Financial Services: SSC Capital, Corporate Advisory and Investment Management in Tanzania

Interview with Salum Awadh, CEO of SSC Capital

What is your scope of business and your competitive advantages?

SCC Capital is a corporate advisory and investment management firm. Our focus is actually on three main areas. One is corporate advisory or strategy advisory, where we do the traditional consulting work, from strategic development, we structure companies, we do turnaround deals, research, feasibility studies, market entry strategies, etc. The second line of business is financial services. We are trying to unlock the availability of capital to the market. By doing that, we have a range of services that will cater to early stage startups, businesses up to major corporate. In that area, we have two sub lines of business. One is an equity crowdfunding platform, which is a digital platform that allows businesses to raise money online from a wide range of retail investors globally. In the same area, we are also providing financial services in Islamic finance, which is a new financing model we are introducing to the market. People have been complaining that one of the major hindrances to access finance for SMEs in Tanzania is the lack of interest rates. So, we are introducing alternative forms of finance, which are interest free, but profit sharing and we share with models that we are introducing to the market. The third area is investment management and investment banking. In this area, we have three main focuses. One is M&A where we advise on mergers and acquisitions. We either represent the seller, mandate, or the buyer. This is for multinational companies who are looking to buy companies in Tanzania and in the region or companies here who are trying to sell and looking for buyers. The second area is around capital raising. We raise money particularly for growth companies and mature companies, anything in a ticket size from one million dollars and above. Our work mainly is to look for these deals, structure these deals, then look for investors to match up with these opportunities and do all the preliminary work to make it easy for investors to invest in the area and that space. We work with multinational private equity and venture capital funds that are looking to invest in Africa. The last area of work in investment management or investment banking is asset management. This is the new line of business that we recently launched. We are trying to use technology to disrupt the way that wealth is managed, especially in many African markets. For that reason, we are currently working on a robo advisor app that will allow democratizing investments so that we allow people to sign up and buy different financial products from stocks and bonds in the palm of their hands through a mobile app and on a web based platform that would allow them to access as many markets as possible. In doing all this, while we are doing some of the services, actually, we will branch them out into almost tending alone ventures. We launched an early stage impact investment fund of $10 million. The idea is to get institutional investors to invest into the fund and allow us to invest in early stage businesses in East Africa. We recently also launched a digital deal origination platform, which is an online platform that allows people with projects to sign up and people looking for investors to also sign up and see how we can use artificial intelligence to match these two parties and how we can do more deals. The main challenge in Tanzania is that there is less penetration of investment, especially private equity and venture capital investments, if we compare to the region. For the past five years, more than 55% of all these investments went to Kenya, and Tanzania was less than 12% in terms of value. So, we are trying to see what we can push to make sure that we attract more investments coming into Tanzania. Two years ago, we launched what we call Tanzania Venture Capital Network, which is a platform, not for profit, which seeks to educate in sensitizing, unlocking the market, and telling people that Tanzania is open for business if you want to do your deals here. We also launched the Tanzania Angel Investors Network as a way to mobilize local capital and tap some of the remittances from Tanzanians living in the diaspora and try to allocate part of these remittances for startup financing in Tanzania. On average, Tanzanians living in the diaspora send home half a billion dollars a year. We want to tap that money to early stage businesses which have been struggling in Tanzania. In terms of competitive advantage, we pioneered this market in terms of bringing the private equity and venture capital industry into the market. Of course, it was there, it existed before us, but it was really much more under the carpet. Now, we are trying to unlock it and then balloon it. We work with more than 30 venture capital private equity funds globally for deal origination in the market. Secondly, we are very diverse. If you look at other companies which are almost in the same industry, they are very singularly focused. We are trying to introduce alternative forms of financing, business, or investment, which do not exist in the market currently. We use Sharia compliant financial screening and we have recently launched the Sharia Index, similar to the S&P 500 Index which is used globally, to allow people to invest in assets which initially they would not have because they are afraid it would limit them to invest in some of these financial markets.

Are these other businesses under SCC Capital or are they entities on their own?

The way we have structured this business is different. People diversify horizontally or vertically. We are trying to diversify vertically by going deeper into things that we do or by launching our services which are related to our core business. All these ventures do not really stand out as independent subsidiaries. Currently, we are building them just as divisions within SCC Capital. The moment they take off, then we will brush them out as independent subsidiaries. We are going to use the group structure when the time is right. But currently, because of the resource allocation, economies of scale, we are putting all of them on SCC Capital for branding and networking and partnerships in the use of resources, the legal factors, tax reasons, etc.

What is your assessment of the capital markets sector in Tanzania currently?

