Give us a brief history of PhilAfrica.
Although many of our individual businesses have a long history, PhilAfrica as a company is only about three and half years old.
I worked at Nestlé all over the world for 25 years. Some 15 of those years were spent in China. I was the chairman and CEO for China at Nestlé. However, five years ago I left Nestlé to do something completely different. My wife and I, together with our four kids, joined an NGO called Mercy Ships, of which I was managing director. The organisation runs hospital ships that sail around Africa – imagine a cruise ship transformed into a hospital.
As I was sailing around Africa, I developed the vision to build a pan-African food processing company that would build factories across the continent to transform local crops into finished products. So after a year onboard the ship, I got to know some of the owners of South African based agricultural company AFGRI. We agreed on this vision and took the food processing division out of AFGRI and created PhilAfrica.
At that stage, AFGRI’s food processing division was mostly grain milling and oilseed crushing, but we have since grown the business by buying and launching various companies in South Africa and the rest of the continent. These include industrial baking company Sunshine and snack producer Pakworks, both based in South Africa; a poultry company in Mozambique; and cassava processing businesses in Mozambique and Côte d’Ivoire.
Is your strategy to start new businesses or invest in existing companies?
Both. Our cassava businesses in Côte d’Ivoire and Mozambique are greenfield projects. We acquired the cassava processing technology but started the factories from scratch. Outside of South Africa, two-thirds of our growth will probably be through acquisitions and one-third through greenfield investments.
Our expansion will be in categories in which we have experience and expertise – milling, animal feed, oilseed crushing, snacking and baking. We are unlikely to go into ice cream, for instance.
Describe some of the agribusiness and food trends in Africa.
One of the key trends is greater demand for local supply. Covid-19 has put tremendous pressure on supply chains. I will give the example of tapioca, which is a starch extracted from the roots of the cassava plant, and used in some processed meat products. South African meat processing companies import most of their tapioca from Thailand. However, it takes two to three months for the product to arrive from Thailand, which ties up a lot of working capital. A crisis such as Covid can very quickly jeopardise your supply chain if your only supplier is 10,000 kilometres away. PhilAfrica produces tapioca in Mozambique, and we are already seeing a lot of demand for this product from South African food producers. It only takes a day to get the product from Mozambique to South Africa, instead of a month on the ship from Thailand. In a continent such as Africa, where so much is being imported, I believe there is going to be a greater focus on local procurement, processing and supply.
Another trend is sustainable sourcing. Particularly in Europe, consumers are increasingly asking: Where does my coffee come from? Where does my cocoa come from? Can you guarantee me it is sustainable? Can you guarantee me no unethical labour practices were involved? This whole sustainable sourcing trend is particularly relevant to African food producers that export their products.
PhilAfrica has invested in cassava processing in Mozambique and Côte d’Ivoire. Explain the potential you see for this crop.
Cassava is the most widely grown crop in Africa. Millions of people eat cassava three times a day. However, there is very little cassava processing happening. The reason for this is because the skin of the cassava root has cyanide in it. When you pull the root out of the ground, you basically have 48 hours to process it, or at least peel it, before the skin will slowly start to poison the root. Because of the bad roads in rural areas, you therefore need to have the cassava processing factory in the bush. It takes too much time to bring the cassava roots collected from various farmers to a large central factory. Hardly anyone has invested in a factory in the countryside.
We bought a Dutch company called DADTCO which came up with a great concept and design to process cassava from a mobile factory. It is basically four 40ft containers that clean the roots, cut them, and produce a paste from which you can brew beer or process further to make cassava flour, which is sold as a starch to the food processing industry. So the point is: if the farmers cannot come to the factory because of the nature of the crop, then the factory is coming to the farmer.
Besides cassava, which other food categories hold potential for further investment in Africa?
I see big opportunities in poultry. The diets of most Africans have enough carbohydrates and fats, but there is not enough protein. I think poultry has to be the future in terms of protein production in Africa. Chicken is just so much more affordable than beef. Fish is by far the cheapest source of protein, but there are very few aquaculture operations in Africa that are doing well – the quality of water is an issue as well as the sensitivity of the product.
Which African country are you most optimistic about?
Ethiopia, which has a population of 100 million, which means 100 million stomachs to fill. Contrary to what some people think, Ethiopia has tremendous agricultural potential. The government is also very welcoming to investors. We are currently looking at an acquisition in Ethiopia. One of the challenges is to get money out of the country due to foreign exchange shortages, but we have big growth plans and don’t intend to take money out of the country anytime soon. We are going to reinvest for the foreseeable future.
I’m also optimistic about West Africa, particularly Ghana and Côte d’Ivoire. The West African region is huge with tremendous growth in terms of population and the middle class. The French-speaking West African countries also have a stable currency because it is pegged to the euro. However, I would stay away from Nigeria for the time being.
Then I also strongly believe in the future of South Africa. Despite its troubles, South Africa has amazing infrastructure with a strong local manufacturing industry.
Give us a brief history of PhilAfrica.