Interview with Dennis Matangira, Fund Manager of Zebu Investments

The international food crisis in 2008 resulted in a large debate on how investments into food production in Africa could be promoted. As one result, the Zebu Investment Fund for investments into the African Agriculture was set up. Dennis Matingira is since then manager of the Fund. The interview with him concentrates on lessons learnt and discusses, why Western Development Banks largely abandoned financing of primary agriculture in Africa and left the place to Asian investors and what can be done to reverse this tendency.

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 great global food crisis. The prices of almost all agricultural products went through the roof. At that time, various donors such as the African Development Bank, Proparco, Spanish Govt, AGRA and others were thinking about 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. Recogninzig that African agriculturu production is dominated by SME`s. The sponsors of the AAF wanted about 30% of their final comittments (estimated at $80 million) to create an SME focussed sub Fund (the AAF SME Fund) to be used specifically to finance investments by SMEs. The Request for Proposal (RFP) to maange this AAF SME Fund was won by Data Bank from Ghana. Databan then recruited me and my partner Brian Frimpong, to be co-founders of the Managment Comapny (Databank Agrifund Mangnnanger) to run the fund. It was an exciting challenge for me. After many years in the USA, I wanted to make my talent and knowledge available for the development of my home continent.

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

Answer: The fund was intended to provide equity and equity-like instruments for financing agricultural investments by SMEs across the continent. The fund was initially 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 generate a return for the investors. The effort also had a wider goal of investigating if profitable agricuctural investments could be made at the SME level in Africa. The hope was that if this proved correct, then it would be catalytic to more agriculture value chain investment on the continent in a sector that had very little commercial investor interest. We also had a $6 millionTechincla Assiaitnace Facitly attahed to the Fund to help.

Question: And were these goals achieved?

Answer: Yes and no. We 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 substantially improved the food situation in their respective countries, which was the initial 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. The conversations with the government around land tenure and our ability to invest led to some positive changes by the goverment with respect to land tenure issues. In Burkina Faso, we helped the local sponsor to develop a chicken farm that now supplies almost 45% of the country’s egg requirements. In Zimbabwe we bought a publicly traded and then delisted the largest citrus estate with a jucing factory that we worked with to obtain a coca cola certifacation.

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 outbreaks of civil war, as happened to a very good investment of ours in Ethiopia, where practically the entire plant was destroyed. Sequential coups that happened in Burkina fasso during our disinvestment period delayed our exit for years, The political exposure of our local partner in Madagscar led finally to the liquidation of our organic fertiliser company . Climate fluctuations, price fluctuations on the global markets for agricultural commodities, abrupt changes in the regulatory environment put investments under pressure, as do, for example, epidemics that affect livestock and which are virtually uninsurable in Africa (we had to work through a Swine flue outbreak in Cameroon and Bird flue outbreak twice in Burkina Fasso).

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 expectations of the donors, i.e. the development banks, to be able to successfully sell the majority of the investments within 10 years are unrealistic. It would be better to set up such an agrifund with an open end, 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: As we transitioned to Fund II (Africa Food Security Fund) we decied to comprehensively look at bottlenecks that we experienced during our Fund I experience. The biggest bottlenecks on SMEs was availability of local funding which required balance sheet support and also funding structures that allowed for export promotion. The portfolio company we invested with in South Africa was developing comprehensive technology solution to remove balance sheet lending and focusing on farmer history, the farmer season processes and productivity so that bankers could have real time risk management lend more easily and insurance companies would also have the requisite data to offer affordable insurance. This software solution met with great interest from many banks and stake holder farmer co-operatives. The Fund also set up an African Trade Finance company that provides interim financing for african commoditiy agricultural products and thus helps 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 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 further processing of primary agricultural products. In addition to the risks mentioned, there is also a great fear of becoming the subject of public criticism due to perceived 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, no relatively short-term exits should be expected and a first loss tranche (financed from public funds) should also be built in for losses that actually always will occur in the African context. Agriculture is one of the key levers for Africa’s development. It is also central to meeting the food needs of a rapidly growing population. It is therefore worth making every effort to think about how this sector can be financed more strongly again by European development banks but also private investors. Empirically, across the two funds, the primary agriculture assets surprisingly outperfomed the secondary and tertiary assets. So intetionality and horizon is critically important. That is why for our planned Fund III we are now focused on creating a permanent vehicle that provides flexiblity on timing and offers continuous cash flow to investors whenever the environment presents the opportuninty.

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