The window of opportunity for agri investors in Africa seems to be opening, but investors still face big risks.
It’s not often investors get to mingle with presidents. But The Global African Investment Summit in London, held on Parliament’s doorstep in London, was a political affair as much as it was a meeting place for those with capital looking for opportunities in Africa. And there was considerable emphasis not only on the expected oil and infrastructure projects, but also on agriculture.
Here’s what I took away from rubbing shoulders with investors and bigwigs:
Investing in African agriculture continues to be a risky business. It requires on the ground knowledge, strong fiscal and political relationships as well as hands-on management. Just three weeks ago, a consultant for a large traditional investment firm in London told me that they would not even consider investing anywhere on the continent.
But many investors are also wary that ignoring Africa today could mean missing out on a window of opportunity, particularly when it comes to agriculture. After all, it’s a timely topic. The push for investment in agriculture in terms of farmland is being actively pursued by governments such as Zambia, Uganda and Nigeria. Representatives of various governments made appeals for private investment, not only in infrastructure projects such as airports, but also in farmland. Investors have been buying up telecom companies and petrol stations, but now food is becoming increasingly attractive. Emerging markets specialist Actis just bought Food Lover’s Market, with a view to expanding the South African retailer across sub-Saharan Africa.
It is a reflection of what we have seen in Australia: fossil fuels have become a less reliable source of revenue, so governments and businesses are turning to the oldest industry in the world – farming.
But I also heard – repeatedly – that African agriculture demands large-scale investment and time, especially in sub-Saharan countries.
“You can’t be shy,” Frank Braeken from Amatheon, a European agribusiness with investments in sub-Saharan Africa, told me after an agribusiness talk at the Summit. “To make a profit in Africa you have to be ambitious, and that means scale.” Which means projects of tens or hundreds of millions of dollars. Other investors I spoke to echoed his opinion, saying there was little room for investment in small farms or agribusinesses along the supply chain.
The main reason for this is that lack of infrastructure. Scale gives you bargaining power and enables you to put in place the supply chains agribusiness relies on. Fields need road access, and fresh produce needs refrigerated trucks and storage space.
Amatheon has not only built up the successful meat-processing business to compete with Zambeef, a company set up in the 1990s with a profit of $95 million this year, it has also created a supply chain that takes wheat from the firm’s fields to be milled and turned into bread. It’s a long-term investment, and relies on the growing demand from African consumers as well as fitting into the increasingly important priority for African governments of food security.
Buying businesses in agriculture can take time and needs careful thought. One owner of a moringa plantation was finding it hard to get an investor despite showing his business was profitable. He said most investors told him he was asking for too little.
Investing in Africa is still risky, but with vision and access to local knowledge, there are profits to be made. Governments in Nigeria, Uganda and Zambia are openly asking for private investors to enter the agribusiness space. For investors who have been waiting for an opportunity, this could be it.
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