Gabriel Ekman (BAG Innovation)

May 2021 –

Intro

My name is Gabriel Ekman. I’m the co-founder and Managing Director of BAG Innovation I’m originally from Sweden, but I’ve been living in Rwanda for the past 5 years.

BAG Innovation is an education start-up that is tackling the challenge of lack of balance between theory and practice within university degrees for university students contributing to 70% of university graduates being unemployed after graduation.

Our job is to bridge this skills gap by offering a platform that enables experience-based learning in real-time for university students, using gamification as one of the technologies. So basically, game-fying the career development journey for the students from their first year up until their last year. So far, we have almost 8% of the student population in Rwanda. Obviously, throughout Covid-19 we’ve grown quite a bit.

How did you come across this problem and market need?
#collectingMarketData
I was here 5 years ago working with that other entrepreneurship project, and I started doing some research: Interviewing employers, and various people in Rwanda. Everyone said the same thing: the biggest challenge they had was finding the right people, finding the right talent.

After that, I went into universities’ career centres, interviewed the vice-chancellors and asked them: why are the students not ready for the job market? We also interviewed a lot of students and realized that there was a huge gap between what the university was providing and what the market wanted. So that’s when we started.

Did you come here with the intention of starting a start-up?
#collectingMarketData

No, I initially came here for a short 2-month programme with an entrepreneurship school. Then when I was here, I met my co-founder (who’s a Rwandese) and we started brainstorming ideas and eventually came up with the idea of BAG.

After how long in Rwanda did you feel ready to start taking action and implementing your idea?
#startingStrategy #collectingMarketData

First, we did a pilot for 3 months. We took about 100 students and piloted several different ideas and concepts. Most of them were inspired by Sweden and the system works there. Then after the 3 months, we started the business. At first, the vision was different to today. It was more about bridging engagement between the students and the employers. We did a bit of student consulting, and recruitment for various projects within the university but there was no technology involved. Technology didn’t come until 2019.

In terms of finding those partners, universities, and students: how easy was it to penetrate the system? #collectingMarketData #insights #startingStrategy
It was quite easy. There was a lot of opportunity in that space because no one else was really there yet and not many people were innovating in the education system. There weren’t really any education start-ups. So, it was fairly easy; the doors to universities were open and they were very interested in speaking to us.

Of course, there was a lot of bureaucracy still, but Rwanda is a small network. So, we spoke to the people that we knew, and they connected us to the various Vice Chancellors and Principles, and we started pitching. So, Kigali’s small size played to our advantage.

Visa & Immigration

What kind of visa did you require in order to come here initially?
#immigration
The first time I was here (working as an expansion manager with the entrepreneurship school) I was on the East African Visa. That was for 3 months.

That’s when I decided to come back and do the research for the business. They have this visa for when you want to come here and explore opportunities. I think it was called a “prospective investor visa” You’re not allowed to make money and you can’t officially “do business” but you’re allowed to do the research for it.



What kind of visa do you currently have?
#immigration
Good question; they give me a different one every time I apply… Most people will tell you that it doesn’t really matter what visa you choose when you send in your application, they are going to give you another one. At the end of the day, they’ll do their own analysis and give you what you’re eligible for.

At the moment I think I’m on a Z1 or Z2, which is some kind of investor visa. In the beginning, I got an entrepreneurship visa but now, after a few years, I think I’m getting an investor visa.

Rwandan Market

Has the Educational start-up scene evolved in Kigali over the past 5 years?
#insights
Yes, it definitely has. There are much more opportunities in the start-up space in general. We’re finally getting some competition. It’s not as developed as Kenya or Uganda, their start-up ecosystems are far more thriving. Rwanda is a lot younger.

As a general rule, is the Rwandan market welcoming or forgiving to start-ups? Looking at education, for instance, an ed-tech start-up in the UK may have a lot of difficulty selling to universities. How does that compare here in Rwanda?
#insights
Bureaucracy and sales cycles are the same for ed-tech with universities. But in terms of the ecosystem and the market is very forgiving here, because it’s underdeveloped.

The problem is that as a foreigner you have a huge advantage.

East African Ventures for example 4 out of 6 of their latest investments here are foreign-owned (expat-owned). And that’s pure because they copy-pasted a method that already works in the country where they came from and then brought it to Rwanda, and it worked.

