I chanced upon this article by BT few days ago. I thought you might find it useful.
Section: MONEY INVEST
By: GOH ENG YEOW
Publication: The Straits Times 09/05/2015
Plantation giant boasts wide range of projects in 13 African countries
By GOH ENG YEOW
AFRICA is still very much seen as the dark continent by many people, better known for gory headlines about the deadly Ebola virus, wars, coups and terrorist attacks.
In plantation giant Wilmar International’s case, however, Africa represents the last frontier with a vast market potential rivalling that of China, where the company enjoys a 44 per cent share of the cooking oil market.
Its boss, billionaire Kuok Khoon Hong, is prepared to put his money where his mouth is: Wilmar has invested about US$800 million (S$1.1 billion) in 13 African countries, covering a wide range of projects, such as oil-palm cultivation and edible oil refining, and employing about 4,000 people.
Together, these African countries – including giant economies such as Nigeria and South Africa – have a total population of 600 million people and are a growing market for Wilmar’s products, as economic growth is projected to average 6 per cent a yearover the next decade.
Even so, the huge investment is not small change even for Wilmar, a $20 billion company which recorded revenue of US$43 billion and a net profit of US$1.16 billion last year.
The US$800 million bet is also equivalent to one-third of Wilmar’s market valuation of $3 billion when it was taken public in a reverse takeover in 2006.
But Mr Kuok told shareholders at its recent annual general meeting that Africa is one continent where Wilmar enjoys a big advantage over Western firms.
“We have become very dominant in many countries in Asia – India, China, Indonesia and Vietnam,” he said. “So to me, the last big market with potential is Africa.”
Not that Wilmar is a stranger to doing business there. It ventured into the continent as far back as 15 years ago by establishing two trading companies to import edible oil to East and South Africa.
That, according to Mr Kuok, blossomed into a thriving business.
“Manufacturing and trading are making very good returns. The new investments are breaking even or making a small return. I believe they will become a highly profitable venture one day.”
Africa is not a significant contributor to Wilmar’s bottom line earnings yet, even though the company is making headway in its drive to become a leading market player there.
In the plantations sector, for instance, Africa makes up only 6 per cent of the 238,287ha of oil palm that Wilmar has under cultivation.
In many of Wilmar’s African ventures, the company secured a foothold by joining hands with firms which were already operating there.
Mr Kuok said: “We went to the Ivory Coast because an investment banker approached us and told us that there was a plantations group which wanted to sell a stake. We went to Ghana and bought over Unilever’s refinery and plantation.”
Wilmar’s objective in Africa is to try to graft the successful business model it has developed in Asia to build a business which covers the entire value chain of the agricultural commodity business, from owning plantations to distributing the products.
So in countries such as Uganda and Nigeria, Wilmar has embarked on oil palm projects, while in Zambia, its joint venture farms crops such as wheat and soya bean, while also engaging in edible oil refining and distributing oils.
The African countries that welcome Wilmar as an investor are in a win-win situation as the firm offers jobs for a growing population. There is also a ready local market for Wilmar’s products as palm oil is used extensively for cooking.
The company also makes sure that its African plantations and farmers on its outgrower programme adhere to its “no deforestation, no peat and no exploitation” policy, to counter the claims of environmental groups opposed to oil-palm cultivation.
Prominent Ugandan writer Andrew Mwenda recalled in an article how he had initially mobilised people to try to block Wilmar setting up its first African oil-palm operations when he was the political editor of a newspaper almost two decades ago.
But years later, he realised he was “wrong and mistaken”.
He wrote: “East Africa imports about 1.2 million tonnes of vegetable oil a year. It is a sign of failure that in agricultural economies like ours, with a good climate and farmers to produce vegetable oil, we still surrender US$1.2 billion annually to Malaysian and Indonesian farmers.”
One of Wilmar’s most ambitious projects is its tie-up with British-based PZ Cussons in Nigeria to replant the old and abandoned oil-palm plantations owned by the Nigerian government.
Most of the plantations were first planted in the 1960s but were abandoned years later, as Nigeria became flushed with petrodollars following the oil crisis in the 1970s.
Besides rejuvenating the old plantations, the Wilmar joint-venture has also given an undertaking to help the local community by erecting schools and medical clinics.
This builds on the experience it has gained in undertaking similar projects elsewhere. Its Ugandan plantation, for example, provides accommodation, transport and medical care for its workers.
For Mr Kuok, the risks involved in going big in Africa are worth taking, as it offers a monetary reward for shareholders while boosting the livelihood of thousands.
“It will pay a big dividend one day. I have a lot of money in this company. If it is very risky, I wouldn’t be in it at all,” he said of the company’s US$800 million wager in Africa.