The group spent three days at the farm – a visit that, according to Meyer, opened their eyes. “We were very impressed with what we saw. Many people have this picture of Africa as the dark continent with no infrastructure, crime and terrorism, and bad leadership. What we found surprised us.”
After the visit Zeder pushed hard to make the deal happen. “We thought that this was really a big opportunity. We worked through a variety of financial models and, taking into account all the risks and price volatility, felt that the investment could generate a good return.”
In March this year Zeder bought a 96% stake in Chayton for $46.7 million ($37 million of this is to be released in stages to take advantage of specific opportunities).
Dealing with the risks
There is often a perception among foreigners that an investment in Africa comes with high political risk. So why does Zeder feel comfortable with Zambia as an investment destination? Meyer says the company is encouraged by Zambia’s relative peace and security as well as its political stability.
However, if something goes wrong, the investment is covered by political risk insurance from the World Bank’s Multilateral Investment Guarantee Agency (MIGA). “In the case of any trouble, we are covered for all the capital that we invest in Zambia. For us who work with shareholders’ money it is incredibly important to cover our risks as far as possible.”
In addition, Chayton has also signed an Investment Promotion and Protection Agreement with the Zambian government. Among various things outlined in the document, it allows Chayton to continue to export commodities in the event of a closure of the country’s borders.
“Although this investment looks very good on paper, we are not naïve to think that there aren’t any risks,” concedes Meyer.
Another positive is the Zambian authorities’ strong focus on agribusiness. The corporate tax rate for agribusiness companies was recently reduced. “The government realises the importance to develop industries outside of the mining sector.”
Chayton’s land is part of a designated farming block that was bought by the government from local chiefs. To attract investment the government has supplied infrastructure such as roads and electricity. The land can be acquired on a 99 year lease. Meyer says there are currently around 90 farmers in the area from countries across the world such as Zimbabwe, South Africa, the US, Australia and Russia.