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Trials and tribulations of African food processors

Picture of a Stack of Coins - Investment - Financing

Much of the food that we eat has been processed by small & medium enterprises, often family-owned.  It is no different in Africa. The food giants are present, but most food companies are family affairs.

Finding finance to expand production or to launch a new product is exceptionally hard in Africa. There are many obstacles in the process such as the following:

Logistics                                                                 

Bad roads, heavy traffic, inexistent or dysfunctional rail systems, snail’s pace customs procedures, inadequate computer systems, theft, etc.

Seeds

Food starts with seeds including vegetable, fruit and crop seeds.  Many African countries have no seed banks, and very few seed scientists or properly-funded research facilities that as a result, yields are low and quality can be poor. This makes it cheaper to import crops like maize from South America instead of buying from the country next door.

Standards & Regulations

Food trade is based on agreed standards, such as governmental standards, international standards like ISO and increasingly, retailer (supermarket chain) private standards. Many African food companies lack knowledge, laboratory equipment and staff to be able to adhere to buyers’ standards, so they are excluded from lucrative regional or international markets.

Skills

A blend of on-the-job practical training and formal classroom learning is considered the best preparation for future food industry executives. Many African food processors have no formal trainee development program and they do little to encourage their workers to develop their skills.

Mergers and acquisitions in Africa fell almost 30% in 2016. Private equity funds are all hunting for deals and are now starting to focus on family-owned businesses with succession problems – the founders are retiring and their children have gone abroad, for example. Sometimes, the children are taking over and want to expand the business quickly.

The favorite targets for private funding are consumer goods, real estate, financial services, energy and infrastructure. Agribusiness and food industry deals do happen from time to time, but for most food companies, finance means a bank loan at punishing interest, if you can provide the collateral.

Partnerships between local and foreign companies, which we are beginning to see in the animal feed and aquaculture sectors, offer a way out of this ‘Catch-22’ situation. The local company knows the territory and customer preferences, while the foreign partner can inject skills, capital and managerial discipline.

Food companies in Africa need to devote more time to building their value-chains, building a strategic vision and developing and rewarding their staff. Finding financing options in Africa can be a challenge, but with the help of a great partner, you can find resources together to allow your business to grow. If you are interested in learning more, send us a message.