How we made it in Africa asked a handful of investors in Africa to identify the industries they are less enthusiastic about from an investment perspective. While all the investors are bullish about Africa’s potential, there are some sectors they won’t invest in for reasons ranging from a lack of industry expertise to unfavourable market fundamentals.

1. Bottled water

“Water is one category we looked at extensively but ultimately chose not to pursue,” notes Zin Bekkali, founder and CEO of Silk Invest. “The problem with water – mineral water, specifically – is that what you are selling is largely the plastic bottle. The cost is driven by the packaging and that didn’t make sense for us.” Read more: Investor shares his perspective on opportunities in Africa’s booming food industry

2. Kenyan real estate

Private equity firm Ascent Capital Africa avoids Kenyan real estate for two reasons: it doesn’t have much experience in this sector and it feels the sector is mature. “In our view, a lot of local capital has been catalysed to invest in real estate and there’s little value we could add there,” says David Owino, founding partner of Ascent. That said, Owino does believe there is potential in the lower-end of the market. “In Kenya, we’ve seen a lot of high-rise apartments and office space developments that cater for the upper-middle-class and upper-class population, but there is a shortage of housing for the lower-middle-class which makes up the majority of people moving into the cities. The government is implementing policies to encourage investment in that particular space, so there’s definitely an opportunity there but it’s not the right fit for us.” Read more: David Owino, founding partner of Ascent, discusses investment opportunities in East Africa

3. Commodity crops

“We’ve found you really need to know what you’re doing if you are going into large-scale production of commodity crops like maize, soya or rice,” says Chris Isaac, chief investment officer of impact investment firm AgDevCo. “These are relatively low-margin commodities where there is global competition and significant economies of scale (especially if you look to South America or Asia), so you have to be sure you can be an efficient producer and you’ve got the necessary scale. You are also sometimes dealing with unpredictable policy environments, where there may be intermittent export bans or changing tariff regimes, so primary production of low-value commodity crops is difficult. It can make sense as part of a strategy where you’re vertically integrated and you’re also involved in the processing, but we’ve found it very challenging to make a success of doing straight primary production of those crops.” Read more: Agribusiness in Africa: Investor reveals which areas hold the most potential

4. Forestry

“Forestry is very long term and not exciting to us because of the time needed to realise an investment. You need 20, 30 or even 40 years, and it requires a different type of investment approach,” says Edward Isingoma Matsiko, managing partner of Pearl Capital Partners, a fund manager that invests in agribusiness enterprises in East Africa. Read more: Lessons learnt from investing in East African agribusiness companies

Charlie Tryon, CEO of investment holding company Maris, also labels forestry as complex, even though it is an industry in which his firm has invested. “Forestry involves long-term time horizons, significant scale and faces the ever-present challenge of logistics and the high cost of doing business. It’s extremely costly to move things by road in Africa and the distances are huge; we’ve found it’s difficult to build viable, commercial forestry enterprises unless they are well situated and relatively close to large markets.

“In general, forestry is not an easy sector and you have to be precise in terms of what tree species you’re willing to invest in, where you sit in the value curve, and whether you can add value to the crop. Land issues are also a consistent challenge for forestry in Africa,” Tryon adds. Read more: From agriculture to real estate: Investor shares insights on opportunities in Africa

5. Fishing and mining in Namibia

The sector focus of Namibian private equity firm Eos Capital excludes primary industries such as fishing or mining that rely on the government to allocate quotas or licences. “You can have the best fishing company but if you don’t have the fishing quota, it’s difficult to do business, so we try to stay away from those,” explains partner Ekkehard Friedrich. Read more: Investor unpacks Namibia’s business and investment opportunities

6. Consumer lending

In recent years, numerous fintech companies have entered markets throughout the continent with tech-enabled consumer-lending solutions. Emilian Popa, who has over 10 years of building and investing in African companies, says while some of these platforms – such as Tala, Branch and GetBucks – are “doing a great job”, it is generally a risky industry because of the lack of adequate credit ratings in many countries. Other downsides of the sector are high customer acquisition costs and a large number of competitors.

However, he remains bullish about SME finance, especially if a lender has visibility of the company’s finances. He believes many small businesses in Africa generate good revenues but don’t have access to finance. Read more: After a decade of building and investing in African companies, Emilian Popa explains why he is bullish on these five industries

7. Oil and gas companies in Nigeria

“We don’t invest in oil and gas companies,” explains Danladi Verheijen, managing partner and co-founder of Verod Capital Management, a Lagos-based private equity fund manager. “There are a lot of opportunities in this sector, especially in Nigeria as one of the world’s largest producers of oil, but we don’t invest in it because we simply don’t have the expertise. We know many people have successfully invested in the oil and gas sector, but we just don’t really know this sector and the volatility of commodity prices are a deterrent. After all, if the brilliant folks at leading investment banks around the world cannot predict the price of oil in a year or two years from now, then how can we? The same goes for mining or commodity-based sectors in general.” Read more: Investor highlights opportunities in Nigeria’s insurance and education sectors