Key Points
- Local firms are often excluded in favour of multinationals or foreign-owned firms in Africa’s infrastructure build.
- South Africa’s Khato Civils is an indigenously-owned firm that seeks to help change that by executing state-of-the-art projects and expanding into at least 42 African countries.
- Khato Civils is making an unprecedented commitment to mentorship of local firms with 30% of the value of projects to be distributed to three partner firms in each market it enters.
- AfricaLive spoke to Simbi Phiri, the Chairman and Founder of Khato Civils to take a deep dive into his own entrepreneurial success story and his goals to foster a generation of African owned construction giants.
AfricaLive: Can you tell us about your upbringing in Malawi and Botswana & how your early years shaped your outlook on business?
Simbi Phiri: My father was an immigrant in this country. That sounds strange to people who don’t know that Malawi, Zimbabwe and Zambia were one unit in the past before the Rhodesia project came into effect. My father moved into Botswana in the 1950s where he met my mother and we moved into Malawi, where I grew up. After my mom’s demise, I was raised by my grandparents with my grandfather who was a second world war veteran, playing an active role. My grandfather set a standard of hard work and discipline drawing from his experience in the military. The business blueprint was laid out for me by my uncles in Botswana who were all highly entrepreneurial.
I moved to South Africa in my late twenties and later started working for LTE. LTE was an engineering firm that was amongst the best in Johannesburg and soon I rose to the rank of partner flanked by two other partners. I later founded Khato Civils with the help of my wife’s connections after taking over a small firm that had been created by Italian immigrants. I was able to nurture it from a Grade 4 firm and took it to a Grade 9 firm.
AfricaLive: As you mentioned, you initially built your career and reputation at engineering firm LTE Holdings; what were the major milestones from your time there?
Simbi Phiri: Our major milestone was designing the townships across Johannesburg at the time. We also formalised the informal settlements like Diepsloot, Mabopane, Tembisa and other areas all over Johannesburg. A lot of these areas lacked proper sewers, water systems, electricity and roads before we came along. We gave them the structure they needed and formalised them as official townships. All this planning and work was done in the 1990s when people were scared to go to the townships. We related with the people in the townships because we didn’t look down on them and that left a good impression on the people. Some people wondered how we made any money working in the townships but they have no idea how much work was put into the infrastructure. Our work helped give the local people that were living in informal settlements a semblance of dignity.
We have seen people improve their lives and move up in life from some of those townships thanks to the infrastructure we put up. Despite the problems and complaints that arise in South Africa, we must all admit that vast improvements have been made since the 1990s. The townships have better schools and sanitation with most of the improvements done by us. We also built electricity infrastructure and have ensured that people have access to water even within the small shacks. It is quite fulfilling to drive around Johannesburg and say we built that structure and that other structure
Our impact on the people is plain for all to see. I knew people in the late 90s and early 2000s that lived in shacks who now own decent four-bedroom houses. Decent housing changes the lives of people and makes an impact on the children. It becomes a net positive for any society.
AfricaLive: From a personal point of view, what was the motivation to become an entrepreneur and how did the purchase of Khato Civils come about?
Simbi Phiri: My grandfather had a lot to do with it. He was a self-starter who owned maize farms, livestock and always had a commercial venture going on. I became a very formidable maize farmer and my Income from maize farming rivalled that from my construction business. My grandfather always worked for himself and sometimes he would take big hits when crop yields went down. Livestock flu would also come about and that would wipe out a good chunk of his livestock. After taking huge losses, he would always bounce back from those failures and that resilience rubbed off on me. That also gave me the ability to identify good opportunities and that is how the acquisition of the company happened.
AfricaLive: In the first years of your ownership of Khato Civils you took some strategic decisions that differentiated you from your competitors in the market. Please talk us through the strategy that allowed for Khato’s initial growth.
Simbi Phiri: I noticed that in the South African construction industry, there were a lot of experienced white men at management level who had the right work ethic. However, there were also some who had a lesser work ethic. On the other hand, there were lots of black people who had the work ethic, but very little exposure. By exposure, I mean people that had worked under a reputable engineer for ten to fifteen years.
My first decision, therefore, was to get the exposed white people to train ten black people that were trying to come through the ranks. Things were racialized like that because the system in South Africa excluded black people from opportunities.
