The unavailability of adequate funds is often blamed for inability to scale agribusiness in Nigeria to match continuous diversification rhetoric, however, the country falters in adequately tapping from private equity investments in Africa which continue to grow in value.
Nigeria, with a $22.5 billion food import bill, representing potential for revenue if local solutions are developed, also has over 80 million hectares of arable with less than half of it under cultivation. The potentials for growth and steady flow of revenue in a consumer driven nation of 180 million people, with broad influence over the rest of the sub-region, is however impeded by lack of accurate data for potential investors to work with, as well as poor governance structures by many businesses, amongst other encumbrances.
One of the characteristics of Private Equity that will suit agriculture includes being a long-term form of investment; willing to commit resources and expertise to develop a business over several years. They are also targeted at businesses with high growth potentials, a value also provided by agriculture, especially in Nigeria.
The African Private Equity and Venture Capital Association (AVCA) in its Annual African Private Equity (PE) report for 2016, noted that “Overall, there were 145 PE deals reported in Africa over the course of the year, amounting to US$3.8bn – versus US$2.5bn in 2015 – highlighting the robust nature of Africa’s investment landscape amidst global headwinds and worldwide political shifts.”
However, from 2011 to 2016, West Africa (including Nigeria) has attracted only 27 percent of private equity deals in the continent. South Africa alone (as a country), attracted 22 percent.
Analysts have expressed the view that Nigeria still holds very good prospects for investments given its large untapped resources, growth potential and substantial infrastructure requirements.
Kazim Yusuf, CEO, Kord capital limited told BusinessDay by phone, that private equity operates in a terrain where there is structure and process.
“And that is partly why private equity hasn’t grown in Nigeria, and other unstructured markets in Africa,” Yusuf said “Private equity functions where there is enough data to work on because private equity operators typically require data in order to deploy resources to invest in or manage businesses.” Yusuf noted that PE firms will look at credit ratings, audited accounts, corporate governance structure, among other criteria and all these will influence the investment decision.
Mezuo Nwuneli, Managing Partner, Sahel Capital Agribusiness Managers Ltd, whose company recently closed $66 million funding for agriculture in Nigeria, identified the potentials for PE in Nigeria, saying that it has the ability to provide growth capital to selected high-performing companies to enable them rapidly scale-up.
Even more important than the funding is the technical and operational support that private equity firms can provide companies, Nwuneli said.
As Yusuf explained, for a market as big as Nigeria, we have not had as much Private equity activity as we should.
“Now, that is the problem with Nigeria generally but when you now move into a sector like agriculture, it becomes even more problematic, because even people with experience investing in the Nigerian economy have challenges with agriculture. The agricultural sector has even peculiar challenges,” Yusuf observed.
Timilehin Olaiwola, a business analyst at Investment One Vencap also identified challenges of PE in gaining traction in Nigeria as “Poor information aggregation and dissemination about agric business.”