Commodities, internal markets and governance will drive Africa’s growth, say experts

Tom Minney — Mon, 15 Mar 2010 17:30:06 +0000

LIVE FROM SECURITIES AFRICA/CITIBANK 5TH ANNUAL AFRICAN INVESTMENT CONFERENCE, LONDON
Experts launching the 5th Annual Africa Investment Conference, organized by Securities Africa and Citigroup, said they could see more growth coming in the 2nd biggest continent.
David Cowan, Africa Economist with Citigroup Global Markets, says that African countries had survived the global downturn, firstly because their financial systems were not so leveraged. However, impacts through the real sector are starting to show, where private sector credit growth has slowed dramatically in the second half of 2009 and banks are using surplus funds to buy government securities, collapsing yields.
He notes that the agricultural and informal sectors have held up well and “still account for a large, and growing, percentage of GDP”. Commodity prices are rebounding, either short term or part of a long-term “super cycle”, and the decision is not yet in, whether this brings more blessings or curses, especially as many countries are oil importers.
The slowdown in remittances and aid has not been as bad as expected, with multilaterals such as African Development Bank, World Bank and International Monetary Fund, stepping up funding. African countries are largely in strong fiscal positions, and this has not changed much despite efforts to help their economies through the crisis. Although many central banks eased rates, in many cases the commercial banks did not follow! Some countries missed the chance to introduce structural reforms. Inflation is likely to be low in the first half of 2010, but could pick up depending on food prices.
He says “growth should continue to pick up” for 2010-11, and this could be fast in some countries although constraints such as power shortages will continue to hold it back. There could be more spending, especially as many countries face elections in coming months, and political uncertainty could restrain some foreign investment, particularly portfolio inflows. Africa is not likely to be competitive in manufacturing, but could have advantages in food as the Northern hemisphere switches to healthier eating more fruit and vegetables, and Africa could also add value and benefits to food products.
Commodity prices are likely to be drivers of growth and Africa could benefit from a period of high and stable commodity prices, depending on governments making necessary structural changes to get the best benefits. There is also a rebalancing from external to internal growth drivers.
Securities Africa’s Dexter Mahachi sees better government, increased accountability and more democracy as a major driver of African growth. “They are managing their finances better” he says, adding this provides a good platform for sustained and better economic growth rates. “Consumer stocks across Africa have attracted investor interest, consumer stocks in Ghana, Kenya, Nigeria. There has been quite a boom in growth and urbanization in all these countries.
“For 2010-2011 we expect the bullish outlook to continue improving. The fundamental picture is not economic growth from more resources, but also economic growth from better policies”.

Agri-Vie fund close to $100 million target, finding projects

Tom Minney — Tue, 19 Jan 2010 12:37:08 +0000

Agricultural private equity fund Agri-Vie (www.agrivie.com) will reach its target of raising $100 million for investment in agricultural projects by February or March, according to an interview with Reuters newsagency on 14 January. It says there is plenty of potential and plans a second fund of up to $300 million.
Earlier in January the fund, launched in March 2008, made 2 investments totalling $10 mln in 2 agricultural projects in Ethiopia and across the region, and it is close to finalizing a $4 mln investment in Tanzania.
Izak Strauss, executive director and chief investment officer, told Reuters they are also considering a second fund: “There is definitely an opportunity to do a second fund substantially larger than the first fund… probably (in the region of) $200 to $300 million.” This could launch in 2013 or 2014.
Agri-Vie, based in Cape Town, focuses on equity investments in a wide range of agribusiness in Sub-Saharan Africa, including processing and distribution. It is backed by the Development Bank of Southern Africa (www.dbsa.org) and private entities including W.K. Kellogg Foundation (www.wkkf.org).
Agriculture in Africa appears set for transformation from unproductive and undeveloped subsistence farming to more commercial farming as investors from Europe, Asia and the Middle East get large tracts of land and launch projects, often to tackle food insecurity in their own countries.
In the interview, Mr Strauss said Agri-Vie plans to invest up to $25 million into five new projects during 2010, including a new $4 million eco-tourism project in Tanzania.
Agri-Vie forecasts fast economic growth in East Africa, which it calls an “investment hotspot”.
He said Agri-Vie this month invested $6.7 million in New Forests Company (www.newforestscompany.com), a UK-based sustainable and socially responsible forestry company with established, rapidly growing plantations and prospects of diversified products for local and regional export markets. It has operations in Uganda as well as Tanzania, Rwanda and Mozambique. East Africa has been a net importer of sawn timber and electrical poles and NFC aims to replace these imports with locally-produced goods. NFC’s overall aim is to “deliver both attractive returns to investors and significant social and environmental benefits”, according to its website.
The company also invested $3.5 million in africaJUICE (www.africajuice.com), run by European and African entrepreneurs and establishing fruit production and processing operations to capture share in European and the Middle Eastern juice markets. The first farm is in Upper Awash in the Oromia region. africaJUICE claims the combination of ideal growing conditions in the area and Ethiopia’s closeness to target markets should help displace European companies’ reliance on importing fruit products from South America.
The company website says: “We plan to establish at least three production locations across Africa by 2014 and become a premier supplier of Fair Trade juice to the European market.”
Strauss said: “Its first operation is in Ethiopia, growing yellow passion fruit, mango and papaya… The first exports will happen from mid-this year.” africaJUICE is making a capital investment of some €12 million to rehabilitate and expand an existing state-owned fruit farm (“Tibila Farm”) to create a high-technology modern tropical fruit plantation and build a new processing facility, operating under Fair Trade principles.
According to africaJUICE’s website: “Our plan is to plant approximately 600 hectares of yellow passion fruit and 600 hectares of other tropical fruits such as mango and papaya over a period of four years. At the same time we will support the development of over 1,200 hectares of outgrowers (contract farmers) to supplement the supply and extend community participation. Our new fruit processing facility will produce pure juices, concentrates and purees which will be transported to market via established export routes.”
David O’Halloran, Director of africaJUICE, told African Capital Markets News: “Having started operations on the ground early in 2009, we are pleased with the progress so far on the new fruit plantings, infrastructure, operating approach and the processing plant and looking forward to juice production from mid-2010 onwards. We have also made substantial progress following our sustainable development philosophy with a number of initiatives underway or already executed and are excited that this new approach to development and investment is progressing well. We are also progressing well on the second and third projects and expect to be considering funding options for those in the coming 12-24 months”.

African Capital Markets News » Agriculture

Commodities, internal markets and governance will drive Africa’s growth, say experts

Agri-Vie fund close to $100 million target, finding projects