Egla: Hello everybody! We are doing a brand new series of our VC Open Office Hours today, and we have Miishe Addy. We’re very, very excited. But before we get to all that, this is the founder series. And this series, we will have the Newtown Partners team talking to some of the most interesting logistics supply chain and healthcare startups on the African continent, learning from the founders about their perspective on what they’re seeing on the market and what’s really interesting that they’re seeing that’s happening.
So before we get into all of that, though, Jill is going to tell us a little bit about Newtown Partners, just to remind us all what we are doing and what we’re about.
Jill: Thanks so much, Egla. So just as a quick reminder, Newtown Partners, which manages DP World’s 50 million corporate venture capital fund, was started by two successful entrepreneurs, Llew Claasen and Vinny Lingham. They [00:01:00] built some good businesses, exited them, and graduated into angel investing. How they built businesses and invested was very much research-focused and thesis-driven. So they look for sectors, countries, and industries where there’s an opportunity for disruptive innovation by utilizing tech. As you know, logistics and supply chain is an industry that is still driven mostly by manual processes and relationship-based trading. However, startups are leveraging technology to change the basis of competition. And DP World has partnered with us to invest in its future innovation partners. Early on. We invest in seed and series A startups globally that are leveraging emerging technologies and disruptive business models in freight logistics and supply chain management.
Egla: Yeah. Well, now that we’ve got all the admin stuff out of the way today, as I said, we have Miishe. We’re so excited. JetStream is one of our absolute favorites on the supply chain and logistics side, and we’re so. So excited that you were able to honor our invitation. Thank you so much for [00:02:00] coming. Miishe, just a very short, short brief introduction to JetStream. JetStream is basically a digital freight forwarder operating out of Ghana, and now very recently, Nigeria also doing working capital financing and helping with that. Port operating with the customs clearance for the export and import customers and shippers within the African context. Very, very exciting stuff. But Miishe, do you wanna introduce yourself really quickly?
Miishe: That’s wonderful. It’s a pleasure to be here. I am Miishe Addy, co-founder, and CEO of JetStream Africa.
Jill: We appreciate it. We’ve got a few questions for you today, and we’ll just dive straight in.
Egla: So maybe I can go first and just kick us off, but most of the time, the common argument against digital freight forwarding is that there are just not enough volumes out of African ports.
Right. There’s just not enough digitization. There aren’t [00:03:00] enough nodes to plug into to add value-added services on top. And I mean, the list goes on. Right. So what is your viewpoint on some of these challenges that are being, you know, sort of levied against the digital freight forwarding space in Africa?
Miishe: I think supply chain generally is, has got to be one of the most important. Industries that nobody knows about. Yeah. And it has this characteristic of being really the foundation of how so many of the products that we enjoy in Africa arrive here. And it’s the key really to economic transformation on the continent. But very few people understand what it is and how big it is. So when you look at. Import-export trade continent-wide. It’s a $1 trillion business. And just the [00:04:00] freight forwarding part of it, just the logistics operators who move the cargo from A to B across borders. That industry alone is $32 billion across Africa.
So it’s a high-impact industry. With a lot of revenue being gen generated today, even before transformation, before economic development. But it’s just poorly understood because the people who are involved in transporting cargo and supporting trade are usually siloed. So it’s not a consumer industry. They often have to have licenses or special experience to be able to do the work. And it’s not well-marketed to the public. The economics of logistics can be difficult. And I think a lot of people think in their heads about the trucks they see on the road. So if you’re driving on the highway in West Africa, Ghana, Nigeria, a lot of times you’ll see [00:05:00] these trucks parked by the side of the expressway with their tires in bad shape. You know, the tarp is coming off the top, and logistics look like a very gritty, very low-profit industry from the outside. But there are ways of running a logistics operation that optimize the assets that exist. Yeah, using technology to reduce manual effort. And combining different value-added services into the logistics operating off offering to make it more economically profitable.
Lesego: How do you go about building a regional champion? I think one of the challenges in zero 40 is, you know, the view is that it’s typically overcrowded and fully digitized. So even nationally, the largest freight forwarder, you know, owns only less than 5% of the market share; this idea of value-added services is very valuable to build an enduring business. So my [00:07:00] question really is, are the necessary rails for value service implementation adequately developed in Africa, and how do you approach that build versus by decision?
