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Africa: Investing in horticulture requires a patient investor

One of the companies that invested in forestry in Mozambique and horticulture in Tanzania is the AIM Listed, Obtala Ltd. In 2011, Obtala invested in Tanzania, and now has more than 1,700 hectares in Morogoro, about 200 kilometres west of Dar es Salaam. The cultivation company produces sweet potatoes, melons, and tomatoes, among other products. They also have a large scale fruit drier that produces dried mango, pineapple and banana. Why invest in African horticulture?

The growing world population and greater demand for food is the reason for increasing investments in horticulture. “We consume more and more, and there are increasingly more of us. There is a food crisis because not enough food is being produced effectively,” says Warren Deats, COO of Obtala. “That’s the most important motivation to invest in agriculture.” Although many countries invest in African Agriculture, Obtala has not yet noticed much competition. I don’t doubt that there will be more competition in future in Tanzania, but for the moment I think we’re operating in an environment with very little comparable competition. At this time there are certainly many first mover or first to scale advantages we are seeing, especially when it comes to processing infrastructure.”

Research in profitable varieties
“We thoroughly researched which crops could be grown in this climate, at this altitude and in this soil,” Warren says. He lives in Tanzania and supervises the operation. “After that we analysed potential markets and demand.” That resulted in five initial crops that could be grown profitably. “This is a continuous process,” he says, not excluding the option of growing other products as well in future. Investments in agriculture require patience. 

“Totally agree,” Warren confirms. “You need patient investors who understand that the payback period isn’t measured in months, but in years. We focus on sustainable growth in the long term.”

Obtala’s mission statement expresses it as: “To take the lead in the sustainable commercialisation in Sub-Saharan Africa of two of the world's most in demand and diminishing natural resources, arable land and forestry. To pursue every opportunity to move up the agriculture and forestry value chain, in partnership with key stakeholders, contributing to long term economic and social development in the markets we operate in.”

Africa a diverse continent
The Middle East, Europe and the Far East are the most important destinations for the fruit. “We’re also looking into regional and local markets,” Warren explains. Demand for fruit from Africa is increasing, although there’s still a lack of awareness about the continent. “Africa, and especially Tanzania, needs to be marketed as a source of high quality produce. Kenya and South Africa are well-known producers, but often I have to point out Tanzania on the map.”

For the investors, the motivation isn’t in the quick profits, but in the increasing value of shares, and “investing in a company that does good things in Africa,” Warren adds. In recent years, investments in developing countries are regularly coupled with serious discussions about the consequences for the local population. Last year, part of the Ethiopian population turned against foreign investors. “Africa is a large continent, with many different countries and cultures. But the rest of the world often doesn’t see it like that,” Warren says. “Although risks in Africa are larger than in Europe, they’re not insurmountable.” The company is looking for investments with a reasonable risk profile “I think Tanzania is one of those regions. Tanzania is a peaceful part of the world, with limited social unrest and a government that supports business.”

The most important thing is that the local population benefits from the investment, that’s Obtala’s point of view. “The challenge is that investors from developed countries often have the money and expertise, but the local population has access to the land. The best solution is collaborating with the locals, which offers a considerable amount of protection to international investors. We always invest in cooperation with the local population.”

More information:
Warren Deats

More on this topic:
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