Five private equity firms targeting Africa’s agribusiness sector

Maize processor Agroserv is one of Sinergi Burkina’s successful investments. It exited for an 8x return on its initial investment.

Maize processor Agroserv is one of Sinergi Burkina’s successful investments. It exited for an 8x return on its initial investment.

How we made it in Africa highlights five investment firms with a focus on backing agribusiness and food companies on the continent.

1. Sinergi Burkina: Opportunities to export food from Burkina Faso

Burkina Faso’s agro-industrial sector is booming, according to Job Zongo, managing director of investment firm Sinergi Burkina. “There are many opportunities in farming and the processing of cereals (maize, sorghum rice, fonio and millet), oleo-proteins (soya beans and sesame), fruits and vegetables, and trees (shea and néré trees), and also in support services such as transport, storage, and mechanisation,” he explains, adding that two-third of the firm’s investments are in agribusiness companies.

“Right now there is a lot of nationalist sentiment, with domestic consumers increasingly wanting to consume locally produced products, meaning that there are many industrial companies trying to transform local produce,” he adds. While some businesses target this domestic market, Zongo says it remains relatively small, which is why Sinergi Burkina predominantly seeks to invest in companies looking to export their products. “The government is providing a lot of support to help companies export, including helping companies attend trade fairs and link with international buyers.” Read more: Investing in Burkina Faso – 8x returns possible in the agribusiness sector

2. Sahel Capital: Demographics driving food demand in Nigeria

Sahel Capital is a private investment firm focused on food and agriculture in West Africa. Managing partner Mezuo Nwuneli says there are three investment areas that he finds particularly exciting. The first is logistics and distribution – from plain logistics to last-mile distribution and cold-chain. The next area of interest is import substitution – investing in sectors with significant import activity, even though the items can be produced competitively domestically. The third investment area his firm is focused on is packaged foods and snacks.

“The median age of Nigeria is 18 years and more than half of the country’s population is under the age of 19; this is a huge segment. Data projections show food demand across all categories – animal proteins, vegetable oils, pulses and crops – growing over 50% between 2015 and 2030. If you compare that globally, it is higher than the food demand in Southeast Asia and roughly twice the growth of world food demand. With a large, growing population, the question becomes: will this increased demand for food be met by domestic food companies or by imports and international companies?” Nwuneli says. Read more: Agribusiness trends and opportunities in Nigeria

3. Pearl Capital Partners: Bullish about farming inputs in Uganda

Pearl Capital Partners invests in agribusiness enterprises in East Africa and manages the Yield Uganda Investment Fund. One sub-sector that managing partner Dr Edward Isingoma Matsiko is enthusiastic about is agricultural inputs, such as seeds, fertiliser and pesticide. “We have seen fake inputs in the market, things like imported fake fertiliser and chemicals, even fake seedlings. Here in Uganda, for example, some farmers planting avocado seedlings won’t know if those seedlings are viable until four years later when it is time to harvest, meanwhile they’ve invested all their savings in that crop,” he explains.

“Another area I would highlight is long-term plantation crops, such as avocados, coffee, tea, cocoa and macadamia. These crops take a long time to grow – for example, a macadamia plant takes seven years before you will see break-even production activity. But when these crops start yielding, they will usually yield for 20 to 30 years. This is one of many reasons why you need to invest in agribusinesses for the long haul, as some of these plantation crops require a long-term approach,” Matsiko adds.

In addition, he also sees attractive opportunities in fish farming and poultry as well as the production of organic crops in Uganda. “There are not many organic-certified producers here at the moment despite Uganda being among the top three organic producers worldwide. There is a lot of opportunity for such products as well as in the organic product certification arena.” Read more: Lessons learnt from investing in East African agribusiness companies

4. EXEO Capital: Unearthing the sector’s hidden gems

Herman Marais, managing partner of food and agriculture focused private equity firm EXEO Capital, says investors have barely scratched the surface of the sector’s potential. “There is a lot of media and industry attention on the mega-deals, but at the mid- and smaller-cap level there are thousands of companies that can be looked at to identify the ones of investment grade. And this is not always known to private equity investors from the developed world,” he explains. Read more: Investors have barely scratched the surface of Africa’s food and agri opportunities

5. Injaro Investments: Potential in tech-enabled farming

Private equity investors in Africa tend to steer away from investing in the primary production of commodity crops – like maize, soya or rice – owing to low margins, strong competition and government interference. However, Jerry Parkes, managing principal of Ghana-based Injaro Investments, believes primary production does offer potential if combined with the right technology.

“One thing that has perplexed us is the almost universal aversion to primary production, both from investors and entrepreneurs. Everyone seems to want to do agri-processing, but I think the big opportunities are in tech-enabled primary production. Yields across the region are still a fraction of those in more established agricultural producing regions such as Asia and South America; and until yields in primary production are improved, the economics for agri-processing are going to be difficult,” he notes.

“Take land preparation and crop maintenance … I spoke to one business that uses drones to spray crops as a service. Currently, this has to be done manually. But the dosage can be inconsistent, farmhands are not always diligent, and the landowner has to closely supervise the workers to ensure thorough crop maintenance. Using a drone can save time, money and chemicals with the greater precision it offers. Enhanced services, such as customised dosing of different parts of the field, can also be built around the drone’s field-mapping and crop-imaging capabilities.

“For under-resourced farmers, the key to making this kind of business work is to ensure the smallholder farmers clearly perceive a cost saving or a quantifiable increase in yield, or both. This usually means delivering a service, as opposed to requiring the farmers to invest in the technology itself. Examples of this type of service provider include TROTRO Tractor (in Ghana) and Hello Tractor (in Nigeria), which own platforms that connect farmers with tractors and allow them to pay for ploughing as a service, as opposed to purchasing a whole tractor.

“Solutions like these can make primary production farming more viable, and should increase yields of crops, which will have knock-on benefits for secondary and tertiary production.” Read more: Ghanaian investor talks opportunities in agriculture and beyond