by Wesley Cate
In May 2011, Sierra Leone opened First Step, Africa’s first American owned and operated Special Economic Zone (SEZ). The opening was of such importance that Tony Blair showed up the following month to tour the facilities. The zone is a fortunate addition to the resource-rich West African country that has almost no manufacturing base to speak of. For instance, even though mangos thrive in Sierra Leone, the country was importing mango juice from Lebanon and Dubai to fulfill local demand. That was until Africa Felix Juice, an Italian-based juice manufacturer, became a tenant of First Step. Africa Felix Juice now produces mango and pineapple juice concentrates that are sold in European and domestic markets. More importantly, Africa Felix Juice has brought jobs—which pay above market wages—to Sierra Leone by hiring local labor to pick the fruit grown by local mango farmers.
As a Special Economic Zone, First Step acts as a beachhead for export-oriented businesses wanting to set up shop in Sierra Leone. The 54-acre site offers factory shells, stable infrastructure, utilities, expedited government services, arbitration and tax incentives that may not be guaranteed throughout the rest of Sierra Leone. In doing so, First Step hopes to lure foreign direct investment (FDI) to Sierra Leone that brings with it jobs, capital, knowledge and skills. First Step looks for tenants like Africa Felix Juice that can process and add value to Sierra Leone’s raw materials.
The zone is the brainchild of First Step’s CEO Richard Schroeder, who, after working with NGOs for 15 years in microfinance, set out to implement a more muscular way of fighting poverty. Drawing on his extensive experience in development work, Schroeder conceived an NGO/for-profit business model that could bring jobs, skills and growth to countries that had not yet developed a manufacturing base. With unanimous support from the government of Sierra Leone, the country was a perfect fit to implement the first model.
ISOKO Institute sat down with Richard Schroeder (RS) to learn more about legal structures, FDI, faith, and the development and future of the First Step model in Africa.
ISOKO: Would you mind introducing yourself?
RS: My name is Richard Schroeder and I am the CEO of First Step. We established First Step as a subsidiary of a faith-based NGO called World Hope International. The concept of First Step emerged in my mind maybe 15 years ago or more. I was working for an NGO (a good NGO that I like very much), but I ran into the typical frustration that we in the NGO sector run into in the context of job creation, wealth creation and income creation for the poor.
ISOKO: Can you talk a little bit more about those frustrations?
RS: It’s a similar problem that governments have. There is something very valuable in that entrepreneurial fire that you see in certain people and that desire to earn money. You know, call it what you want: Adam Smith’s invisible hand or whatever. I think that entrepreneurs and business people just have a different kind of discipline than people with a NGO or those in the public sector. They make things happen much more efficiently. NGOs do some things extremely well, especially in certain contexts where private businesses fear to tread or where capital just won’t go because of uncertainty or a number of other things.
So in my mind I saw First Step as a kind of hybrid of those two things, recognizing that NGOs are willing to take certain social risks with capital, but that the ideal way for income and job creation to happen in a disadvantaged country or corner of the world is by making it possible for private enterprise and private capital to function.
ISOKO: Special Economic Zones or Free Trade Zones haven’t been particularly successful in sub-Saharan Africa, why is First Step different from those that might have failed in the past?
RS: When we first started negotiating with the government of Sierra Leone about this, that was brought up several times. They’d say, “It has really only worked in Mauritius. How is this gonna be different?” And we didn’t have a very good response for that. The only thing that we could say was: “We want to be a bridge between North America and international businesses; we want be able to speak the language of international businesses and also of Sierra Leone. And we have a footprint in Sierra Leone because of our work with World Hope International. It’s highly respected for its humanitarian compassion through the ministry that they do. We want to harness that and also our presence internationally to provide a bridge for business.” That, I think, is one of the key ingredients to making First Step successful.
And it already has been successful. You probably already know about the fruit juice concentrate producer Africa Felix Juice that came into the SEZ. And we have 3 or 4 other firms in the pipeline. Everything is looking very good.
Also the fact that we are the only American owned and operated SEZ in Africa. Not that there is anything particularly important about being American other than that there is a lot of American enterprises that are looking for a familiar contact, and Europeans also recognize that. I think that is another key to our success.
I should back up a couple steps: So we built infrastructure, right? Factories and roads and wells and all of those things. When I envisioned this project 15 years ago, I had no idea how critically important the legal infrastructure would be. The physical infrastructure is one thing with buildings and everything, but the relationship we have with WilmerHale (a world-class American law firm) has provided literally millions of dollars of pro-bono support and has been absolutely critical and foundational to our success.
International businesses recognize that we have a rock solid legal agreement with the government of Sierra Leone. We have a law firm in Washington D.C. that is supporting us and evaluating and helping to frame how this is happening. I think that has given a lot of confidence to investors or what we call our “partner firms” or “tenants” of the SEZ.
ISOKO: First Step kicked off in May 2011 right?
RS: Well that was our first groundbreaking. We did quite a bit of work before then. We registered and did some of the key work like the legal agreement and negotiating. That took a lot of time.
In June 2009 we were established as a corporation. We didn’t have any staff, but we had a working group in World Hope. We were just kind of ironing out the conceptual wrinkles and everything. We had really great people in World Hope. A businessman by the name of Steve Brown was absolutely integral to making this happen. He was the kind of a guy who was also a little frustrated with NGO models toward serving the poor. He had been drawn to microfinance as many people are, but just like what many people end up thinking is, “Wow. This is . . . this is all there is? This is the only tool that NGOs have for serving in this way?”
