Sept-Oct 2007: "Big Heads" in Kenya

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We landed in Nairobi at night. I was tagging along on a trip with Carl, a recovering real estate investor from New York who is considering becoming an adventure capitalist. He led a mission trip to Naivasha that my wife went on and has been engaged in that community ever since. We were going to Naivasha the next day to begin our work: to vet several business plans designed to fund a local church and its mission projects. The business ideas included a day care center, a cinema, a guest house (what we'd call a hotel), and a cafe (what Kenyans call a hotel). We'd have six days so no time to waste. No safari on this trip either but on the flight to Nairobi Carl and I had an entire section of a KLM 747 all to ourselves so you take what you can get.

Soon after we landed I learned an obvious but important lesson: money talks in Kenya; specifically US money and specifically something Kenyans call "Big Heads," the new US bills that have the big-headed pictures of the presidents on them. The older US bills are worthless, a lesson a frustrated Indian woman ahead of me in the immigration line learned when she tried to pay the $50 fee using a "little head" bill. Not only do you need money in Kenya, you need the right kind of money.

The first day in Nairobi I met with Brett, a talented adventure capitalist (AC) who created a short-term loan business in Kenya. The company's office was small but hopping busy with applicants for their loans-- all of them government workers. It's great synergy as Brett provides a service once only filled by loansharks who were always willing to get their teeth into a government worker. The government welcomed Brett's loan operation with opened arms as part of its anti-corruption business. Brett has also expanded into Tanzania and Uganda on the same model and that was a deal we looked at: he's looking for more capital for his Tanz. business, about $500,000 to buyout his partner there and then over time expand the lending roll by another $750k or so... and is offering nice terms of a 12% annual dividend and potential equity in the company depending on the arrangement. I looked at the Tanz. numbers, and they look good (of course they would) but more due diligence is needed on that one... might have to head to Tanzania soon.

After that meeting (and a quick stop to buy an African dual-band cellphone which I highly recommend for anyone going to Africa) we headed off to Naivasha with Bishop J. who was the leader of the church Carl was hoping to help. I was anxious to get there and get to work. I knew a lot of the vetting work would be up to me as I was also advising Carl on different options because he led the group of investors that would put up the money for the plan should the plan prove viable.

Our first stop was LaBella, and what a place! The bed and breakfast (and bar) was in the center of town, right on the main road, and it became our temporary HQ. The rooms were adequate [pic] although nothing to write home about, but the real action was on the front veranda [pic]. That's where we started each day and ended each night and it was the place in town to do business. Notice the guy with the bullwhip acting as the doorman! [pic]

Information is everything to an AC, and we had to get quality information fast on a variety of topics: the real price of land in and around Naivasha, the potential demand, competition and price ceilings for the various businesses proposed, the banking system workings and rates, etc. Now there is "mzungu" pricing and then there is the real price. Mzungus (whites) often pay "adjusted" prices on goods and services but especially real estate. One of the best sources of information was Ronald at LaBella who got us pointed in the right direction towards getting us the answers we needed. AC Rule #2: Always find a local fixer-- it will save you more money than it will cost you.

Best Intentions but...
We ran as fast as we could the next several days, looking at cash flow potential and structuring deals to create a plan that would work for the church and potential investors. It was a grueling pace, conducting probably over 60 interviews and discussions over five days, devising and revising business plans and looking at as many angles as we could, but in the end we couldn't get it done. It was such a disappointment. The main reason was the real-estate bubble that has blown up in Naivasha, a resort town that Uhuru Kenyatta (son of the first president of independent Kenya) is making into the Westchester County of Kenya. The property prices have become astronomical, and they will correct soon, but the church will likely lose its 1.25 acre location because there is a buyer at the price (over $300,000 USD!) and the owner intends to sell. We tried to come up with a plan that could generate enough cash to make the property affordable, and even with generous interest-only terms, there wasn't a way evident.

Not all was lost... we did connect with Mary W. and some great people in Naivasha. Mary runs an elementary and secondary school just outside Naivasha [pic] and is doing amazing things with women entrepreneurs. She runs the microloan program we helped set up. Her school is impressive and I imagine we'll likely be connecting her with US investors soon. She gets things done, including building safe and affordable housing units for single mothers, many who work in Naivasha's numerous flower farms.

We also helped find funding for Bishop J.'s orphanage [pic] which is doing wonderful things for 13 local boys, who are all top of their class students. Bishop J. and Mama Beth will also be able to send John Major, another orphan with severe disabilities, to a trade school that specializes in working with disabled kids. This alone made the 16,000 mile trip worth it! I'm so fortunate to be doing this work... what a thing to be a part in something like Bishop's orphanage. The story is fascinating: a few years ago, the boys came to Bishop and asked why his chickens had a place to stay but they didn't? Out went the chickens and in went the boys, who literally bunked in the old chicken coop. It took some time but the orphanage was completed earlier this year (the boys flew the coop and moved in) and now they also have the operating budget they need! If you want to see more and find out how to help, please visit our partner's site Childs Hope International.

Housing Revolution for Africa-- Great Opportunity?
Pretty presumptuous to even ask the question, but we met an AC in Kenya that might be capable of doing just that. Robert is a former world-class runner and successful businessman who returned to his Kenyan home after several years in the US. He is working with the European firm EVG to bring modern new home construction capabilities to Africa. The current methods are mostly quarried stone and cement, and it takes a long time to build that way. Their system is a version of Space Frame technology-- imagine a wall as a sandwich of wire meshing with styrofoam in the middle. The walls are incredibly strong but lightweight and concrete gets applied to the inside and outside at the time of construction. This means construction time for a 3 bedroom home goes from several weeks to just a few days, and the price is the same.

There is a huge housing boom going on in Kenya [link] with demand projections for housing is 150,000 units per year while current construction capacity is only 30,000 units per year. Robert's operation can dramatically change that equation and what I like is that this is definitely "selling shovels during a gold rush" kind of business. He's also looking to build a 400 unit development along the new six-lane Nairobi-Thika highway using the new technology [pic]. I suspect we'll be working with Robert in the near future as this is one of the better AC opportunities I've come across. [for more pics of my Kenya trip, click here]

Prognostication: The housing market in Africa and other frontier economies will become one of the headiest global investment opportunities we've ever seen, but it will take patience and bravery to find the right situations-- a Land Rover is only a good deal if its priced like a Volkswagon. The key will be value-add of the project (not just more houses) and proper lending systems: the reason Kenya's demand is spiking is due to recent reformation of the country's lending laws. Unfortunately, bubbles will squeeze communities like Naivasha. Avoiding the bubbles and getting out on the peaks will be the key to success.

Humor Stuff: Cynical Sayings...
> A journey of a thousand miles begins with a single step. Of course, so does falling down a flight of stairs.
> Never say die. I've tried, and it doesn't actually make people die.
> Never underestimate your ability to overestimate your ability.
> Laughter is the best medicine, but in certain situations the Heimlich maneuver may be more appropriate.
> It takes a village to raise a child to hate all of the people in the next village.
>The key to someone's heart is never lost: It's just that the locks were changed 'cause you're some sort of psycho.
>You have to learn to crawl before you can grovel.
> If you can keep your head when all about you are losing theirs, you're probably the executioner.
> Every dog has his day. Of course, his day consists of smelling other dogs' butts.

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