Foreigners have a great educational advantage. The standard in education here is so low that finding a local entrepreneur that has a really good idea is very rare.

Additionally, for ex-pats, since the trend has been that ex-pat owners have been more successful, usually the Government and the people who you’re selling to are all more accommodating towards ex-pat owners because you’re basically associated with quality. (Which is a huge problem of course, because just cos you’re an ex-pat that doesn’t mean you’ve got quality.)

But the Government is very forgiving and is very promoting start-ups. So, it helps to be a start-up in this environment, because there’s a lot of interest coming in, from the investor side and from the policy side. Then at the same time, it can be very hard to work around the tax system in Rwanda.
How was the business registration for you?
#registration
Straightforward. It took an hour or two to get everything done.

Rwanda is the easiest country in Africa to start a business in, and it’s the hardest country in Africa to run a business in.

Why do you say that Rwanda is the hardest country in Africa to run a business in?
#insights
Despite what it may sound like from the outside, it’s a completely dysfunctional market because every single industry in Rwanda is competing with the non-profit sector. The fin-techs are competing with the NGOs and non-profits, the ed-techs are competing with NGOs, and everyone is competing with the non-profit sector.

So there’s almost no way for you to grow sustainably with your own revenues. You also have to attract grant funding or tender funding. And that requires inhibiting what you’re supposed to be doing [to grow your business] in order to attract that grant money.
#startingStrategy

With BAG, our funding strategy has been based on grants and tenders. It means doing something that has nothing to do with our work for 6 months just to make a little bit of money to aliment the company and then continue.

In the Rwandan market, there is not enough purchasing power and it’s a very small market (i.e. there aren’t enough customers).

#importExport

Most entrepreneurs who come here have the intention to go to East Africa, but East Africa is not open yet. This means that you’re completely blocked in Rwanda. So, until it opens it’s going to be a very dysfunctional situation. But when it does open up it’s going to be the best situation ever. That’s what everyone is betting on (us included): that the politics are going to get better. But there is no going around it:

If you want to make money in Rwanda, you need to go into Pharmaceuticals, or sell bricks, or sell something that’s “high volumes low margins”. But otherwise, the customer base is too small and the general public’s purchasing power too little.

Why are there so many non-profits and why is it so hard to compete with them?
#insights
Well, it’s the same as in every other country, with the difference that all the non-profits end up being in Kigali, and Rwanda is very small.

So, each country’s aid or development programme has an office in Kigali. And, due to its history, very recognisable brand, and due to the marketing that the country has done Rwanda has been very, very good at attracting these kinds of partnerships and funding. It’s the number one country that people look to set up in.

Many people put their hubs here. Even if they are working in Central Africa they set up in Rwanda and they work outwards.

If you’re working in Goma, setting up your office here is cheaper because you don’t have to pay your staff so much risk bonus since Goma is not as safe as Rwanda. Same thing goes with Uganda, Tanzania, or Burundi.

This situation means that there is a lot of spill-over which causes the economy to grow. The result is that non-profits may use catering companies and pay top dollars for it compared to what a start-up would pay when wanting to use the same catering companies. So now they can’t afford them. Because, after a while, there are so many non-profits that the catering companies stop caring about the start-ups and the SMEs.

The same thing goes for recruitment companies. They only target the non-profits, NGOs, and embassies because they pay the “European prices”. They don’t pay the local standard rates.

That is true for us at BAG as well. We can do training for a start-up, and we will charge USD 100. We can do that exact same training for a non-profit and we can charge USD 3,000.

That’s why it is dysfunctional. Because you can’t say no to that money, but at the same time you can’t actually build up a big enough consumer base.

Is the government aware of that? Are they trying to change that?
#insights

Absolutely.

Kagame has said several times that it’s completely hindering their sustainability. It’s the first country in Africa that’s taken an active stance against it, to step out of it and become independent. But at the same time, they can’t exit it. Because right now that’s what keeps the whole cycle going. Catering companies, recruitment companies etc they are all dependent on that money. So, that’s a source of revenue for the country. The question is: how do you actually exit it without losing the economy?
Do non-profits also compete directly with the private sector?
#insights

The problem with a lot of non-profits is that they go and do an analysis of the market and say: ‘OK, what’s the biggest problem in the market?’ They pay some very expensive consultants to come and do the research and they tell them something like ‘access to finance is the biggest problem in this region.

