The Economist says that Crystal Ventures Ltd (CVL) is a monopoly and that it does not deliver on development. I dont know about that.
It goes on to say that, “Crystal Ventures, the RPF’s holding company, has investments in everything from furniture to finance. It owns the country’s biggest milk processor, its finest coffee shops and some of its priciest real estate. Its contractors are building Kigali’s roads. There are several firms offering security services in Rwanda but the guards from ISCO, part of Crystal Ventures, are the only ones who tote guns. The company is reckoned to have some $500m of assets.”
This is utter ignorance, prejudice, you name it. Crystal Ventures Ltd is an investment arm of the RPF, yes, where the party invests with other shareholders in different projects. Is that illegal or morally wrong? Not at all, provided that laws are respected.
Some of the shareholders own ventures 100%, and others co-own them. CVL does not get favours from government as The Economist suggests. In fact the government doesn’t help CVL at all. The RPF simply happens to be a shareholder.
For starters, party members had their money they come with when they took over power after stopping the genocide against the Tutsi in 1994.
They decided to invest that money in ventures that are profitable. But one has to look at it from a certain perspective. Rwanda had been shattered by the genocide. Nobody would have invested money like Crystal Ventures did, not even Rwandans.
At that time also people didn’t have hope that the country would bounce back. The hope had been ruined. At that point nobody was willing to invest in MTN for example, yet Rwandans needed communication.
There were no numbers to attract any investor; and the environment was crazy. Take another example. At that point, everyone needed water, milk, juice and so on, and yet nobody was willing to invest in a venture like Inyange Ltd. Framers had milk from their cows, who would buy it and process it? The Britons? No at all.
CVL invested in construction where nobody could invest or did not want to invest. Businessmen at the time were speculative and wanted to make quick money, go to Dubai, buy something, come and sell, make a bit of a quick kill and so on. No body would have put money in a construction company (such as Real Contractors).
It was a bad situation. RPF decided to invest in areas where nobody could invest, partly because people didn’t have money to invest, but also RPF (CVL) did it to give hope to Rwandans that the country would bounce back after falling to zero. It was meant to send a signal that there was something happening to other investors.
I am told the government owes CVL almost US$10 million, which it pumped into the economy. Genocide planners swept the Central Bank before they ran away. In fact they borrowed huge sums of money from international organisations and then ran away with it. The debt was so huge that the RPF government could not even attempt to pay it off until the World Bank came to its rescue. A large portion of the debt was waived.
At that time, the RPF believed in the economy bouncing back, given that it had the leadership that was focused to bringing back the collapsed economy. RPF also chose to invest because it believed in professional business rather than speculative business. RPF had a professional perspective to business. I think those were the two anchors that made RPF do what it has done. The rest of the businessmen were speculative until about ten years ago.
The investment philosophy
With the money RPF members had at hand, they chose to run its businesses to generate cash flows to monitor its activities. CVL was created to make money, but also minding about the general population. It had to balance between profitability and social responsibility, obviously factoring in sustainable businesses. It also invested in areas where government would want investors, but they were not there. This was not supposed to be CVL’s responsibility.
The firm invested in areas knowing there was return in the long run. The company had no political influence. The Management and the Board of Directors professionally took and still take decisions; guided by professional investment principles. Firms like PriceWaterHouseCoopers and KFMG have audited the company numerous times.
Much as CVL shares other investments with other shareholders such as Social Security Fund, private and foreign investors, the board-elect looks at the interests of RPF as a party, not individuals. No individual has money in Crystal Ventures Ltd. No individual will come and ask for a cheque. Not at all. In any case, the money that was invested in CVL was money left after the war against the genocide; money from the contribution of party members.
No favours, it is tough
No government policy favours CVL because the company is purely private. The culture is that, no CEO will be allowed to mix politics with business. Simply put, CVL had money after the genocide. The party leadership wondered, “What do we do with the money? Can we use it to transform the economy?” The discussion was how to develop this money, because the party eventually needed money for elections and so on.
Instead of the party going to private businesses seeking for money to finance its activities, which the company will hold the party hostage, RPF chose to run its businesses to generate funds to fund its activities. But again, CVL does not get instructions from any member of RPF.
What RPF does is ask for dividends, it does not get involved in the business. Even an army general with all the influence cannot make any demands or ask anyone to do this or that. Of course that was motivated by the fact that RPF wanted sustainable development. Not to mention that CVL is the biggest employer in Rwanda after government, with almost 10,000 employees directly and indirectly.
One of its executives told me that you want to run business and make sustainable cash flows, then run it purely business. You want to kill it; run it politically. RPF chose the former.
The Economist, same as other critics, can easily pokes holes in CVL’s business philosophy, but no one actually says that CVL responds to policies same as other private companies in Rwanda do.
Policies formulated by government pass through the cabinet, which is not entirely an RPF cabinet, again I suppose they ignore this fact only to misinform the public. Policies are designed to serve everyone irrespective of the players out there. The President doesn’t and can never get involved in the policies that favour the RPF and it businesses.
