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Agenda Why Invest in Agriculture in Mozambique

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Presentation on theme: "Agenda Why Invest in Agriculture in Mozambique"— Presentation transcript:


2 Agenda Why Invest in Agriculture in Mozambique
Agribusiness Strategy and Corridor Attractiveness Agribusiness Opportunities in Mozambique

3 Key Economic Indicators (2011)
Mozambique at a Glance Mozambique is a stable, high economic growth country with substantial agricultural potential Demographics (2011) Tete Niassa Gaza Sofala Zambezia Manica Nampula Inhambane Cabo Delgado Maputo Population: 23.9 million Population Growth (5 Year CAGR): 2.4% Capital: Maputo National Language: Portuguese Business Languages: Portuguese & English Land and Climate Area: 800,000 km2 (~80 million ha) Arable Land: 36 million hectares Climate: Tropical to Sub-Tropical Key Economic Indicators (2011) Currency: Metical, Abbreviation: MZN GDP: USD 12.8B GDP per Capita: USD 535 Projected Annual GDP Growth: almost 8% per year average until 2015 Agriculture Contribution to GDP: 32% Source: IMF World Economic Outlook Database, September 2011; World Bank

4 Mozambique: A Nation of Potential
The country’s potential can be captured in four key areas 36 million ha of arable land, mostly unutilized Tropical to sub-tropical climate with fertile soil and ample rainfall Tremendous irrigation potential from major rivers Enabling Environment for Investments Government Commitment to Market-Driven Growth Strong Market Dynamics Excellent Agro-Ecological Conditions Significant private sector investments Major infrastructure investments Numerous innovative public-private partnerships Strong and growing economy Reliance on imports: Large import substitution opportunity Coastal position: Access to international and regional markets Agricultural development seen as critical to country’s development, with activities across sectors focused on 6 agriculturally attractive corridors Government business incentive programs Specific organizations set up to organize and assist investors

5 Excellent Conditions for Agriculture
Mozambique boasts ideal growing conditions – plentiful water supply combined with diverse micro-climates support a broad range of agricultural commodities Major rivers such as Zambezi, Limpopo, Save, and other tertiary rivers offer tremendous irrigation potential Land Suitability Utilization of Arable Land 5.4 Extensive waterways 15.0% 30.6 High Agricultural Potential Hectares Vast Unutilized arable land 10 distinct agro-climatic zones 85.0% Year-round production potential Suitable for rainfall agriculture Arable LandArable Land Utilized Unutilized Tropical climates offer potential for year-round, high yield crop production Moderately suitable for rainfall agriculture Source: Ministry of Agriculture; World Bank

6 Diverse Agro-Ecological Zones
There are 10 distinct agro-ecological zones in Mozambique offering potential for a wide variety of crops to be grown Main Agro-Ecological Regions in Mozambique Region Part of Mozambique Ag. Commodities Produced R1 Inland Maputo and south Gaza Maize, cowpea, groundnut, cassava, sweet potato, banana R2 Coastal region south of the Sabi (Save) River Maize, sugar, cowpea, sweet potato, groundnut, cassava R3 Center and north of Gaza, and west Inhambane Cattle, goats, rice R4 Medium altitudes of central Maputo Maize, sorghum, cassava, cowpea R5 Low altitudes of Sofala and Zambezia Rice, cotton, cashew R6 Semi-arid region of Zambezi Valley and Southern Tete Sorghum, millet, sugar, rice R7 Medium altitudes of Zambezia, Nampula, Tete, Niassa, and Cabo Delgado Maize, soybean, sorghum, cassava, cowpeas, groundnuts, rice, sesame R8 Coastal litoral of Zambezia, Niassa, and Manica Banana, cassava, millet, rice, cashew R9 North interior of Cabo Delgado Maize, sorghum, cowpeas, cassava, sesame R10 High altitudes of Zambezia, Niassa, and Manica Soybean, maize, common beans, potatoes, rice R8 R7 R10 R9 R6 R4 R5 R1 R2 R3 Source: Ministry of Agriculture; World Bank, IFAD

7 Strong and Growing Economy
The Mozambican economy has displayed strong growth and is expected to continue growing at one of the fastest rates in the world GDP Trend (2000 to 2015 est.)1 World's Fastest Growing Economies (2011 to 2015 est.) Industry +8% 9.5% Agriculture Estimated CAGR 17.4 8.2% 8.1% Services 7.7% CAGR +8% USD B 9.6 Year over Year Growth 6.6 23% 4.2 25% 32% 25% 27% 24% 45% 51% 48% China India Ethiopia Mozambique 2000 2005 2010 2015 est. Note: 1) Growth rates are based on nominal prices Source: IMF World Economic Outlook Database, September 2011; World Bank; The Economist Intelligence Unit; National Institute of Statistics

8 Location with Optimal Market Access
Mozambique has an advantageous geographic positioning, providing an ideal gateway to both international and regional markets Mozambique: Proximity to High Opportunity Markets Mediterranean China/ India Middle East Neighboring Countries Natural gateway to the Middle East, Mediterranean, and Asia Bordering regional markets like South Africa, Zimbabwe, and Malawi Port upgrades at Nacala and Beira will further trade opportunities

9 Trade Potential as a SADC1 Member
As a member of the Southern African Development Community, Mozambique has access to an agricultural market worth over USD 3B Southern African Development Community Members SADC Trade Agreements The SADC trade agreements aim to: Eliminate barriers to intra-SADC trade Eliminate import duties based on a phased approach Eliminate all export duties Eliminate non-tariff barriers Apply no new quantitative import restrictions Eliminate quantitative export restrictions Democratic Republic of the Congo Tanzania Seychelles Angola Zambia Malawi Mauritius Zimbabwe Namibia Trade Opportunity Within SADC Madagascar Botswana Mozambique Balance of Trade Value for Agricultural Products in SADC Region1 Swaziland South Africa Lesotho 3.2 3.4 2.1 USD B Under SADC trade agreements, Mozambique aims to have access to barrier-free trade with other member states 1.3 2008 2009 2010 2011 Note: 1) Southern African Development Community; 2) Trade balance calculated as total value of imports less total value of exports Source: SADC; International Trade Center