So overnight, the 100 fin-techs that were working on this problem are now competing with GIZ which gives access to finance with no interest. This means that consumers now have the choice between either paying these fin-tech’s interest or I choose GIZ and paying zero interest…

And so, of course, within the first 2-3 years all the fin-techs are out of business. Now there are maybe two or three fin-techs left. But then the big banks start their own fin-techs and they also have too much power, so they also outcompete the last remaining start-ups…

In the recruitment sector, it’s the same thing: One company comes in on a grant with a mandate to place 100 thousand students into jobs. So, at that point, they are already paid for that job so they can simply place people for free and do a really good job at it. Of course, any company would rather have a free recruitment service than a private company’s service. The result is that all the entry-level recruitment companies died.

Sourcing Talent

If indeed the educational level is quite low locally, how have you managed to build your capacity at bag innovation? Where have you sourced the talent?
#hr

We have sourced it locally; all our staff are Rwandan.

You can find talent, it’s just very hard. But since we were also running a recruitment company we were going through over 10 of thousands of people in our database which meant we had the luxury of the first selection. So, the people we interviewed and engaged with, from the different universities were eventually hired through BAG.

There are actually a lot of talented people, it’s just that competitiveness is not really there yet, and the market is not developed yet. With students in Europe, you can see peers compete with each other and this healthy competition actually increases everyone’s capacity. In Rwanda, it’s still not at that stage.

What are the preferred jobs in Rwanda? Are people excited at the idea of working for start-ups? Do top applicants consider working for start-ups?
#hr

Compared to big institutions someone would rather work for a start-up. But 9/10 times top-quality candidates are going to compete for the non-profit jobs.

Because, while a start-up might pay a salary of USD 300 per month, a non-profit might pay a salary of USD 3,000 per month. This is completely unrealistic compared to the market but unfortunately, there are so many non-profits in the country that they effectively drain the top talent out of the market.

Which is understandable. You can’t compare these two salaries. That’s the equivalent of a graduate in Sweden getting a salary of USD 10,000 per month, without any experience.
For us, we’re 9 people, plus 4 developers (outsourced to a local Rwandan agency). So about 13. And every year, some of our staff get poached by non-profits.

Import Export

What keeps the East African Markets closed?
#importExport

My second business is a game company that prints materials from Uganda. The first year we were here we were able to do all the printing and it went well.

But then relationships went South… imports and exports through Uganda just went down the drain and we haven’t been able to get a single thing into the country since then.

Our Rwandan staff can’t go into Uganda as there’s very bad blood between the countries. It’s mostly due to the bad relationship between the presidents. The same goes for Burundi.

Rwandans don’t really dare to go into Burundi, even if they can they don’t dare to go into Burundi (which is also one of our potential markets).
Tanzania, I think we’re fine with it. But at the same time, there’s no collaboration, there are no incentives to go deal with Tanzania. Import and export taxes are way too high still.
If someone could push a button and enable this East African Community (EAC), it would be such a massive super-power. But there are still small petty arguments standing in the way.
Is that true for all industries?
#importExport

I can assume that logistics and supply chain industries might find some benefits. So, if you have a logistics company you probably have some certificates because of the EAC.
Personally, the only way in which I’m currently benefitting from the EAC right now, is that I can enter Maasai Mara with a resident price…

Advice

What advice do you give to prospective ed-tech start-up entrepreneurs considering bringing their existing solutions into (or finding a solution for) the Rwanda market?
#advice #startingStrategy #collectingMarketData
I would advise you not to expect too much in the first two years.
You can expect to need a mixed financing model at the beginning, working between loans, grants, and other kinds of revenues.
You’re also likely going to have a very hard time sourcing statistics and data. From early on, you’ll need to figure out a way to gather that information by yourself. Don’t be reliant on any government or university entity. You’ll need to have a lot of patience in terms of getting your stuff through.

It took us three to three-and-a-half years to get recognized by the Ministries and finally get picked up. Even though everyone else was recognising us from the beginning, it took longer to be officially recognised.

Revenue is extremely hard to get by. Most companies use Rwanda as a pilot country: If you can make it in Rwanda, with even minor revenues, it means you are most likely going to make it if you scale into East Africa. This is what most solar companies do: they come in here, prove their technology and then go into Ethiopia etc.

