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Norfunds strategy  for investments in agribussiness.
Agenda <ul><li>About Norfund </li></ul><ul><li>Agriculture in Africa – great potential and high development effects </li><...
Norfund <ul><li>Instrument in development aid policy: </li></ul><ul><li>P rofitable investment to alleviate poverty throug...
Norfund’s investment areas <ul><li>Why </li></ul><ul><li>High development effects from startup and high-risk projects </li...
Building a convincing track record! Portfolio 31-12-2010 (NOK m) IRR in investment currency  Financial Institutions Indust...
Agriculture in Africa – great potential <ul><li>There is extensive underinvestment in agriculture and the value chain for ...
Production –
Agriculture in Africa – high development effects <ul><li>Increased agricultural productivity is an important step along th...
Norfund’s current work with agribusiness <ul><li>Total agriculture portfolio of NOK 323 million: </li></ul><ul><ul><li>NOK...
Social standards, environment and corporate governance <ul><li>Agriculture has particularly high development effects – but...
Land rights and population resettlement <ul><li>Norfund does not make agri-investments that entail transformation of large...
Agrica, Tanzania <ul><li>Rice Farm in Kilombero Valley. 5000 ha of rice growing. </li></ul><ul><li>Increased food self-suf...
Matanuska: Bananas for the international market <ul><li>Key facts </li></ul><ul><li>Start-up project </li></ul><ul><li>Nam...
Matanuska: Bananas for the international market <ul><li>Challenges </li></ul><ul><li>Employees unaccustomed to permanent e...
Casquip: Starch for the southern African market <ul><li>Key facts </li></ul><ul><li>Start-up project </li></ul><ul><li>Pro...
Africado: Avocados for the international market <ul><li>Key facts </li></ul><ul><li>Hass africado fruit grown for export t...
Norfunds future investments i agribusiness <ul><li>Develop a portfolio of direct investments </li></ul><ul><li>Investment ...
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Agri11 session iii-part i-norfund

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Agri11 session iii-part i-norfund

  1. 1. Norfunds strategy for investments in agribussiness.
  2. 2. Agenda <ul><li>About Norfund </li></ul><ul><li>Agriculture in Africa – great potential and high development effects </li></ul><ul><li>Norfund’s agribusiness as of today </li></ul><ul><ul><li>Examples of projects </li></ul></ul><ul><li>Norfunds investments in agribusiness going forward </li></ul>
  3. 3. Norfund <ul><li>Instrument in development aid policy: </li></ul><ul><li>P rofitable investment to alleviate poverty through economic growth </li></ul><ul><li>Financial instruments: </li></ul><ul><li>Equity and loans </li></ul><ul><li>Operation: </li></ul><ul><li>Investment on commercial terms, always with partner(s) and normally with a 20-30% stake, never a majority holding </li></ul><ul><li>Capital: </li></ul><ul><li>Equity NOK 7.5 bn (USD 1.4 bn) </li></ul><ul><li>as of 30 June 2011 </li></ul><ul><li>Important sectors : Renewable energy, banking and microfinance, agribusiness. </li></ul>Mandate: ”…. reduce poverty and create sustainable economic growth by investing risk capital in profitable businesses in developing countries….”
  4. 4. Norfund’s investment areas <ul><li>Why </li></ul><ul><li>High development effects from startup and high-risk projects </li></ul><ul><li>Attract expertise and technology to LDCs in Sub-Saharan Africa </li></ul><ul><li>How </li></ul><ul><li>Identify high quality industrial partners </li></ul><ul><li>Be a long-term and active owner </li></ul><ul><li>Why </li></ul><ul><li>Access to electricity is a precondition for economic growth </li></ul><ul><li>How </li></ul><ul><li>Set up well-run companies that can supply renewable energy to households and businesses </li></ul><ul><li>Mobilize Norwegian capital and expertise </li></ul><ul><li>Why </li></ul><ul><li>Many people and small businesses lack access to financial services </li></ul><ul><li>How </li></ul><ul><li>Invest in SME banks, funds, and microfinance </li></ul><ul><li>Partnership with Norwegian Microfinance Initiative (NMI) </li></ul>Financial Institutions SME Funds Renewable Energy Industrial Partnerships <ul><li>Why </li></ul><ul><li>Local PE funds are good sources of capital for SMEs </li></ul><ul><li>Local capital markets need to be strengthened </li></ul><ul><li>Weak formal economies </li></ul><ul><li>How </li></ul><ul><li>Invest through PE funds, or set up new funds where none are currently available </li></ul><ul><li>Mobilise Norwegian capital </li></ul>Strengthen small and medium sized enterprises Risk capital where the development effect is particu-larly strong Build energy infrastructure Build financial infrastructure