ISOKO: Beyond optimizing your World Hope International network in the country, why Sierra Leone?
RS: Well ok so: this idea first came to me when I was working in Bangladesh frustrated with the rural development model that I was trying to push. Then I came into Dhaka one evening and saw loads and loads of people from the rural areas migrating to the city, sleeping on the railway station platform and in makeshift housing in the slums, all trying to get jobs. Some of these were pretty miserable places to work, but for whatever reason they were superior to wherever these people were coming from. And who was I to argue with them, right?
This is what sparked the thought in my mind. I figured, “Well this first step has already happened in Bangladesh: There is already the emerging market in textiles and other kind of light industries engaged in the global economy here in Bangladesh.” My thought was that this model would be good for a country that hadn’t really achieved that first step of globally integrated industrial development a la China, East Asia—the Tigers.
So in my mind this would be applicable to a lot of places in Africa or places like Nepal or Burma. My thinking was, and still is, that the objective of this enterprise would be to avoid the negative contexts of the low labor costs associated with industrial development and engaging with the global economy. The object was to avoid the things that are quite common: poor working conditions, potential for abuse because there’s no registration—the workers aren’t officially registered as labor; they don’t have a contract—those kind of things. At the same time, still benefitting from the profound power that comes by offering a mechanism for the poorest people to be engaged in employment and be part of the whole economic engine. So the thought all along was to get some place in Africa, or some place that doesn’t have this kind of industry, that hasn’t achieved its first step yet.
I had been working in the microfinance sector for most of my career in NGOs. I was working in Kosovo for a long time trying to push this idea in many different places but never really got a very good reception. But I ended up getting sick. I had cancer when I was in Kosovo, and they ended up shipping me off to Johns Hopkins in Baltimore to get treated. Afterwards, I started working in microfinance at World Hope International based in Alexandria. And their main country was Sierra Leone in Africa. I thought, “Wow! This will work here.” And it just kind of happened that I ended up doing this in Sierra Leone.
Now a number of things were aligned: World Hope International happens to be an NGO associated with the Wesleyan Church in the U.S., President Koroma in Sierra Leone is Wesleyan, so are a couple of his key ministers. The Wesleyan church is pretty big in Sierra Leone. So there was already a level of trust that we could build on for developing First Step.
ISOKO: Going off of that, how has your faith played into First Step?
RS: For me, my personal faith journey is integral to everything that I am as a believer. The reason I am in this work is because of my faith. My board at World Hope International and First Step also recognizes First Step as having a faith identity.
I see it as heeding Christ’s command, Christ’s call to serve the poor. This to me feels like my calling. When I was sick and lying in my hospital bed after a couple surgeries I was thinking to myself, “Crap, if I die now that would totally suck because I was dawdling. I had this gift from someone—God—and I blew it. And if I check out now, then I totally blow it.” And that was my kind of my main regret. But I really feel like this is a calling and that my path has been laid in this way. I’m just kind of being asked to walk down it.
That said, we have a commitment that we aren’t going to be programmatically evangelizing. We’re not going to lock people in a factory and sell them Jesus. But the staff is Christian, and we are called to communicate our faith. In Sierra Leone, I think there’s a respect between the faiths and people respect the idea that you can communicate what you believe.
ISOKO: Do you see faith and entrepreneurship interacting with one another?
RS: To me I don’t think that Christians or believers are necessarily better entrepreneurs than non-believers. I mean, for me this just a tool. This is a way for me to serve the poor. I’ve committed my career to serving the poor globally and doing this as part of my faith journey. This is just an instrument for making that happen.
ISOKO: Has there been any talk of the First Step model being replicated anywhere else?
RS: Yah, talk. You know, and a lot of people say, “Do it in Haiti or do it there.” You know, we are working 16-hour days right now. But we want to communicate the concept and the model and would even help people if they wanted to replicate. We’d be happy to franchise, but right now we don’t have a lot of spare capacity.
ISOKO: If someone was interested in replicating the First Step model how would they go about doing so?
RS: I don’t know. You’re the think tank. You’ll have to help us conceptualize.
ISOKO: Anything else you’d like to mention?
RS: Right now we are in the process of establishing a heavy Special Economic Zone. Our existing zone is light, you know for light industry. We’re in negotiation with three or four other serious businesses including one that is gigantic in the iron and steel industry. It will be one of the largest businesses that will come to Sierra Leone.
We want to keep the light and the heavy separate because the light will include a lot of agro processing and the heavy will including a lot of things in processing metals and other things that are in Sierra Leone.
For more on the First Step Special Economic Zone visit the links below:
Richard Schroeder is the founding Chief Executive Officer of FIRST STEP Economic Opportunity Zone, Inc. (FIRST STEP). Prior to taking this role, Richard worked in the non-profit international development sector, living in Bangladesh for three years and the former Yugoslavia for three years. Included in his work with non-profits Richard managed a soybean seed storage and distribution program in Bangladesh, established a highly successful microfinance institution in Kosovo, designed a microfinance based peace and reconciliation program in Kosovo, and was a founding director and chairman of Kosovo’s credit bureau and pledge filing office. From 2005 to 2010 Richard served as the Director of Economic Development for World Hope International (WHI). In this role Richard designed and implemented rehabilitation plans for two large microfinance institutions in West Africa; established a new microfinance institution in Indonesia, created a global loan fund for WHI’s microfinance programs, and, in 2008, initiated WHI’s effort to develop FIRST STEP. Richard has a M.A. from Carleton University and a B.A.in Economics from the University of Winnipeg. He and his wife Allison currently live in Baltimore with their son, Ian.