FEASIBILITY STUDY CENTRAL AFRICAN FOREST INITIATIVE INCUBATOR / ACCELERATOR · 2020-05-05 ·...

FEASIBILITY STUDY – CENTRAL AFRICAN FOREST INITIATIVE INCUBATOR / ACCELERATOR

December 2017

The Democratic Republic of Congo and Gabon

Executive Summary

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SUMMARY OF KEY FINDINGS (1/2)

The demand assessments in both countries show that there is a real need and opportunity to put incubation mechanisms in place (both in terms of demand from SMEs and demand from ultimate off-takers / financiers looking for a pipeline of bankable businesses)

There is an impact story about how such mechanisms will ultimately support what CAFI is trying to achieve in terms of mitigating risks of deforestation via its support to countries in the region. In Gabon, sectors of interest have a direct link to forests; In the DRC, sectors with less direct link to the forest should be considered

The answers will look different in Gabon vs. the DRC

o In Gabon, the recommendation is to develop an incubation and acceleration program to boost value of natural and sustainable forest activities – essentially using mechanisms to help support the creation of eco- tourism and non-timber forestry sectors as well as driving formalization of the small scale industrial forestry sector. Here, the impact is about boosting value derived from forests in a sustainable way to support the country’s diversification efforts

o In the DRC, the recommendation is to develop an incubation program to drive SME development and promote employment in sectors that can divert people from activities that are acute deforestation drivers

Despite very different environments and needs, there is an incubation ecosystem that CAFI can build off in both countries, particularly in Gabon where incubation is key to the government’s entrepreneurship development strategy (included in the Gabon Emergent strategy). However, many gaps and challenges need to be taken into account and could be partly filled by CAFI’s intervention in both countries

Sources: Dalberg analysis

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SUMMARY OF KEY FINDINGS (2/2)

In Gabon, one can build off JA Gabon and APJA for incubation activities, and from Entreprenariumfor acceleration programs. These entities already work with the government and donors (EU, AfDB). JA Gabon implemented the first working spaces and incubators in Gabon in partnership with the ministry of SMEs, and large private sector players such as Olam. APJA is a network of business people that have experience and expertise specific to the Gabonese context. Entreprenarium has trained and supported promising entrepreneurs, including women, develop innovative business models

In the DRC, a more nuanced approach need to be taken as there is less to build on in terms of existing incubation mechanisms. I&F, Tropenbos and Elan RDC could be considered. I&F is a local incubator part of the Afric’Innov program that aims to build capacity of incubators on the continent. Tropenbos is a research, capacity building and institutional development technical partner, running programs in several countries in South-East Asia, Latin America and Africa, including the DRC. ElanRDC is operating a broad private sector development program across the country, with several sector touch points including energy, agriculture and SME development

To move forward and capture these opportunities funding needs to be secured for design, set-up and 3-5 years of operations

o Based on high-level cost estimate the operational budget could be approximately US$750,000 per year for the DRC and US$850,000 per year for Gabon. Design and set-up costs being around US$500,000 per country

o The implementation road map for each country will have 3 phases: 1) define a clear business plan building on the feasibility study findings and detailed value chain analyses; 2) establish the pilot incubator and start creating impact by working with the first cohort of incubatees; 3) refine the model and focus on expanding, strengthening the ecosystem, having clear sight of impact measurement and of the handover plan for sustainability


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CONTENT

Project context

Feasibility in Gabon

Feasibility in the DRC

Incubator design options

CAFI Feasibility

study

Summary of the project objectives and methodology of the feasibility study

Project context

Assessment of the entrepreneurial environment (demand and supply) in the DRC to determine market gaps


Assessment of the entrepreneurial environment (demand and supply) in Gabon to determine market gaps


Proposed incubator benchmarking, design options and road map for implementation

Detailed incubator design options

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The aim of the study is to appraise the feasibility of business incubators / accelerators in Gabon and the DRC to foster private sector development

Study Overview

• The study combines learning and analysis from four areas:

Enabling environment to review market conditions and broader context

Demand assessment to establish enterprise’s needs & potential market

Supply assessment to identify existing coverage & gaps

Benchmarking and Design options to establish design options for both countries based on best practices and findings on the ground

Background

• The Central African forest is the world’s second biggest tropical rainforest, covering 240 million ha. It is also home to 60 million people and feeds more than 40 million people in urban areas

• CAFI’s objectives are to recognize and preserve the value of the forests in the central African region to mitigate climate change, reduce poverty and contribute to sustainable development. It achieves this by both scaling-up international support to transformational reforms and by catalyzing investments on the ground

• Gabon and the DRC have given priority to forests and the environment in their vision statements and strategic plans, but currently the limited of private sector engagement is putting pressure on the forests considered as an economic asset


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Focus of this document

CONTENT

Project context




CAFI Feasibility

study


Project context







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In the DRC, the main driver of deforestation is attributed to populations depending on the forest for energy and food

Sources: The UN Collaborative Programme on Reducing Emissions from Deforestation and Forest Degradation in Developing Countries (UN-REDD), 2013

Forest covers at least 112 million hectares of the Democratic Republic of Congo (second-largest single block of forest in the world).

