By December 2, 2019

Why Twiga’s USD 30 Mn Is A Good Omen For Africa’s Food And Retail Sectors

By December 2, 2019

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The African livelihood and employment sector heavily relies on agriculture. Forming a significant portion of the economies on the continent, the sector is characterized by 60 percent of smallholder farmers hailing from Sub-Saharan Africa. In addition, 23 percent of Sub-Saharan GDP comes from agriculture alone, per a McKinsey study. Generally, the sector contributed to major African priorities such as poverty and the reduction of hunger. 

On the other hand, the mobile money market in Kenya has reached a point where the value of cell-phone-based transactions is on par with half of the East African country’s GDP.

The increase is inspired by a young, doubling populace that are beneficiaries from the drop in the price of smartphones and mobile data, owed to the rise of internet coverage and the improvement of general incomes. For the nation’s disjointed, informal food network, enhanced mobile connectivity has a lot of implications.

As an early mover and rainmaker, Nairobi-based Twiga Foods is bursting at seams to digitize and streamline the country’s food supply chain. About a month ago, the agritech startup raked in USD 30 Mn in Series B in a round chaired by the New York banking behemoth Goldman Sachs.

The investment shines as the largest early stage deal in African agrifood tech in 2019 to date and the biggest round ever raised by a Nairobi-based company. The funding as well signifies a promising date point in the African early-stage VC sector where startups are in the woods trying to land capital. 

Startups outside the continent have achieved more success in integrating more advanced technology into their platforms and operations. Whether it is adopting ground-breaking technologies to services such as drones or using automated irrigation and other analytical tasks, the likes of U.K’s Rootwave and Hectare Agritech have been able to raise nearly USD 10 Mn. According to Industry Wired, the estimated amount invested in agritechs in 2019 on the global spectrum is USD 17 Bn. 

Marshalling Capital

Source: Unblock-bc

The Series B equity was USD 23.75 Mn alongside a USD 6 Mn debt from OPIC and Alpha Mundi. The round saw a repeat of investors such as TLcom Capital, Creadev and the International Finance Corporation.

The USD 30 Mn grand sum tops up a previous USD 10 Mn consideration from the IFC, TLcom and the Global Agriculture and Food Security Program (GAFSP) November last year. Before that, the office of France’s richest family committed USD 5 Mn in long-term investment this June.

Regarding Goldman’s  confidence to invest in Twiga, Jules Frebault said in a statement: “Twiga’s innovative model combines technology and modern logistics tailored to the local market to re-engineer the food supply chain. We are delighted to be backing [CEO and founder] Peter [Njonjo] and the highly capable team as they scale operations and drive sustainable access to lower cost quality food on the continent.”

The round is significant because it is the first foray of Goldman Sachs into the African agritech scene. But this is not a general debut. The foreign bank has strutting its stuff to bolster African economic growth. A good example of its commitments is its partnership with Investec on equity trading this year to catalyze trading in Joburg and Africa at large.

The investment in Twiga could be a turning point for the region and sector, furthermore encouraging other investments from American firms. Reports have pointed out that these houses have had their minds set on the African food tech sector due to its potential to support African food security. 

The population of the continent is not the only factor affecting food production. Africa’s climate change also has a significant role to play, thereby posing a challenge to smallholder farmers who want to access the market and consumers. In Kenya, a huge chunk of the GDP is owed to the agricultural sector.

In the country, large tech-enabled efficiency gains are possible. Currently, an estimate of 30 to 50 percent of fresh produce goes down the drain due to a poorness of post-harvest practices. Africa’s domestic food production and distribution ecosystems is a USD 300 Bn informal and fragmented market projected to grow to USD 1 Tn by 2030. 

Innovation Meets Retail

Source: Bloomberg

Njojo said the new funding will enable Twiga to invest in its technology and organization to tackle the inefficiencies present in the said ecosystems. In an interview, he agreed with WeeTracker that the investment is a good omen for the retail sphere of Africa.

Acha Leke, McKinsey & Company‘s senior partner based in Johannesburg, describes Africa’s private sector on the whole as “relatively fragmented.” Compared to global counterparts, most African companies are yet to achieve significant scale, making highly concentrated markets less likely.

“One of the main reasons why we founded Twiga was to address the fragmentation of consumer retail in Africa. The continent is dependent on small farmers because the continent’s retail is dependent on small informal vendors.

This funding will enable us to set up adequate infrastructure to ensure that retailers have access to reliable food sources, as well as guaranteed markets for farmers. The funding will also enable us to address many inefficiencies in the supply chain, which will lead to reduction in waste and ultimately a reduction in food prices for end consumers.”

Nevertheless, even with such fragmentation, there is a room created for various problems for both consumers and producers across the continent. This goes a long way to present an opportunity for innovators to create and capture value by developing platforms and marketplaces that organise markets and introduce efficiencies.

Taking a page from Flutterwave’s playbook, we can see how the fintech has been able to gain significant momentum despite the fragmented retail in the payments sector of Africa. By reducing the gap and the attendant transaction costs, providing technological infrastructure and systems that encourage merchants and PSPs to interact with payments gateways, the 2016-founded company has been able to get topside.

“There is a lot of innovation going on in Kenya, and across Africa as a whole, and we are excited to be part of the ongoing success story. African innovators are on the cutting edge of innovation and the eyes of the world are fixed on how the transformation story develops.

If the innovation continues at this rate (and we expect it to), African entrepreneurs can expect to receive more private capital that will enable them to start and scale game-changing ideas.

The West African Game

The B2B food distribution company said it will use the funding to set up a distribution base in Nairobi. While planning to tighten its grip on conversion to offer supply-chain services for agri and FMCG products, in the grandest scheme of things Twiga will expand to not just more Kenyan metropolises, but West Africa.

From the French-speaking sect of this region where it sees opportunity, the startup will go Pan-Afican by the third quarter of 2020. In an email to WeeTracker, CEO and co-founder of Twiga, Peter Njojo, said that the plan to expand to West Africa is based on the company’s ambitions to improve access to fair and transparent food supply across Sub-Saharan Africa. 

“When you consider the fact that consumers in East and West Africa spend more than 50 percent of their disposable income on food – compared with 13 percent in London and far less elsewhere in the UK and US, exploring opportunities to provide access to more lower-cost, high quality food makes a lot of sense.

Not only does access to more affordable food free up more disposable income for consumers, it also makes it easier for retailers to scale their businesses and explore adding new products to their shelves,” Njojo explained about Twiga’s plans. 

The West African region is ridden by a series of challenges when it comes to the exploitation of the potential contribution of increased intra-regional trade in food staples to food security. The problem becomes even more disturbing with the nature of trade and agricultural production in the region is in the middle of a great flux.

367 million people and counting, urbanization and the transformation of West African agriculture are the factors at play. However, Njojo is not new to them, having been exposed to navigating a fragment retail space while serving as president of Coca Cola’s Central and West Africa business unit. A substantial amount of of the latest investment will fund the exploration of many of the countries he once oversaw at Coca Cola. 

It would make sense to say that the large market of Nigeria would not be left out of the master plan. Going by this and the fact that French-speaking West African countries have a relatively stable currency, Twiga’s eye for the region is not just based on a hunch.

For Africa’s largest population and economy, the average citizen spends 72.97 percent on his or her earnings on food with a little discretionary spending. With Nigeria’s double-swelling population, there is a huge and attractive retail food sector. The changing demographics and lifestyles give way to an increasing consumer preference for an extensive range of convenience assist the sector to spread its wings. 

Featured Image: Dispatch Uganda

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