10 Government Support Agricultural transformation is a priority within the highest levels of government and investors are offered attractive incentives and support FOCUS ON AGRICULTURE INVESTMENT INCENTIVES INSTITUTIONAL SUPPORT President Guebuza is a co- founder and champion of Grow Africa1 Agricultural growth is a high priority for the government to: Enhance employment and income potential Enhance food security 10-Year Strategic Plan (PEDSA) for agricultural sector development in place Focused on six growth corridors Exemptions on equipment importation duties Real property transfer tax reductions Reduction in corporate income taxes: Agriculture corporate income tax generally 10% Effective tax rate can be 2% until 2015 and 5% until 2025 Low cost land 50 year lease with 49 year potential extension of land for ~USD 1/ year/ hectare Agencies dedicated to facilitating investment The Investment Promotion Agency (CPI) and Centre for Promotion of Agriculture (CEPAGRI) promote and support agricultural investment opportunities GAZEDA dedicated to the Nacala Economic Zone Some corridors also have organizations focused on developing and coordinating investments Note: 1) Grow Africa is a series of conferences and interactions that connect the private sector and governments, focusing on accelerating investments Source: Investment Promotion Agency Website

11 Growing Foreign Direct Investment
Mozambique has recently attracted many large private sector investments, ranging from the mining and natural gas sectors to agriculture Priority is being given to agriculture when attracting foreign investors in the hope of improving productivity, reducing dependency on imports, and helping cut food prices FDI Inflows (2007 to 2011) Foreign direct investment (FDI) in Mozambique grew nearly fivefold from 2007 to 2011 Aggregate FDI from 2007 to amounts to USD 4.8B FDI is largely led by the expanding mining and natural gas sectors 2,100 USD M 893 789 592 427 2007 2008 2009 2010 2011 Sample of Large, Recent Projects FDI by Sector (2011) Communication 2% Vale: USD 6B coal mine Anadarko: Estimated USD 30B+ by 2017 Mozal JV: USD 2.5B aluminum project Green Resources: USD 2.2B eucalyptus plantation and industrial infrastructure Matanuska: USD 60M invested to date focused on bananas Olam: USD 50M+ investment in rice Agriculture 3% Activities 6% Other Sectors 2% Industries 87% Source: World Bank; Investment Promotion Agency; IMF

12 Ongoing and Planned Infrastructure Projects
Investment (USD M) Date of Completion INFRASTRUCTURE TRANSPORT 1 Deepening of Beira Port 300 2012 Beira Coal Terminal 140 400 2 Nacala Airport 111 3 Rehabilitation of Beira railway (570km, 5–8MT/Y) 120 2013 4 Nacala Corridor (24MT/Y) 2,600 2014 5 Tete Bridge 190 6 Nacala Port (20–25MT/Y) 295 (phase 1) 2015 7 Public Transport Network 980 Unknown 8 Catembe Bridge and Ponto do Ouro Roads 750 9 Maputo Public Transport 310 2 6 15 16 4 5 12 14 11 3 13 Project Capacity (MW) Investment (USD M) Type Date of Completion THERMO-ELECTRIC POWER 10 Gigawatt — RG 100 230 Natural gas 2013 11 Moazite — Phase 1 300 1,500 Coal Unknown 12 Benga 600 1,300 1 Infrastructure – including road, rail, ports, airports, and electricity generation – is under development; providing better capacity for linking agricultural products to markets Project Capacity (MW) Investment (USD M) Date of Completion HYDRO-ELECTRIC POWER 13 Lupata 520 800 2016 14 Boroma 165 250 15 Cahora Bassa North 1,200 1,100 2017 16 Mphanda Nkuwa 1,500 2,600 17 Moamba Major 500 2020 17 8 10 Source: Banco Nacional de Investimento , Ministry of Energy, Ministry of Public Works 7 9

13 Innovative Agricultural Partnerships
Innovative public-private partnerships to transform Mozambique’s agriculture are being implemented Examples of Successful Public-Private Partnerships Underway Beira Agr. Growth Corridor (BAGC) Partnership Catalytic Fund of USD 20M in publicly-backed investment for startup agribusinesses First African country with a dedicated catalytic fund for agriculture AGRA + Standard Bank USD 25M loan guarantee facility GoM + World Bank USD 70M irrigation program (“Proirri”) USAID Agrifuturo Program to promote agribusiness Pro Savana Partnership between GOM, Japan and Brazil to develop agribusiness

14 Agenda Why Invest in Agriculture in Mozambique
Agribusiness Strategy and Corridor Attractiveness Agribusiness Opportunities in Mozambique

15 Aligning Efforts Across Stakeholders
The four stakeholder groups of the Public and Private sectors along with People and development Partners are key to developing Mozambique’s agriculture potential Patient capital Skills and training Community support & engagement Human capital and capacity Expertise Markets Commercial Financing Enabling environment Infrastructure Research Public Sector Private Development Partners Mozambican People

16 Importance of Agriculture in Mozambique’s Strategy
Agriculture is a key priority for the Mozambican government for poverty reduction and attaining food security, as is detailed in the country’s ten-year strategy plan Summary of the Strategic Plan for Agricultural Development (PEDSA), 2011 to 2020 Vision: An integrated, prosperous, competitive and sustainable agriculture sector 6 corridors targeted to align efforts across public, private, and development sectors through: Agricultural potential Support services (research centers, educational institutions) Connection to market (infrastructure) 1 2 3 4 Agricultural production and productivity to increase ability to compete Infrastructure and services for markets and improved marketing Land, water, forest, and wildlife resources used sustainably Agricultural institutions strengthened Four Discrete Pillars in Progress to Achieve Agricultural Vision Mozambique plans to allocate 10 percent of its budget to agriculture by 2015, as resolved in the Maputo Declaration of 2003 by the African Union Source: Ministry of Agriculture

