Entrepreneurship Zone: 08 May 2024 :: Kenyan chemicals business targets growing construction, leather industries

Wed May 8 05:16:31 CAT 2024

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Entrepreneurship Zone: 08 May 2024 ::  Kenyan chemicals business targets growing construction, leather industries

Charles Okadia, founder of Chemsols

Established in 2011 by Charles Okadia, Chemsols Limited in Kenya is a manufacturer specialising in paints, inks, and adhesives. The company’s factory is situated on the outskirts of Nairobi. Jeanette Clark spoke with Okadia about the initial challenges of setting up a chemical manufacturing business, navigating funding difficulties, and how his company stands to profit from the burgeoning construction and leather industries in East Africa.

In 2011, Charles Okadia was working for Coates Brothers, a chemical manufacturing company in Kenya, as a business manager, when he decided that it was time to start his own venture. Quitting wasn’t easy. First, the prospect of relinquishing the security that comes with being a salaried employee in a well-paying role was a challenging decision. Second, the company was reluctant to let him go. “They were not happy,” he remembers. “It took about six months before they allowed me to leave.”

During those last six months as an employee of Coates, Okadia got his ducks in a row. He started the process of registering his business and looked for premises for the operations. He was going to go with what he knew – chemical manufacturing.

“There was a lot of construction happening in the country at the time and I knew there was a gap in the market for high quality, locally produced paints and adhesives.”

The pain of going solo

Okadia quickly encountered the challenges of starting a business. Right at the beginning, he was the only employee of Chemsols Limited. “I always joke with my staff about the culture shock of those first couple of months. Working in a corporate environment I had tea brought to my office. Now I was suddenly everything: the banker, the marketer, the driver, etc.”

He realised that he needed to be a jack of all trades and hands-on, learning on the go so that he could also train newly appointed employees.

Okadia used his personal savings to get the ball rolling, but capital was in short supply. For example, the company did not have enough money for brand-new machinery; it had to make do with equipment that was being thrown out by another local manufacturer, refurbishing and adapting it for its use.

For production to even start, the raw materials needed to be brought into the country from China, Egypt and the Netherlands.

Okadia vividly recalls the day the first shipment arrived, only to find out that there was insufficient money in the bank to cover the customs duties. “I tried to negotiate a loan with my bank, payable within three months. The manager refused.”

Demurrage charges began to accumulate at the port due to the prolonged use of the container within the terminal beyond the complimentary time period, putting Okadia in a tight spot. A friend recommended contacting a manager at a different bank. In this instance, the manager was receptive, took the time to understand Okadia’s background and expertise in the industry, and made a decision based on this information. “I remember him saying: ‘Charles, I am taking a risk, but you have to make sure that this money is repaid by the end of the month.’”

The shipment was cleared. To pay the loan of approximately US$1,000 back on time, Okadia targeted one specific customer and negotiated cash-on-delivery payment terms.

The cashflow tightrope

In the first three years, Chemsols tried its best to bootstrap. “We would negotiate with customers to pay us on time so that we would have the cash to clear raw material imports for continued production. By the beginning of the fourth year, it was clear we needed more finance if we wanted to grow,” says Okadia.

A selection of Chemsols’ products.

The only solution was to mortgage a family property as collateral for a further bank loan. “It wasn’t an easy conversation with the family, but it helped stabilise the company. Between the bank, using personal savings and persuading customers, we survived. It was a tough balancing act.”

Growing one customer at a time

Adding customers in those first three years meant Okadia pounded the pavement, knocked on doors and perfected his sales pitch. “In the beginning there was suspicion; the company was an unknown and customers rightly were worried that we would not be able to provide the quality we were promising,” he says.

He would invite customers to visit the factory to see for themselves. Over time, Chemsols received referrals, which meant that confidence in its products was growing.

With the extra funding secured through the mortgaging of the family property, Okadia was able to hire additional employees, particularly for marketing. This enabled him to extend both the product range and the company’s customer base, which until then had been focused primarily in and around Nairobi, to the wider Kenyan market. “We had to start with baby steps. I did not want to overextend and lose customer trust because we couldn’t deliver on orders.”

Capitalising on the expanding construction and leather industries

Initially, Chemsols focused solely on paints but has since broadened its product range to encompass inks and adhesives. Additionally, within the paint category, the company now produces thinners and wood lacquers.

The solvent- and water-based paint lines are experiencing notable growth, according to Okadia. This can be attributed to a robust expansion in the construction industry, stimulated by government initiatives to boost affordable housing.

For its ink product line, Chemsols made a strategic decision to initially specialise in flexographic printing ink. The company identified potential growth in demand for this ink, which is used on flexible packaging materials, such as the security tape required for parcel sealing. “We will now consider expanding our ink range after we have established ourselves as a serious player with flexographic printing ink.”

Chemsols additionally produces adhesives. Okadia observes a burgeoning market, particularly for the adhesive used to bond a shoe’s upper part to its sole. “The leather industry in Kenya and Uganda is growing and we see an opportunity for growth,” he says

The company’s current production capacity in a day is 25 tonnes, up from the one tonne it could manufacture in the first year. It has 30 full-time employees.

First regional, then international

In the fourth year, Okadia began leveraging the regional contacts he had accumulated during his previous career. Over time, he has managed to secure customers in Tanzania, Rwanda, and Uganda. With a focus on adhesives for the leather industry, Ethiopia is next on his expansion agenda. Ethiopia, boasting the largest livestock population in Africa – around 53 million cattle according to the Ethiopian Investment Commission – has a substantial leather industry.

“After that, why not outside Africa?” Okadia posits. “The raw materials we use already adhere to international standards, so I don’t see a problem getting our product into those markets.”

To achieve this he is looking for business and investment partners to help with the next step. “I would like the company to live beyond me. I am not immortal and need to build a business that will remain stable for years, even after my departure.”

Howwemadeitinafrica

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DISCLAIMER: This report has been prepared by Bulls ‘n Bears, a division of Faith Capital (Pvt) Ltd for general information purposes only and does not constitute an offer to sell or the solicitation of an offer to buy or subscribe for any securities. The information contained in this report has been compiled from sources believed to be reliable, but no representation or warranty is made or guarantee given as to its accuracy or completeness. All opinions expressed and recommendations made are subject to change without notice. Securities or financial instruments mentioned herein may not be suitable for all investors. Securities of emerging and mid-size growth companies typically involve a higher degree of risk and more volatility than the securities of more established companies. Neither Faith Capital nor any other member of Bulls ‘n Bears nor any other person, accepts any liability whatsoever for any loss howsoever arising from any use of this report or its contents or otherwise arising in connection therewith. Recipients of this report shall be solely responsible for making their own independent investigation into the business, financial condition and future prospects of any companies referred to in this report. Other  Indices quoted herein are for guideline purposes only and sourced from third parties.

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