Rwanda is the prefect playing ground. It’s very forgiving, in the sense that if you fail, you can still have the chance to try again and do it better.

Whereas in Sweden (or even in Nairobi) if you launch a company and it didn’t work, it’s very hard for you to relaunch it.
At BAG innovation we’ve pivoted our business model, our value proposition, and our problem statement so many times. Yet still, it has been very forgiving, and we still managed to grow despite that. It’s a very “relaxed” market in that sense.

Also, the market here doesn’t move that fast, so you have a little bit more time to develop your product compared to another country where you’d have 10 competitors right away before you’ve even launched.
So, how did you manage to get around the issue of collecting ground data?
#collectingMarketData

We had to do our own surveys, we did interviews, we had to test and fail, and we had to move forward by ourselves. We got by with accessing email lists from universities, doing online surveys, and just generally drawing our own conclusions.
Did it help to have a Rwandan co-founder?
#startingStrategy
Yes, definitely.
Would you advise someone coming here to get a Rwandan co-founder?
#startingStrategy
Yes, definitely. I think most people are doing it. If they don’t find a Rwandan co-founder, they at least appoint a Rwandan CEO or Advising Director.

I strongly believe that you should make the ownership Rwandan as well. Maybe not the majority, but at least a decent size of your company should be owned locally. The president also says: “the ownership of African companies should be in Africa” — and I 100% agree.

Do you have any advice for aspiring entrepreneurs who regard Africa as a place of a great opportunity?
#advice
I survived on monthly costs of around USD 500 – 600. Rent, food, and everything. People have this perception that it’s more and that it’s expensive to come here, but you can even survive on USD 400. With that budget (500 – 600) it’s comfortable, you can still go to the restaurant once a week, and you can still enjoy yourself, without being privileged. Might not be able to travel too much. If you have a certain standard of living then you might spend something closer to USD 2,000, and you should probably not come here as a start-up entrepreneur.

#insights

It’s a very fun environment. It’s an exciting environment, in the sense that in the past 5 years every industry has boomed. There was no coffee industry 5 years ago and today there are cafes popping up everywhere. It’s the same in any industry, there’s so much money being pushed into all these sectors. Not always in the right way and not necessarily sustainable, but it’s everywhere and you can see it. That means that there are a lot of opportunities to tap into.

As an ex-pat, it’s very easy to come here and identify a problem and build a solution to address it. Then you get investment and grant funding to run that for a few years. From there, sustainability will come if you’re able to scale it outside of Rwanda — or if you’re selling in some key industries like the pharmaceuticals.

In terms of the environment there’s no better country in Africa to come and start up, because the safety, the cleanliness, the people.

My other advice is: Don’t do your market research at home. Come here. You have to get into the deep waters. Live here for three months and work hard. Those are the people who start and succeed. The people who are here for 2 weeks on a vacation, and then go back home and start doing research and try to communicate with me about helping them with market research for them it never works. You need to dedicate a considerable amount of time and you need to see yourself staying. You can’t be dependent on building up a local team and then leaving.

I’ve seen that with many Swedish companies: They come here and then ask us to train the team, and when they think it’s good enough, they leave, but then it’s never good enough. You need to be the supervisor for longer than you think.

During the initial 3-month period, a network like EBCR can be a great accelerator. For someone new coming and having access to that right away it’s great.

People here are also very reserved they need to have a relationship with you for one year or two before you eventually enter their circle. If you want to succeed in Rwanda, you have to get into the Rwandan circles.

That’s the biggest mistake I see is ex-pats coming here and having only expat-clients, and doing business with each other. But that’s not sustainable.

Investment

Would you recommend prospective start-up entrepreneurs to come here with some initial capital? How much?
#investing #startingStrategy
For us, as a tech company offering services right from the onset, we managed to make a little revenue very quickly. But it wouldn’t have worked if I demanded a salary to cover all my costs.

If you’re coming as a foreigner, you have to be able to survive from 6 months to a year at least without getting a salary. Essentially to cover your own living costs. Then, depending on the industry, you might have to make some small initial investments too.

