Private equity investment in African Agriculture. Omri van Zyl Deloitte Touche Tohmatsu Limited. All rights reserved.

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1 Private equity investment in African Agriculture Omri van Zyl

2 Food security the future Fast Facts There are 925 Million hungry people in the world. The worlds population is expected to grow from 6.7 to 9.1 billion by Food production will need to nearly double by 2050 worldwide. About 40% of the world s arable land is degraded to some degree and will be further affected by climate change. There are about 500 million small farms in developing countries, supporting around 2 billion people. GDP growth generated by agriculture is up to four times more effective in reducing poverty than growth generated by other sectors. Development aid to agriculture was 4.3% in 2008, compared with 18% in Poor people spend between 50% and 80% of their income on food. 2

3 Food Security Global Market Shifts Since 2000, world market prices for agriculture goods have been increasing and are projected to do so going forward. Projected that the per capita food consumption will increase significantly. The lack of arable land for food production can further create food inflation. Moreover, the production of biofuel diverts agricultural land and other inputs away from food production. Increasing water scarcity is starting to act as a constraint to production growth. The final conclusion is that the supply and demand curve for agricultural products would be out of kilter, placing agricultural producers in a stronger position to attain higher prices for their products going forward. On a grander scale agribusinesses worldwide should benefit from this trend 3

4 African overview Fast Facts 54 sovereign states 1 billion people 7 African countries are in the top 10 fastest growing economies in the world 3 of the top 5 fastest growing investors into projects in Africa are African The worlds population is expected to grow from 6.7 to 9.1 billion by 2050 Food production will need to nearly double by 2050 worldwide. Poor people spend between 50% and 80% of their income on food. 4

5 So what is happening in Africa 5

6 Africa in context 6

7 Africa s competitive advantage Given the food security challenges globally, Africa is well poised to leverage off the future food security trends for a couple of reasons. Relatively low base of agriculture production Availability of significant portions of arable land Availability of extensive water resources in central and western Africa Low levels of technological sophistication Relatively low labour base Geographically closer access to markets in the European Union, India, China and the Middle East An increasing awareness amongst African governments to assist with inward investment Positive socio-economic actions going forward Extend mining and resource development is becoming an increasing priority for African countries Renewed interest globally in investing in African agricultural opportunities Need for local agribusiness and agro-industry development 7

8 The value chains

9 Investing in Africa The Four Success Factors 9

10 What investors look for Agro Economic needs analysis Supply and Demand Production capacity and diversification opportunities Infrastructure support and insurance Value adding opportunities High growth base ROI and security in investments Political and market stability Legislative security Markets and access to markets Sound commercial terms for deals The right people to implement projects 10

11 1 Identify all initiatives for the for the Audit 2 Classify, Measure and Rank 1. Grain and Oilseed Cluster Strategy Uncertainty Precedent Quantifiable Community 2. Edible Oil Mill Enterprise 1 3. Aquaculture Enterprise 2 4. Poultry Enterprise 3 5. Fruit and Vegetable Enterprise Understand impact of initiatives on realistic business case strong weak 4 weak Quantify impact on feasibility of the project Revenue enhancement Cost reduction Profit & Loss Impacts Balance Sheet Impacts Feasibility Actual Rating Reserve Life (# of yrs) most recent yr end EBIT Margin - 5/ 10 yr average Other Liabilities to equity- most recent yr end Understanding the impact of identified benefits on company financials Cost avoidance Capital reduction Capital avoidance Re-ratings Investment required Time to realise Cashflow Implications Gross benefit Net benefit Initiative 1 Aa % 4% Initiative 2 A % 20% Initiative 3 A % 6% Investments Overall rating Baa % 11% 11

12 Technology - Geo-information Opportunities in Africa: Funding Before investing funds in a country investors would like to access the agricultural potential as well as risks associated with specific agricultural practices. Modelling land capacity and suitability and more specific crop yield estimates in a GIS environment, can assist funding organisations to estimate the return on investment. GIS simulations of various scenarios can also provide a broad overview of associated risks. 12

13 Geo-information Opportunities in Africa: Contextual Geo-informatics can provide vital information to investors who must evaluate the investment potential of a country. This information includes: Natural resource information regarding a country (terrain, climate, soil, vegetation, water and current land use). Agricultural landscape (infrastructure upstream and downstream) Market access (availability and distance to markets) 13

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15 Planning is essential! 15

16 The Green Revolution We owe it to ourselves and to future generations to ensure that we develop and grow the resources and potential in South Africa. 16

17 For more information, please contact: Omri van Zyl Associate Director Africa Agribusiness Head Consulting Tel: +27 (12) Mobile: