Bridging Continents: Investment and Infrastructure in Africa

In this episode, "Bridging Continents: Investment and Infrastructure in Africa," we are joined by Darnley Howard, President and Principal Consultant at Advansa International and Partner at Pan Diaspora Capital Management. Drawing on over four decades of expertise in corporate finance and strategy consulting across North America, Latin America, and Africa, Darnley provides critical insights into driving sustainable growth in emerging markets.

We delve into the crucial factors determining the bankability of infrastructure projects in Africa and discuss strategies for de-risking these investments. The conversation also covers the unique opportunities and challenges strategic infrastructure projects present from the perspective of Western investors, and best practices for raising private capital for projects in emerging markets.

Transcript

SPEAKER_02 0:00

Welcome to the Global Signal, a podcast exploring how emerging technologies, international policy, and financial markets are reshaping global power. I'm Joshua. I'm Benjamin Fields.

SPEAKER_00 0:13

Each episode we move beyond the headlines to examine the strategic dynamics that will matter not just this year, but decades from now.

SPEAKER_02 0:20

How innovation drives competition, how capital flows influence geopolitics, and where cooperation remains possible in a rapidly changing world. Let's get started.

SPEAKER_00 0:31

We're joined today by Don Lee Howard, president and principal consultant of Advanza International and partner at Penn Diaspora Capital Management. With over four decades of experience in corporate finance and strategy consulting, Donnelly has been a trusted advisor to early stage businesses, governments, and investors across North America, Latin America, and Africa. He holds an MBA from the University of Chicago's Booth School of Business and a Bachelor of Finance from the Wharton School of the University of Pennsylvania. Darney's experience in emerging markets and financial data has been instrumental in driving impactful sustainable growth. Welcome to the podcast, and we're excited to hear what you can share with our audience today.

SPEAKER_01 1:10

Thank you. Glad to be here.

SPEAKER_02 1:16

I think one of the most significant topics as it relates to some of the work where all of our work overlaps is with respect to what's going on in Africa right now. Two key projects are the Liberty Corridor and then the Lobito Corridor Project. And so we're going to talk about the bankability of projects as we understand this is a space that you've spent some time on in your career. And so, from your vantage point, Darnley, what are the key factors that determine the bankability of infrastructure projects within the Lobito Corridor and the Liberty Corridor? And how do you approach de-risking these investments?

SPEAKER_01 2:00

I would say that for bankability, the key factor uh is cash flow. Um, that's that's number one. Um, because that's where the investors get their return. That's how business sustains itself. Uh, and without that, you're you're really in trouble. So I would start with cash flow, and that can come in a number of forms, depending on the project. Um, for example, for energy and electronic, electric power, it's the power purchase agreement. Uh for some projects, it's it's a specific off-taker agreement. Uh, for example, we've the project one project that I'm working on now uh is to find is to help African companies to set up manufacturing uh for renewable fuel for which uh my partner has a contract uh to supply to supply to large fuel distributors in England. So in that case, there's clear there is a clear off taker uh who's prepared to uh to sign an off-take agreement for long-term uh for a long-term business. So that that's the goal is that long-term commitment, um, because that's that's what investors like to see and that's what they tend to evaluate. Um if it were say if it were a housing deal, uh then you would look for uh you would look for a steady market of buyers, uh, often how often in housing projects uh they're they're they're instigated by by government who are looking to provide housing, say, for civil servants or for teachers or for police, and and they'll often help to subsidize them. So so that so that's another form of identifiable cash flow. Uh the other the other item I would say, the other factor that's important is the strength of the management team. And that will be evidenced by either prior industry experience, um, proven management success generally, uh strong relationships in the industry or and in the in the uh specific geo geography that you're working in, uh, and of course, integrity uh in all things. So those are, I think, the two things, uh cash flow and the strength of the management team.

