Climate Mitigation in Africa’s Agri-Food Sector

Sophia Tabibian (00:00): Welcome to the Climate Map podcast. The Climate Map, an initiative founded by Covalence Global, outlines the complexities of climate change on a streamlined, action-oriented mind map. This podcast is an archive for our research, highlighting conversations with entrepreneurs, scientists, policymakers, and designers. In this episode, we discussed climate adaptation in Africa's food sector with Hossam Allam, founder and Managing Partner at Climate Resilient Africa Fund, which backs Africa technologies at the intersection of agri-food and climate action. Hossam is a prolific angel investor, founded Cairo Angels, which has backed hundreds of Middle Eastern startups, and is a 500 Global instructor on venture finance. Before Climate Resilient Africa Fund, he built and exited a market-leading 4,000 person building services business. Previous to that, he spent 10 years at Shell, first as an environmentalist, and then post-MBA, developing natural gas markets for small-scale distribution, as well as multi-billion country-to-country sales. He's a marine environmental scientist by training.

Sophia Tabibian (01:00): Tell us about your background. Where did you grow up, and how did your career begin?

 Hossam Allam (01:05): I grew up in Egypt. I come from a mixed nationality household. My mother was Danish, and my father is Egyptian. And that, to a large extent, colored my early experiences of life and career. I had a very sort of strong business grounding from my Egyptian father, and a very strong grounding in the environment and in issues of solidarity from a Danish mother. I studied marine oceanography at university, and I used that to get into the energy industry. So I was working for a large oil corporate, studying environmental issues within that company, both onshore and offshore. And that's how I married business with climate in the early stages of my career.

Sophia Tabibian (01:45): How did that background and path inspire you to found Climate Resilient Africa Fund?

Hossam Allam (01:45): After I'd spent 10 years in the oil industry, in various roles, I joined my family's business here in Egypt, again in a role that married environmental issues and business, this time managing large real estate. And really my goal was to bring down the energy, waste, water footprint of large complex real estate. I set up a building services company that managed eventually about a million square meters of real estate with thousands of staff. And we were fairly successful in bringing down, like I said, the energy and water and waste footprint of these buildings.

 Hossam Allam (02:26): But like many people, COVID was a turning point for me. And you've probably heard the term "the great resignation" around COVID, where a lot of people sort of had a realization about their lives and about the world and so on. And I similarly realized by being in lockdown and spending more time in the outdoors and with my kids and so on, that I was looking for a different kind of career. I wanted to deliver more direct impact in the environmental debate than cleaning up oil companies and cleaning up the real estate sector. I wanted to have more of a direct impact and in a broader geography than just my country, but a narrower geography than the whole world.

Hossam Allam (03:03): And so here with a partner, we took a strong look at what is really the climate story in Africa and how venture capital can make a difference there. Now, I should say something that I did something in parallel to my work during the last 15 years of my previous role. And that was I set up an angel investor network and there I really cut my teeth on learning how to do seed stage deals, investing in startups, how to work with other investors, including institutional investors. And I got to see the life cycle of the startup and actually acquired some solid experience and skills associated with investing in startups. And that was sort of the missing piece of the three legged stool. It was environmental, it was business, but venture capital was the missing piece. So when we started Climate Resilient Africa Fund, it was really about marrying environment with Africa with venture finance.

Sophia Tabibian (04:02): That's very interesting. So as you built that angel network and you learned about the startup life cycle, how did that inform your investment philosophy and the way that you evaluate companies at Climate Resilient Africa Fund?

Hossam Allam (04:15): So there's a few dimensions to that. There's some first principles that my partner and I agreed on very early. Africa's climate footprint, so the amount of greenhouse gases it emits, is about 3% of world emissions. So to us, the story of mitigating climate change or mitigating sources of greenhouse gases in Africa was not as big a story, right? Africa emits less emissions than the global shipping industry. And I mean, negligible amounts compared to North America, Europe, the Far East and so on.

