Investing in Zimbabwe: Why this private equity firm backed a food company

Nyaradzo Nyimo, principal at Spear Capital

Spear Capital, a private equity firm backed by European investors with offices in Cape Town and Harare, recently invested an undisclosed amount in Associated Foods Zimbabwe (AFZ). The food manufacturing business produces a range of items such as jams, peanut butter, snacks, cereals and canned products for the Zimbabwean and regional market. To find out more about the growth potential of Zimbabwe’s fast-moving consumer goods (FMCG) sector and the economy in general, Tom Collins spoke to Nyaradzo Nyimo, principal at Spear Capital.

Spear Capital recently completed its investment into the AFZ. What was the motivation for this transaction?

At Spear Capital we are not operators, so one of the first things we look at when looking at investment opportunities is the management team. We spent time with the management team of AFZ and we got to know them and realised the team is very passionate about what they’re doing. They are hungry to grow this business and take it to another level. We saw that the team understood the sector and operating environment as well as how to navigate it.

AFZ was born out of a merger of two companies in 2015: Spread Valley which was focused on peanut butter under the Mama’s brand, and Honeywood Enterprises, focusing mostly on jams, tinned fruits and vegetables under the Farmgold brand. These companies came together to dominate certain product categories, under AFZ. For us, it showed that the company is led by a visionary management team.

The other other motivating factor was that AFZ has a diversified product range that caters for the entire spectrum of the population. The Mama’s brand is attractive to the mass market, whilst Farmgold is a premium brand. We believe AFZ is a defensive business because its product range caters for all market segments and can weather the different economic cycles.

In which areas of Zimbabwe’s FMCG industry do you see growth opportunities?

I’m excited by the products offered by the company. Under the spreads range, there is peanut butter which could be regarded as a staple food in our part of the world. We put peanut butter everywhere. Then there is the snacks range. The company’s puffed curls (a puffed corn snack eaten like crisps) product retails at a very good price and is a favourite among young consumers. Similarly, when you look at the breakfast cereal, such as cornflakes, it was previously something people could not afford but AFZ brought Mama’s breakfast cereal in at a very good price point. This category used to be dominated by imports that were very expensive as well.

AFZ produces a range of food items for the Zimbabwean market.

AFZ produces a range of food items for the Zimbabwean market.

If you walk into the retail and wholesale shops and see the categories that are dominated by imported products, that’s an area we can actually tap into. AFZ has the equipment, and with our investment they can expand into some of the products that are being imported.

Another growth opportunity is creating variants from existing products. For example, with baked beans, AFZ can expand into other varieties like chilli beans.

What are the biggest challenges facing AFZ’s business?

It’s really about foreign currency [shortages], it’s a very big challenge in Zimbabwe because we still import a significant portion of our inputs as a country. For AFZ, a number of its inputs are imported, like groundnuts from Malawi for peanut butter and with our investment the AFZ team is looking at investing in outgrower [farming] schemes to reduce this import dependency.

And how about the state of competition in the local market?

There are a lot of players in the space with one or two dominating certain categories. However, AFZ has managed to create a name for itself because of quality and consistency.

The other thing is that AFZ has created very good relationships with local farmers that has allowed it to constantly get its local inputs such as bananas, mangoes, apples and tomatoes, for production.

Media reports often paint a very negative image of Zimbabwe’s business environment while those on the ground sometimes have a more positive view. Share your thoughts on Zimbabwe’s economy in general.

Zimbabwe is a complex market. Someone looking in from the outside might wonder how to navigate this market. But for Spear Capital, the key thing is that we have boots on the ground – an experienced team. We know that Zimbabwe has experienced many years of a volatile environment but by now people understand how the volatile environment works and how to navigate it.

At the moment there is an issue of inflation, which erodes consumer buying power as income increases do not necessarily match the rate of inflation. But remittances are coming in as a key source of funding for consumers. The bulk of the money is being spent on food. In 2021, about US$1.4 billion came through the diaspora and that is only going to increase. People are buying products because of this source of income.

Also, the country is getting foreign currency from the agriculture sector which helps with maintaining buying power. In terms of the long term outlook, the reports coming out of the mining sector are encouraging. Some of the targets set by the government in terms of the mining sector might not be far off – it will be a bigger industry in the near future. Thinking about the massive potential for downstream impact, there will be some positives that come out of that.

Zimbabwe has challenges but there are a whole lot of opportunities. We are very bullish.