SPEAKER_00 4:34

Um that's really interesting. Um, those are a couple of things that uh we believe that businesses focus on a lot. There's a couple of risks or things or nuances that I want to ask about to either accentuate some problems with those particular risks, or maybe there's different risks. Um we think about the way that businesses work in Africa, for example, um, the Liberty Corridor is unique in that they're building everything brand new and they're working with Liberia and Guinea, which have different correlations than we have with the Lobido Corridor, which is, you know, a much bigger project, but there's already existing infrastructure and already things that are undergoing there. And so when you take something that's much more ambitious, but there's already foundational things happening and there's already activities undergoing, is there a differential risk compared to when you're going to a new region like the Liberty Corridor and you're trying to build it brand new? And then we know that there's involvement from a lot of different funding partners, whether that's from the EU, the US, China. And so can you give us some nuance on what the differences would look like based on new versus existing rehabilitation versus um and then the different types of funding partners and any other nuances you can think that might come up?

SPEAKER_01 5:47

Well, with something that's already existing, of course, there's it means that there's uh in addition to not having to build everything, it also means that there's an sort of an industry there. There's there's an ecosystem, uh, there's more likely to be uh a talent talent base and better human capital. Uh there are more like there's more likely to be ancillary businesses that support it. And therefore, and also um a greater a path to a path to supporting additional businesses that will support that, that will support it. Um the other hand, in in a in an existing business, if there are things that are if there are difficulties, those difficulties might be more entrenched. They might be more entrenched, there might be uh political factors that are that are difficult to that are difficult to wrestle with. Uh whereas with something brand new, uh it means that the founders and the investors are free to define things as as they see fit. Uh you can kind of kind of set the stage for things and uh and take greater initiative and have more of a more of a first mover advantage. So so I think just in that specific area, I think I think those are I think those are the key factors. Um but in general for as you want to think about risk and think about de-risking, I think a lot of it has to do with uh the upfront planning and research that you do, um, the ability to understand the markets before before actually making a commitment. Uh you want to see guidance from trusted advisors, uh people who people who know the region, who know the industry. Uh I would also say to take advantage of the diaspora of which we are all a part. Uh and because there are people who have an understanding of the culture and the and the geography and the business conditions and can be a real real help to companies, especially to American companies who may have little familiarity uh with Africa, uh beyond what's in the media. And the other, I think the other big de-risking uh tactic is to have boots on the ground that to to be there and to see things for yourself, uh to talk to uh to talk to the government officials, talk to business partners, talk to cab drivers, you know, just get get a better feel for for what you're stepping into.

SPEAKER_02 8:27

Absolutely. The nuances in in these different countries in Africa substantiate that local intelligence as well as that cultural sensitivity in doing business, recognizing that the decision-making hierarchy may be quite different from what we see in in the Western world or in other countries a part of the global south. So definitely appreciate your perspective on that.

SPEAKER_01 8:56

Yeah, yeah, definitely. There's a different, there's often different business ethics, different business etiquette uh to be to be mindful of. And the more you meet people and spend time with people, uh, the better feel you get for it for those nuances.

SPEAKER_00 9:11

I'll ask you, I'll guess I'll ask you the next formal question, then I'll try to wrap it into the responses you've said before. Um, I really like what you said about boots on the ground. I happened to sit through a seminar with Matthew Devlin of Uber, and he talked a little bit about their strategy in terms of how do they infiltrate a new country, specifically countries in Africa, on this presentation and how do they make relationships on the ground in such a manner that they're able to make the place investable, event investable originally. And one of the unique things about the US that we do differently from other countries is that we actually don't allow ourselves to engage in corrupt practices or things like that in terms of formal law. And so if we try to have a Western perspective here, um what unique opportunities and challenges exist for Western investors, um, specifically within the libido and liberty corridors, and how are these related to um capital deployment?

SPEAKER_01 10:08

I would say that it's better for us to be known to be known as as honest and straightforward. And once you deviate from that, it changes everything because once you know people know that you're for sale, and then you can't do anything without paying without paying the additional toll.

SPEAKER_02 10:27

Absolutely. There are a lot of developments going on in the United States presently that could materially impact capital flows to different countries in Africa. I think you know, we are keen to see more capital flow to certain countries, uh, such as the Democratic Republic of Congo, or even the likes of, let's say, Kenya. Or in the last, let's say, six months, nine months, they've they've gone through some economic, macroeconomic challenges, but it seems like there's definitely potential for them to stabilize over time. Now, the next question we're going to ask is with respect to capital raising strategies, can you elaborate on the approaches and best practices for raising private capital for projects in these corridors, especially in the context of emerging markets? You've done work in Africa, you've done work in Latin America, and we're hopeful that this answer leads to a lot of people giving you uh calls um as as potential clients, darnly.

