Aquaculture in Africa: the risky frontier for impact investment

Chicoa Fish Farm is a pioneering aquaculture business, built on Lake Cahora Bassa in Mozambique. The farm has developed offshore breeding as a cornerstone of its advanced approach to tilapia farming. By combining careful genetic selection with sustainable husbandry practices, the farm demonstrates one of the lowest feed conversion ratios for tilapia in the world. The farm also partners with the Department of Fisheries and strategically aligned Development Finance Institutions to train and equip smallscale tilapia farmers throughout Mozambique.

Chicoa Fish Farm, Lake Cahora Bassa, February 2021

The story of Chicoa Fish Farm really began with an impact fund. From there, a second impact fund came in to finance our very first cages. A third gave us a repayable grant to develop our on-site operations. A fourth helped us develop a market for our fish in Mozambique. A fifth came on board with funds that we used to buy a spiral freezer, to extend the shelf life of our product along the route to market. A development bank funded a zoning exercise on the Lake, helping Mozambique’s Department of Fisheries to protect the Lake’s resources, while still creating dedicated aquaculture sites that would operate in harmony with the hydroelectric power station on the dam wall. Impact funds 6 and 7 are came aboard during Covid: Number 6 is helping us scale; while Number 7 is helping us train and equip a generation of new smallscale farmers in one of Mozambique’s poorest provinces.

This has the potential to turn the farm in Mozambique into a shining model of the power of impact investing. It’ll be even more shiny when it turns a real profit.

Speaking as the founders, you should know that we’re exhausted.

Part of that is because we’ve built stretches of road by hand, without electricity or connectivity, in an area where malaria is constant, in a country where we did not speak the language, in one of the most bureaucratic governance systems in the world. We have spent years away from our homes and families.

But if we’re measuring the sheer scale of the barriers to entry, impact investment criteria are right at the top of the list.

And by sharing our experience, we’re hoping to kickstart a conversation within the Impact Investment community. Perhaps that sounds audacious — but it is no less ambitious than trying to kickstart an aquaculture industry in Mozambique.

But it seems to us that impact investment funds need to recalibrate their fears of failure. Because most impact efforts will fail, you really have to bake failure into the DNA of your mandate. But done right, failure is good for business.

How We Came To Chicoa

Back in 2012, Gerry McCollum and Damien Legros were freelance aquaculture experts.

Prior to that, they had spent decades working together, building and developing a tilapia fish farm on the shores of Lake Kariba in Zimbabwe. They managed that business through both Zimbabwe’s good years and its decline into hyperinflation. After Zimbabwe dollarized, the management team allowed themselves to be bought out by a Private Equity fund.

In 2012, AgDevCo, a UK-funded agribusiness specialist impact fund, commissioned a study to identify promising new fish farm sites at various inland bodies of water in sub-Saharan Africa. Gerry and Damien were asked to lead that study.

One of the lakes that they were planning to look at was Lake Cahora Bassa in Mozambique. They had driven up to the small town of Songo, built by the Portuguese to oversee the construction and maintenance of the dam wall of Lake Cahora Bassa. From there, they were going travel up the lake by road, to hunt for good fish-farming spots.

As you drive down from the hills of Songo, there is a road to your right that leads up to the village of Mague, which is around halfway up the lake. From there, the road takes a turn toward the Zimbabwe border post of Mukumbura. The border line is marked by a wide riverbed, with no bridge. It is only passable in the dry season.

The road to Mague and Mukumbura runs parallel to the south bank of the lake, and it is lined with electricity pylons. After the village of Estima, the baobabs of the Zambezi valley become interspersed with Palmyra palm trees, which seem strangely out of place, although they are native to the Zambezi River valleys. Gerry and Damien drove past an unassuming dirt road, which turned up toward the hills that hid the lake from the view of the road. They paused, because the electricity lines also turned inward, and ran alongside the dirt road.

And in that moment, Gerry and Damien decided to follow the power lines, and the story of Chicoa Fish Farm really began.

After an hour or so of traveling down that dirt road, they drove through the village of Emboque, and arrived at a fishing lodge named Moringa Bay. They met with the head of the community, and then the chief of the village. They were directed to a peninsula of land on the other side of Emboque, and trekked through the virgin bushland to reach the water’s edge.

The Chicoa Peninsula, and the road that takes you to the main farm buildings, and the cage sites

The near-perfect site

This plot of land and water, which would one day become Chicoa Fish Farm, lies at the rocky mouth of Lake Cahora Bassa’s gorge. Here, the shoreline drops away quickly into deep water. The surrounding foothills shelter the bays of the Chicoa peninsula from the winds of the open lake. And because the water is so deep close to shore, those bays hold their depth even during the lowest waters levels of the dry season. At the gorge mouth, the lake waters narrow back into the Zambezi River: the increased flow makes for an continuous exchange of water, and excellent water quality. And the temperatures of the Tete District, and of the lake water itself, create optimal breeding conditions for tilapia for most of the year.