17 Agriculture Growth Corridors
Of Mozambique’s six agricultural corridors, Nacala, Zambezi Valley, and Beira corridors are being highlighted due to their high agricultural potential Of the six corridors identified in Mozambique’s strategy… …this action plan will focus on the following three corridors Why These Three Corridors Have Significant Potential Six Corridors in Agricultural Strategy Provinces within Beira, Nacala, and Zambezi Valley Corridors1 Agricultural opportunity due to soil and climate, while most of country’s water is here Level of existing or planned infrastructure, including ports Existing framework to attract / manage investments2 Alignment with other efforts3 Economic zones4 Nacala Cabo Delgado Niassa Zambezi Valley Nampula Tete Beira Zambezia Pemba Lichinga Manica Sofala Limpopo Inhambane Gaza Maputo Maputo Note: 1) Color coding represents approximate positioning of corridors; 2) Zambezi Valley Development Authority and Beira Agricultural Growth Corridor; 3) ProSAVANA in Nacala Corridor; 4) Nacala Economic Zone exists now with Beira Economic Zone planned Source: PEDSA, Government and Expert Interviews

18 Nacala Agricultural Growth Corridor
The government has focused significant resources and business-friendly investment programs on the Nacala Corridor Attractiveness of Nacala Investments Made Nacala Special Economic Zone Nacala Special Economic Zone provides 500 ha industrial free zone with no VAT and customs duties, as well as technical assistance Soybeans Rei do Agro: Mozambican company investing USD 5M for soy and maize production Forestry Green Resources: USD 2.2B eucalyptus plantation and industrial infrastructure Nacala Port Potential Upgrade of the deepest port on East African coast at Nacala Demand from Mining The mining sector is increasing demand for agricultural products; currently imported from South Africa at high cost Bananas Matanuska: USD 60M invested to date focused on bananas Mining USD 4.4B upgrade to rail by Vale Land Mapping The Pro Savannah project is mapping land potential Source: Ministry of Agriculture

19 Zambezi Valley Corridor
Zambezi Valley has the greatest agricultural potential, with the highest concentration of the country’s water resources Attractiveness of Zambezi Valley Investments Made Vast Water Reserves 80% of the country’s water reserves are found in the Zambezi Valley corridor Agro-Processing Chinese government USD 50M investment for cotton, maize, and rice processing facilities Broad Crop Variety Diverse topography and good rainfall during cropping season provides perfect climate for a variety of crops Irrigation1 USD 70M World Bank PROIRRI irrigation project, mainly aimed at irrigation for rice Rice Olam is investing USD 50M over the next 4 years Large Local Demand Local market potential as one of the most densely populated provinces Port Infrastructure Estimated USD 1B port investments by Rio Tinto Note:1) PROIRRI project is part of both the Beira and Nacala Corridors Source: Zambezi Valley Development Agency

20 Beira Agricultural Growth Corridor
Beira currently has the most developed infrastructure and linkages to neighboring countries Attractiveness of Beira Investments Made Infrastructure and Connectivity to Region Well-developed infrastructure with road and rail network linking Zambia, Malawi, Zimbabwe and Mozambique to the port of Beira Catalytic Fund USD 20M for the BAGC Catalytic Fund First catalytic fund dedicated to agriculture in Africa, which is already leading to a number of investments Demand from Mining Activities A number of multi-billion dollar mining investments are going ahead, which will improve access to infrastructure in the region and boost local demand Irrigation1 USD 70M World Bank PROIRRI irrigation project, mainly aimed at irrigation for rice Beira Port USD 67M from JICA and EU for upgrades to the Port of Beira Note: 1) PROIRRI project is part of both the Beira and Nacala Corridors Source: BAGC

21 Additional Growth Corridors
The other corridors – Pemba-Lichinga, Limpopo, and Maputo – also present potential and additional value chains Pemba-Lichinga Limpopo Maputo Attractiveness Attractiveness Attractiveness Higher altitudes inland are very well suited to crops such as soybeans Significant investment underway to complete a road connecting Lichinga to Malema by 2014 Large tracts of available land provide easier expansion opportunities Well established irrigation infrastructure in Chókwè can facilitate production Features technological support from the South Investigation Center based in Chókwè Quality road infrastructure connects to Maputo Proximity to Mozambique’s largest city and South Africa provide strong market potential Most extensive infrastructure in both roads and port availability further facilitate market access Crop Potential Crop Potential Crop Potential Soybeans, maize, potatoes, wheat, beans, cotton, tobacco, poultry, and aquaculture Rice, sugar, vegetables, livestock, and poultry Rice, vegetables, fruits, livestock, and poultry Source: Ministry of Agriculture, Expert interviews

22 Agenda Why Invest in Agriculture in Mozambique
Agribusiness Strategy and Corridor Attractiveness Agribusiness Opportunities in Mozambique

23 Detailed Investment Opportunities
Commodities Analyzed For the sixteen prioritized commodities, additional information is included in differing levels of detail to supplement the investment cases distributed during the Forum I Detailed Investment Opportunities Rice Soybeans Banana Sesame II Rationale for Investment Described Sugar Cane Poultry Tea Cashew Cassava Maize Vegetables Cotton Groundnuts III Highlights of Opportunities Forestry Aquaculture Livestock Fruit Pulses

24 Detailed Investment Opportunities
Commodities Analyzed For the sixteen prioritized commodities, additional information is included in differing levels of detail to supplement the investment cases distributed during the Forum I Detailed Investment Opportunities Rice Soybeans Banana Sesame II Rationale for Investment Described Sugar Cane Poultry Tea Cashew Cassava Maize Vegetables Cotton Groundnuts III Highlights of Opportunities Forestry Aquaculture Livestock Fruit Pulses

25 Investment Opportunities
Rice Executive Summary Market Major gap exists between domestic production and demand Climate and soil are very well-suited to rice, with opportunities for year-round production Significant investment is underway, which may dramatically improve current infrastructure and raise rice yields Investment Opportunities There are business opportunities in several parts of the value chain as well as for an integrated producer One of those opportunities is a medium-size milling facility, which requires investment of ~USD 5M Would be supported by 3,000-5,000 smallholder farmers

