Richard China discusses ‘Going Green’ in Development of Low-Cost Housing and his entry into Africa

International Green Structures - (IGS)
Richard China is the president and CEO of International Green Structures - (IGS)

Prior to starting International Green Structures, China spent most of his contracting career as president of Primo Electric, a family-owned electrical contracting firm serving the Mid-Atlantic region for over 40 years. In 2007, he founded IGS, a sustainable emergency response housing solution, which was approved and awarded a contract by the federal government as a next generation disaster housing solution.

In an exclusive interview, value investor Tim Melvin spoke with China to gain a greater insight into the private sector firm that offers innovative structures and services that seek to provide the solution to the global housing crisis.

TM: International Green Structures is a very interesting company. Tell us a little bit about your company and the opportunity you see unfolding in the African region for you guys.

RC: Originally, the company was formed under a prototypic company back in 2006 to compete for an alternative form of disaster housing for FEMA in the United States — you know, to replace travel trailers and those sorts of things. After a very exhaustive two and a half years study, we were one of a handful of companies that were selected for that contract, a five-year contract, with U.S. government to provide the alternative form of disaster housing. Of the companies awarded the contract, we were the only one that actually had a pre-engineered kit that was pre-positioned in high impact areas that could quickly be deployed and erected and could migrate for more of a temporary structure into a longer term living solution

I decided to convert some of my debt equity and take control and interest, then step into the CEO role of the business and at that time I decided to rebrand the business to International Green Structures or IGS and introduced the technology to the emerging markets.

The technology itself is called compressed agriculture fiber. It’s been around since the 1940s and was originally patented in Sweden and developed in the UK and was utilized in housing after World War II, where a significant amount of housing was rebuilt in Europe using this technology. What IGS did during the process of dealing with FEMA was to develop a pre-engineered steel framing kit that will take this compressed agriculture fiber technology or CAFT and quickly interlock it into an affordable living structure or any type of structure quite frankly.

The key to our model is that we truly are a sustainable product because what we do is we take the biomass residue from wheat or rice after the farmer has harvested his crop, which is the actual straw. What IGS does is we focus on introducing an economic model to this emerging market that provides an affordable housing solution for builders and contractors and government agencies to utilize.

TM: Okay. How big is the need for affordable safe housing throughout the African region? I imagine it’s kind of pretty big.

RC: It’s huge, not only in Africa but the entire world, quite frankly. Urbanization is a very good thing if planned properly, but what’s happening in most of these countries is it’s not been correctly planned and it’s creating urban slums; currently around the world today there’s a need for affordable, low-cost, affordable modern type style housing for about 827 million people.

That need will grow to over a billion by 2020 and African requirements are probably about 400 million of that. It’s an expansive market and the main reason we decided to take the technology to Africa is because in the U.S. we have every alternative building technology there is that you have to compete against and you don’t have the same type of demand over there. The only thing you’re competing against is the traditional and conventional construction utilizing block and cement, which is very costly and is very slow.

Our biggest challenge is the cultural adaptation and showing the different people in these countries that this is a technology that will give them a safe, secure house but it’s not your traditional construction process that they’re used to.

TM: You spent a lot of time in the last couple of years in Africa overseeing the projects, doing the negotiations, and basically getting the company up and running over there. Now the economists that I’ve been talking to recently tell me that they expect to see GDP growth throughout the African region of about 6 to 7 percent annually for the next 20 years. That’s kind of like China over the last 20 years, sounds potentially very exciting.

Do you see that as likely? I mean, can they grow at that rate for sustained amount of time?

RC: Yes, I believe so and if you look at some of the smaller economies, Africa will probably grow at much faster rates. When you don’t have much of a GDP, a high percentage is not hard to achieve, but yeah, I think you’ll see those, on the places we’ve been.

The U.S. tends to be behind the Chinese and Europe as far as investing in Africa. But I think there’s a lot of people that are seeing that it is the next frontier, and it’s the place for them. As long as you find good local partners on the ground, it’s a place that you can be very successful in business.

TM: Now, let’s bring in our timeframe even a little bit shorter, say, the next three to five years. What type of housing market growth do you see throughout the region?