Even The Economist itself admits that he is a highly disciplined President who has a track record for transparency and accountability. This is a contradiction. If anything he can only get involved in policies that favour the whole business community in Rwanda. Yes he is the Chairman of RPF, but he is the President of the country as well.
If there was a policy that was not in favour of the whole business community in Rwanda CVL would approach the Private Sector Federation (PSF) to engage government for the benefit of all businesses in Rwanda. Take for example the recent law to pull down billboards in Kigali City. CVL companies also pulled them down.
I am informed CVL has lost many bids, of course won some, but it has no favours that one can point out. How else would one explain government awarding a tender to construct the Kigali Convection Center worth almost the entire CVL conglomerate to a foreign firm? What about the Chinese engineering contracts? They build roads, complexes, and also get many other deals while CVL firms shed tears. Many other projects have been awarded to ROKO and other local private firms.
In the early 2000 Strabag International, a European construction company won road construction projects. But CVL did not win the deal because it operates under the-best-bidder-wins-the-contract principle. CVL cannot survive on political favours due to its nature. It would be a disaster, scandalous and would attract diverse effects on its existence. In fact if the company had favours from government it would be making super profits, but I can confirm that many of its subsidiaries have made losses and I know three or more that closed shop.
There are advantages and disadvantages. The advantage is that, you can make money [in Rwanda] if the investment is right. Two, because it’s virgin, you can reap money in the first few years before other people come in. But it also has a disadvantage that, the investment may not pick up as faster as one would want it to pick up. It could take a bit of time, in which case one can’t make that money he wants to.
RPF went into green investments because nobody was willing to invest in. I told you of MTN and Inyange, even in road construction, there were very few Rwandans at the time who would have invested in such ventures, it would have dried up their money, and people may not have had the money at the time as well.
At the time [after the genocide] Rwanda needed a local company as a back-up, for example to do construction. CVL invested in high-end machines. It took risks upfront to invest to avoid a scenario of a foreign company failing and then leaving, yet the country had no roads. Or if Inyange was in the hands of a private person, and he says ‘look, I am not producing milk’, then it is the Rwandan farmers in Nyagatare or elsewhere that would be in a loss.
I think these are strategic investments that CVL went into for the benefit of the economy. Of course to make money, but not a lot. Basically, CVL goes where no one wants to. Two, it takes risks. Three, it unfortunately is not able to get money from banks because its dividends are injected back, unlike other investors who take their profits back home.
These days CVL hardly gets money from the banks, in the past it used its own capital [savings from the war contributions] to invest, but now sometimes it borrows money from the banks to do the various investments, and many times it does not actually get the funds. The investments have become quite numbered and the cash flows are not balancing well because some were just start-ups, as the firm kept sinking in money down the road.
Who is CVLs competitor?
The East African integration has brought in a crazy competition for CVL. For example, there is milk from Uganda, which comes here and is cheap. Imagine milk all the way from Kampala, and cheaper in Rwanda than Inyange’s. There must be something wrong, but whatever it is, CVL’s Inyange is not enjoying the completion.
There is water from Kenya. It is cheaper than ours here. It is not because Kenya has more water than Rwanda, but what goes on between the company and the market; CVL has no control over that. Obviously this beat my simple economics. How does one explain that water is transported all the way from Nairobi, pays taxes and covers other expenses and competes with local water in Kigali?
Well, this does not take away the fact that actually CVL has some sort of role in it. CVL’s companies are known for overpricing their products and services. Many Rwandans cannot afford to buy some of their products.
President Kagame has several times criticized CVL’s management for falling to deal with the pricing matter. When he was launching the East African Granite Industries that processes tiles, he insisted that its products should be affordable so that not only Rwandans should afford the products, but everyone in the region.
One of CVL’s former executives told me that CVL has to balance between making profit, staying afloat and also providing operating funds for RPF so that the party does not depend on solicited funs from private businesses. This, the CEO told me, protects the party from anyone seeking to hold the party at ransom. It also gives the party the clout to intervene when nobody can. For instance, in the previous elections, CVL financed 50% of the RPF budget.
So, to whom does CVL report?
The President being the Chairman of RPF makes him the Chairman of Crystal Ventures LTD, but not in the sense of operations. Of course as the Chairman, he would want to know how CVL is doing, but not on the day-to-day basis. The CEO may report to him in details at the end of the year. He is not involved at all in the day-to-day running of the business because he doesn’t have that time. He trusts that the decisions taken by management are for the good of the businesses.
I was told that if it is a co-investment, the company reports to the shareholders. If it is a sole investment, the company reports to RPF. This, however, does not mean the RPF can by any means tell the president that Mr. President, we need money and then he easily orders the Central Bank to release the money. Nothing comes from the Central Bank to Crystal Ventures in terms of money, in terms of favours? absolutely nothing. Anyone with evidence to prove me wrong should present it. The Economist is simply speculating and all the spew is malicious and prejudice.
Magnus Mazimpaka is Taarifa’s Managing Editor and CEO of Ingam Group Ltd, a local firm that owns Taarifa.
Tel: +250784507033, Twitter: @Mmazimpaka, Email: [email protected]
HERE is The Economist’s article in question