The COP26 global climate summit in Glasgow, UK, has exceeded global expectations for commitments to climate action. But too little capital is being allocated to climate change adaptation, particularly in emerging markets, which are bearing the brunt of climate impacts to which they have contributed little. (Indeed, at COP26, emerging market nations demanded $1.3 trillion per year in climate financing from wealthy countries.)
Kenya Climate Ventures (KCV) is among a small number of African VC firms committed to investing in technologies and businesses supporting climate change adaptation. The Nairobi-based fund launched in 2016 as an early investment vehicle for incubated companies at the Kenya Climate Innovation Center (KCIC), an initiative of the World Bank to develop and test promising new climate technologies.
But KCV’s early work didn’t quite go as planned. Now the five-year-old fund is taking a broader view of climate investing in Kenya, backing new technologies, existing solutions, and businesses on the frontlines of climate change.
AFN caught up with KCV CEO Victor Ndiege (VN), who has been a the helm of the venture fund since February 2020. He shared why a five-year pilot led to a new investment thesis and strategy, and why other VCs need to challenge their notions of what it means to be a tech investor in Africa’s agriculture sector.
AFN: Give us a bit of the background on KCV – where it is now from where it started.
VN: I joined KCV in February 2020, as it was about to complete its pilot phase. KCV started as a program between the World Bank and KCIC, with support from Danish development corporation Danida and the UK. The idea was to find a way to finance climate-smart technologies that were graduating from incubation to acceleration.
About a year before the end of the pilot program, the thinking was either they needed to close it or find a team that could transform it into an institution, and therefore continue to do climate financing.
We have since increased our portfolio from three enterprises to 20, increased our assets under management from $1.3 million to $4 million, [of which] the agribusiness portfolio accounts for 55% of our investments in terms of value — $2.2 million — and 10 of 20 portfolio companies.
AFN: The early days of KCV were all about investing in new climate technologies. Has the strategy changed?
VN: There were three major areas of the previous strategy that have now changed. Previously, the thinking was around investing in innovations that have gone through incubation, and specifically KCIC’s pipeline. Now, KCV invests in both early and growth-stage companies. The growth-stage component recognizes that we can support businesses with capital and business support to improve their use of technology and their business models.
[This approach] allows us to continuously improve upon climate-smart solutions that are actually enabling communities to be resilient, without only thinking about new technologies or new solutions. We are looking [at climate solutions] from a market systems point of view. ‘Newness’ is no longer a focus; technology can be part of a solution.
With that, we have broadened our pipeline, sourcing from transaction advisors and venture funds that want us to co-finance with them.
AFN: If KCV’s mandate is climate investing, how come so much of your portfolio is focused on agriculture versus, say, clean energy?
VN: Agriculture is the main contributor to Kenya’s GDP. There are more than 7 million small businesses in Kenya, about 60% of which are agribusinesses. Also, 70% of the population lives in rural places, so targeting agribusiness is one of the ways to uplift the rural population; it’s an opportunity to industrialize rural towns.
But of the 7 million small businesses, only about 4 million are formally documented, and 1 million of those have access to financing. If you’re providing capital to agri-processors for climate-smart solutions, you’re contributing to resilient livelihoods.
AFN: Does KCV have a new thesis about where technology fits into climate adaptation and resilience in the agriculture sector?
VN: There are three aspects. First is access to information.
Information is important for decision-making, at the macro and the micro level. Farmers make decisions based on what inputs are available, how they assess those inputs, and information related to weather and markets. Investments supporting platforms that integrate and disseminate such information, including climate information, are very important.
For instance, in my previous work at Africa Enterprise Challenge Fund, we had invested in digital weather stations, where farmers were able to access weather information through their mobile phones, facilitated by strategically-located stations.
There are also platforms on market pricing and ones that communicate to producers what quantities [of goods] are needed, meaning farmers no longer have to chance their production.