SPEAKER_01 11:37

Well, yeah, we uh over the over the course of the last few years, we've developed a network of investors uh who have a focus on specific industries and who have a focus, say on Africa, uh, who we can call on to at least take a look at deals and if and if it fits, if it fits their strategy at the time, uh then it's possible that something can go forward. There's a couple who have actually given us a mandate to to go find deals for them. Uh so so I so that's how we know that there's capital out there that's looking to be deployed. Uh, I would say that generally one can look at either financial investors, uh, you know, PE PE companies, venture capitalists, and then you know, investment banks, people of that nature. Uh, or and then there are also uh investors who look at who are more strategic investors, meaning generally say companies in the industry, um, you know, the company that's gonna sell the railroad cars, for example, might be also a sort of a source of financing in one way or the other. And the terms would be different in that case because they're trying to meet a specific operational goal uh so that they might not, so some of the strict financial ratios and things might not be as critical to them as they might be to someone who looks at it in more of a bankerly sort of fashion. Um I would say that. I would say that general, I we're seeing some trends, for example, more of a trend toward private debt, um, which I would be kind of careful about uh for at least for early stage companies and for early businesses, uh, where you know debt is uh is difficult. Uh is difficult when again going back to cash flow, your cash flow and and everything is highly uncertain in that case. So you don't want to be bound to making a payment every quarter. Um so that would tend to lean one toward equity and toward equity investment. Uh I think that one reason people, founders sometimes tend to want to gravitate toward debt is that they they're sensitive about giving up equity or giving up ownership. And I would say that most many entrepreneurs are, I think, stress that aspect a little bit too much. Uh and should be a little bit flexible. It's better to have a small percentage of something huge than to have a lot, a lot of nothing. So that would be just one caveat that I would that I would want to point out. And I think those I think those are the main thing. Uh yeah, just don't get too hung up on equity amounts. Uh and just and to generally be open to a lot of different capital structures because people are doing a lot of different things to to make deals happen. Uh sometimes it's you know, sometimes there are questions about interest rates, but you know, interest rates kind of are what they are. But at the same time, there there are some there are some firms who will say uh provide a more favorable interest rate in exchange for a bigger payment on the back end, or there might be convertible deals of one sort or another. So there are a lot there are a lot of different ways to structure things to to make everyone happy.

SPEAKER_02 15:05

One of the biggest challenges, particularly for a founder, or one of the I think one of the largest perceptions that has a negative impact on their business, is the fact that you know they they believe they have this unicorn, you know, concept, and not to say, you know, there will be a very small minority which actually builds um you know substantive traction, but they're so fixated on the idea of maintaining equity in their business. But to your point, okay, you can own a lot of the shares in your company, but what about what about scalability? Sometimes you need you know growth equity financing or even you know VC financing to even get yourself in a position where you can uh serve the market that you're focused on, as well as the the customer needs effectively. And especially with artificial intelligence, just broadly advanced technology, some of these expenses, some of these business expenses, whether it be capital expenditure or operational expenditure, is actually increasing. And so I think that point that you've made, Darnley, is quite important for the founders watching this episode or listening in to be mindful of it. You know, you ensure that the investor will generally be generally be engaged or give you resources, whether it be access to their network or or or guidance, and that they have some, they've done some work in the area of business that you are in. Uh but but really it's it's sometimes it's kind of looking at it like accepting help is the point I'm getting at, is very important.

SPEAKER_01 16:58

I would definitely agree. And you make a good point about some of the other uh some of the other benefits that that a good investor can provide in terms of access to a network, um, access to uh access to talent, uh, which makes a big difference for for a lot of companies. I think generally it helps uh to have a plan uh in in terms of not only your basic growth plan, but you should also incorporate financing in into your growth plan. So you're thinking about the what stage that you're at. Uh if you're at a very early stage and you're thinking of it as a seed stage, uh then that's gonna dictate a certain type of investment. As you as you grow, there might be a different type of uh of external investment, or if you're sufficiently profitable, there may be less need for external capital. Uh that depends you know, depends on the on the business. Uh if you're looking to if you're looking to scale, of course, and that does mean more external capital, most likely. Um and just generally, you'll you'll be thinking as you as you grow and as your company matures, uh the level of certainty increases, and that's when you become more attractive to sort of more conventional debt financing, uh working capital financing. Um also want to think about your suppliers or sources of financing uh through, for example, more favorable payment terms, which can really help the working capital situation.

