The potential of agriculture and its twin sectors of food and agribusiness in Africa is immense and if effectively harnessed will be key drivers of Africa’s economic development and global competitiveness in the foreseeable future.
This is according to Ernest Tettey, Chief Portfolio Officer at the African Development Bank (AFD), who says that within the Sub-Sahara African (SSA) economy, agribusiness forms a significant and growing sector. “For several SSA countries, the share of agribusiness services and manufacturing is expected to account for at least a third of GDP growth rate.”
The AFD has a mandate to contribute to the sustainable economic development and social progress of its regional members by mobilising and allocating resources for investment in its regional member countries.
According to the University of Pretoria’s agricultural economics and rural development department head Johann Kristen, between 2000 and 2010, South Africa spent R140 billion on agriculture and ground development. Kirsten also highlights that during this period there were inconsistencies in the principles and policies for agricultural and rural development in South Africa, as the spend often did not meet its intended objectives.
Herman Marais, managing partner at Agri-Vie, the Sub-Saharan private equity fund investing in food and agribusiness, agrees, stating that investing in emerging farmers without them having ready access to know-how and markets can be counter-productive.
“Africa has more than 60% of unutilised arable land globally. In Agri-Vie’s investment model, investing in vertically integrated food and agribusinesses that offers off-take opportunities to contract farmers and outgrowers goes hand in hand with technical assistance that empowers emerging farmers with know-how on good agronomic and business practices,” says Marais.
Tettey explains that the AFD is a key investor in Agri-Vie, which provides an appropriate vehicle to channel funds for meeting Africa’s growing investment needs in agriculture. “The AFD holds a seat in the private equity fund’s advisory board, which ensures that other important cross-cutting objectives are mainstreamed into investee companies.
“The Bank’s presence further seeks to align Agri-Vie’s fund structure and terms with international best corporate practice. It also aims to ensure compliance with international environmental and social standards.”
He says that several countries in the SSA region have comparative advantages in agriculture in terms of land availability, soil fertility, good climatic conditions and water availability. “However, with the current challenges in the global food environment, the need to invest in the region’s agriculture sector has become more imperative than ever.
“These investments will contribute to job creation, enhancement of food security, income generation, poverty reduction and skills transfer,” says Tettey.
Marais says that Agri-Vie’s fund is on track to delivering its targeted, risk-adjusted returns. “Our multi-disciplinary investment team has established strategic relationships in its target sectors and countries, giving the fund access to an ongoing flow of often exclusive investment opportunities.
“With sustainability as a key investment criterion and its cross continent investing, investors benefit from specialist sector knowledge and a risk-diversified portfolio of direct investments.” Agri-Vie was recently rated by the Global Impact Investment Rating System (GIIRS), outperforming both developed and emerging market indices.
“Being only the first private equity fund of scale (US $110 million) focusing on the food and agri-sector, and launched from South Africa in 2008, Agri-Vie 1 has completed more than half of its capital deployment and envisages to complete its current investment programme over the next two years,” says Marais.
“We are partnering exciting food and agribusiness companies in South Africa, Ethiopia, Uganda, Rwanda, Tanzania, Kenya and Mozambique. Several of these growth companies are set to become household names in future years.”
“Private equity investments of this nature also aim to support crucial infrastructure development. Under its mid-term strategy, the Bank seeks to increase selectivity and develop a more robust private sector,” concludes Tettey.