I also decided to buy instead of hire crucial construction equipment. Hiring equipment can be crippling because the government does not always process contractor payments on time. This means that you also can’t pay for the equipment on time. That exposes you to the risk of being stopped and embarrassed by the owners of the equipment who demand prompt payment. Delayed payments are a huge problem when doing business with the government and you have to factor that in before you sign up for projects. Buying tipper trucks, rollers, bowsers, trenchers and other capital equipment was imperative for us. This approach eliminated the risk of being stopped due to financial constraints.
Our growth was also accelerated by my approach when it came to handling the income we got from various projects. If we had four projects going on, I would take the income from two of them to buy capital equipment and the other two would pay for the company’s expenses. Sometimes we would end up short on cash flow, but at least we had all the equipment we needed for the next project without needing to hire.
I also made an executive business decision to ensure that all projects we undertook were at least six months ahead of schedule. That move differentiated us from the rest because I noticed that most firms especially multinational firms were delaying projects. Project delays were costing both the local and the central governments dearly and we moved to solve that equation. Setting ourselves up to commission projects months in advance opened us up to new opportunities. We had an issue with the Giyani Water Project that was misreported in the media. We didn’t abandon or delay that project, we had to down tools because of non-payment by the project owners.
AfricaLive: When you purchased Khato Civils its Construction Industry Development Board grading was at level four. You grew the company to grade nine allowing it to compete for the largest projects alongside the established South African and foreign firms.
Few black-owned construction companies have achieved this breakthrough in South Africa, what were the decisions you made that allowed for this growth in status?
Simbi Phiri: I would attribute a lot of it to my relationship with money. I don’t simplistically look at money; I think about what those resources can bring back to the company. It was about developing the ability to delay gratification and focus on using the profits to develop the company. My approach was to identify what we needed to move up a few levels and that had to do with recruiting the best people and getting top-notch competency and compliance levels.
Moving up in compliance is not cheap at all. It cost us 25-million Rand (1.7m USD) per year to move up a grade in compliance. The compliance rules by the CIDB are also very stringent when it comes to the quality of work and also how you remunerate your workers. The CIDB is also very particular when it comes to following up because they check tax compliance as well as other background checks. It’s a rigorous but worthwhile process because it forces us to look at our ethical and moral responsibilities. Falling short of the set standards always means that you get kicked out and your ratings suffer.
AfricaLive: One of the primary challenges facing economies across the continent is in the development of local entrepreneurship.
South Africa has one of the highest small business failure rates in the world; over 70% of small businesses will fail within their first year.
What are the main lessons from your own journey you would share with aspiring African entrepreneurs at their early stages of growth?
Simbi Phiri: Entrepreneurship is not a walk in the park, it requires resilience, commitment and discipline. Failure happens along the way and that’s where resilience must come in. Before you start, you must master your mindset and be ready to take losses and learn from them. That readiness to go through the paces and motions will be key. You must have the needed knowledge and it could take you five to ten years to establish yourself in your chosen industry. Having a degree from a prestigious university counts for nothing if you don’t take the time to understand how the big players move in the industry.
Young entrepreneurs must learn from the experienced businessmen and women who have been there for decades and seek to build on what they have put in place. Upcoming businessmen and women must have esoteric knowledge. The experienced people are willing to share esoteric knowledge but only to proper initiates who will use the knowledge properly. I was mentored by people who saw my drive and were willing to share their knowledge with me.
I have also learnt to set standards for those that work for me. Experience revealed to me that, at times, you are at war with your contracted workers. They could seek to delay the projects at times while still getting paid for them contractually. You handle this by setting weekly targets and setting up incentives that drive them to complete the work on time. There is a lot to learn, but aspiring entrepreneurs must first take the leap of faith and just start.
AfricaLive: A major barrier to African entrepreneurial development is of course access to finance. Only 6% of small business owners in South Africa for example have received government support. How would you advise aspiring entrepreneurs to approach the issue of access to finance?
Simbi Phiri: I want to make one thing clear to young entrepreneurs reading this; banks are not the only source of funding.
Mentors can provide knowledge and access to finance which is invaluable in African business.
The finance landscape can be difficult to navigate in this part of the world. The challenges can be circumvented by seeking alternative sources of funding. If you have a business idea and you are organised properly, approach people that have money. Individual people that have already been successful in business can reinvest in good ideas and both parties can benefit greatly.
A young man came to me with a business idea that I critiqued for a while before investing. Today, his practise is thriving and is one of the COVID-19 testing centres here in Gaborone. Though the government has a responsibility to fund young people’s dreams, our government’s don’t have the capacity. I would, therefore, advise young people to network with people that have money. Sir Richard Branson has perfected the art of investing in budding entrepreneurs. He takes higher equity in a business until his money is recovered and then hands over most of the equity to the owner and keeps 40 per cent. I would love to see more billionaires from Europe coming here to train young, enterprising people who can benefit from their vast knowledge.
