The agriculture sector employs more people in Africa than any other industry and it also accounts for almost half of the continent’s GDP.
Yet inefficiencies in the sector have held back production in the sub-Saharan African region, hindering the sector’s growth and stymieing the industry’s ability to achieve cross-border trade and long-term food security.
This represents a fairly significant socioeconomic challenge, but it also provides private equity investors with an opportunity to support one of the continent’s biggest industries while contributing to job and wealth creation.
For investors, returns from the farming industry can be enhanced through investment and implementation of modern farming techniques.
In turn, successful agribusiness investments stimulate growth through the access to new markets and the development of a vertically integrated supply chain in the form of food processing, packaging and assembly, transportation, distribution and retailing.
Most importantly, well-targeted investments, alongside close collaboration between governments, donors, entrepreneurs, the international community and investors can make a significant and lasting contribution to Africa’s 2050 goal of being able to feed itself, as referenced in the African Development Bank’s Feeding Africa action plan.
Businesses that succeed after investments in their production and processing capabilities go on to create jobs and stimulate the wider supply chain.
Most importantly, they help to reduce Africa’s crippling reliance on food imports.
A March 2017 article by the Rockefeller Foundation says that one-third of the world’s food, “never makes it from the farm to the table” and in developing countries, about 40% of produce is lost immediately or soon after harvest because of poor farming techniques and technologies. Inadequate storage facilities, poor processing, weak transport networks and poorly structured markets all work against Africa’s ability to feed itself, and most fruits and vegetables never make it to market for these reasons.
These facts are even more tragic in the context of the famine in South Sudan. The UN has also warned of a high likelihood of famine in Somalia and Nigeria. The scale of this challenge cannot be underestimated, which is why every single stakeholder should be involved and that includes private equity investors.
Funds that target agricultural small and medium enterprises can quickly lift processing and production numbers, as well as help develop them into major players in terms of food supply, job creation and poverty alleviation.
There are several opportunities for private equity investors, specifically in countries that are already experiencing fast growth in the agricultural sector, particularly Angola, Malawi and Nigeria. In Angola, there are enormous opportunities to invest in medium-to large-scale farms in maize, rice, beans, soya and assorted vegetables.
In Nigeria, private equity investors can support growing medium-and large-scale farmers in cassava production — money that will be invested in new processing facilities to produce industrial starch that will serve the market, reducing the reliance on imports.
Malawi’s poultry and animal feed enterprises, thriving fertiliser industry, production of animal health products, fishery industries combined with adequate food storage facilities make the country a suitable destination for investors. At the very heart of Africa’s agricultural challenge is technology, processing, production capacity, inadequate food storage facilities, logistics and efficient agriculture co-operatives. These challenges can only be overcome with robust and enabling policies that encourage the production of raw materials, as well as the efficient distribution of production. Many agricultural businesses in Africa could use help — no matter how large or small — to contribute towards meeting the demand.
Together, governments, investors and other stakeholders must pursue new and alternative sources to funding — such as sovereign wealth funds and domestic resources — and to creating incentives for the private sector to make investments.
The private sector has a greater role to play in socioeconomic growth in Africa than ever before, helping to build world-class infrastructure and boosting productivity across many industry sectors.
Greater productivity and efficiencies can have an extraordinary effect in the long term: sustainable industrial growth, thanks to smarter technologies, new jobs, thanks to a growing supply chain and greater food independence.
By Jean-Claude Bastos de Morais, Founder and CEO, Quantum Global Group.