Located in a remote corner of southwestern Uganda, Kayonza Growers Tea Factory is a processing plant owned by the 7,500 smallholder tea growers who supply it. It has processed tea for export since 1964, bringing much needed income to the community.
When the tea growers adopted new production techniques in the mid-2010s, yields shot up and the factory has run at capacity ever since. Oikocredit’s investment, which was announced on 1 October 2019, means it can build a second factory in Mpungu, about 40 kilometres away from the mother factory.
Scoping mission to Kayonza, including Martin Sommerschuh of the UNDP (second from left), and (Frederik Claasen (sixth), Julius SSemyalo (eighth), Boriah Gangan (ninth) and Rakula Okoth (tenth), all of Solidaridad
UNDP EQUATOR PRIZE WINNER
“Kayonza’s investment journey really began in 2015, when it won the Equator Prize,” says Rakula Okoth, Impact Investment Specialist at Solidaridad East and Central Africa. The United Nations Development Programme (UNDP) awards the prize to organizations with a positive impact on local communities while protecting the environment. It selected Kayonza for its efforts to help the local community adapt to climate change and drive back deforestation. The tea factory encourages its growers to adopt land management techniques and diversify their crops.
“When the UNDP explored how it could support Kayonza, it could see the tea factory was hungry for growth,” Rakula goes on from his office in Nairobi, Kenya. “But it did not have in-house capacity to become investment ready.” Martin Sommerschuh, Coordinator of the Equator initiative at UNDP, talked to Frederik Claasen, then Solidaridad’s Global Impact Investment Manager, in 2018 about taking on this role.
Frederik asked Rakula to build a team of experts to assess Kayonza. The first thing to establish was if it actually needed a second plant. “We needed someone with a deep understanding of the supply chain to see if the volumes would support two factories. We brought in Boriah Gangan from Solidaridad India as we knew his office had a lot of experience in tea and Kayonza uses Indian processing machinery.”
FIRST SCOPING MISSION
“Within two months of Martin and Frederik’s conversation, we brought Boriah on a scoping mission to Kayonza, an eight-hour drive by Jeep from Uganda’s capital Kampala.” Boriah eventually confirmed a second processing plant was needed to cope with the consistently larger harvests, and that the budget to build and equip it was realistic. He also gave the factory several recommendations to improve efficiency.”
Boriah’s technical skills were complemented by the other members of the team: Julius SSemyalo, Solidaridad’s Country Manager in Uganda, who looked at Kayonza’s logistics, and marketing and quality assurance of its tea; Frederik on the financial side; and Martin Sommerschuh of the UNDP on the likely environmental impact.
I spent a lot of time harmonising the priorities of the potential investors and the factory” – Rakula Okoth, Solidaridad East and Central Africa
ZERO ENVIRONMENTAL IMPACT ON NATIONAL PARK
“When impact investors consider a project like this, they don’t look purely at the financial implications,” explains Rakula. “Plans for the factory were tentative at first because it would be located very close to Bwindi National Park, a forest housing half of the world’s endangered mountain gorillas.” The UNDP naturally insisted there must be zero impact on this area. Eventually, Nasa satellite technology showed farmers were not encroaching on the protected forest.
“Now it required a reliable business plan to attract investors. We needed to put together clear five-year financial projections, and marketing, technical and production components. The UNDP facilitated a session in Uganda for us to work with the factory’s management team.”
Kayonza and the impact investment team preparing business plan
Rakula was in charge of taking the business plan to different impact investors in Nairobi and acting as an arbitrator. “I spent a lot of time harmonising the different priorities of the potential investors and the factory. I went to see the general manager and the operations manager three times, and spoke to them frequently on the phone.
At one point, we were told the figures did not reflect the actual situation as some of the collateral was already being used to get financing from the bank. We had to be very patient and keep our eye on the big picture, and we eventually got all the correct details to show potential investors.”
We saw just how important the team’s different skills are, especially during the scoping mission”- Rakula Okoth, Solidaridad East and Central Africa
CLINCHING THE DEAL
Oikocredit’s Nairobi office had quickly showed an interest in Kayonza, joining the second scoping mission in August 2018. It eventually outbid other potential conventional and impact investors. Once it completed its own due diligence, the 3.15 million dollar deal was signed in September 2019.
The Mpungu plant will more than double Kayonza’s capacity, employing local 220 workers and serving the 3,000 smallholders who grow tea there. Thanks to the investment, the government has agreed to tarmac the road and connect the factory – and the surrounding community – to the national electricity grid.
And what has it brought Solidaridad? Rakula: “We saw how important the different skills of the team are in a process like this, especially during the scoping mission. But above all, we now have a track record and can tell other impact investors what we have already done.”