- Country: Cameroon
- Industry: Telecommunications
- Stage: Initial growth (first revenues)
- Investment size: $5,000,000 / min. $500,000
- ROI: 50% in 1 years
- Type of investment: Equity
Our idea is to provide financing and project implementation support to Government contractors in Central Africa in general and Cameroon in particular.
I would like to involve the investors in a partnership where they won't be asked for any upfront money but where they should have a full control over the project expenditures and receive at least 50% of their investment as ROI rate in less than a year. For the projects to be funded contracts are already signed with the Government.
In our environment, Governments and Governments’ affiliate organizations sign contracts with companies which sometimes cannot demonstrate sufficient cash flow or credit lines from their bankers to sustain and carry out the works as per the contracts.
Also, the datelines in mobilizing the funds through the local banking system are sometimes so long that contractors prefer turning to quick solutions in order to comply with the contracts’ deadlines and look for new opportunities afterwards. Those are some of the reasons why a recent mid-term evaluation done by the Ministry of Finance shows that less than 20% of the Cameroon investment budget has been used by the end of June 2012 whereas it was expected a consumption of at least 70% of that budget by June 2012. This is a very poor performance in an environment where the local banks and financial companies are said to be over flowed with cash.
Moreover, the technical expertise to conduct the works is also sometimes lacking. We have then selected many of those which are desperately looking for technical and financial support and respect the datelines given by the Government or its affiliate’s organizations. Our current portfolio reads more than USD 5 million available projects that are in search of technical and/or financial support.
Our company has then agreed with those contractors to sub-contract with some technical and/or financial partners (investors) who will help them carry out the execution of the activities. As a matter of fact, we have agreed that the investors will sub-contract the works without giving out cash directly to the contractors but will control all the spending required by the initial contract. It is agreed that 50% of the profit margin will be considered as the remuneration of the investors. Also, the investors will be granted to co-sign into the bank account receiving payment from the Government or its affiliate organization. We expect annual return over investment rates above 150%. Most of the Government contracts will not exceed 12 months and payments will not exceed 60 days.
With proper marketing strategy, we expect that the number of contracts to sub-contract could be over USD 10 million within the first year with a prospective return over investment rate over 100%.
Please note that the contracts are in many sectors such as constructions, computerized systems implementation, roads construction, furniture and materials supply, machinery, etc.
Key Success Factors and potential benefits:
a) The CEO of the company and his local partners have been conducting successful lobbying activities with the State of Cameroon and have good working relationships with Cameroon authorities;
b) The Government of Cameroon is encouraging initiatives that can help consuming 100% of the country investment budget;
c) The project will enable the recruitment of some long term staff as well as many temporary staff for each project, which will be a very good point as far as the jobs offers remain one of the main priorities of the Cameroon Government;
d) Overtime, with this new product, the company and its financial/technical partners will be one of the major shareholders in the bids financing system in Cameroon and the whole Central Africa as well as we intent to enter the sub-regional market;
e) Through its important lobbying network at the State level, our company could help its financial/technical partners to examine and seize other business opportunities in different areas such as mining, energy, telecommunication, agriculture, and constructions activities.
Rationale for the deal
Small and medium size companies in Cameroon represent around 94% of total number of companies if we refer to Cameroon 2010 statistics and fiscal statements. The local banking and financing system is not prompt to sustain 90% of those companies because they are run as sole proprietorship or as limited liabilities companies putting together brothers or friends with very weak methods of internal control and poor discipline in the management of the business. Moreover, the local banking system requires heavy collateral from the companies that have been granted contracts by the Government, its affiliate organizations or other important private organizations. Also, the datelines in mobilizing the funds through local banking system are sometime so long that bids owners prefer turning to quick solutions in order to comply with the contracts datelines and look for new opportunities afterwards. Those are some of the reasons why a recent mid-term evaluation done by the Ministry of Finance shows that less than 20% of the Cameroon investment budget has been used by end of June 2012 whereas it was expected a consumption of at least 70% of that budget by June 2012. This is a very poor performance in an environment where the local banks and financial companies are said to be over flowed with cash.
We believe there is a huge opportunity in sustaining a new financial product in Cameroon which corresponds to local habits, cultural behaviors, realities, and should focus in partnering with local companies (bids owners) in the implementation of the contracts those companies have signed with the Government, its affiliate organizations and other important private organizations. We then propose a financial product which will set forward and meet the following objective: by the end of the first year, fund at least USD 10 million Government contracts and obtain at least USD 6 million as profit margin which is a 30% annual return over investment rate considering the profit margin will be shared with the bid owner. It is worth emphasizing that the USD 10 million funding objective could just concern one or two bids owners requiring funding.
To seize this great financial opportunity, our company has put in place a system in which funds are raised out of the formal banking system, that is, from individuals and companies whom we put in connection with bids contractors in order to provide technical and financial support and implement the contracts based on a partnership agreement. For 6 months now that we have launched this new financial intermediary service, we have been able to locally raise USD 3 million out of the formal banking system and finance many Government contracts. As most of the bids with Government or its affiliate organizations do not exceed 12 months in general for their implementation, our company has allowed its financial and technical partners to achieve tremendous return over investment rates with some picking at 150%. The method is simple: our technical and financial partners commit to fund the contract and receive 50% of the profit margin. The other part of the profit is given to the bid owner.
Opportunity for the investor
Based on this business opportunity in Cameroon, we are looking for some financial/technical partners in order to finance all the contracts we have in stock. These represent approximately a value of USD 50 million. With a proper communication and marketing, we can have in stock contracts with values around USD 500 million within a year. Also, we could operate on the basis of a mandate issued by the Government of Cameroon (as well as many other countries in central Africa). With such mandates, funding to be raised will represent thousand of USD million.
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