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September 14, 2008

New fund seeks investments in African farming

A new private equity fund plans to invest in agricultural processing in Africa to cash in on booming food prices with backing from a foundation linked to the world's biggest cereal maker, Kellogg Co, the fund's manager said.

Surging prices and strong demand for food on world markets has refocused philanthropists and investors alike on the rich farming potential of the continent where agriculture contributes 30 percent of sub-Saharan Africa's GDP.

"We are primarily interested in the value-added part of the agri-chain. Our focus is on processing, services and logistics, and also the input side," said Herman Marais, managing director of the Agri-Vie fund. "We're not in principle excluding anything ... there is a focus on the export crops, fresh (produce) chains, fruit and horticulture, flowers," Marais said.

Agri-Vie is initially focusing on South Africa and neighbouring states; on Kenya, Tanzania and Uganda in East Africa; and Ghana and Nigeria in West Africa -- although Marais said the fund hoped to move into French-speaking Africa later.

Potential projects in West Africa included the tropical crop cassava, grown for its energy-rich roots and protein-rich leaves, and pineapple juice manufacturing. Marais said Agri-Vie was also interested in cocoa grinding in Ghana. Ghana's government hopes to increase the crop by 50 percent to 1 million tonnes by 2010, and grinding capacity is set to double to nearly 500,000 tonnes in the coming years.

Agri-Vie has raised around half its target capital of $100 million, and hopes to announce its first investments in the coming months, closing to new investors next May, he said. It was formed by the private equity arm of South African financial services group Sanlam and investment group Strategy Partners and has headquarters in Cape Town and Mauritius. The fund has a projected 10-year lifespan.

"Two major drivers brought the fund into being: the business investment opportunity around agriculture in Africa (and) knowing that if this fund can make contributions to make the industry competitive, it will proportionally stimulate the economies in which we operate," Marais said.

He said the fund planned to work with local businesses. "The idea is very much to partner local entrepreneurs, to play a role in developing the local economies," he said. "We're particularly inviting entrepreneurs that are running businesses that have survived the first couple of years and so have a track record, and are ready to move to the next level ... to build up their business," he said.

Agri-Vie's investors include state-owned entities like South Africa's Development Bank of Southern Africa and Industrial Development Corp, and private entities like the W.K. Kellogg Foundation, started in 1930 by the breakfast cereal pioneer. "Both these (groups) have recognised that the investment model holds as an alternative to aid money," Marais said. But he added Agri-Vie's investors also included "corporates with a strong profit profile. They expect a market-related return from the fund. There is no soft money."


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