London-based Silk Invest, which recently won the Africa investor Agribusiness Investment Initiative of the Year in Durban for its African Food Fund, underscores in its latest blog post exactly what it envisions to be the driving catalysts behind the private equity vehicle it launched earlier this year.
First, the food industry is a principal pillar underpinning African consumption, and it should only continue to grow both in size and scope as output grows to service increasing demand. “There will be 500 million new consumers in Africa in the next 15 years and…even today, already 50-60% of disposable household income in many African countries is spent on food,” the group notes. Moreover, as incomes and tastes rise, one can expect a convergence between Sub-Saharhan countries and the rest of the continent in terms of food sales channels and specifically the supermarket penetration rate (see graph, right). That in turn is likely to fuel the continuing acceleration of branded and packaged products. “Moving to packaged sugar, milk or flour is a big driver of growth. In most African countries, food is still pre-dominantly sold through non-branded items,” chief executive Zin Bekkali told Reuters in April.
Second, many African food companies cannot obtain financing in spite of high ROE which theoretically would indicate efficiency, creating a bevy of opportunities for investors. Per Silk, “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.”