Last week, in Durban, South Africa, we were deeply honored by receiving the award for the best Agribusiness Investment Initiative of the Year. The reason why we won the award is because of our African Food Fund, a private equity strategy that invests across the African food industry.
Africa Investor is a leading publication, research and survey company focused on African Capital Markets. Their annual agribusiness summit is a key event grouping a vast number of stake holders in the African Agriculture industry including governmental institutions, the corporate sector, banks, specialist funds and development financial institutions. Every year Africa Investor awards a prize for the best Agribusiness financial initiative recognizing excellence in structuring or deploying capital in the agribusiness sector in Africa. The award winner is selected by a panel composed by different members of the aforementioned stake holder groups.
Food comes first
The food industry represents one of the most compelling growth stories on the continent. As a sector, it is without a doubt, one of the cornerstones of any consumer society. If you consider that there will be 500 million new consumers in Africa in the next 15 years and that, even today, already 50-60% of disposable household income in many African countries is spent on food, you can start putting this opportunity into its promising perspective as a sector.
The potential for growth will be dramatic. Let’s take the example of the telecoms industry. Mobile phone penetration in Africa was almost non-existent 10 years ago but today it stands at around 50% in many countries. Similar growth is possible in Africa’s food industry where supermarket penetration is only 1% in Sub-Saharan Africa (ex. South Africa ).
On the other extreme, developed economies have supermarket penetration of close to 80%. So even if in the next few years this penetration would grow by only one-tenth of the developed world it would imply an eight-fold multiple from today’s numbers. We all know it will grow to much higher levels than that, just consider that in South Africa, supermarkets already represent 38% of the sales channel.
Overall, the food companies in Africa have proven to be very profitable and on average have ROE of more than 25%. They are also growing with an average of 20% every year. For example, Nestlé Nigeria reported recently earnings growth numbers of more than 30%.
The smaller, privately owned food companies are equally benefitting from strong demand dynamics but are faced with challenges of obtaining the capital needed to effect the capital expenditure required to grow in line with demand. The banks are not lending the capital needed to grow, probably because they are also mostly focused on capturing the growth of the consumer by targeting more retail customers, at the expense of not fully developing their corporate banking activities.
This presents a great opportunity for private equity investors as they can provide the much needed capital and experience required to help take many of these food companies to a much higher level. As per the chart below, there is still potential for growth for private equity when compared to other regions.
Let’s go to Africa together !
We could go on and on about why this is one of the biggest investment themes of our time, but another way of telling this story is by letting investors see it all for themselves. That is why we have organized and African Field Trip from 17-22 October. We are going to visit three different African countries: Nigeria – Africa’s awakening giant, Egypt – the populous nation rapidly converging to GDP/Capita levels of Turkey and Ethiopia – Africa’s old unknown kingdom which has been growing at an annual rate of 8% during the past years.
During the trip we will mostly be visiting the companies in the food industry with whom we have been discussing a potential investment. It is not only a way to make the investors in our private equity fund more familiar with the opportunities on the ground, but it is also an opportunity to get to know Africa better and experience the potential by visiting a few of the continent’s larger nations and meet some of its entrepreneurs.
If you would like to join us on the trip, please don’t hesitate to get in touch with us.
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