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May 31, 2012

If you have an agro-investment in southern Africa, are you automatically equipped to operate in western Africa?

by Chido Makunike

From the Business Day Online (Nigeria) of 6 April 2012, under the heading 'Nigerian agriculture to benefit from equity deal: '

''Zeder Investments Limited, a South African listed agricultural investment company, is committing $46.7-million to acquire and expand an agricultural business, Chayton Africa, which is focused on primary production.''

So far so good. We are then told that Chayton Africa has made investments in Zambia since 2010 and now ''it is thinking on moving on to cocoa-rich west African regions, e.g. Nigeria, Ghana and Cote d’Ivoire.''

In what reads like script taken from the written-about company's public relations release or website, Business Day Online informs its readers that Chayton Africa ''produces 10 percent of Zambia's soya and 5 percent of the country's wheat.''

Such loosely thrown-about statistics can hide as much as they reveal, and would anyway be impossible or very difficult to independently verify. For the purposes of this post, let us assume that its ''acquired six farms totalling just over 4,000 hectares with 1,250 hectares being farmed, and 430 hectares under irrigation'' do indeed account for Chayton Africa's purported significant footprint in Zambia's agricultural economy.

For some who don't know any better, or have to rely on popular, stereotypical (sorry; no offense, but nvariably Western) media, Zambia and Nigeria would obviosuly be part of the same messy but now opportunity-though-danger-filled, armophous and fairly uniformly similar blob called 'Africa.'

So therefore, it would seem to make perfect sense that once having acquired some going farms in Zambia, it would not be a big deal to look for opportunities in West Africa, a mere 4000 kilometers away. If one can acquires some soya and wheat farms in Zambia, what could be the big deal about acquiring or starting cocoa farms in Nigeria, Ghana and Cote d’Ivoire? Big deal-it's the same Africa, innit it?

These are rhetorical questions beyond the scope of a blog post like this to attempt to answer. However,  they are absolutely fundamental, necessary questions to ask for the type of investor who gets more excited by gold-rush, herd mentality-type hype than by common sense and prudence. Recently there seems to be even more of the former than the latter. Investors seem to be in not just a land rush, but also in a rush to outdoor each other in almost casually tossing about figures of the millions or billions they are investing in African agriculture, and the vast returns they will easily, obviously, quickly reap.

Sure, Zambia is on the same geographic land mass as are Nigeria, Ghana and Cote d’Ivoire. And yes, given the vastness of the African continent, the history of migrations and the barriers that increased with colonial fragmentation, there remain some astonishing commonalities amongst African peoples/cultures/nations, even those spatially far apart.

But it is also true to say that there are important ways in which southern Africa and western Africa are two vastly different worlds. They differ in a manner (beyond the scope of this post!) that should be of concern to any investor said to be ''thinking on'' transposing their business experience in one region to that in the other.

Speaking generally and loosely, I would say an investor/business entity from southern Africa to western Africa, or vice versa, should give themselves from three to five years to just get a good grip of the differences, how they might impact on their prospects of success, and what modifications in thinking/attitudes/strategy are required to avoid certain failure.

But surely, seasoned agricultural investors from South Africa would be much better equipped to understand this and do the necessary 'due diligence' and preparation than those from say, the U.S., Europe or elsewhere outside the continent, whose general 'Africa learning curve' would presumably be much, much steeper? Wouldn't they?

Perhaps, but far from at all necessarily so (sorry, beyond the scope of this post).

Chayton's diversification to West African cocoa from Zambian soya and wheat is still at the 'thinking on' stage. One reader wonders why not just do that 'thinking on' privately, quietly rather than expose yourself to possible embarrassment if the plans don't materilalize, or even if they do but then fail because you only find out later just how vastly different doing business in one part of Africa can be from doing it in another part 4000 km and a veritable world/planet away?!

There is a question that often comes to mind on reading splashy investment multi-million dollar 'investment' announcements that on closer inspection are at no more than the 'thinking on' stage, or are at the very beginning of implementation. Given the very many new things that will have to be learned about operating in a new country/region/culture/environment, particularly in a sector with its own peculiar subset of high risk such as farming, why do so many investors jump the gun? Why not instead begin your investment away from the limelight, quietly going through the inevitable initial years of mistakes and/or failures, and only then surprise the world with the announcement (if necessary) of your first successes?

Of course, the need to engage in some high profile hype to entice investment funds is understood. But a severely under-reported but now emerging phenomenon of the recent wave of African agriculture investment fever is the number of high profile investment groups who appear to have more fund-raising ability than basic common sense, inquistiveness and humility.

However, no doubt the people behind Chayton Africa have or are pondering the huge, vast differences between growing soya and wheat in Zambia, and entering the cocoa production sector in West Africa, or vice versa for any other investor for that matter. At least one hopes so for the sake of their funders!!!

African  Agriculture

    

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