  5. 5. Building a convincing track record! Portfolio 31-12-2010 (NOK m) IRR in investment currency Financial Institutions Industrial Partnerships Renewable Energy SME Funds Norfund total Committed 1 179 551 2 649 1 464 5 844 Exposure 929 296 2 258 744 4 227   2002 2003 2004 2005 2006 2007 2008 2009 2010 Since inception SME Funds -5 -15 -4 17 1 32 4 5 10 6 Financial Institutions 19 4 18 10 9 27 9 6 10 10 Renewable Energy 0 17 1 -3 44 14 25 3 11 13 Industrial Partnerships -9 -22 -28 2 -19 16 10 12 7 -1 Total -4 7 -1 4 24 17 21 4 10 11
  6. 6. Agriculture in Africa – great potential <ul><li>There is extensive underinvestment in agriculture and the value chain for food products in sub-Saharan Africa following a lengthy period of neglect and extremely low interest in investment </li></ul><ul><li>Large areas of arable land remain unexploited – 60 per cent of the world total </li></ul><ul><li>Low productivity – can be significantly increased through irrigation, chemical fertilizers, improved plant materials, etc. </li></ul><ul><li>Low production costs </li></ul><ul><li>Strong growth in demand and prices as a result of increased urbanization and a sharp rise in population and income growth – particularly in developing countries </li></ul>Use of chemical fertilizers (100 g per hectare fully cultivated land)
  7. 7. Production –
  8. 8. Agriculture in Africa – high development effects <ul><li>Increased agricultural productivity is an important step along the road to an industrial society </li></ul><ul><li>High employment effect – a labour intensive and comprehensive sector </li></ul><ul><ul><li>2/3 of Africa’s population dependent on direct or indirect income from agriculture </li></ul></ul><ul><li>Large ripple effect benefits for business – creates growth outside the urban areas </li></ul><ul><li>Increases food security and strengthens the balance of trade </li></ul>
  9. 9. Norfund’s current work with agribusiness <ul><li>Total agriculture portfolio of NOK 323 million: </li></ul><ul><ul><li>NOK 201 million in direct equity investments: Matanuska, Casquip, Africado and Agrica </li></ul></ul><ul><ul><li>Loans to the agricultural bank LAAD </li></ul></ul><ul><ul><li>Equity in the Agrie-Vie PE fund </li></ul></ul><ul><li>Organization: </li></ul><ul><ul><li>Investments are made by the Industrial Partnerships Department. Staff of 7 in Oslo and 6 employees at regional offices. </li></ul></ul><ul><li>Experience thus far: </li></ul><ul><ul><li>Direct investments in start-up projects are high risk and require close follow-up </li></ul></ul><ul><ul><li>Good management is crucial for success </li></ul></ul><ul><ul><li>High return on investment when successful </li></ul></ul>Contractual investment in agriculture MNOK
  10. 10. Social standards, environment and corporate governance <ul><li>Agriculture has particularly high development effects – but important to be a responsible investor: </li></ul><ul><li>Norfund’s investments must comply with the global standard of sustainability for project financing </li></ul><ul><li>Major investments in agriculture require having conducted social and environmental impact assessments </li></ul><ul><li>Particular focus on: </li></ul><ul><ul><li>Working rights issue –challenging having many employees with low skills </li></ul></ul><ul><ul><li>Agrichemicals, employee health and potentially negative effects on local community </li></ul></ul><ul><ul><li>Proper management, internal procedures and authorization structures as well as general corporate governance – Norfund appoints board members who can assist </li></ul></ul>1 Social and environmental impact analyses required 2 Employee rights and working conditions 3 Pollution and environmental impact 4 Local community interests 5 Land rights and the issue of population resettlement 6 Biodiversity and management of natural resources 7 Indigenous people’s rights 8 Protection of cultural heritage
  11. 11. Land rights and population resettlement <ul><li>Norfund does not make agri-investments that entail transformation of large small-scale farming areas into large-scale agriculture </li></ul><ul><li>Clears land that has lain fallow and cultivates new land </li></ul><ul><li>But land in Africa is frequently in use by someone </li></ul><ul><li>Cases where the local inhabitants have started subsistence farming or built homes on land earmarked for the project </li></ul><ul><li>Norfund requires a Resettlement Action Plan in compliance with IFC standards </li></ul><ul><ul><li>Replacement dwellings </li></ul></ul><ul><ul><li>Compensation for loss of crops, fruit trees, etc. </li></ul></ul><ul><ul><li>Help to find a new livelihood (replacement land) </li></ul></ul>