We also have a self-centred mindset amongst our millionaires here at home who don’t take the time to train our young people. I have helped many young people to get started in their business journeys. This isn’t only in the construction sector. For example, I helped fund some ladies to get their catering business off the ground by funding them to buy equipment. I have taught people to go out there and pitch ideas to different people and see how that could turn out for them.
I would also tell the youth not to buy into media narratives of business, as being something you start after retirement. Business is something that has to be done from an early age. There is the theoretical knowledge you learn in school and then there is the practical knowledge you get from practitioners.
Your mentors then give you esoteric knowledge, which you need to make big strides in business. That is how you begin to move up the ranks and become a success in business.
Rising through the ranks takes the ability to stomach humiliation and bounce back from upsets. Your venture must be part of who you are and you must cut off people that are not supportive or helpful. My main point here is that banks are not the only solution. Banks get their money from the people, so the youth must open their minds and look for those people.
AfricaLive: Do you believe African business leaders have a responsibility to reinvest in the next generation of entrepreneurs?
Simbi Phiri: I absolutely believe that African business leaders have a responsibility to reinvest in the next generation. If we don’t, there will be a major vacuum. If my generation is on its way out, there must be a new one coming in.
I want to ensure that more than ten big black-owned construction companies are built, thanks to my influence before I retire. I emphasise black-owned, to counter racist notions that have been propagated in the past that dark-skinned people cannot build. Lack of entrepreneurial flair amongst black people is caused by a shortage of entrepreneurial black success stories.
When black people succeed in their numbers, it will change a lot of mindsets. Local people succeeding will ensure that we have local companies ready to participate in national development. This will help avoid a scenario where only foreign companies are building our infrastructure. We should never allow any foreign companies to come and build infrastructure in Africa without the participation of local firms. Our local firms must also have the drive to learn and the ability to apply themselves properly.
AfricaLive: How will Khato Civils work to foster entrepreneurship and small business development in African construction?
Simbi Phiri: We plan to expand into 42 African countries and give 30 percent of each project to local companies. We plan to allocate resources to a few local companies in each of those countries to expose them properly. They will come in and see how we work and how we prepare. They will learn from us how to run finance, management and to adapt our model. If we start training three small local companies, at least two should succeed. We made the mistake of allocating 30 percent of the contract value of the 100km pipeline project to train one local company in Botswana, that was managed poorly. In future, we will allocate that 30 percent to three different local companies with each getting 10 percent. Learning from such experiences is how we can ensure we have a positive impact as we grow.
AfricaLive: Therefore as you expand into new African markets you will set a target to mentor three firms in each country?
Simbi Phiri: Yes, we will ensure that mentorship is in place. Our belief is that infrastructure development is the key to uplifting southern African both socially and economically.
We plan to move into Zambia hoping that we get opportunities to inspire with the coming of a new government.
The Chinese had monopolised the construction market over there and we believe space will be opened up for competition. It is difficult to compete with Chinese state-sponsored companies because we don’t have that kind of support. We should get support from our European partners to help fund the moves we want to make. Our European partners have backed us before with the project in Malawi to the tune of 3-billion South African rand (210M USD). These partners can offer us more backing for future projects in places like Namibia and Kenya. Hopefully in South Africa the PIC finds some stability and accelerates its impact as I believe they should be financing all the major infrastructure projects in Southern Africa. We need roadways from Congo to Lusaka. Good road infrastructure opens up economies and that accelerates money changing hands faster.
No roads should be built without fibre optic cables. Fibre optic cables open up communication lines and we are able to link up places virtually through wi-fi. It’s an opportunity to build connectivity as the road infrastructure works to catch up. Botswana has not moved on when it comes to building roads. Botswana’s major industries such as tourism can grow with further infrastructure, in a country with more wild animals than people.
The tourism sector would improve drastically if feeder roads were available. The Botswana government must borrow from the people to build roads and charge tolls for the modern infrastructure. Good road infrastructure would also open up intercountry borders. Governments must open borders. The highway from Johannesburg must go all the way to Botswana and then proceed to Lusaka. Colonial borders do not mean anything and they have become barriers to communication and trade. The SADC region can grow if borders are opened and infrastructure development is put at the heart of development.