Tens of millions of people (40 to 60 million) in the DRC depend on the forest for their survival and the DRC has the largest area of deforested land in the Congo Basin.

Fore

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Deforestation

Forest degradation

Subsistence farming

Collection of wood-fuel


Industrial and artisanal forestry

Slash and burn agriculture in rural areas

Wood energy and charcoal production

Firewood used for household consumption

Lodging industry

Development of commercial agriculture

Expansion of arable land for food production

Illegal forestryLarge scale illegal logging in the Eastern Province

Main drivers of forest loss Examples

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The private sector, especially SMEs, could play a critical role in championing innovation to reduce deforestation

Reduce deforestation rates even with high population strains on forests through private sector development

Reduce reliance on unsustainable forestry practices

Reduce reliance on wood fuel use

Reduce slash and burn agriculture

prominence

INCUBATOR VISION

OUTCOMES

INCUBATOR SECTORS

ForestryEnergy Agriculture

Divert population from forest exploitation

OUTPUTSIntroduce energy

alternatives to wood fuel

Develop sustainable

commercial and subsistence

farming

Develop sustainable

forestry businesses

Diversify employment opportunities

Cross - sector

INCUBATOR MISSION

Provide support to startups & SMEs in targeted sectors that have the potential to reduce reliance and pressure on the forest

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There is potential within these sectors to overcome the current status quo of deforesting activities, and to provide fresh employment opportunities

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Providing sustainable private sector models to move away from industrial and artisanal forestry along with employment opportunities to limit illegal forestry

Forestry

Given limited fuel options and grid supply, household technologies and clean tech could reduce reliance on wood-fuel and charcoal and change behaviors

Energy

Diversified employment could help reduce the reliance on the forest as an economic asset, being aware of the importance of proximity of activities to high deforestation areas

Cross-sector

AgricultureSustainable technologies to diversify methods of farming while improving crop productivity and reducing land take. Including improved inputs and extension services


Theme

Impact Assessment

Forestry Agriculture

Energy

Cross-sector

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In the DRC, small and medium enterprises face numerous barriers and significant constraints that can lead to failure

Unclear SME Policy - Specific support targeting SMEs can be unclear and complicated to apply for, as there are a range of public agencies defining the business landscape for SMEs (ANAPI, Ministry of SME, OPEC)

Taxation – The tax system is generally viewed as burdensome,with tax demands coming from multiple agencies. SMEs can becharged large penalties for mistakes in tax returns or delays

Protection – Strong networks are required to protect businessinterests, needing local leadership backing in challenging marketconditions, this complicates starting new initiatives/businesses

Political Risk & Investor Confidence - Investor confidence isworsened by the political environment, legal protections are in placeon paper but seldom tested in court, while financial risk (currency,inflation) increase costs of capital

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Sources: Dalberg interviews

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When it comes to business development, early stage technical support and risk capital to grow and prove bankability are major constraints for SMEs

Ideation Early stage Growth

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Financing at this stage is not a critical pinch point unless there is specific R&D requirements or technical expertise needs

There is a need for risk capital to prototype business and technical concepts. However, entrepreneurs can be wary to give up ownership

Entrepreneurs are having difficulty accessing credit as their businesses are not well formed and credit-worthy

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Entrepreneurs are struggling to fully develop commercial viability and business models

At this stage furtherbusiness management skills (rigorous accurate business planning and financial management) are needed as informal and university alike have poor business training

At this stage business services are available from banks, however investors are needed to make well-informed business decision

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There is a lack of technical expertise near the start of projects with time wasted due to re-inventing the wheel

Where innovative ideas are being developed In the DRC, there is a lack of connection to technical experts

Technical mentorship could help increase potential to raise finance due to better managed risks

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Entrepreneurs need more opportunities to share ideas and lessons learnt

Entrepreneurs need more opportunities to share services such as administrative function and tax advice

Entrepreneurs need more opportunities to connect with investor networks, to promote ideas and raise finance

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Not a constraint Minor Constraint Major Constraint

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There is high potential demand for technical and financing support with nuances to guide incubator design

While the level of demand is clear, it will be important to establish how this is demand is currently being met and what ongoing initiatives exist

Component Exogenous Risks & Constraints

Idea Stage Financial support

• Startups lack particular robust commercial viability and business model setting at an early stage

• It will be important that the incubator has services at the ideation stage to prime for investment

Startup skills

support

• The financing provided must fill the gaps where entrepreneur’s cannot use their own funds to develop initial ideas

• Equity investments will need to be clearly discussed early and be part of selection criteria

• The incubator will need to be well placed within the enabling environment to ensure that investments are protected

• The incubator will need to a have a robust fiduciary process, while acknowledging the market conditions for business

Sector specific

technical knowledge

• Entrepreneurs will need regular input from domestic and overseas technical advisors as businesses progress

• The incubator will need to provide a platform to bring in this expertise

• Intellectual property and entrepreneurs unwillingness to share ideas may inhibit

• Potentially a lack of data will undermine robust market assessments in this stage

• DRC is perceived as a risky environment and access to technical expertise can be expensive

• The incubator will need to have an efficient way to leverage technical expertise through mentorship

Design Requirements

Sources: Dalberg Interviews

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Four main actor groups currently serve the entrepreneurs and small businesses, their service provision varies significantly within each group

Actors Description

Incubators

Commercial banks are currently the primary form of access to finance In the DRC for SMEs, there is a clear distinction between banks that provide services for SMEs such as RAWBank and Procredit Bank and those that don’t such as TMB. Outside of the banks there is a only a limited pool of investment funds (XSML) and private investors active In the DRC.

