Africa has boasted promising prospects for investors since the beginning of the century, driven by factors such as attractive growth opportunities, an expanding consumer class, thriving companies, and an improving business environment. Private equity (PE) and venture capital (VC) have played a significant role in directing capital into high-growth businesses in Africa, stimulating economic growth and capacity building. In recent years, most notably since 2010 the African PE and VC industry has seen considerable developments, including the entry of global institutional investors and the rise of African-focused funds.
A report published in November 2020 by the Oxford Business Group, in collaboration with the African Private Equity and Venture Capital Association (AVCA), highlighted the investment opportunities emerging in essential sectors during the COVID-19 pandemic. The report emphasized the role Africa’s PE and VC industry played in supporting economies and companies during challenging times.
According to the report; “Over the past decade some of the world’s fastest-growing economies have emerged from Africa. By 2030 the continent will be home to nearly 1.7bn people and, according to the Brookings Institute, have combined business and consumer spending of $6.7trn. This economic potential has made Africa an attractive option for investors seeking high-growth businesses with long-term impact. As such, private equity (PE) and venture capital (VC) have emerged as important vehicles for directing capital into these businesses, stimulating economic growth and capacity building across the continent.”
The report also noted that there has been a marked shift in Private Equity destinations. “While most early activity occurred in Southern Africa, West Africa has become an attractive destination for investment”. In fact, the Oxford Business Group report noted that “according to the African Private Equity Industry Survey published in March 2020 by AVCA, 88% of limited partners (LPs) that participated in the survey pointed to West Africa as the most attractive region for investment over the next three years.”
The rise of the agriculture sector in Africa
According to the report, “Agriculture accounts for around 15% of Africa’s GDP, though that figure is higher – at 23% – in sub-Saharan Africa. The sector is dominated by small-scale farms that produce around 90% of output, with roughly two-thirds of the population employed in the sector. At the same time, global food demand is continuing to rise, with the World Bank estimating that there will be a 102% increase in demand between 2017 and 2050, assuming income convergence.
To meet this expansion, $80bn must be invested annually through to 2050. Demand growth for food in Africa is projected to outpace the global average, with the total size of the market expected to approach $1trn by 2030.
With the urbanisation and middle-class consumer spending in emerging markets trending upwards, McKinsey estimated in February 2019 that this could precipitate $167bn of additional spending on food and beverages between 2015 and 2025, the majority of which is likely to originate in sub-Saharan Africa. According to McKinsey, nine countries on the continent account for 60% of total productivity potential, and Ethiopia, Nigeria and Tanzania comprise half of that figure.”
The need to invest in agri-business
The report goes on to say that “Unlocking the full potential of agri-business in Africa will require significant investment in infrastructure development, better access to inputs, more reliable data, higher crop yields and more skilled workforce.”
African start-ups and SMEs in the agricultural sector are well-positioned to develop solutions that address issues such as food security, affordability, nutrition, and supply chain inefficiencies. Impact investors can support these businesses by providing financial resources, expertise, and mentorship, enabling them to scale and make a meaningful impact.
Impact investment in agriculture has a significant role to play in addressing these challenges by supporting agricultural businesses that focus on increasing productivity, improving access to inputs, and adopting sustainable farming practices. By investing in innovative technologies, infrastructure development, and research and development, impact investors can contribute to unlocking the full potential of agri-business in Africa.
How we can unlock the full potential of agri-business in West Africa
Some of the key ways we can unlock the full potential of agri-business in West Africa include the development of infrastructure. This can be done by improving transport networks, energy supply and irrigation systems. Capacity building and education are also key as we need to promote technical and business knowledge within the region.
Technology adoption is also going to play a significant role and we need to encourage the use of modern technologies such as remote sensing, poly-greenhouses etc. in order to improve productivity and reduce wastage.
Creating an enabling environment for agri-businesses and start-ups through simplified business registration procedures, tax incentives, and favourable regulations will also go a long way to enhance productivity in the region. Fostering public-private partnerships and engaging relevant stakeholders to shape policies that promote entrepreneurship and sustainable agriculture are vital steps within this process.
By implementing these strategies, West Africa can unlock the full potential of its agri-business sector and foster a thriving ecosystem for small companies, leading to economic growth, job creation, and improved food security in the region.
Funding challenges faced by African agri-businesses
Access to finance is key for the growth of the ecosystem. Investment into agri-business in West Africa, particularly in countries like Senegal, Cote d’Ivoire, and Togo, has gained traction due to favourable investment climates, abundant agricultural resources, large consumer markets, and supportive government policies. However, most African agri-businesses still face significant challenges accessing capital, as commercial loans are expensive, and many businesses lack collateral. This has led to a shift towards seeking alternative forms of financing, including impact investment and private equity.
We need to establish specialized funds or financial institutions that can provide affordable loans, grants, and investment opportunities tailored to the needs of agri-businesses and start-ups. This is where partnerships with impact investors such as Brightmore Capital can be so beneficial.
According to the report, “Difficulty accessing capital is one of the major challenges agri-businesses in Africa face. Commercial loans are expensive and most businesses in the sector are small and medium-sized enterprises with little collateral. Commercial bank loans to the sector are also much lower than would be necessary to sustain expansion. As of 2018 loans to agriculture players accounted for 3% of total loan disbursements in Sierra Leone, 4% in Ghana, Kenya and Nigeria, 6% in Uganda; 8% in Mozambique; and 12% in Tanzania. These challenges have driven a shift towards alternative forms of financing, including private equity (PE). Between 2010 and July 2020, Crunchbase reported 242 agriculture-related deals in Africa, raising $616m from entities such as NGOs, foundations, banks, angel investor networks and private equity funds. PE funded 19,4% of the total. West Africa accounted for 18% of the total agriculture-related financing deals in Africa between 2010 – July 2020.”
As the managing partner of Brightmore Capital, Ndeye said in the report; “Brightmore Capital targets West African start-ups and SME’S, within the high potential, but relatively untapped agri-business sector, with the aim of driving increased regional food trade and building strong domestic players. In our pilot fund, 94% of the funding went to companies in the agricultural value chain in various sub sectors from manufacturing, agritech to production.”
Impact investment in African agriculture is vital for addressing food security, promoting economic development, empowering local entrepreneurs, and meeting the specific needs of African consumers. By adopting impact-driven approaches, investors can contribute to long-term sustainable change and create positive social, environmental, and economic outcomes across the continent.