|Posted by Hardiono Handoko on February 17, 2013 at 12:05 PM|
AFRICA is, and should be, a definite target for sugar industry investment, Patrick Chatenay, chairman of Prosunergy UK said late last month.
Speaking at the International Sugar Organisation’s 21st annual seminar, Mr Chatenay added the cautionary note that to be successful, investors in Africa must observe local conditions carefully and field quality staff.
He observed that in recent years general investor sentiment towards Africa has markedly improved. “Investors recognise Africa’s potential and the need to take a long-term view,” he added.
Mr Chatenay pointed out that things can go wrong on occasion. “Until May of this year, a very experienced African operator was pushing a €450m ($586.52m) integrated sugar/ethanol/electricity project in an exemplary ‘public private partnership’ deal,” he said.
Mr Chatenay explained that Illovo had been unable to carry through its Markala project in Mali largely because of implementation delays at government level. “At issue is the capacity of governments to handle large complex projects,” he added. “Because of the land issues attached to the sugarcane supply of a mill, government support is absolutely essential to the success of any venture.”
It was acknowledged that sugar is not an easy industry to invest in, being capital intensive and therefore long-term. Another problem for investors is that sugar is often regulated and hence subject to political uncertainty. Because it is tied to agriculture it is prone to external shocks, and being a commodity it has limited pricing power.
Because of these characteristics it was important for governments to supply stability to investors. Many African governments had understood this and were setting up the legal and physical infrastructure needed to support large scale agricultural ventures. As a result, investor attitudes were more positive.
Mr Chatenay cited Rene LeClezio as an example of a highly successful African sugar industry developer of recent history. Mr LeClezio built Lonhro Sugar, which was later bought by Illovo.
Out of 28 projects investigated thoroughly, 11 approved by Mr LeClezio were running today. This was an excellent track record, Mr Chatenay observed. “His story provides some fundamental lessons to follow when investing in sugar in Africa,” he said.
These included: using second and third hand equipment wherever feasible; high leverage with long-term debt finance; putting “your best people on the estates”; calling on senior staff of operating mills for projects; securing preferential export markets; involving local authorities fully and the ‘managed contract’ concept, whereby there is a fee-based main contractor.
Crucially, Africa needed more sugar, as the continent’s current deficit was 6.9m tonnes. Moreover, its demand was increasing by more than 7% a year.
Africa also had major needs for fuel and electricity so would benefit from biofuel and electricity projects to help address these requirements.
Underlying potential also came from the tens of millions of hectares of available land suitable for sugarcane in Africa. repub: http://sapta.webs.com - Mini sugar plant consultant.