Financiers

There are a number of independent private incubators which focus on business services rather than financing, some are regionally focused such as I&F Entrepreneriat in Bas Congo. And other are either recent (MIME Incubator) or in development (Delions Incubator). Incubators typically serve cross-sector markets rather than having individual specialisms.

Public Sector & Associations

There are a number of public sector actors setting the policy environment and business landscape for SMEs, including OPEC and the Ministry of Industry. While there is a broad acknowledgement of the need to improve the SME eco-system, overlaps between agencies can cause confusion for private actors.

Technical / Development Organizations

Several development actors have incorporated private sector development into their activities with IITA being an institutional example and UKAID’s Elan RDC being a programmatic example.

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Sources: Dalberg Interviews

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The service coverage for early stage companies is mixed, with opportunities for CAFI to scale up activities and fill gaps

Ideation Early Growth

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Friends & family arecurrently filling this gap, which works for commerce & services but not for business with high set up or R&D costs

There is a lack of risk capital to make the investments necessary to grow the business, in part driven by poorly perceived minority protections

There are only a limited number of instruments targeting SME’s but a pipeline of viable businesses is missing also

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There is a lack of business support to review the commercial viability of ideas even before getting business plans sorted

Some small entrepreneurs can access business and financial management training only if successful in gaining bank debt

Banks are pressing forwardwith business support services to established SMEs but not necessarily those with potential for growth

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Entrepreneurs appear to lack connections to research institutes or with SMEs overseas to explore ideas to import in the DRC market

There are a large number of developmentactors In the DRC, but their expertise does not always reach early stage companies with the potential to grow

There are a large number of development actors In the DRC, but their expertise is not in reach of growth stage companies

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There is little to no shared space in major urban centers where entrepreneurs can collaborate. Plus, access to investors is limited

There are no examplesof shared services for administrative functions such as accountancy and tax

Companies like COPAMECOand FEC are reliable forums for networking, although not necessarily helping to reach investors

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Well provided Partially provided Poorly/Not provided

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There are several supply-side gaps where the CAFI incubator could step in with nuances to define the value proposition and subsequent design principles

While the gaps in the supply are clear, the incubator design will need to acknowledge the trade off between control over stand-alone service and partnering to enhance current capacity

Function 1 -Risk Capital

Area of Gap Design Requirements

• Services need to intervene to help test commercial viability, just training on how to write a business plan won’t work

• Partnering with organizations that have relevant expertise will ensure both training content and delivery are high quality and targeted to a specific audience or sector group

Function 2 -Early-stage business &

Technical skills

• A clear process to protect investor interested, likely needs an offshore fund for currency protection and skills development to ensure robust business modelling and financial management

• Incubator will need to have a strong but independent governance structure and an embedded tax support function to help protect firms

• Long game so needs significant commitment from CAFI

Function 3 -Shared space and network opportunities

throughout

• Location is key and clarity of objective/target organizations given the broad range and backgrounds of entrepreneurs that could be attracted

• Outreach networks and events could cater to companies outside the incubator cohort to ensure the broader ecosystem moves forward

• Provide mechanisms for old cohorts to mentor new cohorts

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Sources: Dalberg Analysis

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CONTENT

Project context




CAFI Feasibility

study


Project context







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The Gabonese forest is one of the best preserved in the world offering considerable potential to help in the country’s development efforts

Sources: Hosonuma and Al. An assessment of deforestation and forest degradation drivers in developing countries , 2012

13 %88 % 50 %

Forest coverage Protected lands

0,04 %

Exploited landsDeforestation rate

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Deforestation

Forest degradation

Commercial agriculture

Industrial forestry

Infrastructure and urban expansion


Rise of palm oil plantations

Timber industry

Libreville’s growth encroaching the Mondah Forest

Charcoal production

MiningBelinga iron ore mine, planned inside the Ivindo National Park

Main drivers of forest loss Examples

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An incubator could play a critical role in leveraging the economic potential of forests sustainably, promoting business creation in non-oil sectors

Improve forest sustainability and support the country’s economic diversification strategy through a sustainable exploitation of forests

Reduce reliance on timber

production and logging

Maintain forest protected areas

Reduce deforestation due

to commercial agriculture

INCUBATOR VISION

OUTCOMES

INCUBATOR SECTORS

Forestry/Wood processing

Tourism Agriculture

Increase the valuation of the

non wood products

OUTPUTS

Develop financially self

sustainable national parks

Develop sustainable commercial agriculture

Promote sustainable

forestry and local wood

transformation

Develop the NTFPs industry to mitigate reliance

on timber

Non Timber Forest Products

(NTFP)