But the environmental factors are only one part of the Chicoa story.

From a trade perspective, the Tete Province in Mozambique lies in a corner of the country that is bordered by Zambia, Malawi and Zimbabwe. The closest capital cities to the farm are not Mozambican — Lusaka, Harare, and Lilongwe are less than a day’s drive from the farm, by truck. But the farm still has the benefit of direct land access to the Mozambican capital of Maputo, without the worry of a land border delay.

Lake Cahora Bassa is unusual in Sub-saharan Africa, because it is a large water body completely controlled by a single jurisdiction. Lake Kariba is shared between Zimbabwe and Zambia; Lake Malawi has shorelines in Malawi, Mozambique and Tanzania; Lake Victoria is shared by Tanzania, Uganda and Kenya. Shared lakes are much more vulnerable to conflicting regulations, which can wreak havoc on the the biological integrity of the water system.

Just as unusually, Lake Cahora Bassa also had no pre-existing aquaculture industry on the lake. Apart from one or two small pilot farming projects, the only real activity on the lake was wild capture fishing. And that industry was in decline, due to overfishing.

This blank slate would give first-mover advantage to the first commercial scale tilapia farm on Cahora Bassa, with the ability to work with a single Government to define the best aquaculture practices; and moreover, to train candidate farmers in those best practices from the very start.

The Impact Vision

As impact stories go, the Chicoa vision was compelling. The site had near-perfect biological parameters; with a real opportunity to embed sustainability into the fresh aquaculture industry that the farm would build.

Of course, the vision was also incredibly ambitious.

For every good reason why this project should be started, there was always a corresponding good reason for why it had never been attempted.

In “A Better World is Possible”, a chronicle of the Gatsby Foundation’s 50 years of charity work, Lord Sainsbury was asked to name his biggest mistake in grant-making. His answer was direct: “It was Mozambique.”

The Mozambican project he was referring to was “a large scale, agricultural development”, much like Chicoa wanted to be. That project was meant “to demonstrate that private investment in a developing country could both be financially worthwhile and achieve the social impact that is the aim of all Sainsbury’s charitable projects”.

In the same way, Chicoa was meant to demonstrate the belief that a tilapia farm with strong sustainability practices and firm social impact commits would not only be profitable, but even more competitive than a more typical commercial fish farm.

So why did the Gatsby project in Mozambique fail?

When asked this question by the Financial Times in 2017, Lord Sainsbury replied “The main thing was that we did not have the people with experience who could manage it from the outset.”

Speaking from our own experience, the Mozambique investor experience is not an easy one. There seem to be endless layers of complex regulations that only local operators know how to navigate. There is no manual or guide to these regulations, nor is there a cheat sheet for the subtle etiquette rules you must obey in order to negotiate with the voluminous number of agencies, ministries, departments, district officials, inspectors and authorities, as they come to call. Even opening a bank account with a Commercial Bank is a three month process.

As Lord Sainsbury says, you really do need people with experience to manage this kind of project from the outset.

Our own view on it is that the missing ingredient on the experience front is resilience. Familiarity with the particular nature of Mozambican regulation is not the important thing — being able to cope with the unknown as it arrives out of left field is what is needed. Resilience is that ability to take a crisis, or a failure, and use it to improve. The farm has done this in practice. We’ll get to that soon.

But when embarking on this kind of impact adventure, resilience is really needed across the board — from the team on the ground, to the investors and donors, and up to the ultimate funders of the impact funds that facilitate the project.

Designing a project for impact

After finding this great site on Lake Cahora Bassa, the impact fund that had commissioned the study put a moratorium on new investments in Mozambique.

This is the kind of thing that happens to Impact Funds all the time. There is a change of government in a funding country, with fresh cuts to international aid programs. Or there is a change of guard at the top level of the fund, where the risk appetite of the fund changes because a new decision-maker had a bad experience in your country/region/industry.

But one of the directors of AgDevCo, Han Derksen, stepped in to support the project personally.

Damien and Gerry, with Han’s support, shopped the project around for a few years, before Mike Velings and Amy Novogratz, through their newly-instituted sustainable aquaculture fund, AquaSpark, took an interest in it.

Mike and Amy are pioneers in their own right, and have their own audacious vision for saving the world’s oceans through sustainable aquaculture. And with their forward-looking vision, they pushed the farm down a much more formalised path.