Most venture funds like us have not been able to find enterprises that are centered around such services, however. Most of this work is still supported by grants. Enterprises have not been able to demonstrate the commercial potential of such services, because they are treated as an add-on to commercial services. I think that is a misinterpretation of the potential.
We’ve teamed up with FMO and CDC to help accelerate African agrifoodtech. Find out more about AFN Africa here
AFN: What is the importance of this kind of tech-enabled access to information, when it comes to climate?
VN: Resilience – the ability of the population to be able to cope with the effects of climate change. It’s also about the rural livelihoods that are most affected by climate change. Any intervention that provides farmers with access to information that supports decisions that can improve their resilience and livelihoods is, in effect, contributing to their response to the effects of climate change.
For example, if I am a village farmer, I need to make a decision as to when to buy agri-inputs and when to plant. If I have access to information on weather patterns, when it’s likely to rain, then I can plan my resources and buy my inputs on time. I will also know at what time prices [for inputs] are affordable, giving me better margins. And I would know at what time I should plant to increase my productivity.
AFN: What is the second aspect of your climate-tech strategy?
VN: It’s around power technologies. Most rural people still depend on animal-drawn or human-powered mechanization, or diesel and petroleum-driven farm mechanics. Certain technologies can support mechanization driven by renewable energy.
Solar-powered irrigation systems, for example, whether centralized or for the individual farmer, ensure that agricultural productivity doesn’t depend on rainy seasons anymore. They contribute to farmers’ resilience and surviving the uncertainty and unpredictability of climate change.
One of our investments, Sunken Limited, is providing portable irrigation systems to farmers in the northern frontier in Kenya and in the refugee markets. We are also invested in an enterprise that provides asset financing in the form of agricultural and renewable energy inputs.
And we have invested in 1.5 megawatts of off-grid solar power for a local tea processing factory in Western Kenya. This is helping to demonstrate that commercial and industrial use of solar and other renewable energy is one way to sustain markets for smallholder farmers.
AFN: And the third leg of the agriculture strategy?
VN: The third aspect is about production: value addition in agri-processing. We have supported many agri-processors in accessing digital processing equipment at facilities to improve margins through efficiency. For example, we invested in a macadamia nut processing company to provide them with automated sorting and shelling machines. This enables them to predict the quantities and efficiency of production.
In most cases, agribusinesses that have been able to adopt such systems [can predict] what they need in terms of raw material and how that converts into the product that goes into the market.
Also, every agri-processing investment we make includes an energy audit so that enterprises can actively monitor and reduce their energy consumption without compromising on production.
AFN: It sounds like what you’re saying is that much of the ‘tech investment’ opportunity in Kenya, and perhaps elsewhere in Africa, is about helping existing agricultural companies access technologies that are going to help them become more productive.
VN: Yes. We are working in a sector where the cost of overhauling an agri-processing facility is very high. But investing in continuous improvement in the market creates a lot of value. When you put those two factors together, enterprises would [rather] work to increase their efficiency and effectiveness, as opposed to overhauling the mechanics. The mechanics are not the most important thing.
AFN: KCV has quite a diverse strategy and portfolio. Don’t these different ventures have different financing needs?
VN: Yes, we have invested in various value chains, like the macadamia and chili value chains for both export and the local market. We have invested in agricultural inputs – in organic fertilizer locally produced, and sold locally. We have also invested in portable, affordable irrigation systems for smallholder farmers, and solar-powered irrigation. And we are invested in processing and distribution of nutritional foods from climate-resilient crops like sorghum, millet, amaranth, and cassava from contracted smallholder farmers.
KCV provides debt, convertible debt, and equity. By the close of this strategic period, we should have invested in 40 enterprises and increased our assets under management to $10 million.
Another strategic change [from KCV’s pilot period] is our positioning as part of the climate finance ecosystem. We seek to influence other venture and impact funds to come along and invest with us. That couldn’t be achieved in the first phase of KCV, because it was more or less a program. But now that we have evolved into an institution, we have a negotiation mandate, and we have a level of of influence with this systems-level approach.