Impact Investing In African Agriculture

Includes: AFK
by: Matthew Taylor

Food shortages in Sub-Saharan Africa continue to devastate the region. Out of the total farmable area in Africa, only a small portion is used for agricultural production. For much of recent history, the food supply has been restricted due to macroeconomic and political instability, making it difficult to develop Africa's rich, untapped agricultural resources. As a result, agricultural commodity prices have spiraled upwards and will continue to do so in upcoming years.

But the situation in sub-Saharan Africa is improving rapidly. The region's economy is growing at around 6 percent annually, which is comparable to many emerging markets. According to McKinsey, Africa's collective GDP is now roughly the same as Brazil or Russia. Infrastructure has improved greatly, with the lack of roads no longer an impediment to the flow of information and goods. Also, mobile phones are now widely used, with more to come, as The World Bank estimates that 94 percent of urban Africans are near a GSM signal. And most importantly, democracy is taking hold in many sub-Saharan African nations, thereby stabilizing the region and increasing economic prosperity.

The bottom line is that Africa is now on a stable upswing, which provides a great opportunity for investment. For those looking to enhance the diversification of their portfolio, improve the lives of many Africans, and receive impressive returns, impact investing in African agriculture is now a smart addition to a balanced portfolio. Impact investing refers to the increasingly popular type of investment where investors seek to fund businesses that can provide capital, resources, and creativity to tackle the world's problems, problems that cannot be solved by pure philanthropy.

Through impact investments, individuals, private companies, and organizations can improve African farmers' productivity and production and help eliminate the sub-Saharan food shortage, all while earning competitive returns. There is an abundant amount of uncultivated arable land in sub-Saharan Africa, and hence an immense growth potential for small to medium sized farmers. These farmers own around 70 percent of the land and contribute 85 percent of Africa's agricultural production. However, this industry is still in its infancy. The McKinsey Global Institute predicts it will grow from its current $280 billion a year to $500 billion in 2020, and $880 billion by 2030. The ability to produce food competitively in the global supply chain is hinged on cultivating more land and enhancing productivity per hectare. For Africa to be competitive, farmers must be able to fund expensive ventures into new production and distribution technologies.

There are a growing number of startup financial investment firms in response to this expanding industry. One excellent example is Alternative Investment Africa ((ALTVEST)). ALTVEST Africa focuses on African agriculture; mainly small to medium holder farmers in sub-Saharan Africa (Zambia, Zimbabwe, Mozambique, etc.). Their goal is to deliver excellent performance to investors and contribute sustainably to poverty eradication and food security in the sub-Saharan region. Their mutual benefit approach captures the important elements of impact investing in providing funding and know-how to these farmers, allowing them to access global food markets.

The primary way to make an impact investment in African agriculture is directly through private equity funds, like ALTVEST. However, there are several alternatives in public markets. Last May, the impact investing exchange board, the iX, opened its doors to qualifying social and environmental impact investment funds seeking a listing on public capital markets. The Financial Services Commission approved The Stock Exchange of Mauritius for regulatory listing and trading rules for the iX. The SEM is reported on by all the major international data vendors (Bloomberg, Thomson Reuters, etc.) allowing investors access through their financial services firm. Impact investing is still in its infancy, so a key to its further growth will be the development of these secondary public markets.

The merging of philanthropic and for-profit investing through impact investments is changing the world. Again, with the stabilization of political and macroeconomic factors, this is a great opportunity for all types of investors. Impact investing cannot only efficiently solve Africa's complex and pressing food supply problem, but resolve other, equally important societal and environmental issues all while providing excellent returns.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: I am a marketing analyst intern for Alternative Investment Africa.

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