‘A really big opportunity’: Inside PSG’s $46m Zambian farming dealFollow @MadeItInAfrica
Growing the business
Chayton’s farm in Zambia will primarily cater for local demand. “We haven’t built our model on exports. Local demand is growing so strong that for the immediate future we are not even considering exports,” explains Meyer.
However, if necessary, Zambia is bordered by eight countries, all of whom are net food importers.
Zeder’s investment is also not a play on land prices. Meyer even suggests that there might be a possible bubble in land prices. “We value the business on the cash flow that it can generate, and not necessary the value of the land. We don’t think we should put our hope on land. We are not in Zambia because we want land.”
Meyer says that it is the company’s vision to acquire more land in Zambia, and eventually have around 10,000 hectares under cultivation.
Doing business in Africa – not moonshine and roses
Meyer says that many South African companies are not aware of the opportunities in other African countries. He says companies from countries such as India, China and Europe have been compelled to look at alternative destinations to invest their money. Most of these investors have a long-term strategy in Africa. “They see Africa’s macro-trends: population growth, urbanisation, demand for food. These investors have a much more long-term outlook than South Africans.”
“In a way many South African companies haven’t been forced to look at opportunities in the rest of the continent. There are still good investment opportunities in South Africa, although they are getting fewer.”
However, despite the potential that the continent offers, Meyer reckons that doing business in Africa is over-romanticised. “It sounds very nice to say, ‘I’m going to do business in Africa, I’m going to farm in Africa’, but the practical implications are different.”
Although Chayton’s farming block comprises a community of farmers with a country club offering golf, tennis and cricket facilities, Meyer says the life of a foreign farmer in Africa can often be very isolated. This can also have its toll on marriages. “It puts pressure on relationships, and after a while the guys go back home.”
He notes that Chayton’s challenge in the future will be management. “If we want to build a big business, we need the right management and we need to make it attractive for them to go and work in Zambia. It will cost us more in terms of salaries to convince the good guys to relocate, but it makes sense when one looks at the possible returns.”
Meyer says the current two Zimbabwean managers are critical for the success of the business. But what will happen if they leave? “What makes us comfortable is that they are also shareholders in the business. Wherever we invest we always try to incentivise management to think like shareholders of the business.”
Agriculture is a long-term investment – especially in Africa where things tend to happen at a slower pace. The Zeder team is well aware of this. Says Meyer, “We haven’t yet made it in Africa, but hopefully we will.”View article on single page