INCUBATOR MISSION

Provide support to startups and SMEs in sectors linked to forests that have the potential to develop and scale-up sustainable business models

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Sources: Dalberg Analysis

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To prevent forest loss and degradation in Gabon, sustainable business models linked to forest exploitation can be developed

Source : Economic and Sector Work Private Sector Development, Stakeholders interviews, Dalberg analysis, 2017

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Gabonese legislation requires companies in the timber sector to set up local processing units raising the timber processing target to 100%. This obligation would bring about the redistribution of value added for the benefit of Gabon

Wood processing

Eco tourism

NTFPs provide a wealth of resources including foods, medicines, construction materials, cosmetics, as well as resources of spiritual and cultural significance. However, much of this value and the livelihood security that NTFPs can provide is little researched and understood

Non timber forest products (NTFP)

Gabon has assets for tourism, in particular its rich biodiversity that can be made profitable by economically enhancing its thirteen national parks. However, road infrastructure remain a constraint and the country’s image as a tourist destination is to be built

Impact Assessment

Woodprocessing

Eco tourism

Non Timber Forest Products

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Leveraging specific opportunities in forest related sectors would create economic and environmental value addition

Source: Economic and Sector Work Private Sector Development, Stakeholders interviews, Dalberg analysis, 2017

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• Long distances between the logging and processing areas and poor quality of road

• High transportation costs (by railway)• Inadequate skills of the local labor• Lack of competitivity under the global

market of the locally processed timber

• Markets in NTFPs are often hampered by poor infrastructure and storage and by lack of market information

• The scientific knowledge base and understanding of economic opportunities is poorly documented

• The value chain is fragmented and informal

• Technical challenges of doing eco tourism in tropical forest covered countries and lack of local expertise

• Lack of good infrastructure (accommodation, roads) in the country and high cost of transportation (by air & road)

• Weak country image as a tourist destination

Relevant Constraints Opportunity Areas

• New legislation aiming at developing local transformation can be an incentives for investors

• Set-up of the Nkok Economic Zone• Several players in the 3rd

transformation stage but still informal

• Potential for disruptive innovation in the food and beverage (such as acai) or pharmaceutical (example of Ibogai) industry

• Potential implication of local communities

• Ongoing sector reforms as part of the national strategy (e.g. e-visa)

• New sources of financing and business models possible for the national parks

• Former oil companies staff investing and working in the tourism sector (highly skilled labor pool)

Forestry & Wood processing

Eco tourism

Non timber products

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To become strong players in the private sector and drive strong and diversified economic growth, entrepreneurs need to overcome a various set of constraints

Comments

• Slow and complex administrative procedures:entrepreneurs report facing major delays when setting upa business (which can take up to two months due to thelack of a one-stop shop for business registration) orperforming regular administrative tasks partly due to thecentralization of institutions and decisions in Libreville

• Little institutional coordination, especially for SMEssupport: the private sector support ecosystem is verypoorly coordinated and responsibilities are fragmentedwhich hamper effectiveness

•Non reinforcement of the tax exemption provision forSMEs: the government has implemented tax incentivesfor SMEs but the actors are not well informed, henceconstraining SMEs performance

• Failure of the government in paying VAT credit causesserious stress in the companies' finances

• The dependence on imports for raw materials makesproduction costs very high and local productionuncompetitive compared to imported products

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Gettin

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Starting a

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Paying Taxes 187

The DRC CAR*Gabon

Gabon’s performance on selected Doing Business indicators (rank out of 190)

Note: *Central African Republic

Source: World Bank, Doing Business Report, 2017; DRC 2017 Economic outlook, Dalberg analysis

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Access to finance Technical knowledge

NetworkBusiness services

Entrepreneur persona

Unless they start a business intheir sector of expertise, newentrepreneurs are likely toenter the services or retailsector for the lack of adequatetechnical knowledge

Because they had previouswork experience, the youngentrepreneur could usehis/her savings or access anetwork of angel investors tostart their business

Networking is critical to get freeservices and business support,hence the entrepreneurs at allstage seek help from theirpeers. Business owners inGabon gather in severalassociations

Entrepreneurs might haveexperience of a certain sectorbut don’t necessarily knowhow to start and run abusiness hence they needbusiness development support

The typical entrepreneurs in Gabon differs from what can be observed in other countries. They are generally older and have had previous work experience

It is observed in Gabon that most entrepreneurs are adults, aged over 35, who quit or lose theiremployment and decide to start their own business

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Source: Dalberg analysis

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Depending on the stage of their business, entrepreneurs in Gabon have various needs to thrive; mainly technical, financial and advanced business support

Ideation Early stage Growth

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Entrepreneurs need seed capital to launch their businesses and cover initial costs but the typical entrepreneurs in Gabon has had previous employment and some savings to start

As the company grows personal funding is no longer suitable. Entrepreneurs often turn to local banks for loans but struggle to present strong creditworthy accounts

Attracting funds to grow is often a critical step of the SMEs’ growth but a strong network can help to overcome this challenge

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Entrepreneurs need support to strengthen entrepreneurial mindset, mature business ideas and assess technical feasibility

SMEs at this stage need support to professionalize their operations and prepare for growth. They also need affordable working space

Enterprises need business support to international standards to overcome a stage where there is limited national benchmarking

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There is a need for technical support to prototype and test products or services. Failure to test is a problem for entrepreneurs currently

SMEs in this stage mostly operate in service sectors, creating intense competition and the companies in more innovative or technical sectors lack support

Medium enterprises with a strong network can access resources while others struggle to make the right connections

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Entrepreneurs need support to formalize ideas and write business plans intended to shareholders. They also need working space.

