Jake Cusack, Managing Partner at CrossBoundary, talks with Prosper Africa about how businesses and investors are pivoting in response to the COVID-19 pandemic.
Investors and companies are increasingly looking to Africa for better risk-adjusted returns, portfolio diversification, and new opportunities. As they enter new markets, many investors and companies lean on local investment advisory firms — critical intermediaries that understand local business practices and can identify promising companies and make sure they are investment-ready.
With local staff and expertise, these intermediaries are well-positioned to match strong African businesses that are trying to raise capital with investors looking for opportunities. Their impact goes beyond assisting individual companies and investors. They play an important role in the ecosystem, facilitating capital flows, deepening local capital markets, and unlocking future investment and growth.
One of these intermediaries is CrossBoundary — an American-based frontier-market investment advisory firm with offices in five African investment hubs, as well as Dubai, London, and Washington, D.C. Prosper Africa interviewed Jake Cusack, managing partner at CrossBoundary, about the changes he is seeing in African markets and the opportunities that exist for U.S. and African businesses and investors.
You work with people who are investing in Africa every day. Why do they invest there?
Jake Cusack: There are a number of clear growth trends that explain why it’s a market to get to now. It has a rising middle class; it has a growing youth population; people are moving into cities; and all of those things mean people are consuming more, that they want the same comforts that we’ve come to expect in the developed world. And all of those factors create investment opportunities.
It’s also a market that has been less competitive because there is more space to be a pioneer in a given sector. That can provide opportunities — if you are the first or second mover into a given sector — that can really pay off strategically in the long run.
Now with coronavirus, the next few months are a tough time to invest in Africa for the first time. Most of the investors that we’re currently working with are people who were already present in those markets. But, one of the themes that has come out of the coronavirus situation is that people are more interested in sustainability and the proactive management of non-financial risks. They’re more interested in being diversified global investors and not being exposed to one market. And it’s also shown that risk is everywhere — it’s not that investing in the U.S. is not risky and investing in developing countries is extremely risky. We’ve seen that some of the developing countries have handled the crisis in competent and robust ways.
All those trends, this desire— by both investors and consumers — to work with companies that are sustainable, that are good at managing risks, that aren’t just about the financial bottom line, that care about how they treat their employees and their consumers, all of those things will continue beyond this crisis and are aligned with the philosophy of investors and companies that we work with in Africa.
Are there sectors where U.S. businesses would be competitive or in a particularly strong position to contribute to the COVID-19 response?
Cusack: The U.S. is well positioned in many of the sectors that are needed the most, like healthcare, fintech, or any kind of digital services — and now even more people are working remotely or need to receive services and goods remotely. Additional sectors necessary for sustainable economic growth continue to be well-suited for American investors and companies, such as renewable energy and agriculture technology in all its forms. One of the interesting things we’re seeing is that people want to work with brands they trust, so there is a “flight to quality” in the sense that businesses that are well-regarded are in the best position to survive this crisis. And I think U.S. businesses, or businesses affiliated with U.S. investment, tend to have those good reputations.
How are the companies and investors you work with adapting their strategies because of the pandemic?
Cusack: Certainly, this is a challenging time for everyone. At least initially, the focus for most investors is on their existing portfolios — doubling down on where they’ve had success and helping the companies they have already invested in make it through this period.
But there are also new opportunities that have been born out of this crisis. We see things like food delivery, healthcare, grocery stores, pharmacies, and online content including remote learning that are doing better or growing faster than they did before the crisis because they are meeting essential needs.
In Lagos, Nigeria, for example, solar home systems companies have been designated as essential services because they can provide reliable energy access at home quite quickly. We are seeing new partnerships between local governments and solar home system or mini-grid electricity providers because there is a renewed interest and need for connectivity and energy at home. These aren’t projects that are going to take multiple years like large-scale utility generation projects; these are consumer products that can be distributed pretty quickly.
Other businesses are adapting and pivoting given the crisis. Generally, their first question is, how do I survive the emergency in the short term? How do I restructure my debt or restructure the investment I have already taken so I don’t go bankrupt? How do I take care of my employees? We are primarily in that phase now, but we are starting to come out of it. Now companies are thinking through their medium and long-term plans — whether they are going to pivot to something else, and whether they need new investment. For example, there is a diminished demand for cut flowers, which are a big export from East Africa. So now growers are asking themselves: What portion of my business do I want to keep focused on flowers versus growing other things for the local or export markets? Or, if you have been manufacturing textiles, but now you’re starting to make PPE [personal protective equipment], how do you do that? How do you get the investment you need to do that?
If you were working with someone looking to invest in Africa for the first time, where would you suggest they go to get the support they need?
Cusack: There is real engagement right now from DFIs [Development Finance Institutions], donors, and governments, partly in response to the COVID-19 crisis. Part of the role of governments and donors is to be countercyclical, meaning that when there’s a crisis and everything is getting tougher for the private sector, governments and donors can afford to take more risk and put more money in. As they do that, they are keen for private-sector partners to commit alongside them. That’s an opportunity for investors that are already in these markets, or interested in moving to these markets — to benefit from the help of the U.S. Government or local governments that want to work with private capital. More and more, you see embassies and U.S. Government agencies really interested in the specific barriers that are holding back an investment that could be impactful.
We have been working with Prosper Africa over the last year and we have really appreciated the focus on increasing U.S. trade and investment. It is very much aligned with our own goals as an American firm that works in these markets and thinks there is a lot of opportunity and need there that hasn’t been met.
Why should African businesses look to U.S. investment as opposed to other investment opportunities that might be out there?
Cusack: There are several reasons why African companies might consider working with the U.S. One big one is access to capital — the U.S. financial markets, the venture capital funds that are here are the biggest and deepest markets in the world. There are a lot of potential investment dollars that can be accessed in America, which isn’t necessarily the case everywhere else. There are some strong brands in the U.S., including well-known consumer brands and brands that have a competitive advantage in technology, and those can be good partners for African companies.