Interview with Dennis Matangira, Fund Manager of Zebu Investments

The international food crisis in 2008 led to a broad debate on how investment in food production in Africa could be promoted. As a result, the Zebu Investment Fund for investment in African agriculture was set up. Dennis Matingira has been the fund’s manager ever since. The interview with him focuses on the lessons learned and discusses why Western development banks have largely abandoned the financing of primary agriculture in Africa and left it to Asian investors and what can be done to reverse this trend.

Question: You worked in private equity in the USA for 20 years. What was the reason and motivation for you to return to Africa and set up a fund for investments in African agriculture?

Answer: 2008 was the year of the major global food crisis. The prices of almost all agricultural products skyrocketed. At that time, various donors such as the African Development Bank, Proparco, the Spanish government, AGRA and others were considering how they could promote agricultural production in Africa. The result was that a USD 300 million fund, the African Agricultural Fund (AAF), was set up in 2011. Recognizing that agricultural production in Africa is dominated by SMEs. The AAF donors wanted to allocate around 30% of their final funds (estimated at USD 80 million) to a sub-fund targeted at SMEs (the AAF SME Fund), which would be used specifically to finance investments by SMEs. The Request for Proposals (RFP) for the establishment of this AAF SME Fund was won by Data Bank from Ghana. Databan then recruited me and my partner Brian Frimpong as co-founders of the management company (Databank Agrifund Mangnnanger) to manage the fund. It was an exciting challenge for me. After many years in the US, I wanted to contribute my talent and knowledge to the development of my home continent.

Question: What were the objectives and instruments of the Data Bank Agri Fund, which later became ZEBU-investment?

Response: The fund was intended to provide equity and equity-like instruments to finance agricultural investments by SMEs across the continent. The fund was originally designed for a term of 10 years. The aim was therefore to sell the investments after 10 years at the latest, if possible at a profit, in order to generate a return for the investors. In addition, the aim was to investigate whether profitable agricultural investments at SME level are possible in Africa. If proven right, it was hoped, this would serve as a catalyst for more investment in the agricultural value chain on the continent, in a sector where commercial investors have little interest. We also had a 6 million dollar facility from the Technical Association that was made available to the fund.

Question: And were these goals achieved?

Answer: Yes and no. We have financed agricultural projects across Africa and in frontier markets from Ethiopia to Kenya, Mauritius, Burkina Faso, Nigeria and Cameroon. Some of these investments have also been very successful and have significantly improved the food situation in the respective countries, which was the original motivation for setting up the fund. In Cameroon, for example, we financed the construction of the largest pig farm in Central Africa with an attached abattoir and sales outlets in Yaounde and Douala. Discussions with the government about land ownership and our ability to invest led to some positive changes on the part of the government with regard to land ownership issues. In Burkina Faso, we helped the local sponsor to develop a chicken farm that now provides almost 45% of the country’s egg requirements. In Zimbabwe, we bought a listed company that was subsequently delisted, the largest citrus estate with a juice factory that we worked with to obtain Coca-Cola certification.

Question: And what were the difficulties?

Answer: The investment risks in Africa are particularly high compared to other continents. For example, successful investments can become “victims” of civil wars, as was the case with a very good investment of ours in Ethiopia, where practically the entire plant was destroyed. The successive coups in Burkina Faso during our divestment phase delayed our exit by years, and the political threat to our local partner in Madagascar ultimately led to the liquidation of our organic fertilizer company. Climate fluctuations, price fluctuations on the global markets for agricultural commodities, abrupt changes in the regulatory environment put pressure on investments, as do epidemics affecting livestock, for example, which are virtually uninsurable in Africa (we had to deal with an outbreak of swine flu in Cameroon and twice with an outbreak of avian flu in Burkina Faso).

In this environment, it can quickly happen that a successful investment is hit by an external shock. The actually planned exit/sale then has to be postponed until the company has digested the shock a few years later. Against this background, the expectation of the donors, i.e. the development banks, to be able to successfully sell the majority of the investments within 10 years is unrealistic. It would be better to set up such an open-ended agricultural fund, but to aim for an ongoing minimum return. Individual exit options for individual donors can then still be agreed.

Question: What else have you learned in your more than 13 years at Zebu Investment?

Answer: When we moved on to Fund II (Africa Food Security Fund), we decided to take a comprehensive look at the bottlenecks we had experienced during our experience with Fund I. The main bottlenecks for SMEs were the availability of local finance, which required balance sheet support, and financing structures that enabled export promotion. The main bottlenecks for SMEs were the availability of local finance, which required balance sheet support, and financing structures that enabled export promotion. The portfolio company we invested in in South Africa developed a comprehensive technology solution to eliminate balance sheet lending and focus on farmer history, in-season operations and farmer productivity, making it easier for banks to lend for real-time risk management and for insurance companies to have the data they needed to offer affordable insurance. This software solution was met with great interest by many of the banks and agricultural cooperatives involved. The fund also established an African trade finance company that provides bridging finance for African agricultural commodities, helping to avoid post-harvest losses and promote overseas marketing. To diversify the portfolio, we also invested in the largest free-range poultry operation in South Africa and acquired the largest cold chain operator in Mozambique…

Question: If you ask around the development banks in Europe today, their willingness to invest in African agriculture is practically zero. Many have closed their respective departments. At best, investments are still being made in the processing of primary agricultural products. In addition to the risks mentioned above, there is also a great fear of coming under public criticism for alleged or actual environmental and social risks. Is the West withdrawing from agricultural financing in Africa?

Answer: Unfortunately, this is largely the case. Out of sheer fear of losing money or doing something wrong, people prefer to leave the field to Asian investors. But that cannot be the solution. I would argue in favor of giving new impetus to commercially oriented agricultural financing for Africa. However, as a rule, relatively short-term exits should not be expected and a first loss tranche (financed from public funds) should also be built in for losses that will actually always occur in the African context. Agriculture is one of the most important levers for Africa’s development. It is also of central importance for meeting the food needs of a rapidly growing population. It is therefore worth considering how this sector can once again be financed more by European development banks, but also by private investors. Empirically, primary agricultural investments surprisingly outperformed secondary and tertiary investments in both funds. Intentionality and time horizon are therefore of crucial importance. Therefore, with our planned Fund III, we are now focusing on creating a durable vehicle that allows for flexible timing and provides investors with a steady cash flow whenever the environment allows.

Cover picture: KfW Picture Archive / Jonas Wresch; URL: /?doi=kfw-dam-270821