Business advisory services are critical at this stage to allow SMEs to operate formally and interact with the public administration stakeholders

SMEs at this stage can usually afford their own facilities and other business development support and the need for shared services is less critical

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Not a constraint Minor Constraint Major Constraint

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In Gabon as well, there is high potential demand for an incubator to support early stage and growth businesses and provide various set of services


Component Design Requirements Exogenous Risks & Constraints

Financial support

• As the entrepreneurial culture is not widespread in Gabon, business skills building should start from the basics to develop the business mindset and provide financial literacy

Business skills support

• The incubator should connect the entrepreneurs to a mix of financial actors providing seed capital, risk capital and equity to cover different needs at different stage

• The incubator should provide support in financial documents preparation

• It is necessary to do a careful screeningof the entrepreneurs to make sure appetite and foundations are solid and maximize chances of success

Sector specific

technical knowledge

• Such support should bring together international players with local established businesses to share their experience with SMEs but also serve as mentors

• If the incubator does not have a clear curriculum, gaps may arise as entrepreneurs are unlikely to self-assess what support they need

• To attract technical corporate partners, the business case for Gabon needs to be strong, showcasing clear pathways and attractive competitive advantage compared to other countries in the region

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There are four main actor groups that serve the entrepreneurs and small businesses, their service provision varies significantly within each group

Note: 1 Association pour la Promotion de la Jeunesse; 2 Private Investment Promotion Agency 3 Gabonese National Confederation of Employers’ Associations

Source: Stakeholders interviews, Dalberg analysis, 2017

Actors Description

Incubators

• Three out of ten banks in Gabon are publicly owned entities. In general, commercial banks in Gabon mainly work with government entities or big private players. Micro finance is in a very early stage (BGFI launched LOXIA as it’s MFI branch) and equity investors are timidly entering the market with a limited reach (e.g., Moringa fund invest in commercial agriculture, I&P in BTP, etc.)

Financiers

• The government has recently signed several agreements with private sector players to launch sector-focused incubators to support economic diversification and private sector development. There are also private player and NGOs supported incubators such as Entrepneuriam, Espace PME, JA and APJA1

Public Sector & Associations

• An examination of the private sector institutional support reveals public players such as APIP2, the SME direction, Promo Gabon, etc. and private association such as the Chamber of Commerce, APJA, CPG3, etc. They provide high level assistance to both aspiring entrepreneurs and well-established SMEs. However institutional changes often occur

Technical / Development Organizations

•Many development agency present in Gabon have private sector support as part of their programs, working to enable the environment and spur economic growth. AfDB supported APJA to set an incubator and AFD with its ARIZ program has established a guarantee fund

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Actors are mostly providing business development and shared services to enterprises at the ideation stage

Ideation Early Growth

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Money from family, friend and savings is available at this stage and entrepreneurs often have network that can ease more formal loans

Banks in Gabon target large private company and few financial institutions are willing or have the ability to work with SMEs

Barring few exceptions, the financing of long-term investments is beyond the scope of commercial banks and few PE firms are present in Gabon

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Some private players provide business services to SMEs and the content is adapted to the very early stage or pre-launch of the company

Business service providers don’t target this category of SMEs and their pricing is often unaffordable. Existing incubators and business associations working with them have only a limited reach

Professional serviceproviders target SMEs of this size or larger but their provision is still limited and the quality is not always adjusted to international standards

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Entrepreneurs engaging in sectors requiring technical innovation often fail to find the necessary supportor have trouble in seeking international assistance

Passed the prototyping stage, entrepreneurs have no access to technical assistance and government institutions such as IRET1 don’t get enough funding to scale up their support

Technical support needed atthis stage is not available locally and entrepreneurs need to establish international partnerships

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rks Entrepreneurs at this

stage can easily get connected to business association and share services with their peers

This stage is the main target of working spaces and service sharing entities present in Libreville but the pricing still high

Needs are more specific at this stage and companies are growing in size. Finding common services and spaces suitable for different sectors is challenging

Well provided Partially provided Poorly/Not provided

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An incubator in Gabon could play a critical role in matching the missing supply of technical and financial assistance needed by the SMEs

Function 1 -Financing

Area of Gap Design Requirements

• For each sector, the technical partner needs to have experience in a context similar to Gabon

• The country is experimenting economic diversification and experience has shown that the level of complexity of the Gabonese business environment requires granular understanding