Miishe: Yeah, there’s an emerging number of companies that are becoming digital partners for JetStream and those value-added services. So when we think about the most important value-added services outside of logistics, we think about financing in insurance. On the financing side, banks and fintech have emerged out of West Africa, Kenya, and South Africa, enabling us to plug our logistics platform into their APIs and take advantage of the automatic integration that they make possible. The insurance industry has two big e e brokers, Lami and Carousel. We’re integrated with both. [00:08:00] So, although it’s true, there is a lot of fragmentation in the industry and it’s difficult to bring people together. The technology that we’re using, the ability to use API integrations to plug our platforms together, is the answer to that fragmentation.
Jill: Yeah, it makes a lot of sense. We are actually invested in Lami, so thank you so much for making this one of our portfolio companies.
What are the other big challenges to cross-border trade in Africa? I mean, you are seeing, you’re operating in Ghana and then now have moved into Nigeria. I mean, why, why is it sometimes easier or cheaper to kind of go to Europe first from Ghana than it is to get from Ghana to Nigeria directly, you know, kind of why, what are some of those structural challenges [00:09:00] that you’re facing from Jet Stream’s perspective?
Miishe: So there are infrastructure challenges. There’s a lack of working capital, but from a customer’s perspective, so if we’re dealing with an exporter, their customer is an importer, and their customer wants to have a high degree of certainty around when the goods are gonna be arriving. And what shape, how many they’re going to be in. And so that certainty is the biggest problem I think, in African trade. You don’t know what’s gonna happen. There’s too much volatility from shipment to shipment. During COVID, we saw freight prices increase by 15 x and so, a year ago, they were a thousand dollars, and then they went to $15,000. Even after COVID, the range of freight price fluctuations is a lot [00:10:00] smaller, but you still see big differences in transit time. Using the same trade corridor between Ghana and Nigeria, for instance, can take anywhere from four weeks to one week, depending on the number of checkpoints and the route that the driver uses; that volatility is fatal to trade because it prevents customers who wanna do business with each other on the continent from predicting when they’re gonna get their goods and what shape those goods are gonna be in.
When you think about imports from around the world that come into Africa, those imports still have to face the same challenges at the ports that regional trade does. But what we see in regional trade is going through the land-based trade corridors, where you get the volatility. That’s where you get the predictability on both sides. So you have an under-capitalized African port or terminal on [00:11:00] one side and then an under-capitalized African port or terminal on the other side, and that just compounds the problem.
Jill: Yeah, because there are working capital and cashflow issues on both sides. So then it’s hard to do business because you’re saying, but I need the cash. And they’re saying, but I need the cash as well. So yeah. Bit of a tough one there.
Lesego: So, from a go-to-market perspective, how do you solve that challenge of cross-functional characteristics of logistics? You know, the port that’s Nigeria’s very different from the port of Ghana, and you know, you’re trying to orchestrate between these two nodes, you know, how do you approach that?
Miishe:: The foundation of our business is e-logistics. So we have staff that’s trained in customs clearance. They’re trained in truck brokerage. Warehouse handling, et cetera. So, at the very basic level, the service that we’re offering is technology-enabled logistics. But the layer of value that we provide [00:12:00] on top of it is a connection to other services. So the ability to book cargo insurance at the same time that you’re booking a shipment. The ability to get financing, including foreign currency financing for your imports, at the same time you’re booking a shipment. Mm. It’s the integration of all of those services in the same motion. That the customer is making on our platform, that that sets us a little bit apart from companies that are just doing the logistics.
Egla: So, I mean, we touch on a really interesting point, but we’ve danced around it a little bit. Working capital or supply chain financing, why is that important in this conversation? I mean, we’re talking about cross-border trade. Surely everybody has their monies together. Why is working capital important in this context?
Miishe: So the norm for global shipping is that banks support trade financing, and I think the percentage of trade finance that’s [00:13:00] supported by banks globally, or sorry, shipping that’s supported by banks globally is around 80%. Mm. In Africa, it’s half that. In West Africa, it’s a quarter of that goodness. So there is a massive 80 billion trade finance gap on the continent. That’s specific to some of the financing challenges we see here. It’s difficult for banks to finance customers. They don’t know. And because in many countries, including Ghana and Nigeria, where we do business, there are no reliable credit bureaus. And the lack of information sharing in these countries makes it very difficult to determine who’s a good payer and who’s a bad payer. As a result, since Covid, the banks have actually pulled back. From trade finance lending, especially to [00:14:00] SMEs, and a typical scenario that we see is that our customers will have maybe 10,000, the equivalent of 10,000 US dollars in their bank account, but they need to do a trade worth a hundred thousand dollars. The value of the goods in the container is many multiples higher than the amount of assets they have on their balance sheet or in their bank account; they’re gonna be rejected by a traditional finance provider because they don’t have that money in their bank account. Yeah, because JetStream controls their cargo, because we know their trading history, how many times they’ve made this shipment with that trading partner.