26 Share of Imported Rice on Local Consumption
Rice – Market Analysis (1/2) Market Rice consumption has doubled over the past decade, but without significant reductions in rice importations Growth Potential Production growth has not been able to overcome demand growth – keeping imports high Mozambique has the 3rd highest rice consumption in SADC, but is mostly dependent on imported rice Unlike neighbor countries, the share of imports has not reduced over time and instead remains around ~60% Despite the significant growth potential for rice (Mozambique’s climate and soil are considered very well-suited to rice), domestic production has only grown at the same rate as imports Without increased local production, this gap will only grow due to a projected 7% domestic demand increase per year Consumption of Rice (in ‘000 tonnes) +90% 2000 2009 Share of Imported Rice on Local Consumption 80% 62% Gap: Neighbor countries reduced imports to ~10% 60% 40% 20% 9% 0% 2004 2005 2006 2007 2008 2009 2010 2011 Mozambique Zambia Malawi Source: IRRI, FAOSTATS, USDA

27 Large, Recent Investments
Rice – Market Analysis (2/2) Market Significant investment is underway by the government, private sector, and development partners to grow rice production Large, Recent Investments NON-EXHAUSTIVE Investment Expected Key Geographies 1 OLAM: Rice production and processing facility in Zambezia, expanded over the next 5 years Partnership with local producers, also used for cotton USD 50 M Niassa Gaza Sofala Zambezia Manica Nampula Inhambane Cabo Delgado Maputo Tete Ubunto: Rice production and processing facility in Matutuine Partnership with the Libyan Investment Fund Processes 600 ton/ day and sells ~27,000 ton/ year 2 ~USD 33 M 1 4 3 World Bank1: Investments plan to improve agriculture infrastructure of over the next five years, specifically with irrigation development % National Production ~USD 70 M > 30% >20% 4 International Rice Research Institute2: Present in Mozambique since 2006, focusing on rice breeding, socio economic studies, crop production, productivity and private sector-village programs 4 >10% N/A 4 >1% 2 ~0% Note: 1) Areas non identified; 2) IRRI has three research and development regions in Mozambique: Maputo and Xai-Xai for irrigated conditions and Quelimane for rain fed condition. Source: Interviews, Africa Agriculture News, World Bank, OLAM, IRRI, Monitor Analysis

28 Investment Opportunity Potential Opportunities
Rice – Investment Opportunities (1/3) Investment Opportunity Several entry opportunities exist throughout the rice value chain Value Chain Analysis Infrastructure Inputs Production Milling Current Situation Only 3% of small and medium-size rice farmers use improved seeds Lower yields as farmers frequently are not leveraging optimal farming technique, including irrigation practices ~15% grains lost after harvest because of old machinery1 Capacity incompatible with expected raise of production Potential Opportunities Seed Importer Research Center Leasing of machines Irrigated farms Independent mills Integrated mills Players No specific names Typically integrated if larger player OLAM Inácio de Souza Moçfer Note: 1) Inputs offered by the mill includes irrigation, selected seeds, fertilizers and chemicals; they are offered as a way to obtain a more homogeneous and high quality supply of paddies; 2) In South Africa, this percentage is ~9%. Source: Interviews, Agrifood (2005), Monitor Analysis

29 Investment Opportunity
Rice – Investment Opportunities (2/3) Investment Opportunity In the proposed investment, the mill assumes a central role in the rice value chain, including supporting famers to improve quality and yields Rice Mill Facility “Invest ~USD 5 M in a Rice Mill to process rice in partnership with smallholders farmers” Infrastructure Inputs Production Milling ILUSTRATIVE Selected Seeds High-Quality Paddy Training1 Seed Seller Smallholder Farm Mills Rice Market Money Legend: (Color of Pictures) 1 2 3 Sourcing Model: 100% small/ medium size farmers (training, seeds, credit) Processing: more than 30,000 tonnes/ year Targets: Domestic consumers Own Company Partner/ Consumers Note: 1) Potential irrigation to assist farmers not modeled Source: Interviews, Agrifood (2005), Monitor Analysis

30 Investment Opportunity + Irrigation, Training, Seeds
Rice – Investment Opportunities (3/3) Investment Opportunity Investing in a rice mill in Mozambique is an attractive opportunity for investment, with significant margins and meaningful social impacts PRELIMINARY Rice Mill Facility Expected Margins by Share of High-Quality Grain (in %, 2012) Farmers’ Yields: may vary from 2 ton/ ha (rain fed farm) to 4 ton/ ha (irrigated farm) Number of smallholders supported: between 3,000 and 5,000 farms1 Price per kg: USD 1/ kg (whole grain), USD 0.75/ kg (broken) and USD 0.3/ kg (bran) Expected margin: typically vary from 20% to 22%, but with potential to raise up to 25% Investment estimated: acquisition of small mill may require investment of ~USD 5M2 Return expected: similar investments has reported IRR between 13% and 15% Key-Financial Indicators Improved farming techniques can help achieve greater rice quality, helping push margins towards 25% Margin (Post-tax) Whole Grain (%) Broken Grain (%) 25% 24% 22% 20% 20% 25% 30% 35% 45% 40% 35% 30% + Irrigation, Training, Seeds Average PracticesAverage Practices Practices Note: 1) Dependent of the extend of irrigation used; 2) Potential irrigation to assist farmers not modeled Source: Interviews, Monitor Analysis

31 Investment Opportunities
Soybeans Executive Summary Market Demand for soybeans is increasing due to the development of poultry and soy oil sectors Downstream markets are highly dependent on imported inputs High availability of natural resources may benefit expansion of soybeans crop Investment Opportunities There are business opportunities throughout much of the value chain, as well as for an integrated producer A ~USD 4.5 M soy extraction & refining center was selected as an example, utilizing 3,500-4,000 hectares of soybean fields as inputs ~1,400 smallholder farmers included into the supply chain

