Lessons from an African greenfield project

In 2012, as she was working at corporate finance advisory, Elyza Daniel was approached by one of the firm’s board members about an agribusiness opportunity. Most of her experience lied in renewable energy – but her studies and charity interests had led her closer to the field, so she decided to give it a go.

The decision was not without consequences. The project was located in Casamance, Senegal; it was a greenfield rice plantation and processing facility, so everything had to be developed from scratch. Its envisioned scale, at 3,000 hectares, made it a giant in African terms. So did the allocated budget, at €25 million.

Its sponsor, a Swiss-Italian promoter, had laudable ambitions. The project would be able to cover everything from producing rice and milling it on site to packaging it and selling it on the market. He wanted the farm to be organic, because that was what he knew best. The certification would also make it more easily marketable in Europe. “Because of the virgin land and abundant rainfall, we were set to produce two harvests a year,” Daniel notes.

The project’s sponsor, of course, needed money. And thus Daniel set about securing the funds along a 50/50 debt/equity split. Starting with an initial 1,200-hectare phase, the plantation was projected to take two years to ramp up to full capacity, she says.

It took far less time to find willing financiers. Ecobank, a Togo-headquartered pan-African lender, agreed to come up with the full debt portion, structuring the venture on a project finance basis. Garnering the equity proved more challenging – multilaterals, interested in principle, were reluctant to come in at such an early stage. But Daniel received commitments from an African sovereign wealth fund and a Western family office, both of which had experience in the field. They were hoping for returns “way above” 15 percent, Daniel says. Things appeared to be on a promising track.

And then the project unraveled. Rising uncertainty, notably in the commodity markets, meant equity providers could not inject the whole capital allocated straight away. “We had to scale down the project, which obviously is not what the promoter wanted,” Daniel says, adding that only one-third of the planned phase one could now be delivered in the initial stage. Fixed costs were engaged – so a slower ramp-up meant the developer’s profitability was going to be hurt.

It then turned out the promoter, for personal reasons, was no longer able to move to Africa. With no manager on the ground, “suddenly the transaction froze and nobody went ahead,” Daniel says. “We all believed in the project but we realized someone needed to be there full-time. You can’t supervise such ventures from a distance.” And that was the end of it, really. There was never an official no-go, but the project never restarted. “We did not sever contacts, but for some reason we did not speak to each other again.”

The project did not fail because of its sponsors’ inexperience. Neither was the opportunity absent. The main lesson to draw from the episode, Daniel reckons, lies elsewhere: “Entrepreneurs are often taken by ideas and the opportunities they can pursue. But it’s crucial that everyone involved be committed for the long-term from the start. You’re going to dedicate five years of your life to this project, live and breathe through it; you need to be able to relocate and assume the risks.”

Good structuring helps a great deal, of course. So does a good dose of persistence: the investors, who did not lose money as the project slowed to a halt, went on to support other agri ventures in Africa; after energy and healthcare stints, Daniel has been approached by European companies to pursue agricultural projects. After a tough initial season, her lessons are now bearing fruit.

Write to the editor at matthieu.f@peimedia.com