Manufacturing Sector: Jayesh Shah Unveils Sumaria Group’s Evolution and Expansion Plans

Interview with Jayesh Shah, Group Managing Director at Sumaria Group

Could you provide an overview of Sumaria Group?

Sumaria Group is essentially a family business initiated by my eldest uncle. Originally named Kanti and Company, it commenced as a trading business in Kenya. My father, the fourth among seven brothers, later expanded the family venture to Tanzania in the mid-50s, aiming to diversify geographically. The family has been engaged in trading since the mid-40s.

Our initial foray into manufacturing occurred in 1966, with a significant investment in plastics. Tanzania Plastic, a collaborative effort, marked our first venture into this sector. However, Sumaria Group formally emerged as an entity in 1982, coinciding with my entry into the business. At that point, we established a structured head office, transforming the family’s individual shareholdings into a cohesive holding company. Before this restructuring, direct shareholdings were held by family members in the various businesses we operated.

By the time of my joining in 1982, we had accumulated three or four businesses. Prior to my entry, my cousins had already been part of the business for approximately three to four years.

What is Sumaria Group’s scope of business?

Our journey began with plastics, specifically Tanzania Plastic in 1966. In 1975, my father and uncle invested in Simba Plastics, a business owned by German brothers looking to return to Germany from Tanzania. The challenging climate and the government’s social, anti-business stance prompted their exit, offering us an investment opportunity. Despite lacking the full capacity or confidence for a 100% investment, we brought in financial investors, resulting in a 50-50 split with the family managing the business.

Over time, my cousins joined the business. One cousin operated in Tanzania for a few years, another, still a board member at Silafrica, went to Kenya along with a cousin who is no longer actively involved. These cousins, while retired, remain shareholders of the Sumaria family and the Sumaria Group.

After I joined, in 1984, we made an aggressive investment move by acquiring a pharmaceutical business, Shelys making it the largest in the region. We were early adopters of private equity and in 2003, Aureos facilitated a new plant in Tanzania and the acquisition of Beta Healthcare in Kenya. This partnership allowed us to become the region’s dominant pharmaceutical player. We partially exited in 2008 when Aureos left and Aspen took over 60% of the shareholding. In 2012, we fully divested from the pharmaceutical business.

I met CMG, a Tanzanian businessperson in 1984, and in 1986, we jointly established Nyanza Bottling, a Coca-Cola plant. This venture has thrived for over 35 years. Our continued investments mainly focused on Tanzania, where Sumaria became the head office due to substantial growth.

In 1986, we acquired two sisal estates from the government, which we eventually exited due to the declining popularity of sisal against synthetic alternatives.

We also invested in a privatized detergent plant that had been closed for three years before our involvement. Winning the tender process, we became the highest bidder and invested. Simultaneously, we ventured into a cotton ginning business in Mara, an idea proposed by CMG. This marked our expansion beyond being Coca-Cola business shareholders.

Over time, Sumaria Group’s strategy involved consistent investment, driven mainly by optimism and availability. While not always strategic, we acquired government-based businesses, such as the detergent plant and sisal estates. If you explore the Sumaria Group website, you will see our continued investments. We also entered the dairy sector, ran it for five years, and exited when it no longer made sense. Unlike many family businesses, we have been unique in our willingness to invest and strategically exit when deemed necessary. We diversified into Mozambique, investing in edible oil, starting with soap, and expanded into biscuits and flour. We were 50-50% shareholders and exited that business in 2008, among several others.

What is the portrayal of Sumaria Group now? Where are you present?

Basically, compared to 2008, our turnover has probably shrunk by half. We sold businesses, such as the pharmaceutical, detergent, and FMCG business in Mozambique. We also started some business in Dubai, in the UAE, and all of these have been exited. Today, it is basically Silafrica, where we still have a majority shareholding, the Coca Cola business Nyanza Bottling, where we own 50% of the business, and the ginning company, where we also own 50% of the business. We also have some real estate, like property and land, but we are slowly divesting from it. We had some in Uganda, which we sold, and some in Tanzania and Kenya, where we are gradually exiting. So, essentially, we are consolidating down to Silafrica, Nyanza Bottling, and the ginning company as the three core businesses left for Sumaria Group.

One of the core reasons for this consolidation is that some of the original members, the first generation that started the business, my uncles, have passed on. Their sons and families have also moved, mainly to the UK and other places, pursuing their own interests. Instead of being passive shareholders, many were interested in doing their own things. So, we decided to sell and provide them with the opportunity to explore their own ventures. These three businesses – Silafrica, Nyanza Bottling, and the ginning company – remain our core focus.

In terms of development, where do you envision establishing your business and what is your strategy moving forward?

Currently, as a family, we find ourselves at a crossroads. We are uncertain because it is crucial for everyone to be on the same page. We are actively discussing whether our aspirations and visions align. These discussions take place during our AGM and when meeting other family members. At this stage, a decision is pending on whether to expand the business, continue investing in new ventures, or explore individual entrepreneurial paths. Over the past five to six years, each of us has had the opportunity to pursue independent business ventures. For instance, my son, who has not joined Sumaria Group, returned to Tanzania and established his own business with his wife. Similarly, another family member is involved in various investments, such as being a shareholder in a Tanzanian business named Dough Works, involved in Pizza Hut and KFC operations.