32 Soy Cake: Strategic Segment
Soybeans – Market Analysis (1/2) Market Soy cake is a considerable cost for the poultry industry and could be a key driver of domestic production substitution of imported chicken Soy Cake: Strategic Segment Poultry industry: Though soy is a small share of feed by volume, it represent almost half of costs Poultry’s consumption is growing throughout Southern Africa and is projected to continue expanding in Mozambique at 13% per year over the next decade Government is actively encouraging growth of domestic soybean industry to substitute imported soy cake, which is a critical and expensive feed component for poultry Importation of high-priced soy cake is driving up prices for domestic poultry, making competition with imported chicken difficult Leading component of domestic poultry cost is feed (~74%) Local production of soy cake should reduce costs, improving competitiveness of the poultry industry Composition of Poultry Feed, Volume (2005) 100% 60% 1 kg Poultry Feed = 40% 20% 20% Feed Maize Non-MaizeNon-Maize Others Soy CakeSoy Cake Costs for Chicken Producers in Mozambique (2005) Costs 37% of total costs (50% of feed costs) corresponds to soy cake expenses 26% 74% Feed Source: TechnoServe

33 Soy Oil: Potential to Grow
Soybeans – Market Analysis (2/2) Market Opportunity to refine “waste” byproduct oil from processing soy cake in North will continue to grow with expansion of soy industry Soy Oil: Potential to Grow Geography: Historically, crude soy oil is imported and then processed in refineries for further sale Domestic soy oil market is nascent and lacks constant input supply, relying almost entirely on imports However, interest is increasing as soy oil can attract a higher price point (18%) than vegetable oil blends, mainly made from palm oil (an inferior substitute) When soy cake is separated for soy oil domestically, much of byproduct oil is not utilized, providing a market opportunity This opportunity will only continue to expand as poultry demand, and consequently soy cake production, increases Soy Oil Market in Mozambique (2011) North: feed manufactures frequently waste soy oil by-product after processing soy cake Niassa Gaza Sofala Zambezia Manica Nampula Inhambane Cabo Delgado Maputo Tete North & Center: limited soy oil processing, but growing interest North & Center: limited soy oil processing, but growing interest South: more mature and largest soy oil market, refineries import crude oil and refine oil for sale Source: TechnoServe

34 Investment Opportunity
Soybeans – Investment Opportunities (1/3) Investment Opportunity There are opportunities in numerous parts of the value chain, as well as for an integrated producer Value Chain Analysis Segment Current Situation Opportunity Players Infrastructure Inputs Demand Processing & Refining Production Seed Importer Fertilizer Factory Rei do Agro Pannar Soybean Input Supplier: Lack of availability of seed and inoculants Soybean Farming: Insufficient soybean production exists within country to meet demand Farm N/A Soybean Processing: Additional capacity required for expected growth in demand Processing & Refining Facility Mafuia Oil Sanoil JAM Oil Refining: Current waste of oil byproduct by soy cake manufacturers Poultry: Opportunity to compete with imports to meet growing need of livestock farmers Feed Manufacturing Novos Horizontes Abilios Atunes Soybean Storage: Insufficient warehouses and silos for storage of locally produced grains Silos Warehouses N/A Source: Interviews, TechnoServe Analysis, Monitor Analysis

35 Investment Opportunity Soy Extraction & Refining Center
Soybeans – Investment Opportunities (2/3) Investment Opportunity Soy Extraction & Refining Center PRELIMINARY Invest ~USD 4.5 M in a Soy Extraction & Refining Center, with inputs and training to get new smallholder farmers into the supply chain to enhance supply Infrastructure Inputs Production Process & Refining Demand Smallholder Farm Oil Refining Market 1 Crude Soy Oil Refined Soy Oil Sourcing Model: 20% from own farm and 80% from smallholders (assistance for training, seed selection, credit) Processing 4 Targets: Domestic consumers Targets: Domestic consumers Soybeans Medium-Size Farm Feed Development Livestock Soy Cake Feed 2 Processing Facility: Capacity to process more than 9 M ton/ year of soybeans Legend: (Color of Pictures) 3 Products: Refined Soy Oil & Soy Cake Own Company Partner/ Consumers Source: Interviews, TechnoServe, Monitor Analysis

36 Investment Opportunity Soy Extraction & Refining Center
Soybeans – Investment Opportunities (3/3) Investment Opportunity Invest in a soy extraction & refining center in Mozambique to achieve attractive margins and returns, with strong social impact Soy Extraction & Refining Center PRELIMINARY Revenue & EBITDA Margin Expected (in ‘000 USD and %, ) Key-Financial Indicators Famers’ Yields: between 1.0 ton/ ha (rain fed farm) and 3.0 ton/ ha (irrigated farm) Crop Sales Price: USD 0.39/ kg Number of smallholders: increase from 500 up to 1,600, with average land of 2 ha/ farm Cost per hectare: between USD 320/ ha and USD 1,100/ ha1 Investment estimated: total CapEx of ~USD 4.5 M2, ~90% invested on the first two years Return expected: similar investments has reported IRR up to 19% Revenue EBITDA Margin 22% 29% 27% 10% -524% Year 1 Year 2 Year 3 Year 4 Year 5 Note: 1) Dependent of the number of smallholders added by year; 2) Potential irrigation to assist farmers not modeled Source: Interviews, TechnoServe, Monitor Analysis

37 Investment Opportunities
Banana Executive Summary Market Opportunity to meaningfully increase Mozambique’s banana exports Demand imbalances exist in the Middle East, the Mediterranean, and to a lesser extent Southern Africa Year-round, high-yield crop potential within Mozambique provides additional export opportunities and improved margins Potential for lower farm costs than other competitors Investment Opportunities Value chain integration is the basis for an attractive investment prospect Opportunity for an investment of $5–6M in a 300 hectares commercial banana plantation leveraging nearby producers to achieve scale at lower investment levels