We are still in the very early days of the capital markets, despite the number of years that the stock market has been operational. The capital markets actually is one of the major pillars for economic development of any country. It is an area where people build wealth. We have seen people becoming billionaires through stock trading. Our stock market is yet to get to that level. So, we still have a small stock market. It is still very shallow in terms of number of stocks which have been listed. There are less than 25 companies listed on the stock exchange which is close to $55 billion. We are still struggling in terms of getting more companies to sign up. The number of investors that have registered and the original investors that were trading on the stock market is still very low, about 500 to 600,000. We have a huge challenge when it comes to liquidity. Those who buy shares do not trade and as a result, you can buy shares, and then you keep your shares for a long time. You cannot sell them. If shares are not traded, if shares are not exchanging hands, you do not curate the forces of supply and demand and for that reason, prices get lower and people cannot really build wealth in that market. On top of that, we do not have enough products or options in the market. If you are to invest today in some sort of exchange, you only have two options. You either have to buy stocks or bonds – treasury bonds or corporate bonds. We are yet to see other products that we see in other markets that will create a lot of diversity and introduce new investors to the market. We want to see things like derivatives, ETFs trading on the market, we want to build indexes for the market, we need to see other forms of bonds such as municipal, infrastructure bonds, diaspora bonds. All these types of products will stimulate the market and that will increase a wide range of investors and increase the value of the market. The market will then be able to contribute immensely to the core economic development of the country. Currently, we still struggle in that area.

What challenges does the company face, as well as the industry in general?

We hope that by the end of the next two or three years, we will have raised our fund, at least $10 million, and we will start investing. Secondly, we are currently building our presence in the Middle East, in Dubai in particular. We want to tap investment flow from the UAE, from the Middle East, and from the Far East that is coming down to Africa.

First of all, if you are working in the financial investment space in Tanzania, you cannot scale the business if you only depend on the Tanzanian market because the market is very small. So, scaling that type of businesses in this market will take your blood and sweat. If you want to build a strong stock brokerage, if you want to build a strong wealth management company, if you want to build a strong private market, even a business in Tanzania alone, it will take a long time. So, you must build the business, which is regional focused, where you can have access to other markets so you can bring in investors, whether it is retail or institutional investors, from markets and adjacent, or you can be able as well to help investors access some of these markets. Unfortunately, for the Tanzanian perspective, you are not allowed as an investor to invest outside East Africa. So, that limits your access to global markets where you could probably invest in these markets and diversify your investment portfolio. The number of people that probably can turn into retail investors is very small and the middle class in Tanzania is quite small. It is the middle class that drives the economy and the financial markets in the industry where we are. If you look at the trends in the makeup of the Tanzanian economy, it is not necessarily middle class based or SME based. Even the types of SMEs that we see in Tanzania are not necessarily the types of SMEs you probably see in other African based, more mature markets, such as Nigeria or South Africa or Egypt. For example, if you are offering some of these services, you want to do capital raising for this market. We have around 3.1 million small businesses in Tanzania but less than 20% of these businesses are formal, less than 10% of these businesses have a staff of at least 10 people, less than 10% of these people have at least a bank account. That gives you a larger pool of businesses but it is going to take a lot of work to turn these businesses into feasibility for you to do your capital raising work in terms of deals acquisitions. Tanzania is a small market for someone who is doing services in the finance and investment industry apart from banks. For that reason, you need to build a business with the focus of going global or regional for you at least to build up your assets under management.

Where has your focus been and what kind of traction have you gotten from FDI?

Given the size of the market, we decided to strictly focus on private markets. We are only focusing on private equity and private debt. We are not taking our clients to the stock market or doing IPOs or raising capital or issuing bonds. What we do is very focused on helping a client to raise capital privately. In that area, we have done a lot of work. Especially with private debt, we have been involved and participated in raising more than $300 million over the past 10 years. We are quite busy in that area. We are currently raising $35 million for a copper smelter plant in Tanzania. So, we are building a space in terms of private markets, where there is private equity or private credit for clients. In that area, we have done a lot of work in Tanzania. We have done one deal in Kenya. We are currently working on two deals in Rwanda as well. This year, we are planning to do a few deals in Ethiopia and we have already done some groundwork in that area. Hopefully, the work that we have done in the past few years is much more about building the business.

What has been the impact of COVID with respect to your business and the industry as a whole?