What are the latest news on Silafrica and the new developments? We understand you are seeking new partners, and there is considerable interest from various companies and funds. Our latest information suggests a potential shift from a majority to a minority position. Could you provide more details on the current situation?

When we bring in private equity, we must be prepared for various scenarios, as all options are on the table. Upon entering into an agreement with a private equity investor, the outcome depends on their exit strategy. For a strategic investor, they might seek a majority, while a financial investor, such as another private equity firm, may opt for a larger minority position, but not necessarily a majority. Our position will be influenced by the identity of the new investor. We might still retain a majority but with fewer shares, or we could sell a portion of the shares and transition to a minority position. There is also the possibility of a complete exit, particularly with a strategic investor or, in rare cases, certain private equities that aim for full ownership. As a family, we are mentally prepared for any scenario, drawing from our past experiences. For instance, with Aureos, we invested in the pharmaceutical and detergent businesses, but eventually exited both in 2008, selling 100% of the detergent business. In the case of Silafrica, we are open to various scenarios, contingent on the identity of the investor.

How are you currently working to attract investors, and what is your message to them? Can you share some insights into the current situation?

Despite the global landscape presenting unique challenges, particularly with the recent increase in interest rates by the Fed over the past two years, going from near zero to five and a half percent, we recognize that risk appetite has diminished, especially for companies operating in Africa, which is generally perceived as more risky. In this scenario, investors are seeking better opportunities and more reliable players. I believe our strength as Silafrica and Sumaria Group lies in our impeccable track record, emphasizing the importance of reputation. We have a history of successful transactions, and our private equity partners can vouch for our operational excellence.

One challenge in this region is the lack of transparency in financial records, with some businesses maintaining dual sets of books. We stand out in this regard. Our transparent financial practices are well-known, and investors can be confident that the financials we present are genuine and not fabricated. This transparency is a key factor in attracting serious investors to our endeavors.

Can you provide some insights into the current interested parties?

At this point, it is still in the early stages, and the list is extensive. Many of the interested parties are financial investors, with a few strategic investors in the mix. We have engaged a consultant to assist us in identifying the right investors. Currently, we are in the phase of discussions and information sharing. The interested parties have received the initial profile and information, and ongoing discussions involve them delving deeper into the details. Each week, we have multiple calls where they seek more information and eventually decide if they are interested in progressing further. It is too early to determine the final list of investors who will conduct a more detailed due diligence to decide on potential investment. Another advantage for us as a packaging company is our presence in three countries – Tanzania, Kenya, and Ethiopia. We are also in the process of investing in a fourth country, Mozambique, and considering a fifth country, potentially in 2024 or 2025. We are strategically aligning our expansion with the locations where our existing customers have a presence and are comfortable with us. This, I believe, is a key advantage for foreign investors as they see our collaboration with multinational corporations and large corporates. Investors are typically looking for solid customers, and we have a diversified business offering various packaging products, including preform supplies, injection and blow molding products, and a prominent market share in water tanks, particularly in Tanzania where we hold over 50%.

Do you agree that, considering population demographics, Africa will be the only region with a substantial workforce remaining in 2050? The argument is that if you are not established industrially in Africa, you might face challenges due to the lack of workers. What is your perspective on this?

Africa has been touted as the continent of opportunities for the past two decades due to its vast resources. While this sentiment has remained constant, recent improvements in governance and leadership have made certain countries more attractive for investments. Tanzania, for example, is rich in resources and has been experiencing increased investments. Looking specifically at Tanzania’s growth rate, it is expected to be among the top 10 fastest growing countries globally in 30 years, with a potential population exceeding 150 million.

Tanzania’s significance is not only in its growing consumer base, despite low per capita incomes, but also in its abundant resources, from gold to minerals like nickel and graphite. The country is self-sufficient in agriculture and is a net exporter of agricultural products. Other countries like Kenya and Ethiopia share similar potential due to their large populations and available resources.

While acknowledging the need for continued improvement in governance and leadership, the overall trend is positive. Ethiopia, with over 120 million people, has a considerable market potential. Kenya, a market economy for many years, showcases thriving private sector growth, despite political challenges. The entry into Mozambique is also strategic, given its rich resources, particularly in oil and gas.

These countries, with their abundant resources, are becoming key players in the global energy market. Diversification efforts, notably by Europe, reflect the acknowledgment of the importance of these African nations in global resource supply chains. Both Mozambique and Tanzania stand to benefit from this, with significant investments and potential changes in their per capita income. This optimism extends to our region, and we anticipate continuous growth for the businesses in which we are involved.

What inspires and motivates you in all that you are involved in? Is there more to it than just being a family business?

Personally, I have always been an optimist. From an early age, I held the belief that one can achieve anything they set their mind to. This perspective guided me, and it was evident when we purchased the pharmaceutical company. My father, a key figure in the business, was unaware of the acquisition due to his absence from the country during a challenging period in Tanzania. Despite the adverse conditions, we invested at what could be considered the worst time. This experience reinforced my optimism and confidence that even in difficult times, we can overcome challenges and witness improvement. This confidence fuels my belief that we can continue to grow, invest, and establish new businesses in this region.

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