Wealth Opportunity Walks On 4 Legs In Africa: Top Countries For Livestock Investment

By Kurt Davis Jr. AFKI Original Published: March 28, 2017, 5:44 pm
top countries for livestock investment in AfricaLivestock Market in Somaliland. Photo: National Geographic

It is fair to assume many private investors in Africa did not grow up milking a cow or shepherding cattle through the Sahara Desert.

But, with a growing number of firms gobbling up arable land in Africa – not solely for crop production but also for livestock and cattle – investment shops are slowly redirecting capital to this agricultural subsector.

Investing in this segment of African economies can be transformative, as a significant portion of African wealth and growth opportunity is walking on four legs on the African continent. Africans are demanding an increased percentage of meat in their diet.

Livestock investment addresses other poverty in the agricultural value chain – manure, feed and milk – as well as providing economic protection against drought. Yet investors will have to overcome both institutional and physical constraints on the livestock sector – market information, diseases and available pasture – to achieve financial returns.

Market information (and market distortions) undercut profits as herders and farmers lack detailed information on prices and costs in the market. Diseases short-circuit productivity, especially highly contagious ones that wipe out flocks in weeks, and destroy wealth with no recoverable alternative other than assuming debt to purchase new baby livestock.

Lack of pasture is possibly the most important constraint on the subsector with most arable land ignored, underutilized, or devoted to agricultural crops — generally on an individual household level.

As private investors circle around the agricultural space, this article takes a look at Africa’s most promising markets for the livestock subsector:

Ethiopia

Ethiopia is an investor favorite for three reasons: population, economic growth, and supply/demand. The population is approaching 100 million, with a government aspiring to become a middle-income country within the next decade. Economic growth is expected to average 7 percent through 2020, with livestock accounting for about 25 percent of the country’s GDP and 40 percent of the agricultural GDP.

Mixed crop-livestock farmers represent more than 80 percent of the rural population and generally provide most of the country’s food supply. Demand for animal-source foods, particularly meat and eggs, is outpacing the supply in the country and will continue to be a concern for the government in the long term as the population grows.

Private investors are introducing technology to monitor cows remotely to improve feeding routines and synchronize breeding schedules. Better use of pastures should include collection of manure to be directed to the agricultural farming activities of the landowner or other local owners. Bringing in veterinarian centers in the country could also be an opportunity for ambitious investors.

Tanzania

Tanzanian economic growth is expected to average 7 percent through 2020. The country’s population is north of 50 million, with nearly two thirds of total households consuming animal-source foods. This includes the bottom 20 percent by income, who purchase greater quantities of organ and offal meats. The latter dominate the livestock sector as the preferred type of meat. Local surveys show that those with higher incomes are willing to pay for meat such as steak and sausage, according to the U.N. Food and Agricultural Organization (FAO). Demand is not a constraint in Tanzania.

The limitation rather lies with livestock and land ownership. Individual households are estimated to own more than 95 percent of the country’s cattle and livestock. More than 60 percent of rural households own livestock. Creating large livestock-owning entities requires buying up smaller landholding and the accompanying livestock, and expanding into untouched arable land to scale the return.

Logistics and warehousing remain a major concern and opportunity for investment. The country’s poor transport and shipping infrastructure hurt growth and bottom-line returns in consumer goods, particularly agribusiness.

Only those with significant capital – private fund investors and large philanthropic institutions – have the financial strength to push through here. Surveys by FAO suggest that less than 20 percent of Tanzanian livestock owners function as a business. The remainder are in it for subsistence and household livelihood, suggesting those with greater corporate or mass-production aspirations will see great upside on the financial returns, and little competition.

Nigeria

Nigeria is in tough times, but, as one investor described it, people still have to eat. He was referring to the population that is gradually approaching 200 million— that’s double Ethiopia’s. Data shows about 45 percent of rural households own livestock, compared to nearly 55 percent in Ghana and 80 percent in Niger. Surveys also show that Nigerians prefer to have greater meat consumption in their diet. Yet those same surveys reveal that meat consumption is strongly correlated to livestock ownership. Those owning livestock are more likely to consume animal-source foods. The data also reveals that less than 10 percent of livestock owners function as a business, compared to the rest, who are simply supporting the household livelihood. Business reality and consumption habits suggest that consumption may simply be limited because there are not many commercial livestock owners and producers of affordable animal-source food.

The Nigerian economy will struggle in the near term, with growth likely be slowed through 2020. Livestock investment however is not particularly a bet on growing resources in the pockets of Nigerians, but rather on access to affordable meat.

Kurt Davis Jr. is an investment banker focusing on the natural resources and energy sectors, with private equity experience in emerging economies. He earned a law degree in tax and commercial law at the University of Virginia’s School of Law and a master’s of business administration in finance, entrepreneurship and operations from the University of Chicago. He can be reached at kurt.davis.jr@gmail.com.

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