How to invest in Africa’s agriculture sector
Agri-Vie is a private equity investment fund focused on food and agribusiness in Sub-Sahara Africa. Jaco Maritz spoke to Izak Strauss, Agri-Vie’s executive director and chief investment officer, about investing in Africa’s agriculture sector.
Many observers are saying that Africa’s business environment is improving and that governance on the continent is getting better. From your own experience in the agri-business sector, is it getting easier to do business on the continent?
Yes, I would say that the governments in Africa are realising that agriculture and other business is important for growth. So we definitely find that there is a greater willingness to work with investors. The regulatory environment is getting friendlier than it was in the past.
How welcoming are African governments to foreigners looking to do business in the agriculture sector?
There are a few things that you have to observe when you engage with the governments. For them it is not just about the capital investment but also about the skills transfer to local workers. Governments also like to see that beneficiation is taking place inside the country. It is also important that if you invest in a business that is exporting, that the foreign currency comes back to the country. In addition, governments want to see that there is good employment of the local people. So yes, they are welcoming you, but they don’t want to see investors just using the assets without adding permanent value to the country itself.
Is any progress being made by local entrepreneurs in the agriculture sector?
There is definitely great movement by local entrepreneurs in all the countries. There has been tremendous developments in private business over the last couple of years as the economies freed up. The biggest factors that are hindering real growth are access to capital and the lack of infrastructure in rural areas, although it is improving. But yes, you get fantastic entrepreneurs in all these countries. And that makes it ideal for us, to seek these entrepreneurs, partner with them, and build businesses. We believe that for a foreign entity to go into a country, you have to identify local partners and work with local people. They are in the market and they know what’s happening.
What are the major risks investors need to look out for when investing in Africa?
We start by looking at country risk and the political, socio-economic situation. If you go into a new territory, you have to be sure that your investment is secure, and that you will be able to get your returns out of the country.
The second thing you look at is the people you deal with in the country – your partners or the management of the company. It is essential to make sure you are working with good people. Being involved with unsuitable partners is a huge risk.
Thirdly, what we are definitely seeing in some countries is that the availability of management skills is a risk. Sometimes one struggles to find the right people with the right management skills and experience.
Lastly, the lack of infrastructure in remote areas can also be a risk, unreliable electricity supply and bad roads, for example.
Which areas of Africa’s agriculture sector hold the most opportunity for further investment?
It depends on your approach. The whole issue of food security has come to the fore over the last couple of years. So I think there are investment opportunities right across the board in all commodities.
Our approach is a little more focused. We tend to stay out of the big commodity investments. We are looking at the more niche opportunities where there is value creation and potential for growth. One of our investments, for example, is in africaJUICE, an Ethiopia-based vertically integrated grower and processor of tropical fruit juice. One of the reasons behind the investment is that east Africa is much closer to Europe than the other areas where they get tropical juice from.
We also see aquaculture as an industry for the future although it is still in the early stages of development.
Poultry is another industry where we believe there is a lot of potential in supplying for local demand. What you find in Africa is that there are still a lot of products being imported, either from South Africa, Europe or Asia. There is definitely an opportunity in supplying and manufacturing these goods in Africa, instead of importing them.
How easy is it to secure financing for agriculture projects in Africa?
Debt financing for small projects is problematic. It is, however, improving because there are more specialised businesses that are moving in with small debt financing. For bigger projects there is access to capital but it is not that easy. I think if you look at the financial sector in Africa, it still operates on quite a conservative basis.
How would you advise foreign investors to enter the African market?
The only way to do it is to familiarise yourself with the country and the industry that you are interested in. And that means that you have to travel, you have to visit, not once or twice, but several times. This will give you a much clearer picture of what’s happening and where the opportunities are. The second thing is that you have to find reliable partners in the country that you want to operate in.