Business Daily (Nairobi) | 12 April 2010
By GEOFFREY IRUNGU
Egyptian private equity firm Citadel Capital is seeking to buy Kenya’s firms and long-term land leases as it seeks agro-based raw materials to feed its food business.
Citadel’s consumer food business, Gazour, is keen to cut reliance on imports to supply its Egyptian plants by controlling the supply chain from farmer to the shop shelf to protect it from global commodity price fluctuations.
This would happen through buying local agro-based firms and entering into contract farming which involves financing farmers and in return reaching an agreement to use the produce in Egypt and sell the excess food in other nations in Eastern Africa and the Middle East.
“Citadel Capital is particularly interested in the opportunity presented by East Africa’s domestic market with a bias for investments in basic needs like food transport,” Mr Karim Sadek, the Citadel’s managing director told the Business Daily in an interview.
Its pursuit of buyout deals in Kenya’s food market comes as the private equity firm works on the finer details that will see its acquire a 51 per cent stake in troubled Rift Valley Railways — the company that runs the Kenya-Uganda railway.
The other shareholders of the rail firm include a Ugandan investor with a 15 per cent stake and local private equity firm TransCentury, which had opposed Citadel’s entry into the firm, but later struck a truce after a boardroom deal.
The rail firm will guarantee the Egyptian firm outsized returns in an East African market that is expected to rev up the movement of bulk cargo across the region.
Most importantly, it gives it access to the region’s logistics corridor that is expected to support its planned investments in the region from Uganda to Southern Sudan and Kenya such as taking food to Egypt and resources including oil from Uganda and Southern Sudan.
“This is the first of several investments we are exploring in East Africa and is a natural extension of our proven interest in the continent’s transportation and logistics sector,” Mr Sadek said in an earlier interview.
“Other priorities include investing in a food growing company with prospects of doing food processing at later stages.”
Its food business is heavy in dairy production and flour milling and they will be keen to tap into local produce to guarantee it cheap raw material from its own production.
The global downturn has driven food prices off all time highs hit in 2008, but they are slowly edging to the peaks with the recovery of the global economy.
This forms the reason Citadel is looking to get a foothold in the East African food business as it continues to close buyout deals in the region.
The Egyptian PE firm bought a majority stake in a Sudanese biscuit and sweet maker in November; it signed a 30-year lease agreement for land in Southern Sudan for rice farming and is set to complete an acquisition of unidentified food firm in Ethiopia.
Although the company did not reveal the specific deals in Kenya’s food market, it is expected the firm will target milk processing firms, flour millers, fruits and vegetables as well as arable land for wheat and rice farming.
From the pattern of deals to which Egypt has entered in Africa over the last two years, it is defining its strategic interests in terms of bolstering its food security.
According to the UN Population Division data, Egypt’s population is likely to hit 111 million by 2050 from the current 77 million.
This means there will be increased demand for food, which makes it strategic for food firms to look outward on a land whose fertility might be falling.
The East African Community countries have now about 110 million people up from 80 million in 2005.
Already, the Egyptian firm is setting up a $150 million (Sh11.2 billion) fund for Africa with a bias for closing deals in Eastern Africa.
It manages investments worth $8.3 billion (Sh639 billion) and has since 2004 made 54 investments including acquisitions and new company formations, according to financial results released in March 2010.
It made a profit of $38 million or Sh2.9 billion in 2009 and has reserves and retained earnings amounting to $15 million or Sh1.2 billion.
Citadel opened shop in Nairobi this year and seeks to invest $200 million to $400 million in East Africa over the next five years in sectors such as agriculture, consumer foods, transportation, financial services, mining and cement industries.Rising foreign investors’ interest in East Africa is linked to the multi-billion shilling natural resource projects (oil in Uganda and Sudan), setting up operation hubs, eyeing buy-outs in the common market or getting involved in the multi-billion infrastructure deals.