Interview with Herman Kojo Chinery-Hesse, Founder and Chairman of SOFTtribe

Ghana has a booming economy that has been growing by 11% in 2011 and 8% growth last year. Different sectors are growing and because of oil and gold the service industry is also growing. I would like to have your view from a software perspective of the services sector.

The sector is moving forward, but it could move forward a lot faster. We need more public sector projects to be handed to local companies. Currently according to our friends in government, they tell us that the government doesn’t have partners, or sometimes they insist that they give projects to “international” companies, even though we are an international company because we do export. This is an issue because of the amount and size of the contracts in the public sector. Also because the government spends most of the money in the economy it means that if local companies are not prioritised we will experience a slowdown that would be the equivalent of the American government giving all of their contracts to Nigerian companies rather than Boeing and Halliburton and so on. So this is changing gradually, but in the interim whilst that is happening, companies like ours in the technology space need to survive.

We discovered that the telecom companies had found the formula; basically they go to the mass market, i.e. local people and by charging a couple of dollars a day from them each, it winds up being millions a day. For that reason we modified our business model about 5 years ago, and so these days the majority of our products are aimed not in the direction that they were before, where we would sell a big sophisticated software system to a company that would pay us a lot of money to implement and train, etc., but instead we have moved away from that towards providing products for the common man on the street, because that way everybody wins.

The customers pay very little for our service which is typically a pay as you go service; one of our fastest growing products is an anti-robbery, security product. Currently the quality of security that one might need in a place like this is unreachable and unaffordable for most people in Ghana; most people cannot afford to pay 200 or 300 dollars a month for armed response or response when their home or business is attacked. We have managed to create a product for under 10 dollars on our technology platform, so that if your house is broken into all you have to do is call our number and we will send a security company to you, we will tell ten of your neighbours which here in Africa you know that means that they will all come out, we will have the radio station broadcast that your house was attacked and we will also tell the police. These are the kinds of products that you can pay for by scratch card, monthly or pay as you go and you get a big sticker from us to put on your gate.

These are innovations that are unique in this part of the world, and which are affordable and don’t involve going to lobby some company or government agency for a big multi-million dollar contract and yet are as profitable as any other contract. The trick with these things is that you have to think a lot and model the business properly. Such businesses are where I think the future will be. There are also other things that we are doing, pay as you go insurance with scratch cards in partnerships with insurance companies for example.

What about mobile applications?

What I am describing is all mobile based, however only 10% of the population in Africa has smartphones that can have those applications. The average African person uses a phone that can only make calls and send SMS. Therefore for now, the majority of the products that we are launching are targeting the entire population, including the population in the rural areas and this means we are limited to SMS so that everyone can participate. We are helping our people so that the service can be enjoyed by all. We have specialised products that work on smartphones but mostly our products are made for any phone that can make calls and send SMS. When you put your mind to it, you can come up with innovative products that can work with even the simplest second hand Chinese phones. In the future I do think that our industry will head in the smartphone direction. In terms of applications, we used to sell large software applications such as the payroll system my colleague mentioned. Nevertheless, whereas large companies and governments can buy these multi-million dollar systems, imagine I was a Ghanaian guy in a semi-rural area running a carpentry shop with 10 employees and I had to manage my payroll, well how am I going to do that? I can’t afford these expensive systems; I don’t even have an accountant who is equipped well enough to run such a system.

So what we did was that we went into partnership with KPMG. We contracted KPMG to run payrolls for the smaller companies, I think they pay 2 dollars per head and they use our software to run it. Then we went further and went into partnership with UT Bank, whereby if our clients open bank accounts with UT Bank, the bank pays us to do that work. So what happens is that now anyone in Ghana running a small to medium sized SME can have their payroll essentially run for free by an international accounting firm on world class payroll software that would normally cost millions of dollars for just 20 or 30 dollars a month. Suddenly we are democratising and going to the people, it doesn’t only make business sense but it is morally satisfying because it means our people can come up in the world. Note that all these systems are under our cloud service and work with SMS, etc. If a company in Togo, for example a small assembling company in Togo wanted to use this system they don’t have to come to Ghana and we don’t have to go to Togo, we can support them from exactly where we are.

Another product or service that you are working on that impresses the modern consumer is shopafrica.com; can you tell us more about this?

