Farming to the fore

Agribusiness drives investment in developing economies


More than 640 high-level international delegates attended the African Agri Investment Indaba, incorporating the Agri Trade Congress Africa, which was held 27-28 November 2018 at the Cape Town International Convention Centre.

According to Ben Leyka, Executive Director of the African Agri Council, “a total of 498 meetings were facilitated through our matchmaking team, over 10 projects were presented to investors through our Investment Discovery Sessions (IDS) and two workshops (AfDB and SADC) during the Development Partner Day took place. This reinforced the African Agri Investment Indaba and Agri Trade Congress Africa as Africa’s gateway to agri investment and trade opportunities, and a business platform that is playing an important role in shaping Africa’s agricultural future growth and prosperity.”

Key insights from the AAII Conference sessions

Most of the investment in developing economies will come from agribusiness corporations. These findings show that the contribution of agriculture to economic development is more significant in developing economies than in developed ones.

Absolute requirements to attract investment

  • Strong, fair and enforceable regulatory environment covering all aspects of the value chain, including open and transparent competition driving efficiencies (Policy certainty)
  • Return on investment
  • Certainty (risk) of achieving that return.

Land reform should be a national consultative conversation and assessed from an emotional, social, economic and financial standpoint.

In South Africa, investments into agriculture, forestry and fisheries have been increasing at a real annual rate of 1.7% between 2007 and 2017. The Western Cape is the second biggest recipient of investment for the sector, accounting for about 17% in 2017 and 20% over the past decade. Together, the province’s agriculture and related agriprocessing sectors create over 300 000 direct and indirect jobs in the value chain.

As we face the fourth industrial revolution and all of the potential and change that it can bring with it, farmers and agri-business owners must be looking at ways to innovatively use technology to grow their businesses. It’s up to us to ensure that we’re making the most of the Fourth Industrial Revolution, that we’re not stuck in the first, second, or third revolution because it’s important for food security and it’s important for the growth and development of the region.

Accelerating the implementation of National Agriculture Innovation Projects (NAIPs) to achieve the Malabo Goals

  • At the African Union Summit in Malabo, Equatorial Guinea in June 2014, Heads of State and Government adopted a remarkable set of concrete agriculture goals to be attained by 2025.
  • Only 10 countries have allocated the 10% to agriculture as required by the Malabo Commitment and only 12 countries have allocated the minimum 1% of agricultural GDP to agriculture research spending
  • NAIP is all about transformation of agriculture at national level
  • Transforming agriculture calls for increasing production, productivity and enhancing competitiveness
  • Productivity calls for Innovation-driven agricultural transformation through effective use of Science
  • The farming community was not included in the drafting of the Malabo Goals therefore creates a mismatch with expected outcome from farmers.

Trends in global mergers and acquisitions

If we consider mergers and acquisitions (M&A) globally, deal values have reached their highest levels since 2007, totaling nearly USD 2.49 tn through the first half of 2018. That’s a 57% year/year improvement, despite a decrease in the number of deals relative to the first half of 2017. Globally, agriculture accounts for 6.1% of deal values and 15.6% of the total deal volume among M&A transactions announced in 2018 (as of November 15).

Meanwhile, if we just look at Africa, total deal volumes and values of M&A transactions fell sharply during the first half of 2018.

M&A in Africa

If we drill deeper into the data on M&A in Africa, energy and mining remains the most targeted sector in terms of deal volume, comprising 20% of total deal volumes in 2016-2017. The energy and mining and consumer sectors also represent the largest share of total deal values, with each comprising 29% of total deal value in 2016-2017.

By contrast, deals involving the agriculture sector represented just 1% of both total deal volume and deal value in 2016-2017.

The 2018 statistics appear to continue this trend, as agriculture represents only 0.46% of deal values and 1.9% of the total deal volume among M&A transactions announced in Africa as of November 15.

However, the data is also confusing when you listen to investors extol the promise of the African agriculture/agribusiness sector for future investment.

The 2017 Deloitte Africa Private Equity Confidence Survey (PECS) focused on the potential for investment and investment challenges in regions of Africa (East Africa, Southern Africa, and West Africa). In total, the PECS surveyed 75 general partners with operations in, and knowledge of, each region.

This Deloitte study, which surveys regions – not the entire continent – serves as a good reminder that we can’t treat Africa as one place.

It’s important that we approach investment in Africa regionally, as different investment strategies may be better suited to the particular economic and regulatory framework of given countries.