SPEAKER_00 18:34

You've worked across different geographies. Is it actually really that more expensive to invest in Africa? So do we need as much capital? Is it really as risky as people say, or are there differential mechanisms that you can use in order to ensure that the capital that you deployed is being done used like properly? For example, can you push revenue in companies a little bit earlier in Africa? Do you need a smaller amount of revenue? Are there more guarantees? Can you use tranche funding or other mechanisms to make sure that things go along smoothly?

SPEAKER_01 19:04

Well, yeah, there are there are some different tools you can use, like like guarantees are sometimes available. Um lender that we know is very big on standby letters of credit. So that if you have access, if you have access to one, then that can help to get financing. If you have if you have strong receivables, that meaning receivables from a well-established customer, specifically, particularly if it's an export customer, if you're exporting into the developed world, say into Europe or North America, those receivables uh can help, uh, can help to help with the financing and help to help you to be more a little bit more bankable. Uh, I think that again, generally the more knowledge you have about the market uh and about and about the culture, that that will also help in terms of managing the risk. In terms of whether it is more or less risky than other places, I think that I wouldn't want to make broad generalizations. Anytime you, of course, you invest further away from home, then it's more risky. Okay, uh what I know about investing here in DC, it would be different if I were investing in Montana. You know, I would I don't know too much about Montana, so it would be you know, it's within the United States, but it's still there would still be a lot a lot to learn. Uh so from that, and that's why, for example, most VCs don't really stray that far from home. Uh for those that do, um, I would say my advice and one thing that we're leaning into is business incubators, you know, the incubators and accelerators, of which there are some in Africa. And those can help, uh, can help with the vetting process. Someone that's been through that's been through those programs uh is more likely to be serious and credible. Uh, I would say also uh African invest, African-based investors. There are some African VC firms that we know of. But if I were if I were a US investor, I would say I would be, I would encourage one to get comfortable with some of those VCs and then let them do the diligence on all the different places that, you know, of course, just logistically it's impossible to get to all these different places, but but uh a lot a lot of these VCs have strong networks uh all over Africa or at least all over their part of Africa that can really help in terms of evaluating risk and understanding risk. Uh and then and also and by talking to people and by getting building that network, you really get to understand what the realities are versus what the recognition. tension is and you can make better decisions that way. Well there are a lot of, I mean, especially now when there are a lot of a lot of the African companies or countries are facing things like travel bans and you know State Department, the State Department notices and all that, and all that stuff. Which if I were, you know, if I were someone in in in Missouri or somewhere and I'm looking at to self-arm equipment and I see that, well, I can understand people get being apprehensive. But if you know people in those countries or if you know, if you have some understanding of what things are really like there, then you can make a better decision and maybe you can find something that other people are not. And you can take advantage of those relationships in order to in order to strike profitable deals.

SPEAKER_00 22:50

That lines up a lot with the way that I'm doing my dissertation research. And even if I use the example here in the States, like I grew up in Tulsa, Oklahoma, there's a lot of like California investors who sell their houses and come and invest here and they don't know the city whatsoever or the way that it's moving. And so they make some pretty dumb investment decisions. So I agree with what you're saying. Moving on to the next question um specifically I think because a lot of our watchers are going to be really interested in the libido and the um Liberty corridors. So I'll try to shift our um conversation a little bit to those but what role do you think public prop public private partnerships play in the development of those two corridors and how do you see them evolving in the future?

SPEAKER_01 23:34

Yeah that's an interesting question. In fact my uh one of my partners one who I joined the fuel project with he and I had a conversation about that a while back and I I don't know that they're necessarily the magic bullet but I do think that they can if they're done well to help with kind of alignment of interest in that you at least know that uh the government is is is working with you if if if they are also part uh part of the business in some way so so they're I think they can be helpful from that standpoint. Um at the same time sometimes governments will want more than the value they provide justifies and that's I think the sort of the the total war that that we're faced with.