38 Mozambique Competitive Advantage
Banana – Market Analysis (1/2) Market Mozambique’s banana industry is well situated to benefit from both its geographical position as well as potential cost advantage Mozambique Competitive Advantage Banana Trade Balance (in ‘000 tonnes, 2001 – 2009) Ability to feed large demand imbalances in the Middle East, the Mediterranean, and to a lesser extent Southern Africa Demand imbalances have increased at different paces in these regions over the last years, with greatest growth in Europe Europe: Has competitive export tariff advantage for African countries over most of Latin America, (value of USD 3 per box) Middle East: Mozambique has 8 to 10 days1 vs. 20 days shipping transit time to Middle East when compared to Latin America and Philippines Mozambique’s lower farm to port costs than Philippines, coupled with Philippines production being diverted to China, has heightened opportunity in the Middle East CAGR +6% 2001 1,600 2009 994 +3% 550 443 +15% 8 25 Mediterranean Middle East Southern Asia Farm to Port Costs (in USD) +8% Mozambique Philippines Note: 1) Assuming direct shipping Source: FAOSTAT; Interviews with experts; TechnoServe, Abt, Monitor Analysis

39 Banana Market in Mozambique
Banana – Market Analysis (2/2) Market While companies in the South focus on internal markets and neighbor countries, companies in North focus on overseas markets NON EXHAUSTIVE Banana Market in Mozambique Main Companies Matanuska: invested $60M to date to develop a 3,000 ha plantation in Nampula province At full production, Matanuska plans to ship 100 containers per week Bananalândia: exports 40,000 tonnes (80% of total production) mainly for South Africa, Swaziland and Botswana Conglomerate of 5 companies1: exported 35,000 tonnes per year and created 2,500 direct jobs 1 Niassa Gaza Sofala Zambezia Manica Nampula Inhambane Cabo Delgado Maputo Tete North: exporting bananas to mainly Middle East from Nacala port 1 2 South: responsible to supply Maputo metropolitan area and neighbor countries 2 3 3 Note: 1) Libombos Macadamia, Frutas Libombos, AAA Enterprises, Tropical Fruit and Rio Verde Source: CEPAGRI; Interviews with experts; TechnoServe, Abt, Monitor Analysis

40 Banana – Investment Opportunities (1/2)
Investment Opportunity Value chain integration is the basis for an attractive investment prospect, with involvement from farm production through delivery Farming Post-Harvest Handling Transport & Marketing 36%1 3%1 61%1 Transportation and Marketing Value Chain (% of total value added) Transport cost is one of the main drivers of costs It constitutes almost 20% of the total farm-to- market value chain, thus being a key competitiveness driver for exports Another important part of the value chain is the cleaning, packaging and ripening of bananas Usually small producers do not capture much of the potential value of their investments because they lack these facilities Packaging 13% 19% Ripening 30% Transport 38% Agent Fees Note: 1) Percent of value added in the value chain Source: GDS; Monitor Analysis

41 Banana – Investment Opportunities (2/2)
Investment Opportunity A mid-size commercial banana plantation could generate about ~$1 M in net income per year with potential margin increase as yields rise Mid-Size Banana Plantation in Nampula PRELIMINARY Potential Margin per Yield Key-Financial Indicators Potential Margin Increase Investment: $5-6M in a 300 hectares commercial plantation Yields: typical yields range from 36 tonnes/ha – 40 tonnes/ha, with more possible Revenue: about $5.0M with potential to increase with higher yield Net Income: about $1M per year with potential to increase with yield increase Expected IRR: may vary from 15% - 17% with up to potentially 20% With yields above 40 tonnes / hectare, variable costs become much lower, leading to even more attractive margins / hectare / hectare / hectare Source: Interviews with experts; TechnoServe, Monitor Analysis

42 Sesame Prices by End Use1
Sesame – Market Analysis Market Sesame is an emerging crop in Mozambique with high potential for higher valued exports such as the premium confectionary market ,and organic/ fair trade sesame 1 Mozambique has ideal growing conditions for sesame, especially in the tropical and sub-tropical climates along the coast Mozambique could export sesame to markets in the Middle East, Asia and Europe More immediate opportunities are in export of sesame seed, while with increased production processing in to sesame oil may become viable Sesame is currently mostly exported to Asia and the Middle East with no processing Opportunity for export of cleaned and de-hulled sesame seed to premium confectionary market in Europe 2 3 Mozambique has the opportunity to build origin identity to satisfy niche markets for organic and fair trade sesame As an emerging grower, the current volumes grown could justify entering these niche markets for potentially higher margins Sesame provides high income for farmers, with farmers capturing ~50% of FOB value Sesame Prices by End Use1 (USD/ metric ton, 2011) 4 Oil Tahini Confectionary Organic Confectionary and organic markets provide the highest levels of income Note: 1) Highest recorded prices Source: TechnoServe; SNV; Expert Interviews; Monitor Analysis

43 Detailed Investment Opportunities
Commodities Analyzed For the sixteen prioritized commodities, additional information is included in differing levels of detail to supplement the investment cases distributed during the Forum I Detailed Investment Opportunities Rice Soybeans Banana Sesame II Rationale for Investment Described Sugar Cane Poultry Tea Cashew Cassava Maize Vegetables Cotton Groundnuts III Highlights of Opportunities Forestry Aquaculture Livestock Fruit Pulses

44 Sugar Cane – Market Analysis
More Competitive, Sugar Farmers Could Raise Production and Export More 1 Domestic production has almost doubled over the last 5 years and is expected to keep growing in both yield and area With higher yields, Mozambique has produced and exported more sugar over the past 5 years Sugar Cane Production (real values and estimative) 2 Environment conditions and increased training favor the production of sugar cane, such as: Optimal weather conditions and high- quality, available land benefit the sector’s expansion Training of local farmers, including more than USD13 MM in transference of technologies to sugar farmers from Europe, has enhanced the quality and yield of sugar cane harvested Yield (ton/ ha) Production (Mt) 4.4 3.9 3.4 2.7 2.0 2.1 2.3 2007 2008 2009 2010 2011 2012e 2015e Sugar Exports (in ‘000 tonnes) +76% 3 Commercial agreements in EU and SACU1 allow for exporting with favorable financial conditions 4 Growing exports for sugar highlight increased market potential in the future 2007 2011 Note: 1) Agreement signed in 2011; SACU (Southern Africa Customs Union) is the group formed by Botswana, Lesotho, Namibia, South Africa and Swaziland. Source: Balanço Anual do Açucar (2011)

