Africa’s population could double from the current one billion to two billion people by 2050, with its demand for fish projected to increase to between 16 and 29 million metric tons (MT) in the same period from the current 10 million MT, according to a report by Netherlands-based global investment fund Aqua-Spark.
The report, part of Aqua-Spark’s Aqua Insights Report series, projects additional investment is needed in farmed tilapia to meet the anticipated surge in demand for seafood, especially in the sub-Saharan Africa (SSA) region, partly because farming the fish species is “scalable – and it’s healthy, sustainable, and affordable.”
Accelerating aquaculture production in SSA will also mitigate the effects of overexploitation of wild-caught species that can no longer be increased, making those stocks unable to meet the projected additional demand for seafood as a source of protein in the region.
“Scaling up production through direct investment in tilapia farms is of the highest priority to accelerate further industry growth,” the report said.
Aqua-Spark quotes 2019 statistics by Food and Agriculture Organization (FAO) that estimated tilapia production in SSA region at 263,000 MT, much higher than the fund’s own estimate of around 125,000 to 150,000 MT.
“If we apply the optimistic per capita consumption estimates of WorldFish and the U.N.’s medium-variant population growth projections to sub-Saharan Africa, by 2050, demand for fish and seafood could be anywhere between 16 million and 29 million MT,” Aqua-Spark said.
The report also pointed out that SSA’s fishermen are “being confronted with declining catches due to depleting wild stocks." Therefore, "the production of wild-caught fisheries may flatten or even drop soon and are therefore not in the position to meet the foreseen surge in demand.”
“If we want to satisfy the demand for fish of sub-Saharan Africa’s growing population with local supplies and not with even larger volumes of imported fish, aquaculture production needs to accelerate,” the report said.
Scaling up commercial tilapia production in SSA requires both increased investment from governments and the private sector, which has to provide the much needed – but seemingly sparse – financing, the report said.
“We believe there are strong fundamentals for tilapia in sub-Saharan Africa because many consumers are familiar with the fish, while there’s also still room for growth,” Aqua-Spark Investment Manager Joel Mugwisa Ssemukaaya said in the report. “Demand has thus consistently exceeded supply and led to an increase in tilapia imports, mainly from China, a trend that can be reversed through significant investment in the production of tilapia in sub-Saharan Africa.”
Ssemukaaya said Aqua-Spark sees “quite a number of interesting opportunities, especially since we’ve become more explicit about our ambitions in sub-Saharan Africa and more companies have started to approach us.”
He said he is optimistic despite the investment opportunities in sub-Saharan Africa being relatively small in terms of ticket size. Aqua-Spark’s fund will initially close at USD 50 million (EUR 42 million) and will grow to USD 300 million (EUR 252.5 million) over the next six to eight years.
However, other investors consider investment in SSA’s tilapia sector too high a risk due to the dominance of small-scale production commercial enterprises across the region.
“For a commercial bank, it’s not easy to finance the companies currently involved in tilapia in sub-Saharan Africa,” Rabobank Chief Representative Officer Kenya Kees Verbeek said. “Most of them are in an early growth stage and the risks are simply too high.”
Verbeek, who is also an investment committee member of Veris Investments, said even smaller banks have reason to shy away from the small-scale tilapia farms.
“Maybe big African retail banks would be better-positioned to serve this size of customer, but this might be difficult even for them, [and since] these banks are very risk-averse, you simply have to tick every box on their list, and most tilapia farms don’t,” he said.
Avril Stassen, a senior partner with African alternative investment firm EXEO Capital, said the company is “looking for companies with a minimum revenue of USD 20 million (EUR 16.8 million) annually.”
“They should ideally be fully integrated, from inputs to marketing and distribution, and our minimum ticket size is USD 8 million [EUR 6.8 million],” Stassen said.
Although EXEO Capital has reviewed several deals over the past couple of years, and carried out quite a lot of research and analysis, Stassen said it is unfortunate the company “has so far come to the conclusion that the time isn’t yet right for us.”
“This is due to a combination of factors which all boil down to scale, maturity, and price,” he said.
Despite the perceived risk, some companies have ventured into the industry. Norfund is one, with investments in seafood companies Lake Harvest Group and Source of Nile, tilapia producing companies in SSA that have reached a sizeable scale to attract investment.
“We have a minimum ticket-size requirement of USD 5 million [EUR 4.2 million] and can only take up to a 35 percent equity stake,” Norfund Vice President of Agribusiness and Manufacturing Andreas Davidsen said.
Davidsen identified competence as the other challenge facing SSA’s tilapia industry, as many companies have small teams.
“Aquaculture companies in Africa are very dependent on just one or two people in terms of management, leaving the company vulnerable to key-person risk,” Davidsen said.
In addition, the region has regulatory gaps that can make it difficult to farm fish, Davidsen said.
“A third element holding us back has been biological risks, [as] most water bodies are not optimally regulated for aquaculture, creating a risk of disease outbreaks,” he said.
Despite these varying views by investors interviewed for the report, Aqua-Spark said some of SSA’s largest farms “have reached scale, and dozens of small- and medium-sized commercial farms are ready to step up, too.”
The report also highlighted the role being played cheap Chinese tilapia imports – an issue that is of concern to the sub-Saharan Africa tilapia sector. But despite concerns over their impact on the market, China’s tilapia exports to SSA have been on the decline for several years, signaling the Asian nation is no longer as significant a source of competition as it has been in the past, the report said.
“Though tilapia production in China is believed to be stable at around 1.8 million MT, its exports increased from a live weight equivalent of 858,000 MT in 2013 to just over 1 million MT in 2020,” the report says.
The increase, the report noted, “is entirely increased by fillets, the [live-weight equivalent] of which rose from 724,000 MT to 941,000 MT.”
“The rise in exports of fillets is a clear indication of China’s farmers’ focus on producing larger tilapia sizes suited for filleting,” the Aqua-Spark report said.
In SSA, the report said, commercial cage farming will likely drive the tilapia industry for years to come.
“Over the past two decades, commercial cage farming has driven tilapia production in SSA and may continue to do so for the foreseeable future,” the report said.
Photo courtesy of the African Development Bank