Private equity firm transforms palm oil business in Sierra Leone
PRESS OFFICE: Phatisa
With a capital injection from global investors, a long-abandoned palm oil plantation and mill in Daru, Sierra Leone, is expected to produce over 5,000 tons of palm oil in 2014, and permanently employ more than 400 people.
Complementing its own plantation output, the Goldtree palm oil business supports an extensive agricultural community, buying in fruit from over 5,000 outgrowers. It is working on significantly improving the fruit yields and technical skills of these smallholder farmers while mitigating against environmental risk and dangerous agricultural practices. Goldtree is an ideal example of the sustainable and far-reaching impact of development equity, as embodied in the unique formula of DevEq = PAT * x + i 2 ™.*
“This form of investment takes conventional private equity to a new and more meaningful level,” says Duncan Owen, senior managing partner of Phatisa, an African private equity firm. Phatisa is fund manager of the African Agriculture Fund (AAF), which in turn manages the Goldtree investment on behalf of multinational investment partners. “Development equity takes traditional private equity, which is strongly focused on investor returns, and combines this with development finance from governments and institutions,” explains Owen. “The outcome is multifaceted and positively impacts on all stakeholders.”
Phatisa’s AAF is a private equity fund focused on businesses in agriculture and the food value chain. To date, it has committed investments in excess of US$100m in 12 businesses across the continent, reaching from Sierra Leone in West Africa to Madagascar in far East Africa, and a further eight countries in between. These projects account for about 50% of the total $246m AAF investor equity available for investment and they touch on primary farming, protein production, processing, inputs, fertiliser, mechanisation and fast moving consumer goods beverages.
The Goldtree palm oil plantation and mill was the first agri investment of AAF, made in 2011. It was a unique startup operation without a meaningful performance history or asset base and arguably did not meet the ideal criteria of an AAF investment. But it had exciting growth prospects which appealed to a range of development equity partners. These now include international development finance institutions; development and commercial banks including the Development Bank of Southern Africa; government agencies of Spain, the US and France; fund-of-funds; a large South African commercial bank and American and European private investors.
Palm oil rewards
Palm oil is used in a vast range of edible (cooking oils and fats, margarines, ice cream, etc.) and nonedible products (soaps, bio-fuels, etc.). The edible oil yield per hectare of a palm tree is typically more than three times that of soya or canola. Goldtree operations are located in a classic palm oil climate, close to water, and a reasonable six hour drive from the capital city Freetown. Its potential rewards for investors are closely aligned to the AAF investment philosophy of development equity. This approach builds sustainable assets in emerging countries, has a meaningful influence on communities through employment and training, and positively impacts on the African growth story.
At the time of AAF’s initial investment in Goldtree, the mill and surrounding plantations had been destroyed during the 1991-2002 civil war. Palm oil processing was basic and involved cooking the fruits, trampling them, adding water so the palm oil product would float, and then flushing the pollutant waste into rivers. This was a dangerous, environmentally destructive and low yielding method.