45 Poultry – Market Analysis
Significant Potential for Import Substitution Makes Poultry a Strong Investment 1 Demand for poultry has grown meaningfully across Africa Poultry’s consumption has more than doubled in over 10 African countries over the last decade, with high dependence of imports from Brazil, Asia, and US Opportunity for local players to supply this demand due to geographic advantages While domestic demand in Mozambique has grown slightly in past, future demand is expected to more than triple in the next 10 years Impact of considerable growth in mining as well as oil and gas sectors on working population will help full domestic demand Feed costs correspond to ~75% of total costs – with growth in the domestic soy cake industry, potential for reduced input costs could further drive demand 2 3 African countries has reported meaningful growth in demand for poultry meat Poultry consumption has grown less in Mozambique, but future growth is expected Poultry Consumption in Africa (in ‘000 tonnes) 2000 Poultry Consumption in Mozambique (in ‘000 tonnes) 2007 +36% +164% +133% +226% 1,228 +21% 137 904 55 145 35 42 24 57 South Africa Angola Zimbabwe 2000 2010e 2020e Note: Djibouti, Comoros, Cape Verde, Ghana, Gabon, Gambia, Angola, Democratic Republic of the Congo, Zimbabwe, Congo, Sao Tome and Principe and Guinea. Source: FAO, USAID, TechnoServe, Monitor Analysis

46 Tea – Market Analysis One of country’s larger export crops, with opportunity to recapture past success Great potential exist to utilize available land to increase production 1 Despite much higher yields than before the civil war, total production is lower due to unused land Signifies opportunity for potential investors who wants to capture unused potential Yield (tonnes/ha) Total Production (tonnes) 89.0 32.0 2 Mozambique’s tea industry is undergoing impressive growth with a 16% production increase in the last year 1973 2011 1973 2011 Production is increasing rapidly 3 There is still available, unutilized land with high tea growing potential Zambezia province alone has 39,000 hectares in Gurue, Ille, and Milange districts Of 22,400 hectares specifically allocated for tea, only 18% are in use Production (tonnes) +17% 2010 2011 Source: Balanço Anual do Açucar; Expert Interviews; Monitor Analysis

47 Spraying trees greatly increases productivity
Cashew – Market Analysis Opportunity to Regain Position as One of World’s Top Exporters 1 Prior to independence in 1975, Mozambique was one of the leading producers / exporters of cashew nuts, evidencing the country’s suitable climatic conditions and knowledge Production was once as high as 200,000 metric tons (versus 65,000 today) A significant limiting factor on Mozambique’s success (diseased trees), can be relatively cost effectively prevented Spraying the trees against disease greatly improves productivity 3 Cashews can be grown throughout much of the country, but are particularly successful in the Nacala corridor Significant government and donor efforts are underway to revitalize the industry. For example: INCAJU (Government Cashew Initiative) plans to grow 3.3 million cashew saplings in 2012 to be planted as new trees TechnoServe now supports 16 cashew processing plants with ~36,000 metric tons processing capacity 4 2 Niassa Gaza- 8% Sofala Zambezia- 9% Manica Nampula- 41% Inhambane- 23% Cabo Delgado- 13% Maputo Tete According to INCAJU, ~40% of cashew nut production occurs in Nampula. Most efforts in the cashew industry are focused in this province Main Cashew Producing Regions Spraying trees greatly increases productivity Cashew nut yields (kg/tree) Current Yield Yield Gap Sprayed Tree Source: FAOSTAT; TechnoServe; African Cashew Initiative; INCAJU; Expert Interviews; Monitor Analysis

48 Cassava significantly outpaces other staple crops in Mozambique
Cassava – Market Analysis New Processing Technology Expands Market Opportunities for Cassava 1 Cassava does and will continue to have a strong demand advantage versus other staple crops in Mozambique, particularly in the north Cassava is an easy-to-produce and drought- resistant crop with food security importance Substitution opportunities exist for cassava within Mozambique, given strong cost advantages over other commodities Cost for cassava is roughly half of some related commodities Example: Up to 25% of wheat1 used in bread can be substituted by cassava at 55% of cost Potentially significant market opportunities have been created by a mobile cassava processing unit created by DADTCO This allows for additional uses of cassava in livestock feed, industrial raw materials, alcohol brewing, and ethanol For example: SABMiller will invest an additional $124 M over the next two years to continue to develop its cassava beer (Impala), made possible by the mobile processing units Cassava significantly outpaces other staple crops in Mozambique Average Quantity Consumed per Year (kg/person) 2 Cassava Maize Wheat Rice Others Cassava Cost (as % of other commodities) Potential for Wheat Substitution in Bread (in ‘000 tonnes, 2009) Lower cassava costs create opportunities for wheat substitution in bread production Up to 25% of wheat in bread can be substituted by cassava 3 60% 55% 343 86 Wheat Used in Bread IndustryWheat Used in Bread Industry Potential for Cassava SubstitutionPotential for Cassava SubstitutionPotential for Cassava Substitution Wheat Maize Note: 1) Wheat has the highest production deficit in Mozambique Source: FAOSTAT; MSU; Promar; Monitor Analysis

