UK-based Silk Invest says there are better opportunities for investment in the food industries of countries such as Ethiopia and Egypt, than in the continent’s largest economy South Africa.
Silk Invest manages the Africa Food Fund, a private equity fund that invests in processed food, beverages and quick-service restaurant companies on the continent. Private equity consists of investors and funds that make investments directly into private companies.
“South Africa is by far the most developed market in Africa [but] very expensive and very competitive. Food and beverages companies are very competitive themselves and . . . the retailers have all the power,” said Zin Bekkali, CEO of Silk Invest, in a recent webcast.
The fund has so far invested in a confectionary company in Egypt. It is also looking at a quick service restaurant brand in Nigeria, a dairy company in Kenya, and a pasta and biscuit manufacturer in Ethiopia.
According to Waseem Khan, Silk Invest’s head of private equity, there are major opportunities for the local production of food items that are currently being imported. “If you take Ethiopia. Ethiopia is a big consumer of biscuits – they love biscuits. 60% to 70% of the annual consumption of biscuits in Ethiopia is imported. There is one small company based in the UAE . . . that has quadrupled its earnings within three years by exclusively exporting biscuits to Ethiopia.”
The Africa Food Fund takes a stake in companies with a scalable business and the potential to become national and regional leaders. Silk Invest gets involved in the companies from the management side and looks to add value in areas such as the procurement of raw materials, processing activities, corporate governance, financial management as well as distribution and branding.
Bekkali said there is currently a formalisation of food products happening in Africa – a move to branded and better packaged items. “It is about a formalisation of something that is already consumed. It is basically moving from fresh milk directly from the farmer, to fresh milk in a bottle. The price typically does not change, what is changing is the packaging.”
He added that by selling products in improved packaging, many food companies on the continent have been able to grow their revenues by between 20% and 30% annually.