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Silk Invest launching Africa food fund

DAKAR (Reuters) - Growth rates that outstrip the developed world are drawing emerging markets asset manager Silk Invest to open a 100 million euro fund to invest in African food processing and sales, the company said.

The London-based firm, which takes its name from the ‘Silk Route’ historical trade paths linking Europe and Asia, plans to launch the Africa Food Fund in June, it said at the weekend.

Unlike many investments in Africa, it is not a bet on raw commodities, but instead on their local processing and distribution to African consumers.

“(The) focus of the fund is to invest in companies across the food value chain and we especially like the companies who are servicing the local African consumers,” chief executive Zin Bekkali told Reuters.

“Examples of target companies that we are analysing are ...

(a) fast food chain which wants to accelerate the number of outlets that it has, a cocoa processing company which wants to sell more of its own branded products, a flavoured fizzy drinks producer which is building capacity in mineral water, and a biscuit maker which is importing currently 50 percent of the products it sells but wants to replace it by its own goods.”

Many Middle Eastern investment agencies are spending money to grow crops in Africa for shipment to their domestic markets to alleviate food insecurity in the Arab world, but Silk Invest is looking for companies that sell to African consumers.

“Moving to packaged sugar, milk or flour is a big driver of growth. In most African countries, food is still pre-dominantly sold through non-branded items,” Bekkali said.

“(In) the last years we are seeing a dramatic change and African food companies are servicing the local need without increasing the cost of the product. Consumers are able to buy a higher quality branded food item for the same price.”


The International Monetary Fund will forecast euro zone growth of 0.8 percent in 2010, according to a report this month, far below the fund manager’s expectations for Africa.

“African growth on average is de-coupled from the Western world ...We think that Africa will move back to its pre-crisis annual growth level of 5 percent,” Bekkali said.

The firm said it is looking for countries institutionally strong and politically stable enough to sustain high economic growth, and its investor presentation names Egypt, Ethiopia, Ghana, Morocco and Nigeria as initial targets.

“Within this list we have excluded countries like Somalia. Many investors in Africa do not fully understand that Africa is moving on and that countries like Somalia are as much an exception in Africa as Afghanistan is in Asia.”

As Ivory Coast, formerly one of Africa’s economic powerhouses with world-leading cocoa exports, slips further away from elections that were slated for 2005, many commentators suggest foreign investors are staying away from the country until its political crisis is resolved.

“Ivory Coast is not in the focus list but is not in our exclusion list,” Bekkali said. “It is definitely one of the countries which has a higher risk profile than let’s say South Africa. On the other hand it remains one of the African countries with a reasonably well developed infrastructure.”

Silk Invest is marketing the fund to development finance agencies, family offices, and private equity firms, but has found the latter the most resistant to the idea.

“The private equity industry is still focusing mostly on management buy-out deals or trying to find the next Google,” Bekkali said. “When they look at Africa (it) is almost entirely focused on commodity type of investments which we see as the least attractive sector in Africa.”