I would definitely recommend bringing some capital. And it doesn’t require much: if you come with USD 10 to 20 thousand you can start pretty much anything.
Where did you find investments? Was it foreign or Rwandan investment?
#investing
It was a mix. We had one convertible dept of around USD 100,000 from a local tech company that agreed to develop the initial four phases of the platform. That was a cheap way to build the technology – which was our biggest cost.

Then we got grants. Competitive grants where we competed against other start-ups. We got anything from USD 500 to USD 10,000.
Then there were some private investments from my side as well. But we haven’t given away any private equity yet.

Have you ever considered getting a holding company abroad to facilitate foreign investments?
#investing #startingStrategy
I’ve considered starting up in Sweden several times.
What most people do is that they open a for-profit here and then they open a non-profit in their home country. And then they’ll use the non-profit to sell the “social impact” and get money into their organisations.

So, if you’re a fintech, you don’t say that you “make money by providing financial solutions”, but that “you empower people with finance”. And like that, you might get 100K from a government or an investor in your country. You then use that money to pay your local company as a “consultant”. (Again, this is coming back to the dysfunctional business model.)

On our end, we work with youth empowerment, youth development, employability etc. We’re “ticking all the right boxes” for social investment. That’s why we haven’t done any proper raising, Because if we wanted 100K we’d have to give away 30-40% of the business and we’re not interested in that.

Did you ever consider becoming a no profit
#investing #startingStrategy
I’ve considered starting up in Sweden several times.

What most people do is that they open a for-profit here and then they open a non-profit in their home country. And then they’ll use the non-profit to sell the “social impact” and get money into their organisations.

So, if you’re a fintech, you don’t say that you “make money by providing financial solutions”, but that “you empower people with finance”. And like that, you might get 100K from a government or an investor in your country. You then use that money to pay your local company as a “consultant”. (Again, this is coming back to the dysfunctional business model.)>

On our end, we work with youth empowerment, youth development, employability etc. We’re “ticking all the right boxes” for social investment. That’s why we haven’t done any proper raising, Because if we wanted 100K we’d have to give away 30-40% of the business and we’re not interested in that.

Is it actually legally possible for an organization in Rwanda to switch from being a profit to a being non-profit?
Not really. You can’t switch entities. You’d have to register a new entity. It’s in fact hard for a for-profit to because a non-profit and vice versa. The ones that do just register a new entity.
What would be the best channels to find private investment for a company in Rwanda?
#investing

There are no official channels for finding investors in Rwanda. It’s all just networking. That’s partly why people are in networks like EBCR because there might be one person who has an investor in their home country interested in let’s say ed-tech and therefore they will connect them to us since we’re in ed-tech.

The best way to find a potential investor is to find someone who has an interest, so it’s always connected to their network – usually from abroad.

The investment scene is getting better here, and governments, privates, and VCs have started opening up here since this year.

That’s because in the past 5 years everyone’s said that their biggest problem is access to finance. So, this time next year, I don’t think [access to finance] would be as big a problem as it is now.
For me personally, the best place to find private investors is definitely back home, through my network in Sweden. Going into the private owners, the private networks, and the private impact investors who are willing to take 2% equity.

Again, that’s the advantage of coming from abroad. For us finding USD 50,000 could be very easy. But for a Rwandan entrepreneur, it’s almost unthinkable.

Tax

What has your experience been with tax so far?
#tax #accounting

90% of foreigners who come and start a business here will hit a fine..

Because they don’t have a person telling them which are the basic things they have to do and which things they’ve got to look out for.

Likely I had a local accountant from the beginning who was very good at communicating those things. That was extremely lucky I think because a lot of people miss out on the small things such as paying the public cleaning fee and patent annual fee, and the difference between paying the RRA and the RDB for whatever you’re doing. You have to figure those ones quickly, and it’s not complicated at all, you just need a 5-min discussion with someone who knows, and they’ll tell you.




When it comes to paying on time, it doesn’t matter if you’ve got a hundred excuses. If you pay a second late, you’ll get a fine. That’s how it should be. But again, the amount doesn’t always feel proportional. We’ve also paid fines. Mainly due to lack of capacity and staff (accountants).

But the most common ones that people pay fines for are very easy to avoid. And VAT is not rocket science either, just pay before the deadline and you’re good.

Do you find that the time between the end of the taxable period and the deadline to file your VAT is quite short compared to other countries?
#tax
I haven’t struggled with it, but then my business doesn’t have to go through any complex processes to collect this data.