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AGF Forum: PE Fund Operations

The 2019 AGF Forum will assemble cutting-edge thinkers, management of leading Private Equity Firms (CFOs, COOs, CTOs), and Asset Managers to discuss the major developments that affect private investment fund operations.

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AGF Service Providers Awards

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Opinion

What a Kenyan coffee chain shows us about economic development in Africa

Brooks Preston, Vice President of Investment Funds, OPIC
Oct. 13, 2016, midnight
535

Word count: 735

Quality Kenyan coffee is sold all around the world but it hasn’t always been easy to find in Kenya. 

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Quality Kenyan coffee is sold all around the world but it hasn’t always been easy to find in Kenya. 

When California native Kevin Ashley came to Kenya as a relief worker in 1993, he quickly noticed that most of the locals drank tea. 

“I had wonderful Kenyan coffee in the US,” recalls Ashley, who discovered his entrepreneurial spirit in Africa -- first starting an aviation business transporting relief cargo, and later founding the Java House coffee chain. From a single café in 1999, Java House has expanded into a 41-store chain in Kenya and Uganda, which today operates three different food and beverage franchises including Java House cafes, Planet Yogurt self-serve stores and the 360 Degrees pizza chain. 

In addition to acquainting more Kenyans with their own world-famous coffee, Java House has helped caffeinate the local economy. The business has created 1,800 local jobs and employs African nationals in all its top management positions. Even its lowest paying entry-level jobs are good jobs, paying at least twice the local minimum wage. All workers have health insurance and a month of paid leave, along with three months of maternity or paternity leave.  

Small businesses like Java House help illustrate how the Overseas Private Investment Corporation’s (OPIC) support for emerging market private equity funds advances our mission of addressing major world development challenges. As the U.S. Government’s development finance institution, OPIC offers financing and political risk insurance to help mobilize private capital in developing countries. We support projects that address a range of development challenges, from food insecurity to energy poverty, often through major infrastructure projects like power plants and water treatment facilities. 

We also know that one of the most consistent development challenges worldwide is supporting young generations of workers and entrepreneurs.  In economies with limited opportunity, small businesses like Java House are a critical source of job creation, helping to promote economic, as well as political, stability. OPIC was able to support Java House through our financing to Emerging Capital Partners (ECP), a pan-African investment firm whose staff is based mostly in Africa and has a strong understanding of local business climates. In 2012, ECP purchased a controlling share of Java House, providing the financing and the business know-how to put the young chain on a growth path.   

“Java House is a great place to hold an informal business meeting, work quietly on your own or celebrate a birthday. A Java House shop forms an important part of the neighborhood soon after it opens,” says Mathew Thomas, OPIC’s transaction leader for the Emerging Capital Partners fund. 

The story of Java House from its founding 17 years ago, provides many key lessons about advancing economic development in emerging markets. Here are a few: 

  • Innovation is valuable. While many businesses are built to address a specific, existing need, sometimes the most successful businesses create demand for a new product or service. Since Kenya is a primarily tea-drinking culture, Java House was initially most popular among expatriates. But over time that changed. Java House made some adjustments to the standard American coffee shop model, for example, deciding to serve coffee in ceramic mugs rather than paper cups, and started attracting more local consumers. 
  • There is a pent up demand for opportunity. While Emerging Capital Partners helped Java House scale its business, Ashley said that from the start he found Kenya to be an essentially easy place to do business. “There is a young, optimistic, hardworking and educated workforce,” he says. “Everybody wants a job and wants to advance.” 
  • A single small business can have a big impact. Java House’s job creation numbers are impressive but its actual impact extends beyond the 1,800 people it has employed. By paying wages well above the national standard and by offering extensive benefits, the business has helped raise standards across the board for food service workers in Kenya. It has also helped bring additional value to Kenyan coffee. Unroasted coffee beans are a valuable export in Kenya. But the coffee that remains in the country that is roasted, ground, brewed, and served in local restaurants, generates far more revenue to the local economy. 

Java House is just one of many small African businesses that OPIC has supported through our Investment Funds Department, which since 1991 has invested $5.6bn across 82 funds operating in emerging markets around the world.  

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