SPEAKER_02 24:26

It definitely helps from a reassurance standpoint to have uh the government involved and depending on the type of contractual structures in place uh this can really be appealing to private investors I hold the belief that to really actualize the potential of these projects you have to look at sources of capital where the decision making process is a bit more streamlined that being family offices as well as sovereign wealth funds and private equity shops as a follow-up how do you view uh these sorts of investors where there exists a flatter decision making process compared to uh those such as you know those such as pension funds or or or broader asset management companies and and incentivizing them to to go forward with these sorts of large scale investment whether it be co-investments or or perhaps they have the sheer capital to to go forward with closing out on some of these larger uh more capital intensive deals I think that in those cases we're looking at we're looking at it a couple a couple factors one with with some family offices the the knowledge base might be a lot less the a lot a lot less than it would be say for uh for a more institutional investor than than it would be for I don't know a BlackRock or Barcos or someone like that where they have you know more where they all have more dedicated expertise and therefore uh those those offices should rely more more on advisors as I as I mentioned before and it would be helpful you know to to position oneself as a trusted advisor and to develop a strong relationship with them so that you can provide provide them the guidance that they need and the guidance that that will help them to move forward. A lot of people they know who some of these investors are but they have trouble forming these actual relationships with them how can people actually form successful relationships with with these investors it it's a matter of value proposition and it's a matter from my vantage point but from your vantage point you know you've had decades and decades of cultivating these relationships well yeah I think it's a matter of just maintaining contact in some form either through things like what you're doing with this podcast or or newsletters or communications of that sort uh even you know social media can be helpful it can be helpful in that way uh some of the initial contacts are often made through alumni or through the universities and through conference conferences of one of one sort or another I think that those are often the most helpful uh also trade associations are very are very helpful and very useful.

SPEAKER_01 27:34

One thing that I started to do which I hadn't done too much of but I should probably do more of is make more use of the embassies um particularly since I'm here in since I'm here in DC trying to cultivate better relationships with with some of the embassies and I'm just sort of taking some baby steps in that direction. And I think having those connections and being able to connect businesses through connect US businesses through those channels uh is is also helpful and in addition to in addition to US government channels and US diplomatic channels as well.

SPEAKER_02 28:13

The US commercial service is often has often been helpful uh no things like ex and bank organizations of those sorts definitely the relationship building does not end with just those in the private sector I think the takeaway for our audience listening in or just who are watching uh via YouTube and the like it's the fact that you need to utilize the resources you have at your disposal whether it be trade associations or whether it be the different embassies or government resources if you're in France or if you're in the United States or if you're in Japan there there generally should be some government resources that that could be beneficial for you to build meaningful relationships with to better understand these markets um and and and to build stronger relationships with those on the ground. Yeah and different no a lot of the advisors are doing different events there are trade missions that happen uh to different places which are also which are also very helpful um one thing that one thing that I'm going to be part of are looking to do it fairly soon is to again leaning into the the incubator uh the incubator theory is to actually be able to have a forum that that gathers incubators and investors uh who are always seeking each other out uh because the incubators are always looking for investors for the company for the startups that they're working with and of course investors are looking at incubators as as a source as a source of of viable deals uh so we wanted to get get them in a room uh in fact we're looking to do that maybe maybe in April to get get them all in a room and have them to share some ideas that's a fantastic idea and and so darnly you know speaking about these large infrastructure projects the Lobito Corridor and the Liberty Corridor how do they contribute to the broader economic development of their regions and what implications does this have for investors?

SPEAKER_01 30:32

Well that for their regions they they make a big difference uh in terms of not only the specific industries I mean I think these those projects specifically are are are have been have been put together I think with minerals and mining in in mind specifically uh which is good and that's important those are important industries in those countries but those I think they can lead to first of all additional infrastructure development in those countries which is needed badly for for all kinds of business and not only for access to to ports and and to and to ocean travel but but also within Africa because there's there's very little so far there's very little uh commerce from one country from one African country to another and I know that that's there there are a lot of people who want to change that and who want to improve that situation. And that's of course what the whole continental free trade area is about and all and those kinds of initiatives and you need you need infrastructure in order to be able to in order to make those happen. You need to be able to move goods to move information to move capital to move people all all those need all those need to be accessible and not thwarted by simply the existence of a national border. Having said that it's going to be it it won't be easy um there I'm I'm always I'm always wondering for example in if if you're building a railroad if you're real building a railroad in East Africa are you going across how's that going to affect you know the habitat of some great migration of you know wildebeest or something and or if there's some other significant environmental impact that you have to think about. If there are there are communities that are there are communities that are going to change one way or another. Some communities will grow because of it some communities will be you know overrun because of it. And there's a lot so there's a lot to think about both from both from the local standpoint and from an investor standpoint. I mean those are some of the things that investors need to think about early on before you start making before you start making commitments and those are the things you want to understand as you make those as you take those initial trips or have those initial conversations with people on the ground.

