This month, South African financial services firm, Old Mutual Investment Group announced a partnership with Nigeria’s sovereign wealth fund for the investment of US$700m in real estate and agriculture.
According to Diane Radley, CEO of Old Mutual Investment Group, $500m will focus on developing commercial real estate assets, while $200m will be allocated to farming. Both parties have equally committed $100m towards the real estate fund and $50m for the agriculture investment.
“We’ve put the initial capital into both the funds on a 50-50 basis… and we will look to source international and other local investors to come into the fund to make up the balance,” she toldHow we made it in Africa.
The fall in global oil prices has hit the West African powerhouse hard – oil exports make up the majority of government revenue. In June, the Central Bank of Nigeria was forced to unpeg the naira from the dollar and adopt a market-driven exchange rate system due to a scarcity of the US currency in the country. The naira has since lost around a third of its value.
However, despite these struggles, Radley said Nigeria’s long-term outlook presents an “enormous opportunity” for investors.
“There is an incredible will at a federal level to open up the economy to start growing and to attract investors into the economy. And that bodes very well for anybody who is looking at the long-term investor horizon.
“The demographics and fundamentals of Nigeria in the long term are a no-brainer.”
Radley added Nigeria’s commercial real estate space offers high-yield investment opportunities and the fund will look at properties with a dollar-income yield of about 8%.
“The three most-significant cities – Lagos, Port Harcourt, and Abuja – offer the biggest opportunities, with Lagos and Abuja being the two biggest areas of opportunity. So we will naturally concentrate our interest on those two. And partnering with the Nigeria Sovereign Investment Authority gives us a local player on the ground who will also be able to identify where opportunity arises and point us in that direction.”
The joint investment in agriculture will look at everything from dairy to citrus to beans, and Radley said there is significant opportunity to improve the country’s farming yields and better address rising consumer demand domestically, regionally and globally.
“For example, we are looking at a farm at the moment, which is fairly substantial in size, where less than 25% of the land is actually productive. So you’ve got an enormous opportunity to expand the level of productivity from that 25% to 80% or 90%.”
Radley added the dual investment in Nigeria’s agriculture sector is anticipating returns of around 20% – which is not easily found in Old Mutual’s home market.
“If you want to get close to the 20% yield, investing in South African farmland is not going to get you there,” she explained.
“One of the things about African agriculture is you need to diversify your investment… We are not going to put all our money into one farm.
“So it is not without risk, but the returns are very reasonable relative to that risk.”
Kate Douglas