The most exciting thing in my opinion that we are working on is shopafrica53.com. We are working and developing this project in conjunction with Softworks, which is a global IT and software company. We have been working on this for a few years. We are setting up a website called shopafrica53.com and it’s basically going to be an eBay for Africa where the only two things any African, even in rural areas needs is a simple mobile phone and the product that they are selling. Once you have those two things, we can sign you up, we will inspect your premises anywhere in Africa starting with Ghana, we will inspect your goods, check you out, validate you and then we will give you a shop on our website. Once you have the shop, we take care of the international marketing, we do the payment processing, and we have a partnership with a courier company who will pick up your products when they are ordered and deliver them anywhere in the world. This means that for Africans, instead of sending money through money transfers to their cousin in another location who may or may not buy a bag of rice for their granny, they can go on the site and go into the same rice shop that they buy from when they are there and buy the rice directly with their credit card wherever they may be and it can be delivered, they will receive confirmation and granny can call and say thank you. There is also the possibility whereby you may be sitting in Brazil and there was a particular African shirt that you liked when you were in Ghana but you never got round to buying it, well maybe the shop gave you a flyer with the details of their shop on shopafrica53.com where you can buy the shirt which will be delivered to you in Sao Paulo, it can be there in one week if you pay $12 extra for shipping.

We think this is going to have a very significant impact especially on the rural folk in Africa, and will have a huge impact on Africa’s development as a whole. It is not charity work; we also make money from it as we take a small percentage on each transaction. For the people who can’t speak an international language like English or French, they are no longer barred from doing international business. We are actually creating tens of thousands of multi-nationals across the continent with this technology, so that my cousin in the bush who is a good carver suddenly starts selling one hundred dollar carvings, if he sells two a week that is $200 a week. Now we are getting into proper wages, and Africa can stop being viewed as a poor part of the world.

I think that we are wasting a lot of people and talent because they never get a chance, unless they are educated in the city or are lucky to be part of a certain kind of deal, otherwise their skills die with them. Nobody has seen African products on a mass scale. The African products that have been seen by the world so far are crude oil, cocoa, ground nuts and so on. Nobody has heard of African poetry. There are 300 poems coming out every week and they are online. Japanese people love African music. There is a particular music that people in El Salvador love that can make a 20 million dollar turn over a year. Africa has not really been open for business before now. After colonialism our governments basically inherited the colonial infrastructure and have not really benefited from this infrastructure. I think that is one of the reasons why we are only just beginning to win. With mobile phones and the internet we are finding ways and means as a people to bypass that infrastructure. I think that in terms of our economic growth, yes there is the raw material boom but with the efficiencies and the opportunities that have been brought about from all these technologies that have arrived, particularly SMS, at least 50% of our economic growth figures can be attributed to these things. It is not all about oil and raw materials, no; these are not the things that are driving 100% of our economy.

Now you have mentioned that you have certain partnerships, are you interested in further partnerships and if so with what kind of companies?

There is a lot of potential for partnerships in terms of FDI coming here and investing in some of our projects. We are in two minds, I have to be candid, a lot of the time when we have foreign investment in our country; our market is so virgin and different from what a lot of these financial types are used to that two problems arise, firstly they don’t believe us in terms of what we say regarding how the business should be run in order to succeed. This causes a lot of stagnation because you can’t make the kneejerk decisions that need to be made because of all the procedures that are put in place. A place like Ghana, in real terms is like America in the 1880s, it’s a bit of a Wild West environment, you have to think on your feet, be sharp and you have to be flexible. A lot of these investments and money coming from abroad do not lend themselves to those kinds of possibilities. So there have been situations where FDI has killed local companies. You know what I mean. There is also an issue of cost. The controls that foreign investors typically put on African companies are not free. It costs money. The number of people that are going to have to be put into the organisation to watch the books and to ensure compliance to these controls can be costly. These controls can give you lead feet as a company making you less agile. Also they are costly because it means spending money on issues that are not directly related to profitability. If you find a leaner, meaner competitor that is a fully African owned company, they may well beat you to it as they are more agile to make the necessary decisions in that environment.

On the other hand, the dilemma is that African companies do need international investment money to make the large strides to expand their businesses; it is a dichotomy and a dilemma. It is sorting itself out and I think over time, the international investors will come to have confidence in the African CEOs, that they know what they are doing and that their best chance of doing well is to work with them, listen to them and also to learn from them about how Africa works. Given that Africa has been considered a backwater that is underdeveloped, sometimes it is difficult as the head of an African company to be telling your western business partners who are themselves successful, that they don’t understand and should stop and listen to you. It can cause friction; sometimes they don’t believe you or think that you are a crook. These are issues we have to deal with.

