Kenyan farmers are about to start growing crops which will feed in to the manufacture of biofuels, following a commitment by Actis, an investment fund that works in the emerging markets, to support the establishment of such an industry in the country.
Actis, which already has substantial stakes in specific real estate, power and agribusinesses in Kenya, announced Ksh7,2 billion (R600 million) in new funds known as Actis Africa Agribusiness Fund to be invested in the agricultural sector across Africa, part of which will be spent to roll out the biofuel project.
Michael Turner, an Actis partner based in Nairobi, confirmed that the company has already received proposals from investors willing to join in the project.
Biofuel is made from seeds, vegetables and crops like sugar. The fuel is becoming an important option especially for powering motor vehicles, because of the decreasing quantities of available fossil fuels and higher world oil prices occasioned by political instability in the Middle East.
Turner said the fund will encourage Kenyan sugar manufacturers to emulate their Brazilian counterparts, who are using the crop to produce ethanol rather than sugar because the returns from ethanol are substantially higher.
Biofuel is sustainable, is 10% to 20% cheaper than fossil fuel, and creates less carbon dioxide emissions, according to Edward Okello of Bio Energy Utilities, a small research company that is developing and advocating the use of biodiesel in Kenya.
Although Okello’s company has come up with a biodiesel which performed better then fossil diesel when tested in public transport vehicles or “matatus”, government regulations are yet to be changed to allow individuals produce fuel. But a Ministry of Energy official said the government will amend the energy policy paper that will set out guidelines for individuals and companies planning to manufacture biofuel.Biofuel can be mixed with fossils fuels. In Malawi for instance, of every litre of fuel one buys from the gas station, 5% of its content is biofuel, according to Actis.
The European Union will move to a 20% biofuel mix by the year 2020, and the Kenyan project seeks to tap into this market. “This is a great opportunity,” said Turner. “The EU has no vast lands to grow the required crops from which this fuel will be extracted. We believe Kenya has the potential to be a major producer.”Small-scale farmers will also be contracted to provide the raw material to the processing factories. “The aim is to invest in companies and sectors that create [market access and value-adding] linkages with the small-scale farmers,” Turner said.The fund is also looking at biofuel crops which can do well in arid and semi-arid areas, currently underutilised in Kenya.Although he did not give specific amounts and dates of commencement, the new fund allows the company to invest up to Ksh3,6 billion in one country and Ksh2,4 billion in any one particular sector. It will, however, not invest in tobacco and related industries.
To mitigate against agriculture commodity prices that are highly unstable, the company said it will invest more in services-oriented agribusinesses, which would also be less capital intensive.That is why part of the fund will be used to expand the company’s horticultural investments in Kenya, in particular setting up a facility that will process and package produce like fruits.In Africa, 55% of the population ekes out a living from agriculture. It contributes 40% of the gross domestic product (GDP) and 60% of export income.The sector has not, however, been able to transform lives, because the marketed produce is usually in unprocessed primary form, which commands lower world market prices.
The production potential has also been low, averaging one ton of produce per hectare per year, in comparison to three and five tons in Asia and Europe respectively.According to the Nepad blueprint, Africa requires an investment of US1 billion or approximately Ksh18 trillion to ensure agriculture transforms living standards on the continent.Actis was created from CDC Capital Partners, a British government-owned fund of funds targeting businesses in poorer countries. CDC group has been operating in Kenya over the last 55 years. It had invested over Ksh72 billion in sub-Saharan Africa.Its other agribusiness interests in Africa are in Malawi, Zambia, Cote d’Ivoire, Swaziland, Tanzania and Uganda. – Steve Mbogo