00:11Welcome to another edition of Business Africa.
00:14I'm your host, Afolake Oniloye, the top stories this week.
00:17Formalizing Africa's sizable informal sector,
00:20how an investment company is turning unreported consumer power
00:23into verifiable high-growth portfolios.
00:30Kenya's housing crisis, a massive deficit of 2 million units persists,
00:35despite the real estate sector's 5.7% growth.
00:41The Kigage marketplace in Burundi transformed local production
00:45into a formal retail engine with over $20,000 already distributed to young entrepreneurs.
00:56Most of Africa's economy is informal, with 8-5% of workers outside official data.
01:02This makes investment seems riskier than it is.
01:06But can this cash economy be turned into real investment?
01:09Let's find out.
01:10According to the International Labour Organization,
01:15informal employment accounts for a staggering 85.3% of all jobs in Africa.
01:21The International Monetary Fund estimates that the informal sector contributes up to 65% of GDP,
01:27representing a high-velocity cash universe that fuels the continent's daily survival and growth.
01:33Despite its scale, this sector remains a statistical ghost to bodies like the World Bank and IMF.
01:39Because traditional metrics rely on formal tax filings and bank credit,
01:459 out of 10 African workers do not exist on a traditional balance sheet.
01:49This measurement gap creates a severe perception premium,
01:54a penalty where African risk is widely overestimated by international investors.
02:00This is where players like Sengo Capital come in.
02:03With over $1 billion directed across the continent,
02:07the firm is backing aggregators that bridge the gap between the street and the boardroom.
02:13Portfolio companies like Money Fellows, which digitizes traditional savings,
02:17and Gazion, which formalizes retail,
02:20are turning informal handshake trust into institutional-grade data.
02:27To understand how investment firms like Sengo Capital are investing $1 billion to bridge this gap,
02:33we spoke to its co-founder and partner, Richard O'Kellou.
02:37Welcome to the show.
02:39How does Sengo's Capital Strategy convert Africa's informal bankable economy
02:44into investable assets for global investors?
02:49How do you bridge that informal to formal, right?
02:52Money Fellows is a business that started out in Egypt.
02:54It's now expanded to other markets.
02:57In Egypt, as in other African countries, actually other even emerging market countries,
03:01there's an informal style of savings.
03:03Basically, people trying to aggregate savings pools informally.
03:07What Money Fellows has done is take that process,
03:10apply technology, and institutionalize the process,
03:14and allow for savings pools to be much larger than just people that you know,
03:19but with a degree of safety.
03:21So the effect of that is to accelerate the savings process.
03:26If people have security in where their savings sit,
03:29they don't have to know the people with whom they're saving.
03:32They can accelerate their saving.
03:33That means they can accelerate their capital accumulation,
03:36their borrowing, that feeds into spending, and so on and so forth.
03:40Now, how do you make that opportunity,
03:42that handshake available to institutional investors?
03:45You set up an institutional business.
03:47In our case, it's Sango, but there's others like us in the market,
03:50because institutional investors come to these opportunities
03:53through institutional investment funds, right?
03:55So that's the first thing.
03:56Then we go out and we find firms like the team that has built Money Fellows.
04:01We do that through funds who might know those entrepreneurs directly,
04:04as the case is in Money Fellows,
04:05and we could also do it directly to the companies.
04:08To scale this across Africa, what matters more?
04:11Better digital infrastructure or regulatory reform to empower informal traders?
04:16There are factors that then vary by economy.
04:19So if you think about, for example, digitization,
04:21digitization is quite accelerated in economies like Kenya.
04:25It's quite accelerated in South Africa.
04:27It's accelerated in Nigeria.
04:28And because it's sitting on the base of mobile infrastructure,
04:33it changes quite rapidly.
04:34And so you can accelerate the formalization of the informal sector through that.
04:38This other economy is the way it's much slower.
04:40So Tanzania is slower, for example, a little bit behind.
04:44So digitization is important,
04:45and I think it's an important link in that formalization process.
04:48However, if we go back to the businesses you highlighted earlier,
04:52Kazion, for example, is not a digitization story.
04:55It is a recognition that there is millions of people out there
04:58who want a formal structure to deliver product to them.
05:01So Kazion, the big driver of its business is setting up stores,
05:06making self-available to the public,
05:09making sure that the stores have quality service, quality goods,
05:11well-priced goods, and the public will come.
05:14That's not necessarily a digital process.
05:16Businesses like Money Fellows definitely rely on digitization
05:19and on the third link that you mentioned,
05:21which is the approach to regulation by government.
05:24With Iran-Israel tensions shaking global markets,
05:28why is Africa's informal consumer a better, safer edge
05:31for Gulf investors rather than Western equities?