The government has never done anything formally to ask people to go into lockdowns or curfews or anything like that. The government allowed businesses to continue to operate for the various reasons you can see in markets where lockdown really affected the economies. So, the economy and the businesses have been affected by COVID in the areas where we are involved with international markets. Tourism was severely hit because we need people to travel from other markets to come to Tanzania. Some businesses were shut down and lost revenue of 70% to 80% just because of COVID. All businesses which are connected to international markets were hit but no business was spared by COVID. If you were in some way connected to the international supply chain, if you were importing from China, which the majority of local businesses do, those businesses were also affected. In our case, it was both a gift and a curse in the sense that we worked with private equity and venture capital funds during COVID. But venture capital investors were not cutting new checks; rather, they were managing their portfolio companies, their existing businesses, instead of making new investments. The business of private equity and venture capital is about relationships, negotiating, people meeting up to make deals and unfortunately, that could not happen as fast because of COVID. In some of the industries which we are serving by supporting them to raise money, we could not do that because they were also affected. But sometimes a crisis can also create opportunities. Businesses now are trying to reexamine their strategies. They want to be more resilient. So, for that reason, we have been trying to help businesses to restructure their strategies and to restructure their finances. Some had loans with banks, so we had to do some restructuring of some of these loans. Some want a digital strategy or are trying to pivot into new business models.

What is your vision for the company in the medium term, the next three years?

In the next few years, we want to get our fund running. When it comes to private equity, we do not use our own balance sheet, our own funds. What we do is we work it on behalf of the client trying to raise money or on behalf of a private equity investor looking for deals in this market for deal origination. For that reason, we have seen many deals falling in between because these two parties do not come along. I know the local environment very well, but unfortunately, sometimes we have a private equity investor from London, who will probably want to invest in a business in Tanzania the same way he looks at a business in South Africa, which is not working. For that reason, we are trying to raise our own fund so we can invest in the businesses locally. What I want to see in the next two, three years, as one of our major milestones, is to close the fundraising for international investment which has been a major challenge. This is a challenge because people do not invest in first time fund managers easily and they do not invest in local fund managers in Africa. We hope that by the end of the next two or three years, we will have raised our fund, at least $10 million, and we will start investing. Secondly, we are currently building our presence in the Middle East, in Dubai in particular. We have had our footprint there and we registered the business, but we have not been very aggressive. Our idea is simple. We want to tap investment flow from the UAE, from the Middle East, and from the Far East that is coming down to Africa. We can tap it there, build the pipeline, and bring it to Africa. We want to see our business in Dubai as strong so we can bring more investments into Africa. Of course, we can also help African businesses export to these markets. It is going to be much more about trading investment in that area. We also want to make sure that our robo advisor app, which is an investment platform, is up and running. If all goes well, our plan is to have at least 100,000 users on the on the platform as investors who will be using our platform and investing through our platform. We will also continue to streamline some of the things internally. COVID woke us up to that as well. We are trying to digitize a lot of things that we are working on, of course, again to build our market presence and visibility for the people across the world to show that we are in this market and we can help them. We have been operating in our Kigali office for the past two years. We want to be an East African firm. So, we are going to explore the possibility of setting up a small office in Kenya as well as Uganda so we can become a complete East African company.

What are some short term projects that you are working on?

When you are an advisory firm, you usually have two things: projects that you work on for clients, which are ongoing, and the projects that you work on for yourself internally. For the projects for our clients that we are currently working on, the government is setting up the largest and most modern data processing manufacturing plant in Tanzania. We have been commissioned to support the government institution which has been commissioned to do the project to put together the business plan and the financial focus for this for the next five years. Secondly, we have a mandate to sell a project where the investor or European based investor wants to exit the market and they are looking for another strategic investor to acquire that business. So, we are looking for potential buyers. Thirdly, five years ago, when our President came into power, he abandoned the export of mineral concentrates. One of the things that the government is pushing now is to set up copper smelting facilities where we can smelt some of these concentrates locally. So, we are working, we have the mandate, and this will be the largest copper smelting plant in Tanzania costing more than $100 million. We have been raising money for that since the end of last year. Internally, in the short term, we are working with developers who are developing the robo advisor app for the investment platform. We want to promote what we call Halal investing, or ethical investing, and we need to build an index for that. We are now designing the index and the index is ready. We want to work with the stock market to see if we can get all the approvals for the index. For the crowdfunding platform that we launched recently, we have been traveling across six cities in the country to build sensitization for the platform. We are going to be doing the ground launch of the platform towards the first of March.

You are an innovator in this market. What has been your journey?

I went to school here. I did my first degree in Environmental Management with an Economics Minor and then I did my MBA in Finance. I worked for USAID in the State University of New York. I worked for the second largest pension fund before they emerged here in the industry. After that, I thought I had enough mileage to run for myself. I did some international certifications around investment finance. I am globally certified as a chartered global investment analyst. I am also certified by CIMA in the UK in Islamic Finance, as well. So, I did all these certifications and did the training to make sure that I have enough tools to go to the market. And then 10 years ago, I decided to take the jump.

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