Investors sweet on Africa's sugar potential
8 September 2011

Sugar production in many African countriesis gaining momentum, driven by increasing local demand, export demand, firmer prices and favourable European Union tariffs, says Standard Bank Group's Head of Investment Banking for Africa, Helmut Engelbrecht. 

Engelbrecht says that along the sugar value chain, from cultivation through processing and export, Standard Bank Group (SBG) is experiencing an increased appetite for investment in expanded cultivation and processing capacity. 

In the past year Standard Bank Group has financed major sugar expansion projects in Swaziland, Mozambique, Zambia and Nigeria to the tune of several hundred million dollars. 

"Globally there is a top-of-mind focus on mineral resources, oil and gas as the most attractive investment opportunities. But in agriculture and sectors such assugar, Africa has innovative and attractive investment opportunities," says Engelbrecht. 

He says the growing international and local consumer demand for the commodity continues to make the sugar industry a strong investment case. While the international sugar price has declined in recent months, it is still at much higher levels when compared to prices prevailing during the period between 2006 and 2008. 

"We expect a good pipeline of funding deals in regions such as East Africa and especially in countries like Kenya, where we are seeing opportunities beginning to pick up steam," says Engelbrecht. 

In addition, recent Standard Bank research indicates that Nigeria, a major African economy, imports and processes virtually all of its sugar needs. Engelbrecht says the Nigerian climate, cultivation conditions and land availability make it attractive for sugar and related investments. 

Engelbrecht says also boosting growth prospects is the continued existence of the European Union's (EU) preferential pricing policy towards some of the emerging sugar producers on the continent, such as Swaziland and Mozambique. 

"One of the big drivers of the growth of the sugar industry, especially in some southern African countries, has been the EU's concessionary pricing for producers selling to Europe," says Engelbrecht. 

Standard Bank's well-established presence in the key African markets enables it to participate in financing agricultural cultivation projects as well as processing, trading and other industry aspects of sugar production. Engelbrecht says Standard Bank Group's focus will remain on financing projects along the entire value chain. 

In one recent deal, Standard Bank Group helped co-arrange the Zambian Kwacha equivalent of a US$128-million syndicated term debt facility for the capacity expansion programme of the Zambian subsidiary of Illovo Sugar. This was the largest Kwacha denominated facility raised for a stand-alone corporate borrower in Zambia in the past three years. 

In a separate transaction for Illovo Sugar, Standard Bank Group helped co-arrange close to ZAR1-billion in term funding for Illovo's 60%-owned Swaziland subsidiary. The funding was for a major factory expansion and electricity co-generation project. 

In Nigeria, Standard Bank Group was the mandated lead arranger and structuring bank for a US$143-million syndicated multi-currency loan facility for Golden Sugar Company. The facility is being used to finance the construction of a state-of-the-art sugar refinery complex in Lagos State. The refinery complex will comprise a refining plant capable of processing 750 000 metric tons a year, a 65 000-ton storage facility and a 30 megawatt gas-fuelled power plant. 

"With Standard Bank's decades of experience on the continent, we have a deep understanding of the countries in which we operate which provides a platform to deliver superior services to our client base," says Engelbrecht.

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