Sustainable businesses: the AgDevCo way

The chairman of the social impact investor, Keith Palmer, talks about how the firm creates businesses that last in Africa.

How does AgDevCo differentiate itself from other agriculture development organisations?

Two ways in particular. First we invest capital to support sustainable, profitable agricultural businesses; we do not make grants. Second, we employ a team of experienced African farmers whose expertise helps us ensure our investments are sustainable and helps our partners on the ground to succeed.

The problem with grant-giving is that there are no consequences if partners spend the money unwisely. Grant-funded projects rarely prove to be sustainable and often fail when the money runs out. Our investment model provides expertise to help our partners achieve success, but also gives us rights to intervene if they are not proving successful. Our experience is that a disciplined investment process supported by in-depth expertise, with those intervention rights if things are not going well, achieves the greatest likelihood of sustainable businesses over the medium term.

Once sustainable businesses have been generated we then seek to attract additional investment from private investors into those businesses, and withdraw and reinvest our capital in additional early-stage agribusinesses.

What is the pool of potential PE buyers like?

We invest exclusively in early-stage agribusiness opportunities. In most cases this is too early for development finance institutions or private equity funds specialising in African agriculture, such as Silverstreet, Pearl Capital and Phatisa. However, once our businesses have become more mature with proven cashflow these same institutions have proven appetite for growth capital.

Therefore, we expect over time to be able to introduce private investors to grow these businesses with AgDevCo, reducing or eliminating the need for investment of new capital into those businesses. We also expect to able to recover our early-stage investment so as to reinvest our capital elsewhere.

There are also cases where an experienced agricultural enterprises looking to invest in early-stage ventures seeks partnership with AgDevCo, to access the expertise in our teams and to reduce their exposure to the high risks of early-stage agribusiness investment. When AgDevCo agrees to partnerships of this sort, we always insist on programmes to ensure that smallholder farmers benefit significantly.

Who are the most important pool of investors for you?

We are seeing a high level of interest and commitment from family offices and high net worth individuals investing in early-stage agribusinesses in sub-Saharan Africa. They see such investments as both profitable medium term investment and a way of helping improve the livelihoods of African farmers.

What is the impact of land-grabbing headlines on your work?

The problem with land-grabbing headlines is that we all tend unfairly to get tarred with the same brush. There are certainly some instances of unacceptable land grabbing and other behaviours that have harmed rather than helped the rural community in Africa. But there are many others – including our own – where major efforts are made to ensure that agricultural development is truly of benefit for the rural community.

In every case we take a great deal of time and effort to ensure that community engagement is strong, land relations are fairly dealt with and smallholder farmers benefit from much higher incomes. This can take more time than we would like, but it is the right thing to do, and, at the end of the day, it’s essential if investments are to be sustainable beyond the short term.