  12. 12. Agrica, Tanzania <ul><li>Rice Farm in Kilombero Valley. 5000 ha of rice growing. </li></ul><ul><li>Increased food self-sufficiency for Tanzania </li></ul><ul><li>Cooperation with small scale rice growers on improved rice seed and improved cultivation. (CSR) </li></ul><ul><li>High mechanization, 80 employees + seasonal workers </li></ul>
  13. 13. Matanuska: Bananas for the international market <ul><li>Key facts </li></ul><ul><li>Start-up project </li></ul><ul><li>Nampula province in northern Mosambique </li></ul><ul><li>Phase 1: 3 000 ha (2014) </li></ul><ul><li>12-year agreement on cooperation and delivery with Chiquita Bananas </li></ul><ul><li>Partners: Rift Valley Holding (33.3%), Matanuska Mauritius (33.3%), Norfund (33.3%) </li></ul><ul><li>Investment in equity capital: USD 3.7 mill. Loans: USD 4 million </li></ul><ul><li>Approx. 2650 ansatte </li></ul><ul><li>Development effects </li></ul><ul><li>Labour-intensive </li></ul><ul><li>Important export revenues for Mozambique </li></ul><ul><li>Important tax revenues </li></ul><ul><li>Additional benefits for local community, new jobs in connection with the plantation </li></ul>
  14. 14. Matanuska: Bananas for the international market <ul><li>Challenges </li></ul><ul><li>Employees unaccustomed to permanent employment, high degree of absenteeism </li></ul><ul><li>Training important </li></ul><ul><li>Absence due to illness, especially malaria </li></ul><ul><li>Logistics for export shipments from the harbour </li></ul><ul><li>Adjustment of growth/ production methods to local conditions (soil, climate, etc.) </li></ul><ul><li>Success factors </li></ul><ul><li>Separate clinic for employees; vaccination programmes </li></ul><ul><li>Solid co-investors with regional experience </li></ul><ul><li>Good contact with local and national authorities </li></ul><ul><li>Good geographical location in terms of markets and growing seasons </li></ul><ul><li>Subsidies given to </li></ul><ul><ul><li>Local school </li></ul></ul><ul><ul><li>Local clinic for the people </li></ul></ul><ul><ul><li>Health and safety training </li></ul></ul>
  15. 15. Casquip: Starch for the southern African market <ul><li>Key facts </li></ul><ul><li>Start-up project </li></ul><ul><li>Product: Starch from cassava </li></ul><ul><li>Country: Swaziland </li></ul><ul><li>Area: 4000-acre farm unit (+ 1250 acres leased land) </li></ul><ul><li>Norfund’s investment: approx. NOK 48 m (2008-2011) </li></ul><ul><li>Number of employees: about 300 </li></ul><ul><li>Challenges </li></ul><ul><li>Efficient land-clearing and planting more difficult than anticipated </li></ul><ul><li>Start-up of regular sales to waiting customers postponed </li></ul><ul><li>Unskilled workers lacking experience of doing paid work </li></ul><ul><li>Challenging relationship with employees/union </li></ul><ul><li>Workers are competent, but more difficult to recruit middle and top management </li></ul><ul><li>Success factors </li></ul><ul><li>Motivated and technically competent management </li></ul><ul><li>Good agronomic conditions Swaziland </li></ul><ul><li>Committed financial partners (Norfund and IDC) </li></ul><ul><li>Technology for starch production from cassava is well-known, but no production in Africa </li></ul><ul><li>Proximity to a strong market </li></ul>
  16. 16. Africado: Avocados for the international market <ul><li>Key facts </li></ul><ul><li>Hass africado fruit grown for export to Europe including Norway (2011) </li></ul><ul><li>Located near Kilimanjaro in Tanzania </li></ul><ul><li>127 ha irrigated nucleus estate and outgrowers </li></ul><ul><li>Norfund investment $3m for 40% stake + $1m loan </li></ul><ul><li>45 permanent employees plus seasonal labour </li></ul><ul><li>Approx 50% female workforce </li></ul><ul><li>Challenges </li></ul><ul><li>Workforce not unionised – training of worker representatives important. </li></ul><ul><li>Low tech, labour intensive, so large developmental impact but training to reduce harvesting losses critical </li></ul><ul><li>Low incidence of pests and diseases. Irrigation reduces reliance on seasonal rainfall …. But yields very sensitive to irrigation – have to get it right! </li></ul><ul><li>Success factors </li></ul><ul><li>GF financing creche facility to allow mothers to work thus increasing female % of workforce </li></ul><ul><li>Other principal investor is founder and managing director. Highly incentivised to succeed </li></ul><ul><li>Off-take agreement with international avocado exporter in South Africa </li></ul>
  17. 17. Norfunds future investments i agribusiness <ul><li>Develop a portfolio of direct investments </li></ul><ul><li>Investment size normally 3 -10 MUSD </li></ul><ul><li>Equity </li></ul><ul><li>Startups and early stage </li></ul><ul><li>Expertise in Johannesburg and Nairobi with ability to actively follow up </li></ul><ul><li>Experienced and skilled board members </li></ul>

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