RC: Well, I can tell you this: In Kenya, just Kenya alone, they have a shortage now of probably two million houses which is growing by 3,000 annually. Now their housing ministry, which we work with very closely, has a plan to do 3,000 houses over the next four years. I told the housing minister we do not view a competition in these markets as a problem because the demand is just so significant.

In Ghana there’s a demand of 1.5 million houses. Nigeria has a ton, somewhere between 12 to 16 million houses, Uganda has a demand of two million houses growing to eight by 2020. So we feel that the market is limitless.

Our first engagements in Africa were mainly with the government so we felt like they just moved too slowly for us. In January of 2014, we changed tactics and started working directly with the local developers, builders and companies that had a financial interest in using the technology like ours. Just to give you an example, the first 15 months of production for our Kenya facility is already committed. That would be about one production line will put out about 3,000 houses a year. And for that one production line we have commitments of about 3,400 units which will translate into about $15 to $17 million of revenue for each of our production lines. Each of our factories are designed to ramp up the production line. We have a plan by 2020 to have 10 factories there.

TM: Wow! So there’s really plenty of demand and need for them. From your time on the ground, what sectors of the African economy besides housing do you think are attractive investments for the next five to 10 years, let’s say?

RC: I think, everything, quite frankly. Anything related to infrastructure; power, roads, alternative sources of power, housing is a huge, huge one because of the demand. Agricultural businesses have a wide open opportunity, communication technology. It’s such a wide open market, it’s sort of refreshing. You just have to have the persistence and awareness to go there and realize that you’re not going to have deal in three months or six months.

We’ve now been in and out of Africa coming up in three years and we’re just really starting our first fields there. We felt that the persistence and the continued investment is about to pay off. We think that once it starts to pay off it will be limitless for us. We really do.

TM: Now, speaking of infrastructure, that’s a huge concern when you’re investing in a frontier market like Africa. How was the infrastructure there; the electric plants, the grid, transportation services, how was all that in the parts of Africa you’re doing business in?

RC: Well, different places are different. The urban areas are nowhere near adequate. In Uganda I believe there’s only 12 percent of the people have electricity there so, you know, it’s a pretty huge demand. At the same time, they don’t have the same power requirements that we have in the U.S., but all the money is going towards infrastructure in these countries right now.

The one thing that I’ve found that is really sort of interesting is unlike in the western world or in the U.S., say, a developer or a builder is going to come in and build a housing project. Here they will be required to come in and get all that infrastructure in place first before the houses will ever get built. Over there in the more remote, the rural type areas or outskirts of the areas, the governments don’t necessarily have the money to build the infrastructure.

TM: I was talking to a friend who is in private equity. He said that their major focus was, as you said, infrastructure and interestingly enough, brewery. So, I have to ask how’s the beer?

RC: Well, the beer’s good. I do understand that Budweiser was in Kenya. Actually, Budweiser built a very big factory there and ended up having to close it. Budweiser’s business operations failed, but not so much because the market wasn’t there, but because the way the distribution was controlled.

Some of the more powerful people throughout Africa had interest in the other beer companies, and Budweiser couldn’t get the proper distribution. I personally love African beer. When the African natives drink it, they always ask you if you want it warm or cold because they drink a lot of warm beer over there.

TM: Okay. Now as a baseball fan, the idea of a warm beer is just not good for me so I think I’ll have to be in the cold club but…

RC: Yeah, I understand.

TM: Well, first, thanks, because I know it’s Saturday morning. You’re up on Kent Island in Maryland where, you know, plenty of stuff to do right there on Waschtisch Bay, so thanks for spending some time with us this morning. So your final thoughts on the investment opportunity for U.S. investors in Africa over the next decade?

RC: Oh, I think it’s wide open. I would suggest anybody that wants to go and do business in Africa that the key thing is finding good local partners that already understand the nuances of doing business with the governments and the corrupting issues – how to move through those challenges.

That’s something we didn’t do in our first 12 to 15 months there. It probably cost us an extra million and a half dollars by not finding us partners. And then, there’s some really good organizations in the U.S., one of them that I wish I joined early on is called Corporate Council on Africa, which is in Washington and they have really helped us in U.S. state department matters and these types of things.

I would say if you’re looking for a place to invest and you’ve got some appetite for some risks with some high rewards, I think Africa is definitely a place to go.

Source: www.benzinga.com

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