We have a better sense of their creditworthiness separate and apart from their bank statement. Yeah. We also have more control over the collateral that we think matters most to the transaction, which is the goods in the container, which can be [00:15:00] liquidated if the customer doesn’t pay back.
Egla: That’s a really important point that you raised, that banks don’t know the customer, so they don’t know how to risk grade them and to be able to lend to them. But JetStream has that visibility of the cargo and of the potential collateral. So you are, you are able to lend to them. But what were some important and key learnings that you found? When setting up your supply chain finance sort of arm, what were some of those things that you were, you learned and you were like, whoa, I did not know this before, but this is really important and I should definitely consider this going forward?
Miishe: The first learning for us was understanding the relevance of trade history. Mm. So when we first started lending, we were more focused on sort of the financial statements and does this customer have, you know, cash liquidity to pay us back? Over time when we saw good payers distinguishing themselves from bad payers, we realized that the good [00:16:00] payers tend to have a level of expertise and the specific commodity that they’re trading, and they know their trading partners well.
And so the role that JetStream plays in their supply chain is basically helping them scale up something that already works. Yeah. Rather than helping them experiment with a new line. Even if they’re cash rich, even if they have assets, they tend to go wrong more quickly.
Egla: I mean, very important point.
And you touched on data, but I’ll let somebody else get in there as well.
Lesego: Yeah, I, I think it’s incredibly interesting that, as a startup, you have to be freight forward at FinTech and, you know, pseudo digital identity management because you’re creating all this transactional history. Now it’s this large market opportunity. What’s been the biggest blocker to some of your market incumbents? I think the trade financing gap is well understood, but why do the banks [00:17:00] just not, do they just not understand the market, you know, is just not worth the risk or they’re not rating the risk correctly? What’s been the big impediment in their participation in the broader economy?
Miishe: Yeah, so it’s risk aversion. We are actually partnered with banks in Ghana and Nigeria, and the way the, the mechanical way that our trade financing works is that we guarantee the loans that they make. But the reason they need the guarantee, again, is because they have a lot of anxiety about SME loan performance, and they’ve been burned in the past, and in places where the rule of law is a bit weak, it can take years to reclaim their money from bad payers. So they’re, they’ve pulled back for, you know, Rational reasons based on their experience. There also historically has been competition between business borrowing and government treasuries.
So if this was, this was before the IMF troubles in Ghana, but if the government [00:18:00] is paying 20 plus APR at that time was viewed to be a. Zero or low-risk borrower. The bank did the math and figured that that was a better credit risk than lending to an unknown SME with assets they couldn’t find. And so I think there is a combination of rational business reasons and also the unfortunate competition that some businesses in Africa have with their own governments in securing capital.
Lesego: I mean, I think that’s, sorry, my last point in this is that I think that’s basically interesting, from a risk rating perspective where it makes sense, to have, I’d say platform agnostic product like gesturing. Because not only do you have that transactional data, the shipping is not on board. It’s also your financing productive assets. Now, the reason that a lot of banks have confirmed is that they just didn’t have that visibility and hopefully, they can provide off-balance sheet [00:19:00] lending and to plug in because, as I had mentioned, a large market opportunity.
I think, as we understand these risks a lot better, we could price them correctly and, it creates a more productive and efficient ecosystem.
Jill: I mean, that definitely leads me to my next question, which is, why is the data so valuable? Why is this transaction data this, you know, almost kind of building out a view of these SMEs that banks don’t have? You know, why is that kind of almost your competitive advantage, actually?
Miishe: Yeah. The data, the data is hugely valuable and it’s, it’s valuable to the customer themselves. But it’s also valuable to the entire ecosystem. So the customer benefits from the data on supply chain performance because it enables them to optimize things that are going wrong. An analogy would be, if you have a car, an older car that needs to go to the mechanic every few months. [00:20:00] You go to the mechanic. Every time you visit, he gives you a different bill, you’re paying a different amount, and you never know why you’re paying a different amount. It’s impossible for you to determine whether you have an honest mechanic who’s just experiencing faults in your car, or whether you have a mechanic that likes to make, you know, idiosyncratic markups every time you visit. That’s supply chains globally, but especially in Africa. There’s a minimum of nine different vendors, independent fragmented vendors speaking two different languages using a minimum of two different currencies that are touching every single shipment that goes from A to B. It was unclear to our customers before they came to JetStream, how much the freight actually cost compared to the markup. How well performing each segment of the supply chain is. So you can have a six-week shipment [00:21:00] that spends only three or four weeks on the ocean and then spends the rest of the time, two or three weeks at the ports. The GPS location of those containers that you’re shipping has not changed. It’s in the same physical place, but the workflows, the number, the people who were actually moving the paperwork to get your containers out of the port and into your facility. That’s where the bottleneck is and there’s no visibility there. The first impact of data and visibility is to give customers more information about their own shipments so that they can manage each segment and decide which vendors are performing well and which aren’t.
