Seven top tips from investment experts

Frontier, in partnership with private equity firm, Jacana Partners, brings you expert advice to help get your business off the ground and ready for investment.

Building a business in Africa is not easy. It takes years of practice, not to mention a certain amount of trial and error. SME-focused private equity firm, Jacana Partners, canvassed its experienced senior team members to provide you with valuable tips that can help to build your business and get you ready for investment.

This article is part of a series, which Frontier will bring to you over the next couple of weeks, in partnership with Jacana Partners. 

Setting up a business

Business plan ownership - Barnaby Terry, investment director, West Africa

Write the business plan yourself; don’t get advisers to do it – and make sure the senior team contributes and takes ownership of the document. The business plan is not just a document that private equity groups like to read, it’s the vision, the business case and action plan for your company. It’s an important exercise in determining the future direction of the business and ensuring the whole team is behind it.

Size matters

Is the market you are addressing large enough? And are you targeting a niche within that market? Become a market leader in your niche and progress from there. Remember that as a private equity investor, we eventually need to exit our investment in your company, so size of market is important to ensure you are of interest to an investor in the future. As a general rule, we would expect the company’s revenue to be at least five times the size of our investment in four years – so think big!

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Know your audience - Anthony Gichini, Partner, East Africa

The first thing you need to understand when starting a business is your customer market. What is their problem and what is your solution to that problem? It is a proven fact that people will pay a premium for a unique offering which makes their life simpler.

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Revenue counts most - Stephen Dawson, chairman and investment director, East Africa

In business plans the revenue number is the hardest to get right but by far the most important; spend 90% of your effort on the aspects that lead to the revenue number: market size and growth, competitor offerings and your competitive advantage,  pricing, marketing, converting prospects into customers, routes to market etc.

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Start-ups: simplicity is key - Christian Opoku Biney, Partner

When planning your new business, you need to focus on a simple product or service that has a clear value proposition and business model.

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Validation - Barnaby Terry, investment director, West Africa

To be successful, you must validate your offering with real customers before launch. This is an iterative process that takes time, and cash preservation is key during this phase.

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Don’t try and do everything yourself - Paul Fitzsimons, investment director, West Africa

Surround yourself with people with experience of the industry you are focussed on – you don’t have to agree with them but they can often have helpful insights or contacts, which could grow your business more rapidly than you can. You can also learn from their past mistakes, as opposed to finding out for yourself.

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Frontier Success Story

Africa has many indigenous and successful companies that have international reach. Download a complimentary eBook on the success story of Zambeef Group, and learn how your company can attain the kind of success groups such as MTN, Imara Group, Dangote Group, and Shoprite Holdings are enjoying on the continent.

Trends and prospects for the livestock sector in Africa

The high demand for animal-sourced products is presenting major business and investment opportunities for companies.

The consumption trends of a product or service are key indicators of the investment potential of any given sector. For the livestock sector in Africa, the prospects are positive, according to a recent report by the United Nation’s Food and Agriculture Organisation (FAO).

In the developing world, livestock production grew on the back of steady gains in real per capita income, population growth and urbanisation. In recent decades, while consumption of animal-sourced foods picked up in Latin America, South Asia and Southeast Asia, Africa lagged behind.

The good news contained in FAO's Investing in African Livestock: Business opportunities in 2030-2050 report is that the sector in Africa is catching up. The continent’s GDP growth rate is expected to grow by 4.8% in 2013. By 2030, GDP growth is projected to be four times the 2010 level of 4.6%. The population is predicted to 1.5 billion by 2030, up from the one billion of 2010, and increasingly urbanised.  

These conditions are a fertile ground for a ‘livestock revolution’ in Africa, according to FAO.  

Future meat and milk market

By 2050, the meat market in Africa is projected at 34.8 million tons while the milk market will be at 82.6 million tons. Market growth ( as measured by the additional volume of livestock products consumed from 2005/07 to 2050) is estimated at 24.3 million tons for meat and at 50.2 million tons for milk, putting the continent’s consumption at par with that of the developed world and Latin America.

Annual growth rates for meat and milk consumption are projected to be higher in Africa than in other regions, with the exception of meat in South Asia.

The livestock market in Africa has the potential to generate major business and investment opportunities. The FAO report notes that local producers will find it increasingly difficult to satisfy the growing demand for animal-sourced food, presenting lucrative import opportunities for companies.

Regional perspective

Development and opportunities in the sector will vary across regions.

• Southern, Northern and Eastern Africa account each for about one quarter of the beef market. The regions hold the greatest potential and business opportunities for beef producers. The market is however relatively uniform in terms of its importance in the various African regions.

• Central and Eastern Africa , followed by the Northern Africa, are projected to be the largest mutton markets in Africa and will contribute almost 70% of the additional demand for mutton, lamb, and goats by 2050, mostly a reflection of ethnic preferences.

• Almost half (46.7%) of pork consumption is currently concentrated in Southern Africa, followed by Western Africa (28.1%). Southern Africa is anticipated to further increase its share in the pork market in the coming decades.

• Poultry consumption is and will largely remain concentrated in Southern Africa and Northern Africa. Future increases in consumption will be high in the Western region, which should become a major target market for poultry producers.

• Northern and Western Africa jointly account for almost 65% of the eggs market in Africa. Major market opportunities for egg producers are expected in the Southern Africa.  

Import opportunities

Although there are ample business opportunities for livestock producers in Africa across all products in the coming decades, FAO’s projections indicate that producers will be increasingly challenged to respond to the demand. Consequently, with the notable exception of Eastern Africa, the continent is set to be a net importer of livestock products, with the volume of imports steadily increasing for all major livestock products in the next decade.

Central Africa depends and will depend more on imported livestock products than all other regions, followed by Northern Africa.

Imports of milk are and will remain critical for Western, Southern and Northern Africa due to the rising demand for dairy products.

Beef imports will rise in Western, Northern and Central Africa.

Eastern Africa is the only region that will maintain a positive trade balance for some livestock products, including beef, mutton, pork and eggs.

Harvesting the opportunities

To exploit the opportunities in livestock production, increased investments and policy and institutional reforms that target the livestock sector are required. This calls for an understanding of ‘typologies’ of producers that are able to tap into market opportunities, and adoption of farm-to-fork business models that are sustainable and create employment.

The FAO report says decision makers need to pursue a dual-track approach to livestock development:

• Market-oriented or potentially market-oriented producers should be supported, as increasing livestock production and productivity of emerging farmers will generate spill over benefits to employment and consumption.
• Poor or relatively poor livestock keepers should be supported to make full use of their livestock assets, which is an effective way to sustain their livelihoods in the short to medium term while utilising resources with few alternative uses.

Formulating effective livestock sector policies and institutional changes require a flow of information on market conditions and on the constraints to market entry. These are rarely readily available and investments in data collection and in data collection systems should be given appropriate priority, as the basis for supportive policies and investment.

Visit www.frontiermarketnetwork.com to access business and investment opportunities in Africa's agriculture and livestock sectors