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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.”


The amendment of a finance bill before Kenya’s parliament is expected to pass and will allow for the liberalization of the country’s pyrethrum sector, once the country’s largest foreign exchange earner.  In fact, per Business Daily Africa, until 2003, Kenya commanded 80% of the growing EU pyrethrin market, largely because of its ideal growing climate.  Grievances over unpaid deliveries, however, following a surge in output in 2002-2003 caused many farmers to switch to better paying crops, allowing suppliers from Tasmania, China, Australia and Rwanda to fill the void.  Yet those countries have been unable to match rising demand; moreover, last year Kenya’s government sacked the the entire Pyrethrum Board of Kenya (PBK) and appointed a transition team in the process to trigger necessary reforms.


Pyrethrum is a flower that contains a substance used in pesticides. The pyrethrum extract, known as pyrethrin, is derived from the flower’s petals. Liberalization, writes BDA, “will mean that farmers will be able to grow pyrethrum without necessarily acquiring PBK licenses and will also sell their produce to PBK or any other established processor.” According to reports, the growing demand for “organic” or “natural” pesticides has driven the increased international demand for pyrethrin, despite the existence of synthetic chemical substitutes at roughly half the price.  Moreover, Western governments seem continually keen to review and sometimes ban some of the alternatives available, which could further solidify the plant’s fundamentals as a revenue earner.Yet limited domestic funds allotted to the industry potentially means that without outside capital, demand will continue to outstrip supply in international markets.


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