The Food and Agriculture Organisation (FAO) estimates that Africa has 300 million hectares of potential land area, yet the region is a net food importer.
As investors, we focus on making pioneering agriculture, agribusiness and related infrastructure investments that focus on export within the African market rather than to overseas markets, to help meet the continent’s growing food requirements while also contributing to its economic transformation.
Private equity investors are well positioned to offer not only the necessary financial capital but also the knowledge that will aid in Africa’s economic development and poverty relief and agribusiness will be a pivotal part of that economic transformation.
Typically, agribusinesses operating in Africa face a number of logistical challenges: fertiliser is not delivered in time for planting season, there are bottlenecks to getting products to market, and there is a severe shortage of storage facilities, advanced farming technologies, and necessary infrastructure. Additionally, the division and acquisition of land can be a contentious process.
There is also a serious knowledge and skills gap: we leverage extensive experience in conservation tillage, crop rotation, and implementing new irrigation and farming technologies and transfer that knowledge through community outreach programmes.
An obvious reason why Africa’s agribusiness sector has been so slow to develop is because businesses in this space simply do not exist. The few private equity firms with a track record in Sub-Saharan agribusiness have been investing in relatively new companies that have been profitable for only 2–3 years.
It is important for investors to invest across the entire value chain and to identify opportunities in countries that have more reliable governance and rule of law.
For investors looking to enter this space, it is critical to integrate small, local farmers into the investment process so they gain access to new storage options, productivity advances, and technology transfer while at the same time helping them to achieve price stabilisation and efficiency improvements.
We assemble and cultivate production hubs and establish service businesses that connect with our primary production sites, to create economies of scale and establish a vertically-integrated regional agribusiness portfolio. By diversifying across the value chain we believe we can create synergies across our portfolio, from primary production to processing and distribution, maximizing margins and buffering commodity price volatility.
One way to hedge against the inherent political risk in agribusiness, e.g., land rights and expropriation, is to adopt a very local approach while also working with regional authorities and global financial institutions. For example, we have negotiated beneficial agreements with local governments and also procured political risk insurance from MIGA, a member of the World Bank Group, for our investments in Zambia and Botswana.
We also seek to manage risk by leveraging our advisory board and fostering relationships with local players; importantly, these relationships also give us access to off-market deal flow.
Karima Ola is a managing partner at Chayton Capital. This article was first published in EMPEA’s Private Equity in Sub-Saharan Africa research report.