AgDevCo should be applauded for bridging the gap between development finance and private investment, and providing a blueprint for others.
Investing into Africa is no longer seen as something for only the very brave.
As the largest uncultivated landmass in the world it obviously has a large amount of opportunity for the agriculture sector, and will be essential to feeding the world’s increasing population in years to come.
It does, of course, present many risky challenges and concerns for investors. Doing the right thing by the local community and avoiding land grab headlines is one and the lack of infrastructure is another.
Some of these challenges present opportunities. Most primary agriculture projects will involve building infrastructure to support the production of crops and livestock, and this makes the return potential very exciting.
But this is very early stage stuff. Most African agriculture investment opportunities out there are greenfield projects that not only struggle to get private equity investment but also struggle to attract commitments from development finance institutions. This has prompted wrath among some in the industry, and they have a point.
A few months ago I argued that African agriculture investment projects needed DFIs if they were to attract the private sector, but there are other options that provide an excellent alternative. And there is room for more.
AgDevCo is a social impact investor and agribusiness project developer that has taken an innovative approach to the problem. The institution aims to provide venture capital funding to start-up agribusinesses and primary agriculture projects across the continent.
While it describes its mission as “to reduce poverty and improve food security through a not-for-profit investment approach”, the end goal of all investments will be to be sold to private equity firms or strategic players. And the organsation is on the verge of announcing a new private equity exit. In this way, AgDevCo will act as an incubator and help to promote the agriculture private equity industry in Africa. By taking this commercial approach, the firm also aims to recover its investment and create a sustainable model.
AgDevCo currently has around $150 million in funding from aid organisations including DFID and USAID and is invested across Ghana, Malawi, Mozambique, Tanzania and Zambia. When most investments are around $2 million to $3 million in size, AgDevCo has its work cut out deploying its capital with any speed. And it will be unable to cover all agriculture sectors and countries in need of funding.
It is widely agreed that the private sector must be engaged to get Africa’s agriculture market off the ground. AgDevCo’s development focus and private sector collaboration is a great starting point. Hopefully more organisations like it will follow.