(Editor’s note: This piece was originally published in the monthly newsletter of the Africonomist.)
Agro-industrial businesses in Africa are playing an increasingly important role in the global food supply chain as the cost and demand for commodities rise and as the world’s population expands.
Pat Devenish, the group CEO of AICO Africa Ltd., a Zimbabwe-based agro-industrial business that has been connecting small-scale African farmers to markets overseas for at least a decade, said the African-based agribusinesses not only provide a way for Africa to become self-sufficient but also offers investors sustainable profits, in an interview with the editor of Africonomist, David Dankwa.
Devenish, a member of the Frontier 100 initiative, which aims to increase investment in Africa by forging partnerships between CEOs in Africa and the United States, discussed with the Africonomist some of the opportunities he sees in agribusiness and why he thinks it is the most important sector in Africa.
The following is an edited version of the interview.
What opportunities are there in agribusiness in Africa for foreign investors?
Devenish: I think agriculture is certainly the most important sector in many African countries. Getting towards food-sufficiency is very important to those countries that are not food self-sufficient, and so is moving toward exports or value-added beneficiation for those countries that are. The companies that I represent are very interested in small-scale farmers. We see them as a highly motivated and highly diligent group of people who are able to take advantage of opportunities when presented with them. AICO Africa owns three companies, one of which is a hybrid seed company. We sell seed in about a dozen African countries and have large operations in about half a dozen. In the countries we operate, you will find that it is not long after we get there that those countries become food self-sufficient. We also fund the production of cotton with 80,000 small-scale farmers. These are some of the investment opportunities that I can recommend directly. There are other agricultural opportunities in Zimbabwe, including a dairy business with great products and brands and a company focused on crushing cotton seeds and soybeans into oil. Ultimately, I think the big opportunity in our world is in the improved seed space. Genetically-manufactured organisms have not yet come to Africa outside South Africa, but we think it is not a question of if, it’s a question of when.
As an investor in this space, how do deal with the inherent volatility in commodity prices?
You deal with that like any business has to deal with it. There has been huge volatility in the minerals sector as well. You saw [the] copper price rise very high prior to 2008, and now it has recovered. We are seeing cotton prices at historical highs, and everyone in this business is enjoying that. We would rather see a more consistent price which is stable and good for everyone. There are ways to smooth out those peaks and troughs, but I just think it is one of the hazards of doing business. It requires good management to make sure you benefit in the good times and don’t get busted in the bad times.
What about the severe weather conditions. Is that also a part of doing business in Africa?
Weather, especially drought, is always an issue in Africa. We have been lucky in the last few years with drought, although Kenya had a terrible drought in 2009. I think that is part of life in the agricultural space and it depends on the length of the view you take and what part of the industry you are in. From an investment perspective, drought over time is not a huge issue.
What do you think are the biggest barriers to investing in Africa?
I am probably the most optimistic person about Africa so I don’t see that many barriers. That said, I think currency in some countries may be a barrier. The perception of corruption in some countries may be a barrier. Liquidity of investments and ability to exit on time may be barriers as well. However, I am very positive about Africa as an investment destination. The growth of the middle class amongst several other factors is going to lead to huge growth.
How do you promote liquidity in Africa when that’s an issue that even developed markets struggle with?
If you look at my country, Zimbabwe, where we have just come through a very tough 10 years, the decision by our government in February of 2009 to dollarize our economy has had an incredible impact on the way business is done. It has removed a lot of those barriers to both incoming and outgoing investment. So I think some kind of dollarization or quasi-dollarization would make a big difference to a number of African countries and could promote liquidity.
Do you think it is critical for Africans to invest in themselves in order to attract foreign investors?
The large African pension funds are very well-invested domestically. Certainly in southern and eastern Africa, I am not aware of pension funds investing massively overseas. If I look at the pension fund of Seed Co., for instance, it has recently come down from the high-90 percent in equity down to around 85-90 percent. Just about all their investment is in equity for very obvious reasons. The same applies in South Africa, East Africa, and those markets where currencies are most stable.
The Africonomist, launched in February 2009, is a financial newsletter focused on investments and economic development in Africa. Its primary goal is to inform our readers about the people and events shaping the economic landscape in Africa.