• A multi-sectorial incubator should outsource technical support to ensure coverage

Function 2 -Technical assistance

• Financial support should prioritize businesses that don’t heavily rely on the government to mitigate political and regulatory risk

• Fro early stage companies, the incubator should play a role in facilitating relationships between local financiers and businesses

• Investors into SMEs should have an appetite for risk as private activity in some sectors still experimental, with instable performance

Function 3 -Shared

business support services

mentoring

• Real estate and renting prices are expensive and limit SMEs capacity. Ashared space should make sure to have affordable pricing and collaborate with the existing industrial areas to provide adequate facilities to businesses depending on the sector

• Gabonese entrepreneurs report a lack of role model in their immediate environment. The incubator should pool a global network of mentor to support the nascent ecosystem

• Business support services should be aligned with international standards


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CONTENT

Project context




CAFI Feasibility

study


Project context







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The analysis shows that sector-targeted incubators are feasible in both countries, with operational specificities for each context

• Feasibility: There is a lack of early entrepreneurial support and businessmanagement support especially in target sectors. Additionally a number of SMEsshow promise for growth but have limited technical and financial support

• Value proposition: An incubator-accelerator program will leverage CAFI’stechnical networks to support a select number of entrepreneurs in potentialtarget sectors while leveraging impact investor networks to help existing SMEsconnect with international organizations in supply chain development andfunding

• Target sectors: Sustainable Forestry, Eco-Tourism, Non-Timber Forest Products• Operational budget: ~US$ 850,000 per year• Timeline: Pilot in Q3 2018

Feasibility & Outline

Design

• Feasibility: There are gaps in the existing ecosystem, especially for early stageenterprises and entrepreneurs. Sectors’ potential seem compelling, however, theenabling environment is challenging

• Value Proposition: An incubator program that leverages CAFI’s technicalnetworks to allow entrepreneurs and early stage enterprises to build on bothdomestic or regional innovations in target sectors. Helping startups to form andbecome ready for downstream investment (from local financial institutions andinvestors) and expanded market activity

• Target sectors: Sustainable Forestry, Energy & Agriculture• Operational budget: ~US$ 750,000 per year• Timeline: Pilot in Q2 2019

Feasibility & Outline

Design

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14 organizations from a range of geographies were analyzed in the benchmarking exercise, comprising of incubators and investment funds

South Africa

Sub Saharan Africa

2Scale

Latin America

Ethiopia

DRC

Zambia

France

India

USA

Ghana

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*Full benchmarking profiles are included in Appendix A


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The benchmarking revealed several characteristics that were considered in the incubator’s design

Description

Clear placement between public and

private sectors

Leverage the business expertise of the privatesector and adequate policy support from thepublic sector to design successful initiatives.

Use a value chain approach

Take into account all challenges in value chainsfrom the production to the commercializationphases and focus on developing acomprehensive support system

Build linkages between SMEs and

large businesses

Grow the domestic economy by developing localsourcing, with a focus on increasing the country’scompetitiveness and capacity

Integrate an advisory board

An advisory board composed of technical expertscan be critical to ensure the businesses needs interms of sectorial expertise are met

Offer an office space and shared services

Reduce the operational costs of starting abusiness by providing rentable space andadministrative services

1

2

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2Scale

2Scale

Examples Characteristic

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Based on the country assessments and benchmarking there are three distinct options, which would be adapted operationally to suit each country’s context

Start-up Incubation Program

A

Start-up InvestmentPlatform

B

SME Accelerator for Growth Program

Value Proposition

• To improve the focus on the commercial viability of business models and need for disruptive intervention in target sectors CAFI could target ideation & early stage companies

• Business development and technical support would be provided to either strong country startups in target sectors or to strong local entrepreneurs coupling them with regional proven business models to transfer ideas into the DRC/Gabon context

Target Stage

Ideation

& Early

Early

Growth

• To address the limited pipeline of established SME’s viable for growth investment, CAFI could provide bespoke training to selected established SME’s leveraging connections with multinational partners interested in knowledge sharing

• CAFI would also link strong SMEs to international partners for investments or as off-taker i.e. integrated supply chain solutions

• To address the lack of appetite and mistrust of entrepreneurs in risk capital investment and facilitate investment in early stage companies CAFI could provide a platform to facilitate the matching of existing SMEs to risk capital investors

• CAFI would mainly govern the processes of establishing an angel investor network with clear processes and a legal team to provide confidence on both sides

Option

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Option A – Start-up Incubation Program

Operational Profile

Mobilization Timeframe 9-12 Months

Impact Timeframe 5-10 Years

Level of Complexity Medium

Organizations Processed 10-20 / year

1. Key Selection Criteria: Start-ups with both strong entrepreneur candidates and ideas in the right sectors and/or having activities in selected high risk deforestation regions.