The results demonstrated that consumer-focused sectors, which include food and beverages, agriculture, healthcare, and financial services, rank among top focus sectors for respondents.

In East Africa, 62% of respondents expect to focus on opportunities in the agriculture/agribusiness sector during the next 12 months.

In Southern Africa, 21% of respondents expect to focus on opportunities in the agriculture/agribusiness sector during the next 12 months.

In West Africa, 74% of respondents expect to focus on opportunities in the agriculture/agribusiness sector during the next 12 months.

Given the importance of the agriculture sector to Africa’s economic growth, and investors’ apparent enthusiasm regarding the potential for investment in African agriculture/agribusiness in the coming years, it’s surprising that the agriculture sector comprises such a limited percentage of M&A transactions occurring in the region.

Key insights from the ATCA sessions

High level discussions centred around:

  • The challenges traders are facing and what the solutions are
  • Game-changing trends which are disrupting traditional trading models in African existing markets
  • The key strategies for developing successful trading in existing and new African markets.
  • The success of African trade is tied to the political risk outlook; opportunities need to be balanced with the risk factors and other challenges.
  • The African Continental Free Trade Area (AfCFTA) will create opportunities to consolidate domestic markets, strengthen regional value chains and enhance export competitiveness. However the main threats to implementation include lack of political will, non-tariff barriers, supply-side constraints, nationalism and protectionism.

Alternative financing is a hot topic, but the consensus is that this form of financing is difficult to find due to lack of visibility. Senior bankers explored structuring as a key enabler of trade finance and using syndication, distribution and credit insurance to enhance trade finance structures.

A key focus area was Value Chain Development – viewpoints were provided on how to achieve formalised, low costs, low-risk access to markets.

Experienced traders also discussed the value–add of Commodity Exchanges and how to increase their impact in Africa. The power of blockchain technology and how decentralised commodity trading for emerging markets will be direct, secure and cost-effective was explored.

The success of Trade Corridors was also explored highlighting why Free Trade Zones (FTZ), Special Economic Zones (SEZ), Industrial Development Zones (IDZ), One-Stop Border Posts, and working with international support, are key to the way forward.

The final session featured country briefings on South Africa, Zimbabwe, Namibia and Nigeria. Country representatives detailed how their countries are ‘Open for business’ and what is being done to remove barriers, ease regulations, and to provide efficient access.

Investment Discovery Sessions

The Investment Discovery Sessions (IDS), held over the two days, matched accredited investors looking for compelling risk/return profiles with green- and brown-field projects looking to raise capital.

Investors were pre-selected based on their criteria and one-to-one meetings were then set up between project sponsors and potential funders.

The following investment opportunities were presented:

  • Expansion of operations for award-winning pig breeder that supplies five leading meat processors. Based in Gauteng Province, South Africa and seeking R27.9 million in debt
  • Greenhouse/hydroponic vegetables producer with off takers. Based in Botswana and seeking US$2 million in debt and/or equity
  • Emerging maize and livestock producer with agreement to supply flour milling industry. Based in Gauteng Province, South Africa and seeking R12.6 million in debt
  • Maize milling and production of value-added breakfast meal for local market, based in the Democratic Republic of Congo and seeking US$21 million in debt
  • Established grain producer with off takers and livestock production and services. Based in Gauteng Province, South Africa and seeking R6.5 million in debt
  • Establishment of a commercial milling plant with offtake already secured. Based in Lesotho and seeking US$25 million in equity
  • Women-owned mixed farming operation of maize for bales and feedstock; livestock production, processing with off takers for all farm services. Based in Gauteng Province, South Africa and seeking R5.5 million in debt
  • Expansion of fully irrigated commercial potato farm operation with other cash crops. Based in Sudan and seeking US$17 Million in equity and/or debt
  • Expansion for an established operation that breeds and supplies live chicks and products herbs. Based in Gauteng Province, South Africa and seeking R4.5 million in debt.
comments powered by Disqus


This edition

Issue 46


Harvest_SA proudly presents its new Cape Office and Warehouse!. This new facility unlocks a growth opportunity for… 3 months - reply - retweet - favorite

Harvest_SA and the #AfricanAgriCouncil (AAC) invite you to attend the two day Agri-Food Tech & Innovation Summit (A… 4 months - reply - retweet - favorite

Harvest_SA #Award-winning South African #agritech company takes US market by storm #Agriculture… 4 months - reply - retweet - favorite