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3W visits Root Capital clients in West Africa

At the end of January 2012, I headed off to Ougadougou to meet Willy Foote, CEO of Root Capital (RC), and Diaka Sall, RC’s Senegalese loan officer covering Francophone West Africa.  I have seen Root in action many times in Latin America and Haiti, but this was the first time that I have been to Africa to see the model.  The impact was striking – maybe even more so in Burkina Faso where the need is so great and where the development/aid world has such a minimal presence.  We saw a wide variety of companies, both existing and potential clients, in an array of markets – cashews, mango, fortified seed producers/distributers, and shea butter.  I will give a taste of a few companies and then move into overall, organizational conclusions.

The first company we visited was Nefaso, a seed company that would fall into the Frontier Fund.  Just a quick background of the classification of the two RC funds:

  • The majority of RC’s investments are in export crops within the Sustainable Trade Fund (STF).  The STF will be at operational self-sufficiency in the year 2015.  The idea behind “Scale and Demonstrate” is that RC can achieve scale and financial sustainability, with the Sustainable Trade Fund, to create a demonstration effect and catalyze a financial market.  During this stretch, yet realistic, 5-year Scaling and Impact Plan, RC expects to treble its outstanding balance to $170M USD.
  • To drive impact, as well as operational sustainability, RC will also “Push the Frontier” – RC is continuously pushing the frontier of rural finance where others have yet to tread. The “Push the Frontier” strand is embodied in the Frontier Portfolios—a purely pioneering operation dedicated to leveraging RC’s expertise to deliver new kinds of impact to a broader set of small-scale farmers. The Frontier Portfolios include loans for activities that RC and others have not historically financed, such as the production of goods grown by smallholder farmers for domestic consumption, which reach a broader set of small-scale producers and could ultimately turn into the next STF.

Back to field notes – Nefaso is an agriculture company that aggregates small-scale grower associations, using an “out-grower” approach to source its seeds.  It’s not an exaggeration to say that businesses like Nefaso will be central to any long-term solution to malnutrition and famine across sub-Saharan Africa — namely, by enabling much higher yields of staple food crops for household consumption via access to locally developed, old-fashioned hybrid seeds that Africa desperately needs.  What’s exciting from an impact perspective is Nefaso improves farmer livelihoods by paying good prices for a new form of cash crop — certified seeds — then turns around and sells that product (via a network of mom-and-pop agro-dealers) to thousands of smallholder Burkinabe farmers. They, in turn, produce more nutritious basic grains for local bottom-of-the-pyramid consumers. It’s the kind of virtuous “farm-to-fork” circle that could transform food security in sub-Saharan Africa. We learned that Nefaso pays the farmer association over 100% price premiums for certified seeds (versus what they’d get selling it as grain on the local market). The company then cleans, packages, and markets those seeds to isolated agriculturalists across the country through 14 agro-deals based deep in the countryside. Allegedly the seeds more than double crop yields in one year. Again, none of this is GMO, rather they are hybrid seeds developed by local agricultural research institutes that crossbreed desirable seed strains and attributes to maximize yields, drought resistance, etc.

After our meeting beside a village elder’s house, we walked under shea trees, entered a small cement depot, and saw a new rice dehusker.  The association acquired the machine for $6,000 last year, paying 50% from its rice seed earnings and borrowing the rest over 2 years from a micro-lender. The village leaders emphasized how the machine has freed the women from countless hours of manual labor during harvest season. Through word of mouth, farmers now arrive from 25 km away to use the equipment, thus it has become a micro-enterprise in itself.

From Nefaso, we went to a large shea butter association with 400 women producers.  Although processing the nuts into a cream through a manual emulsion process is back breaking work, shea is called “woman’s gold” as it is one of the only sources of secure, additional income.   By pooling shea producers, the cooperative members are able to increase efficiency, decrease costs, increase quality and reach higher volumes, thereby demanding higher prices – all leading to greater profits which can be used to improve daily life and the business.  For example, this cooperative was able to purchase a nut cracking machine which also presses the cracked nuts into a paste – significantly decreasing much of the intense labor required to produce the final shea butter.

From the buzzing shea processing “plant” – really more of a clearing off the roadside – we continued on our journey to a modern mango processing plant which sources from 2,000 local producers and exports to Europe, primarily Holland.  Remember that BF is one of the poorest countries in the world (BF poverty rate ranks 161st of 169 countries) and that these farmers have no opportunity for alternative livelihoods.  If these farmers cannot sell their product, they have no income.  The process of moving mango from tree to store is precise and capital intensive — not only is rapid cooling equipment required but also the transport is sensitive to temperature and moisture control, as well as, strict timings.  This particular mango exporter is one of the few locally-owned in BF and would not be in business without the help of RC.  RC helped them weather huge losses incurred at the port due to the war in the Ivory Coast last year (Abidjan is closest port for land-locked BF).   Key to remember is that without a local exporter, the mangoes must be sold on the local market for a fraction of the export price.  The results of this triangulated partnership, between the cooperative, the business-minded exporter, and a socially minded agriculture financier, are clear and significant.  The cooperative has been able to invest in a well, an ambulance, a clinic and pharmacy, and are on their way to completing a mid-wife service – again, illustrating the power of value-added processing to the local supply chain.

A commonality to every one of these clients and potential clients is the vulnerability of the business to risks that are often well outside their control.  These risks require a socially motivated lender.  Without RC, these companies — which are so important not only to the local producers but also to the local economy and job market – would face potentially insurmountable difficulties and obstacles.  In such a poverty-stricken region like West Africa, with almost no agriculture lenders, rural economic development would have little hope.  This trip really hammered home the importance of the balance between sustainability, which we believe is necessary for significant scale, and the social and environmental impact that drives the RC mission.

And the environmental impact cannot be ignored.  Yes, RC focuses most metrics on the economic development, but the environmental impact is huge. The below picture is of an industrial, foreign-owned farm we passed on our way to and from the patchwork of small-scale mango, shea, and cashew fields.

On the one side you see the sugar cane farm, exemplary of big industrial farming in the developing world with all its evils – as we were driving home one night the same fields were on fire, as is often done with sugar cane, resulting in massive emissions to the environment.  On the other side, you see the community-owned land – incredibly dense with tree coverage that goes on for miles.  The trees on the left are mango and shea trees – a viable source of economic opportunity for the local populations, as well as an ever-important green belt that keeps the Sahel in check.  The comparison is stark.  Currently, RC is putting together a task force to work on ways to improve their environmental metrics – the direct impact is undeniable on the ground and must be quantified — as well as incorporated into RC’s communication and reporting.

Beyond the impact and model, RC is exemplary as an organization.  Willy is a charismatic, thought leader, who has successfully created a fine-tuned, professional organization, not a one-man show.  Importantly, RC’s core values and culture permeate the entire organization, with incredible depth and knowledge at all levels.  Unlike many organizations we have met, RC has been able to develop into a dynamic organization that is not dependent on one person.  It was gratifying to watch the exchanges between Willy and the loan officer, Diaka – Willy had faith in her but at the same time guided her with his wealth of field experience.  Interestingly, Willy was able to take a back seat and allow her to grow.  And Diaka, as so many of the RC loan/field officers I have met, exhibited immense financial knowledge coupled with cultural compassion and integrity – a winning combination.  From management, to the HQ mid-level staff, to field officers – whoever I have dealt with at RC has been top quality.