BACKGROUND
Madagascar is one of the poorest countries in Africa, with over 80 percent of its population living on less than US$1.25 a day. It is ranked 163 out of 189 on the World Bank’s ‘ease of doing business index’, making it difficult for businesses to flourish and drive economic growth.

The lychee industry is a key pillar of the Madagascan economy. Madagascar is the biggest exporter of lychees to Europe, accounting for about 70 per cent of lychees marketed in the European Union. 80 per cent of the Madagascan population lives in rural areas, and a large proportion of this rural community depends on the lychee gathering season for an income.

The industry employs many people. The annual lychee season involves 20,000 farming families living along the eastern coast of Madagascar who pick the fruit, 3,000 collectors who collect from the fruit gatherers and sell on to the export companies, and 6,000 people working in the export stations. Although the lychee season lasts only a few months each year, it’s estimated that farming families earn 80 per cent of their annual income from the season.

“I enjoy collecting lychees. It helps me to gain more money. At the end of the year, we have a lot of things to pay, especially when one has kids. I want to spoil them a little. That’s why I collect this fruit, to have more money.”

Louise, a lychee collector for MLE

HOW CDC’S INVESTMENT SUPPORTS MLE
An opportunity for CDC to invest in Madagascar arose in 2007, when we committed capital to a local fund managed by Adenia Partners. With offices in the Madagascan capital Antananarivo, Adenia Partners has expert knowledge of the needs and opportunities of the local economy.

Adenia identified strong potential in Madagascar Lychee Export (MLE), a lychee export business based in the port of Toamasina. The company buys lychees from collectors and then processes and packages the fruit for export to European markets. While the company is a large employer, its production process was complex and its tools and materials were out of date. It risked losing its European customers if it didn’t standardise its business. Capital and support were crucial to the development of the company, and between 2010 and 2012, Adenia invested just over €2 million in MLE.

The long-term and patient nature of the capital has been important in supporting MLE to grow, to improve its standards, and to create jobs. Beyond providing capital, CDC champions environmental, social and governance issues. We have developed a toolkit which many fund managers use to assess and improve environmental, social and governance standards. Adenia and a number of its portfolio companies have found the toolkit useful in supporting them to do this.

“CDC and other similar developmental financial institutions are key supporters and investors in the private equity industry in Africa.  Frankly without their participation, the private equity industry would not exist and small firms like MLE would not have access to risk capital and so they would not be able to invest and to grow.”

Nnennia Ejebe, Adenia Partners

HOW MLE STRENGTHENS STANDARDS AND CREATES JOBS

Strengthening standards

The Adenia team has focused CDC’s capital on improving the production process and implementing good hygiene, health and safety standards at the plant.

For example, the installation of new sorting belts allows the production process to be more efficient and more hygienic. At the same time, the employee working environment has been improved thanks to investment in the lychee stations to introduce improved toilet blocks, washstands and personal protective equipment that meets health and safety standards.

“Many of the European importers were increasingly asking for international best practice to be utilised. MLE was interested in implementing those standards within their company but they just didn’t know how. So they were willing and open to an investment to help them get to that point.”

Tojo Rakotozafy, Adenia Partners

Supporting jobsmadagascar

MLE’s plant is a major employer in the city of Toamasina with 1,600 local people on its books. It also provides indirect employment to the gatherers who pick the fruit, and to the collectors who sell the fruit to MLE.

As well as supporting existing jobs, the investment has led to the recruitment of new staff. The business has created a dedicated team focused on meeting food quality and safety standards, which has created 50 new jobs. Hundreds of hours of training have been provided to these new employees to enable them to do their work.

More broadly, all permanent and temporary workers and suppliers have received, and continue to receive, training on hygiene, health and safety. In addition, all temporary workers now have standardised work contracts.

“We’ve trained the staff in terms of quality issues. Even if they leave MLE they are more empowered, better skilled, and can have an impact on whatever company they choose to join in the future.”

Tojo Rakotozafy, Adenia Partners

INVESTMENT DATA

Investee Company Madagascar Lychee Export
Fund Adenia Capital Fund II
Fund Manager Adenia Partners
CDC Commitment €7m
Date of Commitment 2007
Location Madagascar