At Aqua-Spark, we believe that in the short term around $300m needs to be invested through equity, which will only cover the current capital requirements of the top 25 most-needed investments in our pipeline for aquaculture in sub-Saharan Africa. A significant amount of this total involves tilapia production and its upstream and downstream value chain. These initial investments will be the basis from which to develop and scale a regional industry.
Aqua Spark’s Investment Managers responsible for Africa: Joel Mugwisa Ssemukaaya (L) and Jan Slootweg (R)
The figure of $300m is enough to fund the cornerstone investments required to build this framework—but it’s just the tip of the iceberg. We have more than 300 companies in our pipeline and their combined investment requirement is a multitude of $300m. Moreover, these companies don’t only look to raise investment through equity, but also through debt. If we were to include that amount, we’d reach much higher figures. Therefore, it’s time for us, and other investors, to step up.
We at Aqua-Spark are planning to play our part by launching our Africa Fund in the last quarter of 2021—a dedicated fund that will close at $50m and will grow to $300m over the next 6 to 8 years.
In our pipeline for sub-Saharan Africa, currently around 40% of the total investment need and 50% of the opportunities are directly related to existing and greenfield tilapia farms and hatcheries. But there are also opportunities in salmon, seaweed, catfish, sea cucumber, and shrimp production. Further, across species, a number of other opportunities can be found, such as black soldier fly (BSF) producers, cold-chain and distribution companies, as well as online B2B and B2C platforms for marketing farm inputs and outputs.
The highest priority opportunities in tilapia in our pipeline lie mainly in Western Africa (Ghana and Nigeria), the north of Eastern Africa (Kenya, Rwanda, Tanzania, and Uganda), and the south of Eastern Africa (Malawi, Mozambique, Zambia, and Zimbabwe) but there are also plenty of opportunities in other countries.
Not all investors involved in tilapia in sub-Saharan Africa publicly disclose the deals that they’ve made. However, some do. Figure 1 provides an overview of those deals. Many investors perceive investing in Africa, specifically in live animals, and even more so in such a nascent industry as aquaculture, as very high risk. Even if investors are willing to take that risk, for many, the ticket sizes are too small to manage. Therefore, many investors still hold back and companies that do raise investment are limited to the few large farms that have reached scale and several small- and medium-sized farms which the investors believe have the potential to grow. The investors that have become involved so far are mainly DFIs and impact investors. But to attract a more diverse group of investors, the challenges of perceived risk and ticket sizes have to be overcome.
Figure 1: Publicly disclosed investments in tilapia farms in sub-Saharan Africa
At Aqua-Spark, we aim to be part of the solution: we’re launching a separate fund for aquaculture in Africa. The Africa Fund focuses on building aquaculture infrastructure across the continent to enable a thriving aquaculture industry that focuses on regional food security. The fund’s core investments will be 6-8 vertically integrated farming hubs (over 20,000 MT per hub) where we envisage that about 50% of production will be through outgrower programs. The Africa Fund will also invest in small- and medium-sized farming operations and the broader aquaculture value chain (including feed ingredients, technology, cold chain, marketing and distribution, genetics, and animal health).
The current lack of aquaculture infrastructure makes the sector in sub-Saharan Africa a different (risk) profile to that which the investors in our main fund signed up for. The Africa Fund will therefore raise funds from investors with specific investment objectives or with a different risk appetite. It will also allow investors who struggle with the typically small ticket sizes of individual deals to get involved. The Africa Fund gives investors the chance to build a portfolio of investments, which will avoid the concentration risks associated with investing in only a couple of companies. The minimum investment amount to get involved will be $1m for individuals and $2.5m for institutions. The fund will provide equity—and convertible debt in specific cases—and the initial ticket size will range from $0.25-$5.0m. Aqua-Spark will have a minority position of 20% to 49% and a board seat in the companies we invest in. Aqua-Spark portfolio companies benefit from being part of a global ecosystem of committed industry stakeholders. All of Aqua-Spark’s portfolio companies commit to working together, offering each other favorable terms, and to making the industry more sustainable. This means that all the companies invested in through the Africa Fund will have access to global partners within the Aqua-Spark ecosystem, as well as access to key inputs at favorable conditions and pricing, allowing them to reduce costs and improve sustainability.
The first round of the fund will close at $50m. We aim to raise an additional $250m within the next 6-8 years and to grow the fund further after that depending on the capacity to deploy. The initial $50m allows us to finance a significant part of the immediate funding requirement of some of the top 25 companies in our pipeline, and with $300m we’ll be well positioned to finance the longer-term future of aquaculture in sub-Saharan Africa.