But the bigger picture opportunity is really around finding new trade routes, new trade corridors, identifying who is a good pair, who is a bad pair in the trading industry, and understanding where there are opportunities for growth. [00:22:00] One of my favorite numbers in Ghana is coming from the cacao sector, which is one of Ghana’s most important industries. So as many people may have heard, 60% of the world’s chocolate finds its origin in West Africa, Ghana, and COIs. But Ghana and Côte d’Ivoire typically sell the raw cocoa beans to importers around the world. They don’t process those cocoa beans into chocolate. In the past 10 years, there have been about a dozen new companies in Ghana that are going from bean to bar, so they’re processing the cocoa beans, they’re converting it into finished chocolate. As these entrepreneurs who are making finished chocolate have looked for markets to sell their chocolate, they have not been able to sell to the countries around the world in the West and Asia that only need the cocoa beans. Those countries already have factories and manufacturing plants, but [00:23:00] they have been able to find willing buyers right here on the continent.
So today, Nigeria is the biggest importer by a long shot of Ghanaian-finished chocolate in the entire world. A country just two countries over is the biggest customer in finished chocolate goods. And I think that’s an important insight that a lot of people don’t know. Yeah. And I think the ability for us to look at the data of what’s being produced in one country, what’s being sold, and the trendlines in trade can help entrepreneurs make better business decisions and can help development agencies make better investment decisions. And I think that’s one of the most powerful things about this data. Above and beyond its utility to individual customers.
Egla: I wanna ask a little bit of a, of a cheeky question, but obviously, we know supply chain visibility is really, really important, but we’re also seeing an interesting trend [00:24:00] where most supply chain and logistics startups claim to offer data analytics in supply chain visibility.
So has it become more of a standard feature, or is this still a disruptive thing to offer if you’re a startup in the space?
Miishe: It is the earliest days of, of visibility, especially in Africa. And one of the reasons this is true is because there was a raft of supply chain startups developing essentially ERP systems in the past, you know, 15 years. So they developed these heavyweight systems that, theoretically, enable all of the different stakeholders in the supply chain to interact on the same platform. The problem with those heavyweight systems is that they overlook or are difficult to use for the fragmented mom-and-pop shops that are honestly responsible for more of the supply chain than big companies. So you have your truck drivers, the guy who owns only one truck. You have your customs brokers that don’t even have an office, it’s a one or two-man shop. Those supply chain actors are especially important to the way that African trade moves and those big heavyweight ERP systems are not talking to them. They’re not for them, and so there’s no visibility around what those people are doing. The innovation in large language models is the first opening that I think the African logistics industry has to skip over to leapfrog the ERP system and go straight to WhatsApp, email and voice integration. We can translate the information that those small, fragmented players have directly into visibility data that we all need to use without requiring them to participate in a heavyweight ERP ecosystem. [00:26:00]
Egla: Very, very cool. So I’m just being cognizant of time now we have time for just one last question.
Jill: Yeah. Our final one, we wanted to understand what is your long-term vision for JetStream?
Miishe: So we want to help build an ecosystem for trade on the African continent. Our role in building that ecosystem is to build a platform that enables our customers to both see and control their cross-border trades. The C part is based on automated visibility that gives them real-time information about where their cargo is going, where it is, how much it costs, and lets them look back and optimize those trades. The control is about interactions between our platform and our customers, and the vendors who are providing the service. So the vision is to bring the ecosystem together or help do it by integrating all the players online, [00:27:00] giving visibility and engagement through technology.
Jill: Thank you so much for your time, Miishe. I really appreciate it.
Lesego: Oh, okay. Last thing. So Miishe, if anyone wants to get in contact with you, how can they get in touch, and find out more about some of the great stuff you’re up to at JetStream?
Miishe: Yeah. So they can visit our website, JetStreamafrica.com, or look at us on Twitter, @JetStreamAfrica, or me personally at @MiisheAddy.
Lesego: Thank you for joining us on this exciting journey through the world of venture capital and entrepreneurship. We hope you’ve gained value, valuable insights, and inspiration from our discussions with visionary founders. Remember, the future is bright, and those who dare to dream and take all steps towards building innovative companies. If you have any questions, feedback, or suggestions for future episodes, we’d love to hear from you.
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