2. Programme-based services: Three-part programme of: 1) General - basics of business management & business plan review; 2) Specific -commercial and technical mentoring; 3) Grant –grant funding for top incubatees & monitoring

3. Location: Pilot physical space in one major economic center, with programme for two additional during expansion phases

4. Revenue model: Mainly donor backed, with small incubatee contribution for services in initial years of operation and success fees for arranged financing

5. Governance & Partners: Programme formed under existing CAFI entity. Partners could include: management partner to operate, and leveraging CAFI’s technical partner networks in target value chains to provide technical mentorship

Initial Design Considerations

Resource Profile (Illustrative)

Full Time Equivalents (FTEs) 8

Annual Operational Costs $ 450k-750k

Annual Grant Support $ 50k-100k

Direct Financing None Proposed

PR

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TARGETED

SELECTIONGRANT &

NETWORK SUPPORTBespoke – Tech &

Commercial MentoringGeneral BD Skills

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Option B – Start-up Investment Platform

Operational Profile

Mobilization Timeframe 6-12 Months


Level of Complexity Medium

Organizations Processed 5- 10 / year

1. Location: Office space in major center and regular investment events in key geographies in shared partner office space

2. Key Selection Criteria: Early-stage companies active in the market showing strong leadership and potential to grow further in the right sectors and/or having activities in selected high risk deforestation regions.

3. Bespoke-based services: Three part services: 1) mentorship and technical training through a hybrid approach; 2) Investor matching forums; 3) Ongoing operational and external technical support

4. Revenue model: Donor support, arrangement fees & equity exits

5. Governance & Partners: 1) In country non-CAFI entity with unique board; 2) Offshore investment vehicle; 3) Light touch government involvement




Annual Operational Costs $ 250-450k

Annual Grant Support None Proposed

Annual Direct Financing None Proposed

TARGETED

SELECTIONNETWORK

SUPPORTInvestor Matching

ProcessCoaching &

Priming

PR

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Ongoing Support

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Option C – SME Accelerator for Growth Program

Operational Profile

Mobilization Timeframe 1 Year +


Level of Complexity High

Organizations Processed 5-10 / year

1. Location: Pilot physical space in one major economic center, with programmes in two additional regions/areas

2. Key Selection Criteria: Established SMEs with strong leadership credentials and significant potential to grow in the right sectors and/or having activities in selected high risk deforestation regions. Time based exits

3. Bespoke services: 1) Growth business planning & promote technical linkage with global corporate partners; 2) Impact investment Mobilization with guarantees to support; 3) Ongoing shared support services (tax etc.)

4. Revenue model: Some attendee fee recovery, but mainly revenue from arrangement fees charged to downstream debt/equity finance providers

5. Governance & Partners: 1) In country non-CAFI entity with unique board; 2) Only light touch government and public body involvement




Annual Operational Costs $ 450-650k

Annual Grant Support $ 50k-150k

Annual Direct Financing $ 2-10M

PR

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TARGETED

SELECTIONGUARANTEE

TERM ENDSConnection with global partners

Ongoing shared Services

Impact investment support by guarantees

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In the DRC, targeting early stage companies is most viable given the need to build a stronger pipeline of companies that are innovating in target sectors

• Option A is preferred as there is an overarching need to build early pipeline andbring in fresh ideas to innovate in existing sectors and potentially disrupt thestatus quo

• The enabling environment also hinders the development of Option B which willrequired significant confidence in political stability and institutions to encourageinvestment

• Option B & C could yield some short term benefits but might not be sustaineddue to a lack of bankable pipeline

Option SelectionRationale

• The incubator will: leverage CAFI’s technical networks to allow entrepreneurs tobuild on both domestic or regional innovations in target sectors, helping startupto form and become ready for downstream investment and expanded marketactivity

• Sector Focus: Energy, Agriculture, Forestry (non-timber products), Eco-tourism,Services (e.g., ICT)

• In 5 years, what does success look like? The incubator will have helped between15-20+ viable businesses form, that receive downstream financing to grow.Proven innovation will also champion new entrants into target markets. Theincubator will have strengthened the entrepreneurial ecosystem and itself actedas a model for other organizations to replicate in other sectors and geographies

Value Proposition & Success

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In Gabon, an incubator is needed for entrepreneurs to develop early skills and innovate in new sectors, but also assist some SMEs ready for growth

Option SelectionRationale

• Option A is preferred, combined with some elements of Option C. There is aneed to embed entrepreneurial culture within target value chains starting withbasic training and providing a platform for startups to develop from ideas

• However, there are some existing SMEs that could be grown, therefore aprogram focused on early stage companies but with some room for those at agrowth stage is required. Option B would not provide the necessary sharingspace and business management skills that are gaps in the supply-side currently

Value Proposition & Success

• The incubator will: leverage CAFI’s technical networks to support a selectnumber of entrepreneurs with potential target sectors while leveraging CAFI’stechnical networks to link existing SMEs and owners to internationalorganizations for supply chain development, as recommended by thebenchmarking exercise

• Sector Focus: Eco-tourism, Forestry/Wood processing, Non Timber ForestProducts, Agriculture

• In 5 years, what does success look like? The incubator will have generatedbetween 10-15 functional startups that receive downstream financing to grow.These will act as a precedent to encourage Gabonese to enter target sectorsproactively. Coupled with this the accelerator function will successfully couple 5-10 existing SMEs/owners with international technical support to expand to newmarkets or scale in current ones

