said that, there’s a big demand for the products that we make here. We’ve got all our own brands. We call ourselves BIDCO Africa now, from the earlier BIDCO oil, where we want to extend our presence across the whole of Sub-Saharan Africa.

We don’t see ourselves going into Europe, or into the US or into Asia or Australia. We see Africa as our big turf, and we see a huge opportunity space opening up here for ourselves. The way we do our management is all real-time online. It’s using platform tools like SAP, and all the latest technology. We also do mobile commerce. We process payments through mobile phones. Route to market is excellent, so we have that captive customer. We have strong brands and systems in place, and processes and people to support that. We are about enabling “happy, healthy living.”

Dave: Over the past 50 years, the world has tried to “give aid to Africa,” to “teach Africa,” and had this patronizing attitude. Instead of seeing Africa as having challenges, Africa is itself seen as a challenge. Consequently, there are many external misperceptions. Yet there are a lot of amazing African entrepreneurs who have built great businesses. There’s a lot of youthful vibrancy here.
What is your message to foreign investors coming to Africa, and what can Africa teach the world?

Vimal: I think many things. First and foremost, Africa is a continent. It’s composed of 54 countries, but principally five regions. Eastern Africa, Western Africa, Central Africa, Southern Africa, and North Africa. These five are similar in many ways. We have the Anglophone Africa and the Francophone Africa on western side, for example.

However, the operating philosophy in many countries is different, and there’s regionalization taking place today. Countries in Eastern Africa today are becoming similar in terms of laws, and policy related to the law, opening up. West Africa is also doing that. They’re trying to open up their markets through ECOWAS [Economic Community of West African States]. It’s going to happen across traditional trade routes. The opportunities are going to become bigger. Economies of scale and scope are going to shoot up.

Africa has not been using its resources to its full potential. We’ve not been exploiting our resources ourselves. We’ve been allowing foreigners to exploit them. I think Africa has got to teach one thing to ourselves. We have serious opportunities in Africa for Africans to take part in. However, Africa has taken a very liberal view to this and allowed foreigners to come in. We’re not fundamentalists. We’re all okay. In fact, the equator passes through here [Kenya]. We have enough sun and water, and sometimes foreigners call us happy-go-lucky.

We’ve been very lucky for all this time, but now it’s time for Africa to leapfrog to the latest and start producing for the world. If fact, we could become the food basket for the whole food. Today we have 7.2 billion people in the world. It’s going to get to 9 billion in 2050. What’s going to happen after that? We need to increase the opportunity space here in Africa to cater to the increasing population demographics, urbanization, etc. Our substantial youth labor force speaks of opportunity.

A lot needs to done. We don’t need to go through the same learning curve as Europe or the U.S. for development. We don’t have to do carbon-intensive development. Asia took a very fast approach. They leapfrogged also. We can now go beyond Asia, and go to the latest right now, using technology, people, and processes.

However, we’ve got more democracies in Africa now. Even with the people, even with the corruption that we have in Africa—and again corruption is a giver and a taker—a lot of the times it’s been the West as a giver and the African as the taker. That needs to change. Going forward, there’s a sense of urgency we need to drive into Africa. We need to make sure that we go the right way.

We cannot do what Europe did. Europe destroyed much of its forests, killed off most of its wildlife, and then they built concrete jungles.

In China, same thing. We must learn to say, “Let’s live with nature.” You can see the nature here in Kenya. You live with nature. You be one with nature. Don’t destroy it. Live within that ecosystem. Make it ecofriendly, and find a new way to make development sustainable.

Sustainability is not just about adapting to climate change. It’s also about sustainable businesses, where companies make profits and social welfare increases. I think inclusive capitalism is something Africa already practices, and I’ve been talking to people in the UK about that. We don’t want to be like the extremist capitalists on Wall Street or elsewhere, who want to make money at all costs.

In Africa it’s going to be inclusive, and that’s what we can teach the world. Africa is already practicing inclusive capitalism, where society, people, and families all rise up together, along with the business. We’re not only profit-minded, but also socially conscious. I think that’s something we can teach the world.

Dave:    Very good, Vimal. Thanks a lot for your comments.
Vimal: Great. Thank you.