Hossam Allam (04:49): And so our view very strongly early on in the journey was that Africa's climate action story is a climate adaptation story, and that's where we should be focusing our attention. That is the climate action Africa needs. And one of the low-hanging fruits in terms of Africa adapting to climate change sits in the agriculture and food sector. So also because my partner is an agri-food, multi-decade experienced farmer and agri-tech person, we came together and said, look, Africa's climate story is adaptation, and the lowest hanging fruit there is agri-food.

Hossam Allam (05:22): There is a moment for agricultural technology in Africa. We can really move the needle here. So when we look at opportunities to invest in, it has to pass all the usual venture capital screening requirements -- a great team, defensible innovation in a large high growth market where they can really attack and deliver change with a business model that is self-supporting, and where competitive dynamics are taken properly into consideration. So the usual sort of venture capital suite of screening criteria.

Hossam Allam (05:53): But additionally, it has to fit our geographic story, of course, and it has to fit our impact thesis as well. So we have a kind of quite narrow climate adaptation thesis. Every deal we look at has to satisfy that adaptation. And we look at how agri-food can adapt itself to climate change in a number of different ways. Everything from clustering small farmers that they work more as a group straight through to genetically edited seeds that are more climate tolerant, or using blockchain to get compensated for climate positive action. We have a number of verticals that we look across where we think that we can make money for our investors, but also deliver climate action.

Sophia Tabibian (06:36): So what do you think makes the agricultural industry in Africa unique, and how does it compare to other areas like Asia?

Hossam Allam (06:44): So if you look, and this is publicly available data, if you were to plot Africa's agricultural output over the last 60 years, it has doubled its output per hectare in the last 60 years. Most other developing countries have increased their agricultural output between six and 10 times. So Africa is grossly underperforming in terms of productivity in the agriculture sector. That makes it unique, right? There's no reason why Africa should be underperforming Asia, Europe, North America, South America. There's no geological, topographical, environmental, ecological, and there's no reason. It's all down to human capacity, which is where entrepreneurs and innovators can come in and deliver a difference, right? They can really move the needle.

Hossam Allam (07:34): The other thing is that we notice when we study, especially India, and to some extent also Latin America, that their big agricultural moments came following the fintech wave. Our fintech movement in Africa has probably peaked and plateaued, which creates the grounds to create the bedrock for agritech to also really take off in an interesting way. Capital is often a bottleneck for the adoption of agricultural technology and gives farmers the base of the pyramid. Access to capital and financial instruments allows them to then go and grow into the agritech sector as well. Africa Development Bank estimates that with good technological and business model innovations, Africa's agriculture sector can grow by a further $700 billion by the end of 2030. That's almost a doubling. So there's a lot of room to grow, is the point that I'm making, and the moment may just be right for it.

Sophia Tabibian (08:30): Wow, that's so interesting. I never thought about that relationship between the fintech industry and the agritech industry, but I think that's a really key insight to look into after hearing that. What are a couple specific technologies that you have invested in to really catalyze the agritech potential in Africa?

Hossam Allam (08:48): There are three sectors that I can sort of just throw at your listeners real quick. We are very keen on satellite technology, remote-monitored, minute improvements in farming, whether it's more optimal irrigation, more optimal fertilization, or distribution of crop. Satellite technology can be used to deliver a much more precise form of farming, which means that you can increase your output for the same inputs, or just save on inputs, which saves money and allows farmers then to redeploy excess capital or retain earnings into the business again. So satellite for precision farming is really, really interesting.

Hossam Allam (09:28): We also think alternative proteins are interesting. Africa really struggles to source protein, both for human consumption, but also for animal feed. And here we particularly like insect farming. It's a very climate-resilient protein, and it can be used certainly for animal feed, but there are also geographies in Africa that have been proudly consuming insects as part of their ancestral diet. And so tapping into that and bringing that into the modern age, so that is farmed in a systematic environment of controlled conditions, kind of the way one associates with modern-day farming, is a very, very interesting and climate-resilient opportunity.

