AgDevCo has been investing in African agribusiness for the past nine years. The UK-based firm has poured about $100 million into everything from chilies and macadamia nuts in Malawi to livestock feed in Zambia to specialty meat in Ghana. So when AgDevCo announced a $2.5 million investment in a Tanzanian hydropower plant in January, the project was a little out of scope from the agriculture investor’s typical investment profile.
“At heart, we’re an agriculture development company”—hence the name AgDevCo—“we’re focused on that core mandate,” says senior investment manager Peter James. But, he adds, “throughout the agriculture sector in Africa, no matter what subsector you’re in, there’s a big shortage of basic infrastructure.”
Roads and cold storage are key areas of infrastructural need — so is power. In Tanzania, where James is based, less than 10% of the country’s mostly rural population has access to electricity, and businesses often rely on costly diesel generators and other backup power sources to keep their operations running.
These infrastructural issues have a major impact, both for individual growers and food producers and on Tanzania’s overall economy. “Roughly 60% of Tanzania’s workforce is in agriculture, but agriculture only accounts for about 15% of the country’s GDP,” James says. “To get [small businesses to grow into] larger commercial enterprises, you have to invest in infrastructure.”
The one-megawatt Suma Hydro project that AgDevCo is backing is a partnership between AgDevCo, energy company Rift Valley Energy and Tatepa Limited, one of Tanzania’s largest tea producers. Africa Enterprise Challenge Fund is also an investor. Once completed in 2019, the plant will power Tatepa’s Mwakaleli tea factory, which is a local employer and critical market connection for thousands of the region’s small-scale tea farmers.
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Hydro’s long road
The project, located in the southwest Mbeya region of Tanzania, has been in development for years. It was the first hydroelectric project approved in Tanzania under the Global Environment Facility’s $29 million “Greening the Tea Industry in East Africa” initiative, which officially ended in 2012.
“The joke is that [Suma Hydro] has been a concept for more than 15 years, but there is a lot of development that goes into hydro [projects],” James explains. Once the river and site were identified, years of flow data had to be collected to gauge the potential size and viability of the plant. “Flow data is especially relevant in parts of the world where you have high flow and low flow periods, during rainy and dry seasons.” Then regulatory approvals and water rights had to be secured, and environmental impact had to be assessed.
And then the project had to be funded. James says AgDevCo saw the project as an opportunity to support both Tatepa and local livelihoods. Having reliable access to power, “improves Tatepa’s bottom line. If they can be more sustainable, they can maintain jobs,” he says, adding that regionally, “if you took Tatepa out of the picture, it would be a massive loss to the area.”
There is a bigger social impact component to the Suma Hydro project, too, which is important to AgDevCo, an impact investor. Beyond providing power to Tatepa, roughly 700 surrounding village households and businesses will get an electrical connection for the first time. Rift Valley Energy is already setting up its own transmission lines to make those connections. An even greater number of villages could be impacted if a planned second phase of the project gets underway.
“Villages will benefit from power for the first time, and they will also benefit from being connected to the power island,” James says. “It’s about improving livelihoods.”