Food for thought: How Silk Invest plans to make money in Africa
UK-based frontier market investment firm Silk Invest sees significant opportunities in Africa’s food and beverages industry.
Silk Invest manages the Africa Food Fund, a private equity fund that invests in processed food, beverages and quick-service restaurant companies on the continent. Private equity consists of investors and funds that make investments directly into private companies.
“We see Africa from an internal point of view . . . For us the most relevant play is the consumer play . . . We focus on the consumer play from the food and beverages sector. We felt this is an industry . . . where you can really work with companies to help them grow,” said Zin Bekkali, CEO of Silk Invest, in a recent webcast.
Large quantities of packaged food consumed in Africa are currently being imported. This presents major opportunities for local manufacturing. “If you take Ethiopia. Ethiopia is a big consumer of biscuits – they love biscuits. 60% to 70% of the annual consumption of biscuits in Ethiopia is imported. There is one small company based in the UAE . . . that has quadrupled its earnings within three years by exclusively exporting biscuits to Ethiopia,” noted Waseem Khan, Silk Invest’s head of private equity.
The fund takes a stake in companies with a scalable business and the potential to become national and regional leaders. Silk Invest gets involved in the companies from the management side and looks to add value in areas such as the procurement of raw materials, processing activities, corporate governance, financial management as well as distribution and branding.
The fund has so far invested in a confectionary company in Egypt. It is also looking at a quick service restaurant brand in Nigeria, a dairy company in Kenya, and a pasta and biscuit manufacturer in Ethiopia.
Khan said that many companies in Africa are not familiar with private equity and that some education is often necessary.
In a continent where many banks are hesitant to lend, private equity can play a useful role in helping companies to grow their businesses. “Banks in Africa have always been conservative . . . It has become very expensive for entrepreneurs to borrow money from the banks. So they are starting to look at private equity, they are looking for long-term partners. But we need to give them the comfort that we are not there to take over their companies. We are there to help them get to the next stage, and the stage after that. Our view is to be involved in active management with them, and to be there with them for the next three to four years, where they can make money, and we can make money,” said Khan.
According to Khan, many investors still hold a negative perception of Africa. “People have this perception, watching CNN or Fox News . . . They feel all of Africa is what was Rwanda in the mid-90s or famine in different countries. That is the picture that is painted . . . The gap between reality and perception is huge.”