Hossam Allam (10:05): And the last one is kind of a bit harder to see what the connection to climate is, but it's what we call digital marketplaces. And if you recognize that certainly half, if not 60, or even 70% in some countries of the food that is produced in Africa is produced on less than an acre. I mean, an acre is nothing, right? But the vast majority of food in Africa is produced on very, very small plots of land, where the economies of scale are just not there to adopt any kind of technology. And if you could find a way to cluster those, what are called smallholder farmers, into clusters that have more buying power, more selling power, so that they can start to get a bigger share of the pie, start massing more of the value chain, then they can start to afford mechanization, digital products, and tools. They can start affording some of the satellite data I was speaking about earlier. That makes them more resilient. So clustering farmers into larger groups in these marketplaces is another very interesting space for us. That's three of probably half a dozen or so I could speak of.

Sophia Tabibian (11:07): Beyond funding, what type of support do you provide to your portfolio companies? I

Hossam Allam (11:12): I mean, there's multiple stakeholders in the chain, right? There's the founders of the companies and their employees, and there's the customers of the startups that we're backing. And so we don't give any kind of ground support for the customers, and we don't sort of have an acceleration program or anything like that for the founders. We come with substantial experience around how to run companies. I spoke a little bit about my history, the early part of the school. My partner has founded and run and exited multiple agricultural ventures. So just the experience of running companies really allows us to guide founders. very astutely along their journey. We were them once. Beyond that, we also have very good networks into corporates in the agri and food sector. So we could imagine landing our own founders, some of their first major contracts, maybe their future partners, joint venture partners, or even their buyers. That's the level of support that we give. But other than that, we do not have people on the ground deployed supporting customers or helping with the implementation of any of these products or services. That's not our role.

Sophia Tabibian (12:17): What is your future vision for Climate Resilient Africa Fund?

Hossam Allam (12:22): The impact goals of this fund are to reach 700,000 farmers and around 5 million consumers. We have recently woken up to the reality that the majority of both the farmers we can reach and the consumers we can reach are actually women who coincidentally are also among the most vulnerable climate demographic globally and especially in Africa. So we're now starting to take a critical look at how can the fund work in a way that supports women better as a fund through our portfolio, recognizing that we're reaching them anyway. So how can we customize what we do so that the companies we support, the support that we give those companies, better serves the needs of especially women. I mean, farmers in general, consumers in general, but because we've just woken up in the last few months to the reality that we have this huge overlap with the gender agenda, then that's going to become part of our vision as well.

Sophia Tabibian (13:20): That's very interesting. I think the gender agenda, as you call it, is not something that has been very much discussed in US VC firms from my experience. So it's cool to see how initiatives in Europe and Africa are adopting those ideals. I know that you also think a lot about valuing nature. What is your view on recognizing and valuing nature's economic contributions?

Hossam Allam (13:44): I mean, it's not new to the people in this practice. But maybe to some of your listeners, this principle of valuing nature might be a little unusual and sound a bit hippy. But the principle is that almost all industries in the world get a subsidy from nature. So the pharmaceutical sector is highly reliant on nature and farming. The construction sector with the amount of carpentry and woodwork therein is very reliant. Of course, the entire food sector is crucially, existentially linked to nature. But the same can be said, textiles, fashion, and so on and so on. Nature represents trillions and trillions and trillions of dollars of subsidy to the global economy. We rely on it delivering flawlessly every time. The rainfall we get, the soil quality, biodiversity we have, we rely on corn and maize and strawberries to grow out of the ground and the mix of bacteria and viruses and minerals, etc., in the soil just being perfect.

Hossam Allam (14:47): And that is a subsidy we get. If nature didn't do its part, we wouldn't stand a chance of having a global economy. Given that we consume and over-consume nature,  we're actually very often eroding and eating away at that subsidy to the point where it reaches zero. And in ecological terms, that means, you know, seawater is depleted of its micro-diversity, but also its macro-biodiversity, so it's fish, for example. Land can get depleted, you know, and farm land can get depleted. No matter how much more fertilizer you give it, it will not give you more, because all of the very kind of complex cocktail of ecology that the soil needs to deliver goods just isn't there anymore. And if we are to rely on nature to continue for another few generations to support this global economy, we have to start recognizing that it serves us and that service has a cost.

