8/11/2019 Accelerating Africa Agricultural Growth Through Private Equity

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BY Karima

Ola

Accelerating agricultural transformation through private equity

investment

 

The Food and Agriculture Organisation (FAO) estimates that Africa has 300 million hectares of potential

land area, yet the region is a net food importer.

 As investors, we focus on making pioneering agriculture, agribusiness

and related infrastructure investments that focus on export within the

 African market rather than to overseas markets, to help meet the

continent’s growing food requirements while also contributing to its

economic transformation.

Private equity investors are well positioned to offer not only the

necessary financial capital but also the knowledge that will aid in Africa’s

economic development and poverty relief and agribusiness will be a pivotal part of that economic transformation.

Typically, agribusinesses operating in Africa face a number of logistical challenges: fertiliser is not delivered in

time for planting season, there are bottlenecks to getting products to market, and there is a severe shortage of 

storage facilities, advanced farming technologies, and necessary infrastructure. Additionally, the division and

acquisition of land can be a contentious process.

There is also a serious knowledge and skills gap: we leverage extensive experience in conservation tillage, crop

rotation, and implementing new irrigation and farming technologies and transfer that knowledge through

community outreach programmes.

 An obvious reason why Africa’s agribusiness sector has been so slow to develop is because businesses in this

space simply do not exist. The few private equity firms with a track record in Sub-Saharan agribusiness have

been investing in relatively new companies that have been profitable for only 2–3 years.

It is important for investors to invest across the entire value chain and to identify opportunities in countries that

have more reliable governance and rule of law.

For investors looking to enter this space, it is critical to integrate small, local farmers into the investment process

so they gain access to new storage options, productivity advances, and technology transfer while at the same

time helping them to achieve price stabilisation and efficiency improvements.

We assemble and cultivate production hubs and establish service businesses that connect with our primary

production sites, to create economies of scale and establish a vertically-integrated regional agribusiness portfolio.

By diversifying across the value chain we believe we can create synergies across our portfolio, from primary

production to processing and distribution, maximizing margins and buffering commodity price volatility.

One way to hedge against the inherent political risk in agribusiness, e.g., land rights and expropriation, is to adopt

a very local approach while also working with regional authorities and global financial institutions. For example,we have negotiated beneficial agreements with local governments and also procured political risk insurance from

MIGA, a member of the World Bank Group, for our investments in Zambia and Botswana.

We also seek to manage risk by leveraging our advisory board and fostering relationships with local players;

8/11/2019 Accelerating Africa Agricultural Growth Through Private Equity

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importantly, these relationships also give us access to off-market deal flow.

Karima Ola is a managing partner at Chayton Capital. This article was first published in EMPEA’s Private Equity 

in Sub-Saharan Africa research report .

Related articles:

The real risks of private equity investing in Sub-Saharan Africa

Africa still a frontier market for foreign private equity players

 African equity investment options set to expand