An Unlikely Business District

Musanze

by Alexandra Sing

Few would believe that a province in one of the poorest countries in the world is home to several successful enterprises.  Despite a poverty rate of 65 percent, environmental degradation, malnutrition, and inadequate energy supply, the Musanze district in northern Rwanda demonstrates hope for areas facing a similar situation.  With low purchasing power, lack of market access, and underdeveloped infrastructure, impoverished regions appear to be poor destinations for private business investment. However, it is worth considering that these challenges actually afford tremendous opportunities, not only for business development but for community transformation as well.  As Bill Gates says, “[Social business] is how people can benefit when businesses find opportunities that have been missed.”[1] Economist Paul Polack adds, “The problem is that 90 percent of the world’s designers spend all their time working on solutions to the problems of the richest 10 percent of the world’s customers.”[2] Why doesn’t business target the other 90 percent when it seems intuitive to search for untapped markets?  By exhibiting just a few of the businesses in Rwanda’s Musanze district, I will argue that it simply makes sense to look for opportunities in unlikely places where the gravest problems exist.

One of the worst problems facing Musanze is malnutrition. Fortunately, a business called One Egg was able to find locally available resources and sustainable solutions to this problem.  One Egg is a private company that raises chickens and was founded by an American entrepreneur who had a vision of creating economic opportunity and jobs in Rwanda.  His vision began with a social conscience, but he chose to go the for-profit route for the purpose of sustainability.  As One Egg states on its website, “When a hen house is built it creates jobs in the areas of construction, business, farming, transportation and animal care.”[3] The choice to use chickens as the main capital source was selected because eggs provide a means of income to employees and an affordable source of protein to consumers.  Each day, One Egg produces and sells 4,000 eggs.  The price of the eggs varies depending on the size: smaller ones sell for 50 Rwandan francs (Rwf), and larger ones sell for 55 to 65 Rwf.  Assuming basic math, this indicates that the enterprise is earning at least 200,000 Rwf per day from eggs alone.  In addition, One Egg also sells an average of 3,000 kilos of manure, which is collected from the chickens daily.  The fertilizer is sold for 35 Rwf per kilo and brings in 75,000 Rwf in added revenue.  Once chickens are no longer able to produce eggs, they are sold as well.[4]

As part of its social mission, One Egg engages in charitable giving to malnourished children whose families cannot afford ample sources of protein.  Donors sponsor children through schools, orphanages and hospitals; the funds go to providing the children with eggs.  This not only supplies protein to malnourished children but also creates additional jobs for those who deliver the eggs.[5] Although this part of One Egg’s mission is not-for profit, the sustainability of the company allows One Egg to take on other projects that benefit disenfranchised members of the community.  With this approach, the business is multifaceted and demonstrates that giving can be supplemented with a method of sustainable operations.  If One Egg was simply a donor organization, it would require considerably more donations to support daily operations and labor costs.  Clearly, profit can have other implications for a company’s social outreach.

 

Although poultry is not a unique endowment to Rwanda, there are other businesses in Musanze capitalizing on indigenous resources. One of Rwanda’s most distinctive companies is Horizon Sopyrwa, a subsidiary of Horizon Group.  Horizon Group Ltd. is a private, limited investment company that supports sustainable, profitable Rwandan businesses across various sectors.  The company targets sectors that are of “strategic and national importance” and that show promise for building Rwanda’s private sector and strengthening economic development.[6] One business that stood out as a strategic opportunity was Sopyrwa, a pyrethrum processing company.

Pyrethrum is a small, white flower that looks like a daisy and works as a natural insecticide.  The flower is difficult to grow because it requires specific environmental conditions, namely, volcanic soil.  Due to the specific growing requirements, only three areas of the world are known for pyrethrum production: China, Australia and East Africa.  Because Musanze houses part of the Virunga volcanic chain, the soil and temperature around the northern area is conducive to pyrethrum farming.  As opposed to other insecticides, pyrethrum is organic, leaves little residue, is harmless to humans and pets, and has a superior environmental impact relative to other pesticides.  Moreover, the uses are multi-purposed: Farmers can use pyrethrum for crop protection, individuals in residential and commercial areas can use it for pest control, and public health officials can use it to combat mosquito-produced illnesses.[7] With multiple functions, pyrethrum is proving to be both commercially lucrative and socially valuable.

There are three major pyrethrum processing plants in East Africa, one of which is Horizon Sopyrwa.  At present, Horizon Sopyrwa holds roughly 5 percent of the total global pyrethrum market and the pyrethrum from the company is said to be of superior quality to that of its competitors.  This is why Rwanda’s pyrethrum is popular in Europe and America.

Pyrethrum cultivation is organized into 5,600 hectares of land, which is tilled by approximately 70,000 families in northern Musanze.[8] Once the plants have been harvested, they are sold to cooperatives (24 in total) that prepare the flowers for transport to the refinery.  The result is a supply chain in the production process, which creates more jobs and income at different levels.  Cooperatives pay the farmers 1,000 Rwf per sack and then sell the dried flowers to Sopyrwa for 1,035 Rwf.[9] Thus, cooperatives receive marginal profit, and Sopyrwa receives supplies ready for processing.

Horizon Sopyrwa’s impact is felt in both a micro and a macro sense.  Sopyrwa’s output is primarily geared towards exports, which contributes to Rwanda’s trade profile, but the company is also hoping to expand business within Rwanda.  As new factories and businesses enter the Musanze area, Sopyrwa is signing contracts to supply them with pyrethrum for various purposes.  Sopyrwa is also hoping to sell pyrethrum locally so they can have an impact on communities that could benefit from disease protection and crop cultivation.[10] With pyrethrum growing only in a few countries, Sopyrwa has an excellent opportunity to boost Rwanda’s competitive capacity on a world scale.