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Three entry points should be considered to ensure appropriate gender mainstreaming into the functions of the incubators in both countries

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• In the target sectors, prioritize value chains or steps of the value chainwhere gender participation is higher or can be enhanced (distribution of clean cooking energy in the DRC; harvesting of non timber products in Gabon)

• Formalize informal value chains where women’s participation is already high in both countries

Target sectors and value chains to enhance

women’s participation

• Consider a gender lens in the selection criteria, in addition to assessing the entrepreneur, the business/idea and it’s impact potential

• Foster women’s entrepreneurship through specific events (e.g. prominent women entrepreneurs as keynote speakers and / or mentors for entrepreneurs)

Promote women entrepreneurship through

incubators’ selection processes

• Track impact of incubation program on women’s participation in specific sectors or on women’s economic empowerment (e.g., number of female entrepreneurs, number of female employees in the businesses that are being supported or in their ecosystem, etc.)

Gender differentiated tracking of impact


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The implementation road map for each country will have 3 phases, to define a clear business plan, pilot the incubator and expand before a handover process

Phase 1 – Design Development:

Assess incubatees’

opportunities

Draft business plan

Reach out to Partners & sign

MoUs

Develop Business Plan and financial

model

Business plan

Decision: Progress on basis of feasibility study?

Phase 2 – Launch Pilot:

Register legal entity

Hire staff & set-up office

Secure funding & SMEs

Progress with initial cohort

Interim evaluation

Decision: Progress on basis of business plan?

Phase 3 – Refine, Grow & Handover:

Establish refined

structure

Expand to new location or

larger cohort

Repeat cohorts and build network

Handover planning

Close-out evaluation

Decision: Is the potential to grow there?

Decision: Does CAFI want tolengthen it’s involvement?

Outputs

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Based on a high level appraisal of services and operational requirements the combined cost of running both incubators could be over $1.5M a year

Annual Operational Costs Breakdown*

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Phase 1Design

Phase 2 Setup

Phase 3Operational

5-Year Total

Combined operational

costs

$ 250k

Expenditure GabonThe DRC

$ 3.75M

$ 750k**

$ 200k

$ 250k

$ 4.25M

$ 850k**

$ 230k

$ 8.0 M

Expenditure Estimates

Staffing is likely to contribute over 70% while other expenditure, including direct programming

support to incubatees could be around 20% of each incubator’s costs, Grant size could vary

significantly by business need

Gabon’s higher operating costs are driven by the need to have a larger team to manage the

accelerator function, though this is partially offset by a lower number of early stage firms

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Funders and financiers will be interested to understand both the incubators’ impact and the potential for pipeline generation downstream

Entrepreneurs Trained – all incubatees regardless of downstreamsuccess will grow the capacity of the local business ecosystemwhich would create private sector development outside of theincubator’s direct influence. Potential KPI: Number of incubatees,outreach event attendance per annum, client satisfaction

Jobs Created – It will be relatively easy to monitor the size ofincoming businesses and their growth both during and in the yearsafter incubation. Potential KPI: Aggregate number of employmentopportunities created

Viable businesses formed – Not all incubation processes will yieldviable businesses a measure could be to rate successful businessformation on the ability to raise significant further financing post-incubation. Potential KPI: Number of incubated businessesreceiving downstream financing, SME survival rate

Investment pipeline– Related to the above point investors will beinterested in the potential pipeline of investment opportunitiescreated, either to grow bank SME loan portfolios or to improvedeal flow for investment funds and impact investors. Potential KPI:Volume of transactions in incubation companies and sectors

Potential impact within 5 years

Early: 10

Growth: 10

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Early: 20

Growth: 0

$ 1M to 5M

$ 2.5M to $ 15M

150 –1,000

Early: 50

Growth: 20

Early: 100

Growth: 0

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The potential log-frame for the incubation activities will also include indicators related to CAFI’s environmental objectives

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• Number of enterprises in the targetedsectors

• Volumes of national and international sales• Price index of non-timber products

• Increase value of forest – Creation of viablemarkets for non timber forest products

(e.g., honey, Ibogai, etc.) and eco-tourism

Examples of indicatorsObjectives

• % of deforestation attributed to subsistencefarming

• % of deforestation attributed to collectionof wood-fuel

• Cultivated land expansion in highdeforestation areas

• Reduce reliance on forest – Creation ofsustainable business models andtechnologies to reduce slash and burnagriculture and reliance on wood-fuel

• Number of sustainable forestry plantations• Acre of land reforested• Number of certified “green” enterprises• Volumes of wood from illegal logging

• Promote sustainable forestry practices –Development of sustainable private sectormodels to move away from artisanalforestry


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FEASIBILITY STUDY CENTRAL AFRICAN FOREST INITIATIVE INCUBATOR / ACCELERATOR · 2020-05-05 ·...

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Transcript of FEASIBILITY STUDY CENTRAL AFRICAN FOREST INITIATIVE INCUBATOR / ACCELERATOR · 2020-05-05 ·...