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August 15, 2008

New equity fund to invest in agribusiness across Africa

A new R700-million (US$90 million) private equity fund has been launched with the aim of investing in the buoyant agribusiness sector across sub-Saharan Africa. The Agri-Vie Fund, formed by Sanlam Private Equity and the investment group Strategy Partners, will focus on entrepreneurs involved in the agribusiness value chain, rather than directly in the farming industry.

It offers an opportunity for potential investors to tap into this growing African market and gives strategic assistance to the owners of agri businesses. The fund recently had its first close at R330-million, with initial investments from the insurance industry and development finance institutions such as the Development Bank of Southern Africa (DBSA), Industrial Development Corporation (IDC) through the Risk Capital Facility - a fund established by the European Community and the government of South Africa and managed by the IDC - and the US-based Kellogg Foundation. The fund is open to other investors until May 2009.

Pieter Kriel, chief executive of Sanlam Private Equity, said that agribusiness is the mainstay of the economy in most sub-Saharan countries. “On average the gross domestic products in sub-Saharan Africa have grown between six and seven percent in the past three years and the number of democracies has more than doubled since 1999." "The resultant effect is that these countries offer exceptional opportunities for investors.”

The fund will look at businesses which offer value-added components along the agri-business value chain. “We will not invest in farms, but rather in the processing and marketing of farming outputs such as food, certain beverages and fibre products." "By following the route of expanding the industry, it will ultimately create new growth opportunities for existing and emerging farmers.

In addition, Agri-Vie's mandate includes investment into ecotourism in the context of integrated rural development,” said Kriel. Emile du Toit, the divisional executive for private equity at DBSA said, “Agribusiness is an important contributor to economic growth in the region and is poised for significant expansion." "Given the significant lack of equity risk capital to finance agribusiness transactions, the DBSA’s participation in this fund allows it to play a catalytic role in developing financial infrastructure to provide access to much needed long-term risk capital in this critical sector.”

Du Toit added that sustainable investment in agriculture can make a significant contribution to socio-economic development, in keeping with DBSA’s development mandate. “I believe that several countries on the continent have comparative advantages in agriculture, which provide a logical base for economic growth.” Agri-Vie investors have appointed an active management structure, led by Herman Marais of Strategy Partners, which comprises members from Sanlam Private Equity and a women-led agricultural investment group, Makotulo Agricultural Company, among others.

Marais said that Agri-Vie is a true business partner for agribusiness entrepreneurs. “The fund contributes risk capital and management know-how to fully unlock the potential of businesses.” He said, “Over and above the opportunities associated with the prevailing global food and commodities cycle, there is growing demand globally for various African exports such as organically grown vegetables, fruit and flowers, processed natural fibre for industrial applications as well as natural supplements and health products. "

However, there are numerous existing agri-enterprises across the African continent which are not performing to their potential - mainly as a result of lack of access to capital, limited market knowledge and infrastructure limitations. “Agri-Vie aims to be a catalyst to unlock this potential to the advantage of the enterprises concerned, their host communities and the fund’s investors. "Agri-Vie believes that sustainable development is best brought about by the disciplines of investment rather than aid grants.”

Kriel said that the fund had a strong empowerment focus. “Our involvement was partly spurred by the Financial Sector Charter which designates agri as an area of ‘targeted investment’." "Both Sanlam Private Equity and Strategy Partners truly believe in the business and investment potential of agribusiness in South Africa and on the continent and are delighted to be playing a role in realising it. "The South African portion of the fund was started with the express purpose of empowering agri-businesses and playing a key catalyst role for BEE in the agribusiness sector.”

Agribusiness women such as Ntombi Msimang and Jean Davidson are among the directors of the Makotulo Consortium. Kate Moloto, a shareholder in Agri-Vie’s investment management structure, says “Women are far behind with regard to participation as owners and managers in agribusiness. "Through Agri-Vie, we intend to make a meaningful contribution to empowering women in this sector.” Marais said the fund had found a niche in Africa and was already experiencing healthy transaction flow.

“We have had significant interest from international investors and have formed a parallel structure to the South African portion of the fund – a separate entity domiciled in Mauritius which is focused on investment in sub-Saharan countries outside of South Africa." "We are already evaluating more than 20 possible investments in South Africa and the Mauritius structure of the fund is looking at a similar number in countries such as Botswana, Tanzania, Uganda and Kenya.”

Comment from other involved parties:

Industrial Development Corporation (IDC): The IDC decided to invest in Agri-Vie because the fund is able to support black economic empowerment in agribusiness and because the fund’s mandate makes a specific commitment towards supporting job creating SMEs in agribusiness.

Kellogg Foundation: The international Kellogg Foundation, headquartered in the USA, threw its weight behind Agri-Vie at an early stage of the fund’s development. Kellogg’s manager in South Africa, Fadel Ndiame says that the foundation had supported rural development in South Africa and its neighbouring states for a long period with donor funds and project management. “We decided to adopt a new direction by channeling a part of our grant programme towards an investment model such as Agri-Vie. We believe that this will result in a more focused, sustainable result from our involvement in rural development.”

Director of Agri-Vie management company: Mohammad Karaan, prominent agricultural economist and recently appointed Agriculture Dean at Stellenbosch University is a director of the Agri-Vie management company. He believes that there is a scarcity of financially viable approaches to black economic empowerment in agribusiness. “Agri-Vie, with its emphasis on competent management and financial discipline, can make a difference. "Current trends in world commodity markets also point to the future role that Africa can fulfill with regard to food supply to the continent’s markets and the rest of the world. "Agribusiness forms such a big part of the private economies of most countries in African that it makes strategic sense to stimulate socio-economic development through investment in this sector. "In order to capitalise on this potential in favour of both global markets as well as communities and agri-entrepreneurs from Africa, more successful agribusiness entrepreneurs are required in Africa. Agri-Vie’s international portfolio can help with this.”

ITI News

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