Right from the start, the farm was set up with a flexible corporate structure: including both a holding company and an operating company. We signed a thoughtful and values-driven Shareholders Agreement. The board had a good balance of management and active shareholders. The financials were fully IFRS compliant, and fully audited. Minutes of every board meeting were kept, and every significant contract or payment was backed by careful recorded resolutions. That administration, structuring and compliance was where I came in at first.

And importantly, another member of the management team was brought on — someone with good institutional connections, and a successful career in Europe in selecting successful impact projects. Someone who was ready to try their hand in the field.

The new management team arrived in Tete, Mozambique, and sourced reputable service providers to assist with compliance, accounting, property registrations, HR processes, and licences.

And a team of villagers from Emboque were hired to start building the 3 km stretch road to the planned farm site, by hand.

Laying the rocks for the new road
The completed road

The first impact

Somewhere during those first few months of developing the site, long before the money ran out, and long before the farm began operating, the institutional member of the management team realised that life in the field was not for him. It was clear to the rest of the team as well. As the complex work of trying to run and build an operation began, progressively more of his time was spent focusing on the ‘controllable’ part of the business, like counting the number of nuts and bolts delivered from Tete. The details became more important than the vision. A car accident on a dirt road in Emboque was the final straw, and he walked away from the project.

This experience of the farm being embraced enthusiastically at first, and then abandoned as the wrong fit, while all the focus shifts toward unimportant details, would be borne out, time and again, by our experience with Institutional Investors.

“Sorry, you need to be something else”

The farm, as a standalone operation, is an incredibly capital-intensive project. Farming fish requires cages, boats, and feed storage. Fish-farming is also working capital hungry — the farm pours money into the biomass underwater for months before the fish is ready to harvest.

The farm team that runs all of this need amenities and accommodation.

And this was undeveloped land to start. We had to install electricity (ie. erect our own electricity pylons, run cables to the nearest connection point, import and install our own transformer, then wait for the grid to connect us). We also built a small ice production site for harvesting and transportation of the fish. And we are now constructing a processing factory on site to turn the fish into frozen fillets.

So the farm has been in an almost perpetual state of fund-raising.

And our first ports of call were always the large Development Funding Institutions, because these seemed like the obvious choice. The investment criteria always seemed too good to be true.

Which was usually the case. The ticket size of our investment was either too small, or too big. The fund we were approaching had just closed its investment round, or was just about to close its next financing round. The fund wasn’t sure about aquaculture, and whether it would qualify as agriculture, or as something else.

These kinds of rejections are normal.

But there is another kind of rejection that we’ve experienced far too often. Those rejections are the ones where you fit the mandate, and you meet most of the criteria. But as time goes on, as the management team devote time and resources to the process, the risk aversion of the impact fund starts to wear away at the enthusiasm. The fear factor sets in, and months down the line, the conversation just degenerates into a series of unmeetable demands.

The economic incentives of Impact Funds

From what we have experienced, most impact-focused projects will eventually find themselves caught between the two conflicting priorities of any impact fund or DFI. On the one hand, there is the desire for high impact projects that really make a difference. On the other, there is the aversion to failure.

That fear of failure plays out in multiple ways.

The panic of investment managers

Firstly, and perhaps most importantly, the investment managers that are hunting for impact projects do not seem to be incentivised to approve them. Clearly, somewhere along the way, it has become industry practice to insist that there is no bonus or commission associated with closing an investment deal. This makes a lot of sense — you don’t want impact managers racing along, approving investments carelessly.

But unlike private equity funds, where the investment manager usually has an interest in the fund’s overall performance, there are few performance-linked incentives in the impact sector.

There is only the risk of being fired when an investment goes wrong. Or the risk of not being promoted.

This results in a really bizarre approach to impact investing: where investment managers want to be seen to be investigating projects, finding deals and negotiating KPIs, but actually finalising the investment is an outcome to be avoided. If anything, the best outcome is to stop a deal at the last minute, and gain a reputation for having ‘saved’ the fund from a bad investment.

This is terrible news for impact projects. The project team devotes months (and even years) in negotiations for a promised deal, only to be told that there is some reason that you no longer qualify. One memorable deal call involved us being told that our growth plan was both too slow and too fast, in the same conversation, with the same DFI. That DFI literally ghosted us. We’d spent eight months fixing a series of ‘problems’ for the institution. Unfortunately, each solved problem only created a new risk for the investment manager to obsess over.

The demand for immediate profitability

While insisting that an impact project must meet a series of impact indicators that no profit-driven firm would bother with, impact funds also want to be sure that the project is not going to fail on commercial grounds.

There is, of course, the obvious point that if you want meaningful impact, there is always going to be commercial risk. But impact funds are not in the business of taking on commercial risk.