05:34If you are a consumer sitting in Kenya, in South Africa, in Ghana,
05:39or you're a market trader in Kenya, South Africa, Ghana,
05:42what does the war actually mean to you?
05:44At most, maybe your fuel price will rise.
05:47Other than the fuel price,
05:48the local dynamic that you see across Africa,
05:51which is that the informal nature of the traders,
05:54economies, consumers, et cetera,
05:56is largely highly, highly localized.
05:58What happens in Kampala has nothing to do
06:01with what happens in Barara, which is four hours away.
06:04That's the same case.
06:05Pick a country in Africa.
06:07That's exactly the same case, right?
06:08And so because it's highly localized,
06:10it's disconnected from global dynamics.
06:12So if you are an investor, Gulf investor,
06:14European investor looking at Africa,
06:16even actually African institutional investor,
06:18the best assets for you in those types of situations
06:21are assets that are uncorrelated,
06:23disconnected from global chaos,
06:25disconnected from global drivers,
06:27from global commodity prices,
06:28from global currency dynamics, et cetera.
06:30And that's today largely Africa
06:32because Africa has been mostly historically disconnected.
06:35Its trade with the rest of the world is minimal.
06:37And so that then means that the key transmission mechanisms
06:41for this chaos are limited.
06:43And that's the real benefit that you see right now.
06:45Richard, thank you so much for making out the time
06:47for this interview.
06:48Thank you for your time.
06:49Glad to be here.
06:53Kenya's real estate sector is growing at 5.7%,
06:56but still falls far short of demand.
06:59As the government targets more affordable homes by 2026,
07:03private developers face rise in competition.
07:05Our correspondent reports.
07:08The real estate economy in Kenya
07:10is projected to experience stable growth
07:13driven by the current rapid urbanization,
07:16increased infrastructure development,
07:18and continued expansion of government affordable housing.
07:22As more people move into cities each year,
07:25demand for homes, land, and commercial space is rising,
07:29especially around Nairobi and other growing urban centers.
07:32But the supply of new housing still falls well short of demand,
07:36with affordability remaining a major challenge for many households.
07:40The Kenyan GDP is expected to grow this year by 4.7%.
07:45But the growth rate in the real estate industry is about 5.7%.
07:50Though industrial, commercial, and residential real estate is experiencing a boom,
07:56concerns have been raised over the rollout of affordable housing,
08:00which is partly seen as a potential threat to growth in the private real estate sector.
08:04Remember that the government is constructing around 260,000 units of housing annually
08:11because they have a target of around 500,000 units by end of the year 2026.
08:17The effect of that is that it creates a competition to the private sector
08:22because the private sector then runs the risk of being more expensive.
08:27And as the law of demand requires, most people will go for what is affordable.
08:32Though 61% of the population living in urban centers are in the informal settlement,
08:38this is expected to reduce given the aggressive rollout of affordable housing across the country.
08:48In Burundi, the Kigaga marketplace in Bujumbura brings nearly 90 youth-led businesses together,
08:55handling sales so creators can focus on production.
08:58Backed by the government, it has already paid over $20,000 to young producers in one month.
09:04Supported by the Youth Economic Empowerment and Employment Programme,
09:0918 youth-led companies have created Kigaga, a sales outlet for products made in Burundi.
09:16Housed in Bujumbura's Palace of Arts and Culture,
09:19it offers clothing, shoes, artwork, beauty products and food.
09:24The objective is first to highlight the efforts and interventions of the Burundian government
09:29and the country in support of young people,
09:32and secondly to support young people by providing them with a sales outlet.
09:38The center also handles the distribution of their products.
09:44In his operations, Kigaga wants young people to focus on production.
09:50We'll take your products, sell them, and give you 90% of your sales.
09:55The remaining 10% covers the upkeep of this space.
10:01Lacking a physical space, 29-year-old Alphonse Irakose
10:06had to rely solely on online sales, which wasn't profitable.
10:12Since I started selling my products here at Kigaga Center,
10:16my sales have increased a lot.
10:19It has also helped make us more visible.
10:23Customers also appreciate the initiative, which helps fight unemployment.
10:29I think it creates jobs and income for young people,
10:32and it's truly an excellent idea in the fight against youth unemployment.
10:4089 youth-owned businesses are already selling their products
10:44through this shopping center.
10:46In January, approximately US$20,000 was paid out to the young entrepreneurs.
10:55With that, we've come to the end of this edition of Business Africa.
11:00For more business stories and updates, stay tuned to African News
11:04or visit us online at africanews.com.
11:07See you soon.
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