We have supported two innovative private equity funds which aim for social impact and financial returns by investing in agricultural SMEs in East Africa whose growth can catalyse the value chains they operate in, benefitting large numbers of smallholders.
African Agricultural Capital (AAC) was established in 2004 with the vision of creating an investment vehicle for channelling finance to small and medium-sized enterprises (SMEs) in agricultural value chains.
Between microfinance and mega-deals in Africa lies the “missing middle” – a lack of small business finance holding back a swathe of high-potential enterprises. The social impact of addressing that missing middle is most pronounced in agriculture, where this type of SME often acts as a linchpin in a value chain, supplying seed, pesticide and fertiliser, or offering services such as agricultural processing, post-harvest storage and distribution to market. Thus investing in the growth of these SMEs is also an investment in the large numbers of smallholders they buy from or sell to.
AAC was capitalised in 2005 to take advantage of these opportunities with funding from Gatsby, Rockefeller and Volksvermogen of Belgium. By April 2009, AAC had invested its initial capital of $8m in a portfolio of 16 businesses across East Africa. Investees cover the whole value chain, from seed sellers to service companies whose certification schemes increase the value of other agribusinesses. A recent case study of AAC’s impact, profiling in depth five investments that comprised 30% of the portfolio, showed these businesses had provided improved seed to 860,000 farmers, bought produce from 5,000; and provide jobs for over 700 employees. Across the whole fund, seven exits have been completed to date. The fund is on track to deliver a gross return of 8%.
To manage this portfolio, AAC has built up a high-quality team of investment professionals which has recently been spun out into an independent fund management company – Pearl Capital Partners (PCP). This team also now manages the $12m African Seed Investment Fund - focused on seed businesses in eight countries across eastern and southern Africa - on behalf of the Alliance for a Green Revolution in Africa.
In 2011 PCP closed an additional fund of $25m, with investment from Gatsby, Rockefeller, the Bill and Melinda Gates Foundation, and JP Morgan’s Social Finance unit. The new African Agricultural Capital Fund will follow the initial fund’s strategy, with the primary purpose of showing that investing in small and medium-sized agribusinesses in Africa is a profitable proposition, thus attracting commercial investors to scale up the model in the future.
Rwandan Tea Sector
Trialling new ownership structures and methods of supporting farmers to allow the sector to fulfil its world-class potential, while ensuring smallholders benefit from its growth.
Kenya Markets Trust
We have partnered with the UK’s Department for International Development and Netherlands Embassy to support the Kenya Markets Trust to take forward sector programmes in the country, including in the dairy, water, agricultural inputs, seed and livestock sectors.
Tanzanian Forestry Sector
Creating a world-class commercial forestry sector that underpins downstream wood and energy industries and delivers widespread economic, social and environmental benefits to Tanzanian citizens.