SPEAKER_00 33:00

And as a really quick follow-up what do you think makes it easiest in order to make relationships with people on the ground and how would that look differently for example if you just wanted a few local people that can kind of teach you about the context you wanted to make relationships with other business owners that could be like suppliers for example or local bureaucrats or lawyers and then how would you go about also building relationships with people that are in government particularly people who are in high positions in government especially within the African context well in government I would say possibly probably through the embassies and through sometimes in some of the conferences like the university conferences sometimes depending on the topic some government people will appear there um more generally I would say first of all use the diaspora I mean that's one thing especially in the United States that's something that we have that a lot of people don't uh is that we have some there's somebody from everywhere uh and uh particularly in the case of Africa since you have to cross the ocean to get here you have to have some resources generally so you're usually you're usually going to be interacting with someone with some capacity and with some network uh you know someone that you met in in in a university environment you know former classmate student or teacher or something along those lines you know those are people who can often who often people who earn the have the ability to get things done.

SPEAKER_01 34:37

For me it was very much through the diaspora at some point there was a time a point where I just sort of looked up and said found out I just know a whole lot of Ghanaians how do I meet so many Ghanaians so uh and some of that started to started to bear fruit I was able to meet a couple people who introduced me to some of their some of their old schoolmates back home and and that's how some partnerships form.

SPEAKER_02 35:02

I I hear you I hear you it's it's it it's it you know you you you spend time to cultivate relationships and I think it's throughout the years that that you begin to see okay uh you know one you never know where someone is going to end up if they're gonna end up you know MD at some sort of bank or or VP somewhere or you know work at some institution or or or work for the government and and and you know I think this is where some of these relationships in terms of helping you to uh helping you to understand the lay of the land uh could be quite could be quite beneficial. So as as our last question um you know Ben will Ben will take the baton.

SPEAKER_00 35:58

And so we've talked a lot about things that are related to the investors or related to the work that we do but one important aspect that exists here is the actual community. And so if we were to use the vantage point of the libido and the uh Liberty corridors how would investments like this or in other types of business affect the broader economic development of the regions and what implications would this have for the people on the ground and then also for the investors and if things go good for people on the ground then how would that um help the investors in the long run?

SPEAKER_01 36:31

Well I think for the investor the investors should make it a point of making sure that um the the investments that they're making and that their interaction in those markets provides a real benefit for the local communities and one and there are a couple of ways that that can happen. One is through transfer of know-how and technology uh through through training and through training for example uh there's of course job creation there's job creation uh but there are jobs and there are jobs you know so making sure that there are good jobs that they're that they're safe jobs uh that they actually improve people's lives uh that that they allow people to to educate their children you know to to really make sure that those things happen um to understand the environmental impact um positive or negative uh that you're going to be having um to to keep though keep all those factors in mind uh you know it's funny even even if you're even if your investment is does not have the label of impact investment uh it can have impact and I think that's worth taking note of that's I mean that's one thing that I've looked to do and that I've made some study of is it's how is to be able to measure impact along various metrics whether it's environmental whether it's uh about human development uh whether whether it's about economic development uh to what to what extent does does your investment support the development of of other of other smaller businesses in that community darnly it's been a pleasure to have you on this episode of the global signal is there any other uh last minute thought you would like to leave uh for our audience watching or listening in today well I would only encourage people to think in terms of in terms of long-term strategy think about what's going to happen in five years ten years twenty years uh and I would think about understanding uh really getting close to the markets so you can understand the risk and really make a sensible evaluation of risk okay folks you have heard it from Mr.

SPEAKER_02 38:49

Darnley Howard himself on how you could potentially actualize some of your investments in African markets as well as how you can think through and build meaningful relationships.

SPEAKER_01 39:03

Darnley thank you again thanks very much thank you for having me it's been a great conversation thank you it was great to have you