EXEO Capital is a pan-African private equity firm focused on food and agribusiness, among other sectors, throughout sub-Saharan Africa. The firm recently reached a $100 million first close on its second fund, which targets mid and low cap companies in the processed foods, dairy, proteins, beverages and other subsectors. Here, co-founder Herman Marais tells Agri Investor about drivers of African food demand growth and specific markets and subsectors he sees as most promising in the region.
How do the views on Africa’s prospects differ between European and North American institutional investors, and what challenges do they share?
In our experience, institutional investors in Europe and the UK are more ready to commit to opportunities in Africa. They have established social networks that have endured after the colonial era and made for a more informed community of investors. In North America, certainly with exceptions, the appetite and preparedness to invest in Africa is at an earlier stage.
For institutional investors from both regions, there is often a gap between the allocation sizes that they have become accustomed to in Europe, North America and certain other emerging markets, and what is best suited for sub-Saharan Africa. In the sub-Saharan space, there are fewer opportunities to commit the kind of tickets that would move the needle of a large pension or endowment fund because many of the growth capital opportunities in Africa can only absorb smaller allocations.
Why has EXEO reduced focus on southern Africa and increased its attention on eastern and western Africa for Fund II?
We will still deploy a material part of our portfolio in southern Africa, particularly South Africa, although proportionally less than in Fund I.
The reason we’re rebalancing somewhat away from southern Africa is simply that the region has somewhat slower growth prospects ahead of it, compared with eastern Africa, where growth is still projected to be relatively robust over our investment period of the next three to five years.
West Africa is a new investment territory for us. We haven’t invested there to date, but there is a material opportunity in this sector there and during our deployment of Fund II we will start doing deals in west Africa.
Which regions of sub-Saharan Africa have the best potential for aquaculture?
Our own experience in aquaculture is in South Africa, which has a small but very successful shellfish aquaculture along the Cape coast. The longer-term strategic opportunity is in the Great Lakes region of east Africa, in countries like Uganda, Tanzania and the DRC.
Over recent decades, fish-consumers have basically depleted the natural resource, but the protein need remains and there are already a number of fish-breeding operations. Most are relatively small and a few are growing into what I would call investment-grade platforms.
We are already seeing family businesses in Tanzania that used to fish the lakes, that have seen that the resource is becoming depleted and are switching their focus to becoming sustainable through aquaculture rather than the wild catch.
Are diets in sub-Saharan Africa changing as well as simply improving through the addition of more protein?
In sub-Saharan Africa, the number of people living in cities doubled between 2008 and 2015, which is comparable to the urbanization that happened in China over recent decades. It’s clearly evident that the nature of food demand is changing along with the urbanization process. Per capita consumption of meat in many rural areas is relatively low compared with averages in urban regions, and you see that situation changing as people move to the cities.
The other interesting change that we see is a more rapid growth in demand for ready-to-eat and other quick-service offerings than we had expected in these emerging cities. We’ve come to understand it as a function of the same kind of consumer preferences you see in any city, where convenience and time plays a role.
That gets quite accentuated in cities like Dar al-Islam, Nairobi, Kampala and Addis Ababa. Because of congestion in these cities and the time people have to spend getting from point A to point B, food on the go, either in the informal sector or through formalized offerings, is growing faster than we had anticipated.