Mezuo Nwuneli, Managing Partner, Sahel Capital Agribusiness Managers: Interview

Interview:  Mezuo Nwuneli

What role can private equity play in funding agribusinesses in the country?

MEZUO NWUNELI: In recent years the Nigerian banking sector has had about 3% of its loanbook geared towards the agriculture sector. This is roughly $1bn of capital in an economy where 24% of GDP comes from agriculture, so it is not a significant amount. As most of the current bank funding goes to large businesses, there is a need for alternate access to capital for players of all sizes, and this is where private equity can play a role. Given the way private equity firms are structured, their flexibility and the fact that they do not have the same constraints as banks do, providers can structure long-term capital by looking at cash flow, the quality of the management team, and unique opportunities to provide equity and equity-like funding. More important than the financial investment is the technical support that private equity firms can offer. Many agricultural businesses need technical support to help them scale, and private equity can provide that in addition to financing.

How is the global rise of interest in investments that prioritise environmental, social and governance (ESG) principles changing agriculture?

NWUNELI: A common thread among investors is that ESG principles are now critical to their investment decisions. Companies we engage with are required to go through enhanced due diligence to check financial compliance, and see how they engage with communities and handle waste, among a wide range of other issues. Due to its nature, the agriculture sector requires more thorough due diligence and reporting than, for example, the services sector, to make sure private equity firms and their investors are comfortable funding enterprises. Concerning waste management, we have found that international guidelines and targets are more restrictive than normal practice in Nigeria, with more compliance required to reach global standards. Companies that take these issues seriously can secure a broader range of capital and are able to attract investors when the time comes to exit. As part of this, private equity firms are approaching their investments with the intention to educate management on the importance of ESG principles and build capacity to measure ESG factors so investors know if a company is performing well.

To what extent has the Covid-19 pandemic affected Nigerian agriculture operations?

NWUNELI: In some ways the sector has been quite resilient since people need to eat. Overall, agricultural GDP data has been positive: there has not been one negative quarter of growth in the past fifteen years, but sub-sectors have fared differently. For example, when movement restrictions and social-distancing guidelines came into effect, restaurants and fast food chains shut down, resulting in half of the poultry segment’s demand evaporating. In addition, the health of workers has been a concern: if there is a Covid-19 outbreak at a farm, poultry still need to be fed daily – the farm cannot shut down for a month like a factory. As a result, measures to protect workers from the virus were put in place. Businesses had to be more creative in terms of getting product to market as well. Smaller poultry players had a harder time compared to large enterprises, where weathering the pandemic was easier because they could outsource production to smaller farms, creating a mutually beneficial relationship.

Meanwhile, rice producers faced difficulties in producing the volumes they wanted, in part due to the pandemic’s toll on employees. Export-oriented companies had a challenging year with foreign markets closed due to the pandemic, reducing the volume of purchases worldwide. Ports also slowed their processing of exports, adding to the difficulties for these businesses. An important element of agri-businesses overcoming the economic shock of the pandemic was the government designating them as essential, enabling producers to distribute food despite travel restrictions.