Once the richest New Zealander in the world, Taranaki-born investor Stephen Jennings thrives in financial-frontier lands.
After starting off as a free-market economist and a New Zealand Treasury official, Jennings worked for investment bank Credit Suisse First Boston. In 1992, at age 32, he arrived in Moscow, Russia, on a six-week assignment for Credit Suisse. He ended up staying 20 years in the country.
He co-founded Renaissance Capital in 1995, which became a multi-billion dollar business. But this was heavily affected by Russian economic difficulties, and then by the 2008 Global Financial Crisis.
Jennings sold his remaining shares in Renaissance Capital in 2012 and now focuses on Africa. He’s building seven satellite cities, under his new company Rendeavour, of which he is currently founder and chief executive.
You’ve been personally scoping out Africa since about the early 2000s. Why do you say Africa, for the next 30 years, is going to be a big opportunity? And what other markets do you think will become bigger that people should look into?
It’s a very fraught game, predicting economic growth 12 months ahead, let alone 20 or 30 years ahead. It seems to me that India and Sub-Saharan Africa will be two massive poles of economic growth. They’re both modernising economically.
It’s not force-fed economic growth like we’ve seen in China, where you’ve got non-sustainable and inefficient levels, and kinds, of investment. Perhaps, even more importantly, there’s a dynamic between economic modernisation and political modernisation, and increased pluralism. There’s a very good chance of a virtual cycle of economic change driving self-reinforcing political change in those regions. They’re very poor, so they have a lot of scope for catch-up.
You’ve spoken before about some of the opportunities New Zealand businesses are missing out on in Russia. When it comes to Africa, you were saying that we’ve missed a big opportunity there too. What specifically are we missing in terms of Africa?
We’re starting to see players in various areas of building materials. But the big opportunity really, I think, is around agriculture. The agricultural sector is going to be very big and, historically, was big in many of these African countries. Now that basic infrastructure is going back into place, there’s stability. Financial markets are starting to work.
We’ve seen a lot of growth and a lot of adoption of new technologies in agriculture. That’s clearly an area where New Zealand has a lot to offer, but it can only be offered by putting our people on the ground. There’s a very successful integrated avocado oil business in Kenya that started in New Zealand called Olivado. It’s fully integrated and distributes to about 25 countries.
You’re currently building seven satellite cities across Africa, with 121 square kilometres across Kenya, Ghana, Nigeria, Zambia, and the Democratic Republic of Congo. How did you get into urban development as an industry?
When I first went to Africa, we invested in a lot of different segments. For example, we built the investment bank across the continent. We were learning and we were on a steep learning curve. But gradually, we became very invested, very interested, in urban development. We started buying these big pieces of land, quite often way outside the major conurbations, with quite a vague idea of what we were going to do, to be honest.
Through trial and error, mistakes, lessons, and starting to lead the market, we’ve developed a very defined sort of business model in terms of how we try to build these cities now. It was very much experience-driven.
What are the fundamental differences between a short-term build and sell, and a 25-year project?
Absolutely vast. These are 20 to 25-year projects. And that fits the multi-decade transition. It matches the multi-decade transition we see happening across Africa. But you need very long-term, very patient capital.
You should have very modest levels of leverage. You need a business personality and style that is designed to go through the ups and downs, and all the changes, of such a long-term process. The business model needs to be really tailored to the longevity of the project.
Why have modest levels of leverage?
Well, if you’re talking about Nigeria, over 10 to 15 years, we can bet on at least two very big shocks in that time frame. And, if you have a project where you’re leveraged, not only will you get into financial trouble, you’ll be a target for people who want to exploit your weakness. So that’s what the thinking is.
How do you minimise your personal risk so, if you do get to the end of this and, say, you don’t end up filling your cities, you avoid potentially losing hundreds of millions of dollars, billions of dollars.
We want to be diversified by country; we want to be diversified by project. The way we stage and build out the projects has to be market-led. We don’t get way out in front of what the market wants, or what the market is telling us is appropriate. Our capital structures are very conservative. There’s a variety of techniques that we use to try and manage those risks.
What’s a mistake you’d say you’ve made, operating in these emerging markets, that other entrepreneurs could learn from?
I’ve made plenty of mistakes. This could be a long conversation. It’s no use preparing for a 5-metre tsunami when there’s a 20-metre tsunami coming. When you get shocks in these markets, they can be absolutely devastating. They can be really massive. And they do happen – they will happen.
Your capital structure and the resilience of your business model, your culture, and your people, have to be designed to withstand those kinds of shocks. Because normally there’s huge opportunity on the other side of those shocks, if you survive in reasonably good shape. And probably, when you start to turn negative on a market or a situation, you have to act very decisively. Sometimes that means pruning or selling your own ‘babies’ pretty ruthlessly – you just can’t hesitate.
For the full interview visit unfiltered.co.nz
First published 28 May, 2018.
JUNO does not contain financial advice as defined by the Financial Advisers Act 2008. Consult a suitably qualified financial adviser before making investment decisions. This story reflects the views of the contributor only. Content comes from sources that JUNO considers accurate, but we do not guarantee that the content is accurate.