Why food is the most obvious way to tap into Africa’s consumer story

What is about to follow is very obvious. Food comes first.

We are what we eat and the level of access to food will determine the level of a consumer society.

It has now become very obvious 1 billion Africans are set to become middle class citizens.

The most obvious way to capture this opportunity would be to focus on where all these people spend most of their money.

The chart below leaves little doubt where most of the household budget goes.

The reality is that there are a number of large listed food groups for investors to choose from such as Nestle in Nigeria and Fan Milk in Ghana, to name a couple of the obvious choices.

However, the African food industry is still mostly made up of small and medium-sized enterprises (SMEs), so the real opportunities need to be captured in the private equity space.

But in order to do that you need to have a local presence, not only to be able to uncover the best positioned players, but also to understand the competitive landscape of each individual market. This is why we chose this sector as our main area of focus for investing in African private equity. We invested in a local team that can make that kind of difference.

The opportunity in the African food industry is fairly intuitive. Consider Nigeria, with its population of more than 150 million people, it has less than a dozen shopping malls. As can be seen on the graph the conversion opportunity is enormous, especially when we consider that the penetration of supermarkets in sub-Saharan Africa need to grow 38 times in order to catch up with the level in South Africa.

There is no doubt about the demand for a more sophisticated food industry. During the past decades, we have seen the same opportunity play out very well for investors in Asia, Latin America and Emerging Europe.

Today African food companies are competing to build more capacity, which essentially translates into the need for capital investment. Access to capital via the banking sector in Africa is still challenged (graph below), this, among other drivers, makes the sector very attractive for private equity investors.

Baldwin Berges is managing partner for business development at Silk Invest, a specialist investment manager focused on Africa, the Middle East and frontier Asia.