5 reasons why the current “Ask-a-guy” deal sourcing approach in Africa does not work

    0
    5 reasons why the current “Ask-a-guy” deal sourcing approach does not work
    5 reasons why the current “Ask-a-guy” deal sourcing approach does not work

    This Article is revealing 5 reasons why the “Ask-a-guy” approach does not work.

    • Not cost-effective
    • Time consuming
    • Inefficient and unreliable
    • Impossible to secure right deal without right network
    • Multiple intermediaries

    The article ends in introducing the series of workshops RiA is launching. The first one is entitled “ Renewables in Africa: Insights and How to effectively source bankable projects” and will be delivered on Wednesday 27 November in London. Register today. To find more about workshop, click here. Places are limited.

    ARTICLE

    Africa is the land of all opportunities and many developers and investors are either looking to step into this promising market or already touring the place in the search for the right opportunities. They are stumbling across the same issue: Sourcing deals in Africa is an incredibly challenging exercise. The recent survey RiA has recently conducted clearly highlighted that the most pressing issue developers and investors face are accessing the right deals. The most common approach which consists of asking a local contact, with whom they have just recently connected, to provide them with the right opportunity is all but an effective method to realise their objectives. There are many reported problems with this method and this article is describing five of the most important.

    • It is not cost-effective

    It may sound surprising, but investors or developers rarely think about how much capital is actually spent toward deal sourcing, and what the quantifiable results are from those efforts. This capital spend on deal sourcing will usually include any expense turned toward the effort of finding more deals. What is included in these expenses are costs of marketing, websites, hotel booking, air travel, dinners, sponsorships, and trade shows and also those professionals responsible for finding projects. This latter cost is certainly the most important. According to the platform Axial, investments firms spend between USD 450k and USD 1m a year to source deals. The finding is similar to RiA study which established that funders and developers will be disbursed around USD 180k every 6 months to secure projects (See table below).

    Deal Sourcing Costs Implications - 5 reasons why the current “Ask-a-guy” deal sourcing approach in Africa does not work
    Figure 1 – Example of deal sourcing costs breakdown

    With a limited amount of strong deals in emerging markets and especially Africa, It is not surprising to see firms spending all this amount for a mere project only.

    • It is extensively time consuming

    Securing the right project in the continent is a lengthy exercise, especially for investors and developers who are not used to the business climate in Africa. The lead times could anything from 6 months to a year depending on the area that is targeted and level of sophistication of the country. To their despair of foreign investors, the lack of local of knowledge could also seriously contribute to extending these timeframes. This also appears to be one the main reasons why many developers have either pulled out or gone bankrupt as they could simply not afford to be hanging around without generating revenues.

    • Inefficient and unreliable

    The “ask-a-guy” approach is a very inefficient method. A certain number of current players RiA has been in touch with have been privately complaining about the unreliability of this approach. The brokers they are interacting with can not always be trusted and sometimes seem not to  display the professionalism that it is expected from them. Compared to other industries like real estate or recruitment where clients deal with professionals that will help them source the right opportunities, this method appears completely unstructured. Clients who most of the time do not have a properly designed sourcing process will be wrongly assuming that intermediaries will do the necessary when all that will be done will be reaching out to local sources to find these projects without following a specific plan.     

    • Impossible to secure the right deal without the right network

    In the utility scale market and to some respect, most developers and investors eyeing Africa all want the same thing. They want access to private deals as opposed to publics tenders. Due to the reduced competition, they know they have better odds at closing transactions, especially in the most sought-after countries.  Unless they have the right network in place or dealing with parties with the necessary relationships on the ground, it is virtually impossible to access these deals. They usually do not get advertised and smart players would not struggle too much to find as they are working within the right structures.

    • Multiple intermediaries

    Another obvious disadvantage is the multiple intermediaries investors and developers are having to collaborate with. As opposed to dealing with a one or very few single points of contacts with they would agree a set of standards to follow, developers and investors find themselves having to manage multiple individuals. Forcing each of these contacts to respect and follow the same standards could become very challenging, especially when dealing with simple individuals and opposed to incorporated and established structures.

    Workshop picture 1 - 5 reasons why the current “Ask-a-guy” deal sourcing approach in Africa does not work
    Figure 2 – RiA CEO, Tony Tiyou, delivering a workshop during a conference.

    A structured and effective approach

    Responding to this challenge would require that a new approach is developed and adopted, one that is structured and giving developers and investors, assurances they would need to deploy their strategy with confidence and deliver results. After all, why reinventing the wheels where the sector could simply take inspiration from other industries like Real Estate as mentioned above?

    To get the ball rolling, Renewables in Africa is staring a series of workshops to address this issue. The first one, entitled “Renewables in Africa: insights and how to source bankable projects” will be delivered on Wednesday 27 November in London. Want to be part of the winners in Africa, make sure you register today. To know more about the workshop, click here Places are limited.

    Let’s Bring (Back) Power to Africa.

    Author: Tony Tiyou, CEO, Renewables in Africa

    LEAVE A REPLY

    Please enter your comment!
    Please enter your name here