Maize – Market Analysis Opportunity to Substitute Imports, Meet Poultry Demand Growth and Boost Rural Income FOOD SECURITY & NUTRITIONAL IMPORTANCE Maize is one of the most consumed staple crops in southern African, with high relevance in terms of food security Though 71% of all farms in Mozambique produce some maize, most rural households are net buyers, and the country need to import ~99,000 MT yearly Additionally, increasing demand for feed will parallel poultry industry growth in domestic and foreign market, including meaningful exports to Malawi and Zimbabwe Several key investments – particularly in the high potential Northwest of Zambezia, West of Nampula, or Central and South of Niassa – could help transform the country into a regional breadbasket E.g.: Invest in silos and adequate storage processes to reduce post-harvest waste and aflatoxin contamination 1 Area Harvested, ‘000 ha (2010) LAND 2 #01 Maize #02 Cassava #03 Legumes 3 Food Consumption, in % of total consumed (2004) CALORIES #01 Cassava 35% 4 #02 Maize 27% #03 Sorghum 6% PROTEINS #01 Maize 36% #02 Cassava 14% #03 Pulses 13% Source: FAO; USAID; Monitor Analysis

50 Vegetables – Market Analysis
Opportunity to Substitute Imports and Export Additional Crops to Nearby Countries 1 Vegetables in Mozambique are an important income earner with high growth forecasted Despite occupying only 6.6% of cultivated land, they accounted for USD 15M and 3,500 jobs in 2009 World Bank projects the total formal domestic vegetable market will be USD 100M by 2021 from USD 65M in 2006 Vegetables present a significant opportunity for import substitution within Mozambique The three largest vegetable crops are tomato1, potato, and onion. Combined they represent a local supply deficit of 310,000 metric tons 2 Recent entrance of supermarkets such as Shoprite and Game, as well as mining operations, provide potentially large buyers of locally grown vegetables Consumption of Vegetable Crops (metric tons, 2011) 3 Import Production 3 Export of vegetables is also an option for Mozambique Most of Southern Africa cannot produce frost- sensitive export crops like baby-corn, beans, and chilies during winter months but Mozambique can, particularly in the tropical coastal climates found in the Beira corridor 4 44% 31% 56% 69% 40% 60% Potato Tomato Onion Note: 1) Actually a fruit, but grouped with other key value chains of potatoes and onions Source: TechnoServe; Ministry of Agriculture; World Bank; Monitor Analysis

51 Possibilities for Cotton Production
Cotton – Market Analysis A long, successful history of export, with significant productivity improvement potential 1 Mozambique’s cotton lint has a long history in accessing important international markets, traditionally in Europe as well as more recently in Asia Possibilities for Cotton Production Cotton 2 High potential for increased productivity Current productivity is one of the lowest in the world (380 kg/ha) 3 Opportunities for ginning of cotton for export of high quality cotton lint and processing of cotton seed into oil and cake Cotton Seed Cotton Lint Low yield provides opportunity for productivity increase in the country Cotton Yield by Country (kg/ha) World Average 3 4 Cotton Oil Cotton Seed Cake 380.0 Israel China USA Kenya Mozambique India Source: TechnoServe; GDS; Interview with experts; Monitor Analysis

52 Groundnuts – Market Analysis
Production has been increasing rapidly to meet food and oil demand growth 1 Already, widely grown in Mozambique, groundnut production has been increasingly rapidly to meet growing demand 30% CAGR since 2004 Significant production growth in Mozambique Peanut Production (MM tonnes) CAGR +30% 2 High energy and protein food that has multiple food uses, particularly in comparison to most common crops in Mozambique Can be consumed in its raw form, boiled or even roasted Groundnuts can also be used to produce processed food, such as peanut butter 2004/05 2009E Nutrition Facts Comparison (per gram) (per 10 grams) Groundnuts Cassava Maize 3 High potential in domestic market as well as import substitution for vegetable oil from seeds Oil yield can reach up to 45-50%, against 20% of soy and cotton There is interest by ICRISAT and other research institutions to develop new higher oil variations – further increasing productivity Groundnuts is an important crop that can be used for oil production Oilseed Production1 (ha, 2007) Oil Imports (000’s tons, 2009) 132.2 Total Groundnuts Cotton Others Total Note: 1) Does not include production from palm trees Source: TechnoServe; Minister of Agriculture and Fisheries (Nampula Province); Nutrition Data; Interview with experts; Monitor Analysis

53 Detailed Investment Opportunities
Commodities Analyzed For the sixteen prioritized commodities, additional information is included in differing levels of detail to supplement the investment cases distributed during the Forum I Detailed Investment Opportunities Rice Soybeans Banana Sesame II Rationale for Investment Described Sugar Cane Poultry Tea Cashew Cassava Maize Vegetables Cotton Groundnuts III Highlights of Opportunities Forestry Aquaculture Livestock Fruit Pulses

54 Commodity Attractiveness (1/2)
FORESTRY Large commercial plantations are already being developed in the northern and central regions Green Resources: USD 2.2B eucalyptus plantation and industrial infrastructure in Nampula Potential for export of timber products to Asia Low cost access to abundant land 26 million hectares potentially suitable for forestry AQUACULTURE Increased aquaculture is required for sufficient domestic supply, as natural capture supply declines High production potential of shrimp for both the domestic market and export New technologies launched for shrimp which have created sustainable farming LIVESTOCK A growing middle class places a higher demand on meat products within Mozambique Currently high imports of beef, mainly from South Africa, provide opportunity for import substitution Potential for production of pig, cattle, and goat for local consumption with significant export opportunities for goat meat to the Middle East

55 Commodity Attractiveness (2/2)
FRUIT Tropical and sub-tropical fruits such as citrus, pineapples and mangoes have high production potential in Mozambique Counter-seasonal demand with Middle East, India and European markets Potential for year-round production of pineapple in Manica province Value added fruit products such as dried fruit, jams and juice could be produced from fruit not meeting export quality grades PULSES Major food crop with a wide range of varieties grown Counter-seasonality with India, which is a leading consumer of pulses Potential to export pulses such as pigeon pea to Asia

56 Mozambique: Vast Potential Across Commodities
A strong and increasingly attractive investment climate... ...with viable opportunities across numerous value chains... ...provides a unique window to invest TODAY Tete Niassa Gaza Sofala Zambezia Manica Nampula Inhambane Cabo Delgado Maputo Contact Information: Abdul Cesar Agricultural Promotion Centre Lourenço Sambo Investment Promotion Centre

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