Profitably Ending Micronutrient Deficiency in Rwandan Youth

 

When Hugh Welsh, President and General Counsel of DSM North America, reviewed the agreement that finally established Africa Improved Foods Rwanda, he counted up the weeks and months it took to negotiate. Hugh had a long track record of doing multiple, complex, multi-national deals with other companies. A deal like this should have taken two and half months. This one took two and half years.

 

Over a hundred years ago Royal DSM started extracting coal from the Southern Province of Limburg in the Netherlands. Through the decades, DSM transformed itself, changing the meaning of those three letters from Dutch State Mines to Do Something Meaningful. DSM’s CEO Feike Sijbesma says, “We are intent on ‘future-proofing’ DSM, delivering higher value to all our stakeholders.” In the century since its inception, DSM has made an incredible journey from taking coal out of the ground to moving into material sciences, and now tackling micronutrient deficiency. Thanks to work with initiatives like Sight and Life to Partners in Food Solutions, DSM has become a global leader in ending malnutrition.

So when the World Food Programme (WFP) and the Republic of Rwanda invited DSM to tackle the issue of youth physical and developmental stunting – a startling 44% incidence rate in Rwanda – Hugh saw an opportunity. He and his team understood that the explosive, double-digit growth DSM’s shareholders want won’t come from the United States, China, or the European Union – but it might come from Africa. Getting a foothold in Africa had become paramount to “future-proofing” the company, and a new food product to address Rwanda’s youth stunting crisis would generate goodwill and a potential new market. But DSM makes its money producing micronutrients, not food. Hugh would need partners.

As a mergers and acquisitions attorney, Hugh knew a lot about structuring deals. He turned to the International Finance Corporation (IFC) of the World Bank; the Dutch development bank (FMO); and the CDC Group plc, the UK’s development finance institution, pitching them on creating Africa Improved Foods (AIF) – a Dutch joint venture that would address the nutritional needs in Rwanda with a new set of food products: Nootri Mama and Nootri Toto, enriched porridge flours for expectant and lactating mothers and newborns. But these strange bedfellows didn’t have a lot of experience taking on the kinds of innovative investments AIF would require. They wanted a low risk deal with guarantees on return on capital and tough audit and reporting requirements above and beyond what a private sector partner would require. Negotiating these deal terms would take months. The audit and reporting provisions proved particularly difficult. While the IFC considered them as standard practice to avoid corruption and the paying of bribes, they never really explained them to DSM, who perceived them as punitive and unnecessary. Once DSM understood why the IFC wanted these terms, the parties could come to agreement.

Beyond innovative investors, for the deal to succeed, AIF would also need an innovative customer. With the help of the Clinton Health Action Initiative (CHAI), AIF secured a commitment from the WFP to purchase 50% of its outputs for the next five years and an agreement from the Rwandan government to purchase products for use in its school nutrition programs. Making the Rwandan government a shareholder in AIF Rwanda in return for in-kind contributions of land and soy ensured buy-in at the national level. Whatever is not sold to these committed partners and customers is then sold on the commercial market and in neighboring countries. This is the true key to AIF’s success, and enables it to exist beyond philanthropy as a sustainable business model – replicable almost anywhere.

Hugh and DSM fought for AIF and demonstrated that a sustainable business case can be made even if it is not the most profitable business case – if it serves a strategic purpose. Leveraging the expertise of DSM to create Nootri Mama and Nootri Toto AIF Rwanda contributes to the Rwandan economy by sourcing from 9,000 smallholder farmers, and employing 260 Rwandans in its Kigali plant. In January 2017 AIF made its first delivery to the Rwandan government. Today, Kigali residents see commercials for Nootri products, and recognize them on their store shelves. Nootri Mama and Nootri Toto porridge flours, reinforced with the vitamins and minerals required for children to grow and thrive, exceed global standards for quality and nutrition and will hopefully soon contribute to ending stunting in Rwanda.

 

Opportunities for Replication

This experience offers several principles that USAID and other development organizations could replicate to accelerate impact, reduce cost, and increase long term sustainability:

  • Align with America’s security interests while responding to local needs. Post-conflict areas like Rwanda have a tenuous grasp on stability. While small, Rwanda can play a big role in regional security and stability. Rwanda also has all the natural resources it needs to feed itself, making its youth stunting problem all the more tragic. Africa Improved Foods Rwanda also provides needed jobs for Rwandans and generates income for farmers.
  • Focus on solvable problems. The causes and cures for youth stunting are well known and widely available in other countries. All that’s needed is the political will, investment capital, and purchase guarantees necessary to overcome the financial and public policy barriers.
  • Create solutions that address a market/structural failure. Building a plant like the one in Kigali obviously costs money. Beyond that initial investment, though, to make the solution truly market sustaining required the vision to create a commercially-viable product and structure a deal that would allow it to come to life.
  • Encourage greater co-creation and involvement of the private sector as problem-solvers. Structuring this deal took patience and a willingness to change standard practices and entrenched bias on all sides. DSM had to accept a lower initial return on capital,, remain patient, and endure greater audit and reporting requirements. The IFC, FMO, CDC, and the Rwandan government had to learn what it means to invest in a for-profit business, get over their collective allergy to AIF and DSM making a profit on the deal, and accept higher levels of risk.
  • Have clear exit strategies, quickly bridging from philanthropy to market creation or local ownership. Hugh put it best: depending on indefinite philanthropy would be irresponsible. Opening the plant only to shut it down a few years later would leave a bigger hole in the already fragile Rwandan economy than simply doing nothing. Building a commercial product intended to compete on the open market will earn Rwandans and the investors a long-term return on their collective investment.

By Marcos Da Silva, Associate at CollaborateUp

Photo of Kigali, Rwanda by Dylan Walters

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