African investors reveal seven industries that make them uncomfortable
How we did it in Africa asked a handful of investors in Africa to identify sectors where they are less enthusiastic from an investment perspective. While all investors are optimistic about Africa’s potential, there are some sectors they will not invest in for reasons ranging from a lack of expertise in the sector to unfavorable market fundamentals.
1. Bottled water
“Water is a category that we looked at extensively, but ultimately chose not to pursue,” notes Zin Bekkali, founder and CEO of Silk Invest. “The problem with water – mineral water in particular – is that what you sell is largely the plastic bottle. The cost is determined by the packaging and it doesn’t make sense to us. Read more: Investor shares insight on opportunities in Africa’s booming food industry
2. Real estate in Kenya
Private equity firm Ascent Capital Africa shuns real estate in Kenya for two reasons: it doesn’t have a lot of experience in this industry, and it believes the industry is mature. “In our opinion, a lot of local capital has been catalyzed into investing in real estate and we could add little value to it,” said David Owino, founding partner of Ascent. That said, Owino believes there is potential in the low end of the market. “In Kenya we have seen a lot of high rise apartments and office facilities aimed at the upper middle and upper class population, but there is a shortage of lower middle class housing. which is the majority of people who settle in cities. The government is implementing policies to encourage investment in this particular space, so there is certainly an opportunity there, but it is not the right solution for us. Read more: David Owino, Founding Partner of Ascent, discusses investment opportunities in East Africa
3. Staple crops
“We’ve found that you really need to know what you’re doing if you’re going into large-scale production of staple crops like corn, soybeans or rice,” says Chris Isaac, chief investment officer of the company. AgDevCo impact investment. “These are relatively low margin commodities where there is global competition and significant economies of scale (especially if you look at South America or Asia), so you need to be sure you can be a efficient producer and have the necessary scale. . You also sometimes deal with unpredictable political environments, where there may be intermittent export bans or changes in tariff regimes, making the primary production of low-value staple crops difficult. It might make sense as part of a strategy where you are vertically integrated and you are also involved in processing, but we have found it very difficult to be successful in doing direct primary production of these crops. Read more: Agribusiness in Africa: investor reveals areas with the most potential
“Forestry is very long term and we are not passionate about the time it takes to make an investment. You need 20, 30 or even 40 years, and that requires a different kind of investment approach, ”says Edward Isingoma Matsiko, Managing Partner of Pearl Capital Partners, a fund manager who invests in agribusiness companies in Africa. from the east. Read more: Lessons from investing in East African agribusinesses
Charlie Tryon, CEO of investment holding company Maris, also calls forestry complex, even though it is a sector his company has invested in. “Forestry involves long-term time horizons, large scale and faces the ever-present challenge of logistics and the high cost of doing business. It is extremely expensive to transport objects by road in Africa and the distances are enormous; We have found that it is difficult to create viable commercial forest enterprises unless they are well located and relatively close to large markets.
“In general, forestry is not an easy business and you need to be specific about what tree species you are willing to invest in, where you are on the value curve and if you can add value. value to culture. Land issues are also a constant challenge for forestry in Africa, ”adds Tryon. Read more: From agriculture to real estate: investor shares insight into opportunities in Africa
5. Fishing and mining in Namibia
The sectoral concentration of Namibian private equity firm Eos Capital excludes primary industries such as fishing or mining which depend on the government to allocate quotas or licenses. “You can have the best fishing business, but if you don’t have a fishing quota it’s hard to do business, so we try to steer clear of it,” says partner Ekkehard Friedrich. Read more: Investor Unveils Namibia’s Business and Investment Opportunities
6. Ready for consumption
In recent years, many fintech companies have entered markets across the continent with technology-based consumer lending solutions. Emilian Popa, who has over 10 years of experience building and investing in African businesses, says that while some of these platforms – such as Tala, Branch, and GetBucks – are doing a great job, it’s This is generally a risky industry due to the lack of adequate credit scores in many countries. Other downsides to the industry are high customer acquisition costs and a large number of competitors.
However, he remains optimistic about SME financing, especially if a lender has visibility into the company’s finances. He believes that many small businesses in Africa generate good income but do not have access to finance. Read more: After a decade of creation and investment in African companies, Emilian Popa explains why he is optimistic about these five sectors
7. Oil and gas companies in Nigeria
“We don’t invest in oil and gas companies,” says Danladi Verheijen, managing partner and co-founder of Verod Capital Management, a private equity fund manager based in Lagos. “There are a lot of opportunities in this sector, especially in Nigeria as one of the world’s largest oil producers, but we’re not investing in them because we just don’t have the expertise. We know that a lot of people have been successful in investing in the oil and gas industry, but we just don’t really know the industry, and the volatility of commodity prices is a deterrent. After all, if the smart folks at major investment banks around the world can’t predict the price of oil in a year or two, then how can we? The same goes for mining or commodity-based sectors in general. ” Read more: Investor highlights opportunities in Nigeria’s insurance and education sectors