Innovative financing in times of Covid

Covid, as it turns out, has delivered a row of opportunities for Kenyan businesses, manufacturers and entrepreneurs, by triggering a step back from globalisation.

For, the disruption of supply chains meant international brands found, for a while, they couldn’t get their manufactured goods from China, or Turkey, or wherever, into the East African market to be sold: and that equalled no sales.

Which set a lot of strategists thinking. Would it be better, now, to manufacture those goods in Kenya and skip the transport risks?

That doesn’t necessarily mean a whole round of reinvestments in their own Kenyan manufacturing plants.

For there is now an easier way, through the country’s established contract manufacturers, in pharmaceuticals, personal care goods, cleaning products and so on, that manufacture other brands’ products on a contract.

They mean that internationals don’t need to stretch into every market in the world setting up manufacturing plants to get their hair shampoos, air fresheners or food condiments produced locally.

Yet, precisely as brands galore have been looking for contract manufacturing options in Kenya, the finance that local manufacturers need to set up expanded production lines has left the party.

The heightened business disruption and scale of loan restructuring have seen banks opt to fund government over the private sector: business loan growth has fallen sharply.

So, for manufacturers, as one COO told me this week, there is no longer an issue with demand. There is only an issue with supply: how to create the manufacturing capacity to meet the production demand from branded buyers.

Yet the amazing thing about wholesale global disruption is that it changes so many equations at the same time, meaning other new needs have emerged.

And one of our contract manufacturers spotted that, in the needs of Africa’s fastest-growth manager of commercial properties, which was hungry for strong property investments during all the Covid disruption.

So the contract manufacturer sold its manufacturing plant and warehousing to the property investment fund — as an investment— and rented it back for 25 years.

It raised billions of shillings and also got the commitment from its new landlord that its plant and warehousing would be upgraded and substantially expanded.

Meanwhile, the investment fund got a blue-chip client on a rent fixed for 25 years, which is a real asset — investors value a 25-year-ahead guaranteed yield.

All well and good, and a sparkling deal in the world of business. Indeed, the use of property investment funds to finance post-Covid manufacturing expansion even attracted the IFC, the private-sector arm of the World Bank, which provided a loan to finance the property purchase by the fund.

In financial circles, this was a new-world moment, and a case study in Kenyan manufacturing in how Covid can and has created new ways to growth and jobs, despite all the hits.

Yet, there was a part about it that really got to me. This manufacturer is not a client of mine, indeed, a competitor does its PR, but I became peripherally involved offering media interviews about its new deal. And that wasn’t sparkling.

For, in particular, there was one TV station that really got under my skin, because their reporter only wanted to know one thing, over and over again: how much would I pay him to cover the story.

Now, we used to see that a lot from one media house that has lately rather cleaned up its act. But I had never come across that from this TV station.

So, there it is: an inside track from my industry, about people or media that lose their way on the point of journalism, which is to share news that helps Kenya.

For, we need a clean media at least as much as we need a clean anything, for Kenya to rise, including by capturing new business, through innovative financing: which is now possible. You read it here.