Entrepreneurship Zone: 13 January 2025 : From solar power to luxury roses: Investor discusses opportunities in Africa
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Entrepreneurship Zone: 13 January 2025 : From solar power to luxury roses:
Investor discusses opportunities in Africa
<https://www.firstcapitalbank.co.zw/>
Alexis Caude
Interview with Alexis Caude
MANAGING PARTNER, ADENIA PARTNERS
_____
Alexis Caude is the managing partner of Adenia Partners, an Africa-focused
private equity firm. Adenia is currently raising its fifth fund and has
recently surpassed its $400 million fundraising target, making it one of the
largest Africa-only private equity funds ever raised. How we made it in
Africa recently spoke with Caude about investment opportunities on the
continent.
Highlights from the interview include:
– How an Adenia investment in South Africa’s renewable energy saw tenfold
revenue growth;
– The allure of South Africa as an investment destination;
– Why Adenia invested in a rose farm in Kenya;
– The potential for growth in Kenya’s modern retail sector;
– Identifying opportunities amidst West Africa’s challenges; and
– The African markets where Caude sees the most promising investment
prospects.
Capitalising on South Africa’s energy crisis
South Africa has grappled with electricity shortages for over a decade. In
recent years, increased scheduled power outages, known locally as load
shedding, have left some regions without power for up to 10 hours a day in
severe instances. This situation has compelled many households and
businesses to adopt solar power solutions for electricity generation.
Between March and June 2023, rooftop solar capacity in South Africa expanded
by 349% to 4.4 GW.
In 2021, Adenia invested in its first South African enterprise, Herholdt’s,
which is a distributor of renewable energy products such as solar panels,
batteries and inverters. According to Caude, the company’s revenue has
surged tenfold since Adenia’s investment. Last year Adenia further invested
in the sector through Enfin, a firm that finances solar solutions for
businesses, farms, sectional titles, and schools looking to adopt solar
power without bearing the full upfront costs.
Caude points out that generating solar power in South Africa is more
economically viable than in markets like Europe and the US, where the solar
industry often depends on government subsidies. “It’s actually cheaper to
install your panels and produce your [own] electricity than buy it on the
grid … In South Africa, given the amount of sun that you have every day,
it’s actually an industry that is extremely cost efficient,” he says.
The investment appeal of South Africa
South Africa faces numerous economic challenges, including high
unemployment, stagnant growth, a beleaguered power sector, and overburdened
transport infrastructure.
Despite these hurdles, Caude notes that he was struck by the large number
of investable companies in South Africa – those of sufficient size and with
strong management teams. “It is very different from other places on the
continent,” he says, adding that South African CEOs are generally on par
with their counterparts in Europe and the US.
Furthermore, he points out that companies in South Africa typically have
relatively low valuations and there is comparatively little competition from
other private equity firms. “It makes the business case quite compelling if
you’re able to grow faster than the depreciation of the rand … It’s a market
where we see lots of opportunities.”
Investing in a luxury farming product
While Adenia generally avoids primary agriculture investments, in 2021, the
firm backed a Kenyan farm producing a niche product that Caude equates to a
luxury item. The enterprise, Red Lands Roses, specialises in growing spray
roses, characterised by their multiple flowers per stem, setting them apart
from the standard single-bud roses. Caude draws a parallel between the
company’s flowers and luxury products, noting their sale price is two to
three times higher than regular roses. These roses, primarily exported to
Europe, are in high demand and challenging to cultivate. Furthermore, Red
Lands Roses sells directly to distributors, bypassing the traditional flower
auctions in the Netherlands, which results in substantially higher margins.
“The profitability of this business is extremely high as compared to other
businesses that we’ve looked in this industry,” Caude remarks.
Room for growth in Kenya’s modern retail sector
Even though modern retail is more widespread in Kenya compared to many
other African nations, Caude sees substantial growth potential in the
sector. Over 70% of goods are still purchased from informal, small stores
rather than from air-conditioned supermarkets.
In 2019, Adenia invested in the Kenyan supermarket chain Quickmart and
merged it with Tumaini Self Service, a retail operation it had acquired the
previous year. Now with 60 outlets, Quickmart seeks to stand out by offering
a wide range of fresh products as well as delis where customers can purchase
food prepared on-site and consume it within the store.
While Caude describes Quickmart as a successful investment, he acknowledges
a recent challenge: the depreciating Kenyan shilling, which adversely
affects Adenia’s earnings in US dollars. Despite the shilling’s relative
stability in the past, it has faced a steep decline recently, dropping to
record lows of over 160 to the US dollar earlier this year.
Although French supermarket brand Carrefour has a presence in Kenya, Caude
says he is surprised there aren’t more international supermarket groups
operating in the country. “It’s a big market, it’s growing,” he notes.
Seeing opportunity amid West Africa’s headwinds
Recently, several West African countries have experienced heightened
political and economic instability: Niger, Burkina Faso, Guinea, and Mali
have all witnessed coups over the past three years; the Sahel region has
been marred by violence perpetrated by various armed groups; and Senegalese
President Macky Sall’s controversial decision to postpone the presidential
election originally scheduled for 25 February to December has resulted in
protests. Nigeria, the region’s largest economy, has also faced significant
economic challenges, with its currency, the naira, reaching a new low of
over 1,500 to the dollar earlier this month, and inflation surging to 28.92%
in December, marking its highest point in 27 years.
Caude points out that the difficulties in West Africa have prompted some
multinational companies to consider selling their subsidiaries in the
region, creating opportunities for private equity firms like Adenia to
acquire these businesses. “If you have a business in Mali, if you have a
business in Burkina Faso, you tend to be a little bit more nervous now than
you were in the past … we have a couple of interesting opportunities,” he
notes.
However, he expects that within a few years, some of these multinationals
may look to re-enter the African market, due to the continent’s attractive
demographics among other factors. “All those big companies will need to look
at Africa at some point if they want to continue growing,” he says.
Identifying Africa’s most promising economies
When asked which African countries he’s most bullish on, Caude explains
that his interest hinges more on the presence of companies capable of
absorbing the $30 million to $100 million investments that Adenia and its
co-investors aim to deploy through its new fund. “It would be very difficult
for me to do a deal of this size and magnitude in a very small country in
Africa,” he says. For this reason, South Africa, Kenya, and Morocco stand
out as some of the most promising markets in his view.
Caude is also closely monitoring Nigeria, which has undergone significant
policy changes since President Bola Tinubu took office in May 2023. The
Tinubu administration has eliminated a longstanding fuel subsidy and relaxed
foreign currency controls, resulting in a significant depreciation of the
naira. “It’s a challenging market … I think they’ve done a lot of good
things on the macro side, but we need to see where it goes,” he says.
* —Howwemadeitinafrica
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