Typically therefore we have found that FDI has not come to organisations like ours but it has gone to government monopolies, which in my opinion is not real business. These investors want to have the same benefits that the government was receiving. In the past a lot of these companies were monopolies either making money from the government or sometimes not because many were not well run. We find that where a lot of FDI has been in partnership with the government, the little people like us have our businesses competing with the government which really is unfair as it kills the industry. If the American government owned General Motors, I doubt that Chrysler or Ford would survive because the laws that they would pass would favour General Motors. Therefore it is not something I encourage; I think the government is there to be a referee but not to play. If they are going to play they should choose people in the private sector, incubate them and then leave them alone to compete, otherwise it is unfair to other citizens who want to go into that business. Our people haven’t quite figured that out yet but I think they are realising this as we go along.

You do have to look at both sides; government procurement should be used to empower local companies, but I should not be playing in the market unless it is absolutely necessary. I mean there are some such situations for example if you take the agricultural sector, if you ask me because of what it costs to set up the large farms, maybe the government should set up the farms, sell the shares on the stock exchange and then back off and have the shareholders employ who will run the company. This is the kind of model that I think will work rather than the government trying to run things with civil servants. Nothing run by civil servants has yet worked, maybe I am mistaken but I haven’t seen that yet.

What are your plans and actions in West Africa?

We have a lot of work in other African countries, we have done work in Nigeria in terms of macro financing, we have done work in Burkina Faso selling ERP systems, we have done work in Togo with no problems and we have worked in Liberia in point of sales systems. What we did 5 years ago, when we decided to turn the ship and go for mass market products so that we are not victim to the whims of government officials or some big arrogant guy in a company was that we made the decision to change and we created 10 to 15 new products that address the mass market, the pay as you go, bottom of the pyramid market. We are just finishing the Ghana runs and we are now ready with a couple of these to run into the rest of Africa. As I said all we need to do is to get a partner and we can start to roll and run operations from here in Ghana, we don’t need to move anywhere.

I am glad to report that we have been very successful, we are about to roll products into Liberia, Guinea, Sierra Leone and believe or not even into South Africa with our security products. We have picked up the partners for these countries and we are about to roll. It will be a very straight forward roll out. We used Ghana as the test tube to make sure that everything was smoothed out and we are happy to report that it has been working very well and so we are ready to go into these countries. Now it is case of marketing and acquiring clients. There is no new work to be done really because we have done all the testing in Ghana and we know how these products behave and so we are quite excited about our new expansion strategy.

What about working with all the different mobile operators and structures in these new markets?

Yes it is a very valid question that you are asking. We spotted this vulnerability early in the game about 4 or 5 years ago. All of our products are designed to work from a phone call or an SMS, and when I say a phone call, I don’t mean an international call, if you call our server for example when you are under attack, our server doesn’t answer as such so it doesn’t cost you anything. However we know you have called and we know what to do. The SMS service also doesn’t cost anything an there is also the option of the internet. All our transactions are SMS based and so on so we don’t have to deal with all the Telecom companies in each country and have thus bypassed that issue. By using the SMS content and the intelligent software of our MX platform on our end, which will decipher what the SMS says and then will perform what is necessary. Therefore we haven’t had to deal with the telecom companies in any other way except as a vehicle for sending the SMS messages, which they obviously make a bit of money from. The content of the SMS is what we use and our system is intelligent and international.

Project yourself 5 years into the future. Will you still be carrying on with the government payroll work? Will the consumer side be the major aspect of the company?

In 5 years’ time we believe we will have a company that will be a significant player in African trade. All of the monies that we are moving around for trade will pass through our accounts. We will also have a number of products such as our security product in the majority of African countries, so we will also be an important player in terms of security albeit through partnerships. If we are lucky we will be significant enough so that when national planning is taking place, organisations like ours will be called up and asked about trends happening in that country, for example they will be able to ask us if we see more trade occurring in the northern part of the country or the southern part of the country, because we will have that information, we will have live data that nobody else will. We will have live data of actual transactions and they won’t need to refer to some study made by some World Bank guy.

How do you see Ghana as a whole in 5 years’ time?

We have one or two challenges now but I think that within a year they will be resolved. I believe the two people who contested for presidency the last time are both enlightened people who both represent the new Africa. So I think Ghana would really have to snatch defeat from the jaws of victory to lose. There will be hiccups along the way I’m sure, but now we have oil and we have enlightened people at the very top, I think we will be doing very well. I think our children will have a wonderful life. Africa is rich.