Hossam Allam (15:39): There is a price that needs to be paid to preserve nature for it to continue giving us this enormous subsidy. The Science-Based Targets Initiative, SBTI, is really getting quite sophisticated about identifying on a sector-by-sector basis what is your chain of causality that starts at nature? Where do you overlap with nature? What aspects of nature are you consuming? And what will it cost you to rehabilitate it so that you can have many more generations of industry? And this is a very interesting trend.

Hossam Allam (16:10): Again, I think venture capital can eventually play a role. The space is still forming, but once it's formed, there are tools that will be needed to measure nature, to measure nature impact, to measure nature recovery, and to monetize that, to realize where does money flow, and technology will be needed to guide those decisions. And that's where I think venture capital can play an interesting role.

Sophia Tabibian (16:32): Absolutely. It'll be interesting to see which technologies VCs choose to mainstream in terms of valuing  nature, because I know the UN, for example, has so many different initiatives that all account nature in their own system. It will be cool to see what people end up choosing to accept as the common language. To close off, what are some emerging trends in climate tech that excite you beyond just what you focus on at Climate Resilient Africa?

Hossam Allam (17:00): I mean, look, I think I've already stolen my own thunder on that question, because really it's the nature tech, right? I mean, nature, if we are to treat it as an economic asset class, and that's a very controversial point, because some people say, for goodness sake, let's not go and take something as important as nature and treat that in the same global economy. But if you were to value nature, it would be the line, the technology and the economics of pricing and allocating capital to nature. Nature recovery is a fascinating, fascinating sector. I have a friend in the UK who's putting up listening devices of birds chipping, and based on this one data point, farmers understand the long term survivability of his farm. I mean, I think that kind of technology is an absolutely fascinating space. It's endless. We have yet to understand how to price it, how people will get compensated for it, what's the scalability of it, are there global standards that will emerge or will it become hyper-localized kind of norms? All of this is a very, very interesting space to follow. It's unfolding right now these days, and your listeners really are invited to click around nature finance on their computers or devices and see where that trend is headed.

Sophia Tabibian (18:10): Thank you so much, Hossam, for your time. It was great to hear your insights. Is there anything else you would like to share?

Hossam Allam (18:16): The climate debate has been largely distilled down to mitigation and adaptation. Mitigation seems to be mostly around offsetting emissions and driving the change from fossil fuel energy or derived energy to non-fossil fuel-derived energy. That's a very important transition. It's a global opportunity, and I understand why it has taken on so much global interest from climate leaders.

Hossam Allam (18:41): Adaptation is much more difficult but it really needs case studies, right? I mean mitigation and basically two big case studies, right? The transition of energy generation from fossil fuels to renewable energy and the transitioning of fossil fuel mobility to again, renewable energy sources. That is sort of the case study for mitigation. Adaptation has no one large case study like those ones upon which to anchor all of our efforts. There's going to be hundreds and hundreds of them and how to finance them and how to basically commercialize them is going to be difficult but it needs smart people working on it.  It is an underfunded space. It's an underserved space but there are a lot of global investors who are recognizing that climate change is going to happen. We will exceed one and a half degrees. Maybe it's not something we can avoid. It's going to happen. And how do we get ourselves ready for the shocks that are coming? That is a whole area of opportunity and we really invite all the sort of clever listeners to your webinar to engage with that issue as well.

Sophia Tabibian (19:49): Absolutely. Thank you, Hossam. I think we don't talk enough about that definition of the word "adaptation," especially from the private sector perspective. So I think that that will provide a lot of insight to our listeners that hasn't been touched on in previous episodes.

Sophia Tabibian (20:04): And that is it for the Climate Map today. You can learn more about the climate map at the-climate-map.org.