Q&A: Phatisa on partnering with OPIC, and Africa’s investment opportunities

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AGCO Corporation, an American agricultural equipment company, is the manufacturer of the Challenger brand. In 2013, Phatisa invested in Farming and Engineering Services (FES), the sole distributor of AGCO products in Malawi.

PRESS OFFICE: Phatisa

OPIC, the US Government’s development finance institution, invests in global development through emerging-market private equity funds such as Phatisa, a sector-specific fund manager with committed investments throughout East and West Africa. Its nine portfolio companies operate across a diverse range of agriculture and food-related industries.

We talk to Stuart Bradley, Joint Managing Partner at Phatisa, about partnering with OPIC and the significant opportunity of investing in Africa.

First, for some perspective, where does Phatisa invest?

Phatisa is a private equity fund manager, with an investment focus across the food and agribusiness value chain in sub-Saharan Africa. We have boots on the ground with our investment and portfolio teams operating from offices in Kenya, Lusaka, Johannesburg and a new office being established in Abidjan.

How has OPIC support benefitted your work?

In 2011, we secured a US$50m commitment from OPIC for our first fund – the African Agriculture Fund. To have them recently approve an investment of $75m for our Phatisa Food Fund 2 is a real vote of confidence in Phatisa. OPIC is very supportive of its general partners (GPs), which gives you assurance and funding to go out there and make a big impact.

Describe the investment potential in Africa and why some of the world’s poorest places can present strong opportunities.

Very simply, food is not optional – every human being needs to eat. Africa’s food import bill is between $30bn and $50bn per annum. The World Bank believes that Africa’s agriculture and food sector could develop into a $1tn industry by 2030. While Africa does have some of the world’s poorest countries, this actually creates an opportunity, as growth in GDP and disposable income, coupled with rapid urbanisation (where urban food markets are set to quadruple by 2030), creates increased demand for basic food products. For example, in our Fund 1, we backed Goldenlay, an egg business in Zambia that was producing 250,000 eggs a day. We have doubled the business to 500,000 eggs a day on the back of strong local and regional demand. Comparing this with developed economies, GDP growth off a higher base is unlikely to drive sales of eggs, which are the cheapest form of protein.

Zambia-based egg producer Goldenlay, one of Phatisa’s portfolio companies, has doubled production from 250,000 to 500,000 eggs a day on the back of strong local and regional demand.

More specifically, how can American businesses benefit from private equity investments in Africa?

We have backed a number of companies that have purchased American-made goods and services, like AGCO products, Costex Tractor Parts and Black Cat Blades. We have a technical assistance facility in Fund 1 of $15m, which is managed by TechnoServe, an American-based not-for-profit organisation, which employs a significant number of American citizens.

Can you share the story of any specific investment that’s brought strong benefits to the US?

AGCO Corporation is an American agricultural equipment manufacturer based in Duluth, Georgia. It manufactures leading agricultural equipment, like Massey Ferguson, Fendt, Valtra and Challenger. In 2013, Phatisa invested in Farming and Engineering Services (FES) in Malawi. FES is the sole distributor of AGCO products in Malawi. By growing the business and selling more equipment and parts in Malawi, FES is directly benefiting this American company.

Another portfolio company is Meridian, the largest independent distributor of fertiliser in Southern Africa. Through our Technical Assistance Facility, we are working directly with Columbia University in New York to map soils of smallholder farmers to produce bespoke fertilisers to improve crop yields and livelihoods in southern Africa. The soil sampling kits are American-sourced.

Describe some of the investment challenges you encounter investing in Africa, and the way OPIC has helped you work in these often-challenging places.

Given the perceived risk of Africa, coupled with the limited experience of the continent by international institutional investors, OPIC provides a degree of comfort to attract capital. OPIC’s evaluation and due diligence process is extremely thorough and uses third-party American advisors and legal counsel.

How did Phatisa come to work with OPIC, and how does its support help mitigate some of the risks?

We were aware of OPIC from our prior careers in the development finance world. Therefore, when we started fund-raising our first fund, which first closed in 2011, it was only natural to connect with OPIC. In early 2011, OPIC put out a call for fund managers in the natural resources sector. We made our pitch, successfully secured $50m for Fund 1, and have never looked back.

OPIC really supports its fund managers and if you perform, you have a potential limited partner (LP) for future funds. OPIC has very detailed environmental, social and governance (ESG) policies and processes. Having OPIC in a fund further increases scrutiny around ESG to ensure risks are identified and corrective action plans implemented. This can provide significant comfort to LPs who are less equipped to monitor ESG.