‘Agri PE in Africa needs government investment in infra’

Africa’s agriculture sector needs government-led investment into basic infrastructure if it’s to develop to any scale and private equity can only go so far, delegates at the AVCA Conference in London told Agri Investor.

The private equity industry can invest into agricultural infrastructure on a small scale, mainly through vertically-integrated food production businesses, but that is just a fraction of what several countries on the continent need, they argued.

“There needs to be a framework for development if we are to see growth across Africa and this needs to come from governments to help make these markets competitive for investment,” Avril Stassen, senior partner at food and agribusiness private equity firm Agri-Vie, told Agri Investor on the sidelines of the AVCA event this week. “We would love some more roads! African governments need to build roads and power plants to serve local markets.”

Arnold Ekpe, chairman of Atlas Mara, the London-listed African bank co-founded by former Barclays head Bob Diamond, agreed.

“You cannot talk about agriculture as an isolated sector,” said Ekpe, told Agri Investor on the event’s sidelines. “The question is how to commercialise it and the governments have tried in some ways but failed. Agriculture is not a silo – it needs infrastructure and power. If you want to create a local market, investment is needed into the whole infrastructure system.”

While the impetus for development and reducing unemployment needs to come from governments, investors do have the opportunity to get behind a “wider and bigger objective to try to inform the governments that they need to put infrastructure and systems in place”, Ekpe told delegates.

Demand for agricultural goods also needs to be better organised to support the sector’s growth and prevent food wastage, argued Ekpe, pointing to the slow development of the supermarket industry across Africa. Over 70 percent of the food wasted and lost across Africa happens between production and retailing, according to the Food and Agriculture Organisation.

“Supermarket growth is happening, but market penetration is slow,” said Stassen. Some South African supermarket chains are starting to appear in West Africa, such as Shoprite, whereas as East African countries have developed their own supermarket brands.

Those supermarkets that do exist are a valuable source of deal ideas, he added.

“We can predict the natural trend to follow western consumers, but it is good to go and literally see what’s on the shelves and what products are selling,” he said.

Serving the local markets better through local production of the processed foods that are usually imported is a fantastic investment opportunity, Stassen added. “Although not all of our investments focus on domestic consumption; we do have to go with the global markets sometimes, like everyone else.”

Atlas Mara’s Ekpe told delegates that the African continent needs to grow at a faster rate than its current five to six percent rate. It should be growing at double digits.

“The major challenge we face is the macro challenge, because currently there’s a certain acceptance that five to six percent growth is acceptable,” Ekpe said. “I think that’s completely wrong. Africa needs to raise its game and make a step change. It should be growing in double digits.”

To jump-start growth rates, governments must “invest money for the future”, as well as put in place “a framework of development that supports, that is pro-business, that is pro-investment”, Stassen said.