A new company that also shows strategic promise is SOGEMR, a private micro-hydro development business.  Although its current hydroelectric project is still under construction, there are many reasons to be optimistic about the potential effect SOGEMR could have.  Only 20 percent of East Africa’s total hydropower potential has been tapped.[11] By 2020, however, hydropower is expected to account for nearly 80 percent of East Africa’s total power.[12] Receiving financing for hydro projects is difficult because of the capital intensity and high risk involved.  In addition, there is frequently a low return on equity, and banks are reluctant to invest in volatile regions.[13]

Because Rwanda has demonstrated stability post-genocide and has a relatively positive record of intolerance to corruption, it could be the next safe investment location for hydropower. Currently, only 6 percent of the entire population has access to the national grid in Rwanda, and the capacity of hydropower that has been installed is underutilized and in poor condition.  Within the next decade, Rwanda will require more than three times the energy it currently has the capability to produce as the population grows and moves to the cities.[14] Fortunately, there are around 100 potential sites for small hydropower plants, and about a fourth of those could possibly be connected to the national grid.[15] The problem is that the appropriate government framework for hydropower installation is lacking; the skills required at the Ministry of Infrastructure to create a national plan are underdeveloped.[16] If more Rwandans are to have access to quality power, new approaches will have to be taken.

Still, SOGEMR offers numerous economic benefits as a private company.  SOGEMR’s Musarara 1 plant, which is presently under construction, is highly labor intensive.  There are several parts to a hydropower plant, which for SOGEMR consists of a silt basin, canal, pipeline, turbine and power station.  For the plant that SOGEMR is building, a canal is needed to route the water from the point of intake to the pipeline.[17] Approximately 200 workers are needed during construction of the canal in addition to the 100 workers needed to construct the turbine.  At the peak of construction, it is estimated that up to 400 workers will be required.[18] Before SOGEMR’s undertaking, workers mainly labored in agriculture or had little means of subsistence.  Although the labor to construct the project is only temporary, the money generated will benefit the community.

If all goes according to plan, Musarara 1 could also be connected to the national grid, in which case SOGEMR could sell energy to the government and bring power to districts beyond Musanze.[19] Even though Musarara 1 is initially more expensive to construct because of the higher quality materials used, it will likely prove inexpensive in the long-run since the materials are more durable.  Besides the construction materials, SOGEMR also has an incentive to maintain the plant due to the profit incentive.  If the plant is not producing energy or is underutilized, SOGEMR will take in less revenue and have a harder time repaying its loans.

By combining the skills and expertise of foreign professionals with local talent, SOGEMR could prove an outstanding example of the benefits of social business.  While operating at profit, the company could provide a crucial resource of clean energy to homes, schools, and hospitals.  As many in the development field agree, infrastructure is the backbone of economic growth.  Having quality, environmentally-friendly energy is essential for further improving infrastructure, creating jobs, and sustaining livelihoods.  If the project is successful, the company could adopt more sites and contribute to Rwanda’s emergence as a hub for reliable East African energy.

While companies such as SOGEMR and Horizon Sopyrwa illustrate the advantages of capitalizing on distinctive resources, One Egg proves that we don’t have to search too hard to find economic assets.  Businesses of any size are always looking to satisfy demand where demand can be found, which often results from a need that is currently unmet.  With this in mind, the large, untapped populations of developing countries are a rich opportunity to target customers since the needs are unlimited.  Private businesses would greatly benefit from this realization by turning their attention from the top 10 percent of the world’s consumers to the other 90 percent of overlooked, potential customers.  The advantage of small to medium enterprises is that they possess greater capacity to transform local communities while simultaneously boosting a country’s regional and global competitive credence.  But it’s not just about making money or improving development statistics; on a basic level, it’s about the validation that workers earn a sustainable living independent of aid or philanthropy.  Social business turns ideas into solutions by reconciling virtuous motivations with sensible approaches, even in the unlikeliest of places.

For full report read: For-Profit Social Business by Alexandra Sing


[1] Bill Gates.  “Making Capitalism More Creative.”  TIME.  31 July 2008.  http://www.time.com/time/magazine/article/0,9171,1828417-2,00.html, 1.

[2] Paul Polack, Out of Poverty: What Works When Traditional Approaches Fail. San Francisco:  Berrett-Koehler Publishers, Inc., 2008, 64.

[3] One Egg.  http://oneegg.org/.

[4] Interview at One Egg.

[5] One Egg.

[6] Horizon Group. 2011.  http://horizongroup.rw/spip.php.

[7] Ibid.

[8] “Horizon Sopyrwa.”  Horizon Group.  http://horizongroup.rw/spip.php?rubrique12.

[9] Interview at Horizon Sopyrwa.

[10] Ibid.

[11] Libyan Arab Jamahiriya Sirte.  “Water for Agriculture and Energy in Africa: The Challenges of Climate Change.”  Ministerial Conference on Water for Agriculture and Energy in Africa: The Challenges of Climate Change, 15-17 Dec. 2008.  www.sirtewaterandenergy.org/docs/2009/E(Sirte_2008_INF_4).pdf, 19.

[12] “ESI’s Hydropower Africa 2010.”  REEEP.  http://www.reeep.org/43.17320/esi-x27-s- hydropower-africa-2010.htm.

[13] Interview at SOGEMR.

[14] Vincent Denis.  “Overview of the Small Hydro Sector in Rwanda.”  MHy Lab.  Oct. 2005.  www.mhylab.com, 4.

[15] Ibid, 9.

[16] Ibid, 12.

[17] Site visit to Musarara 1.

[18] Second Interview at SOGEMR.

[19] Ibid.