This is often the fallback reason for turning down an investment opportunity.

Outright Skepticism

Finally, it comes as no surprise that many impact projects fail. What is surprising is how surprised the Impact Investing world is by those failures. And how scarring those experiences seem to be.

Sometimes, when our conversation with an Impact Fund had moved beyond the normal exchange of document room information, we would discover that our own merits were not enough. We found ourselves being measured against some unknown project that had recently failed. To be clear, that project was always nameless. We were never quite sure what we were meant to not be. But there would be constant references to it.

And eventually, the investment proposal would become so restricted with risk mitigation measures that it simply became unworkable. At which point, we would have to walk away.

That would not necessarily stop the DFI from claiming the investment publicly during the negotiation period, and even after the negotiations would fail. Even though we were never to see a cent of that investment.

The skeptics are probably justified

Real impact work is messy. There are always failures in the story, and there are plenty of risks in the pipeline.

But if your investment process is designed to sift out all but the most perfect-looking projects, then you are likely to end up investing in snake oil. Because those are the only ones that look perfect on paper.

And more importantly, when those snake oil investments turn out to be less than perfect, it’s easy to conclude that the problem was a failure to identify risks — rather than a failure to adequately embrace them in the investment process.

And from there, it’s a vicious circle of searching for ever more riskless projects.

The farm does not work this way. We cannot pretend that our project is riskless.

And that should not count as a failing. Recognizing risk is the first step to mitigating it.

But there are successes

Of course, there are institutions that have really committed to going on this journey with us. Some are private, while some are publicly-funded.

Very early on, DEG gave us grant funding. This was almost singlehandedly due to the vocation of one or two key members of their team. DEG returned again to support us during this time of Covid. It was that same original team that made the call.

Both GAIN, the Global Alliance for Improved Nutrition, and IDH, the Sustainable Trade Initiative, came on board. They too had the advantage of deeply committed team members, with very clear interests in Mozambique.

Those partnerships have focused on helping us mitigate our business risks, rather than viewing those business risks as obstacles to funding us.

And our newest shareholder is Goodwell Investments. Their Due Diligence process was unique in our experience. The Goodwell team seemed far more interested in hearing how we had dealt with the problems that we’d overcome, rather than dissecting our business into a list of weaknesses and shortcomings. Somehow, we actually emerged from that experience uplifted by it.

Turning Failures into Cornerstones

Resilience is only ever demonstrated in crisis.

The heart of the farm is our hatchery. The real skill in tilapia farming is being able to breed and collect fry, and nurse them through that first month of high mortalities. From there, tilapia are quite hardy fish. They’ll cope with short-feeding and temperature changes. But the fry are where the farm makes or breaks. Chicoa’s hatchery is also where this growing aquaculture industry in Mozambique will make or break.

The very first thing we built on the farm — long before we built washrooms or feed storage or accommodation — were three onshore breeding ponds. These are large concrete structures, which take up a lot of land space. You can see them prominently in Google Maps images of the farm. But onshore breeding is how the industry does it.

Onshore breeding tanks

But the breeding was not successful. The water in the ponds grew too hot in the heat of the day, and then would cool at night. All that variability in the water temperature stopped the breeding process.

A farm can usually deal with this by pumping fresh water through the ponds, but the farm was miles away from the electricity needed to power the pumps. While Gerry went to work raising the money for us to accelerate the farm’s electrification, Damien and his team tried an alternative. They placed cages in the lake itself, where the water temperature was constant, and where the flow of fresh water was continuous.

Then the fry began to arrive. We learned valuable lessons over that time. We tried different fry collection methods, and a variety of cage structures and set-ups. We learned how to protect the fry from parasites in the water. Our colleague and friend, Robin Nyagato, spent those first two years living in a tent on the water’s edge, so that he could be in constant line of sight of his “babies”.

Robin, with our offshore breeding site behind him

Today, our offshore breeding site has higher survival rates than we could ever have anticipated. As we grow the farm to scale, there will never be a need for us to clear vast tracts of land to construct unsightly ponds, nor a need for us to transport live fry from land back to the water. As we grow, we simply add nets and platforms. If there was ever a sustainable and environmentally conscious leap forward in tilapia farming, it is this.

And given the savings in space, and capital investment, and transportation costs, we genuinely believe that offshore breeding is the future of tilapia farming.

But this advance only came about because of a list of seemingly insurmountable obstacles: a lack of electricity, a lack of financing, and a lack of time.

Chicoa Fish Farm does not exist today because of a list of reasons why it shouldn’t. It exists because that Impact Vision was driven by a team of resilient people, who spent a lot of energy and time not allowing themselves to be overwhelmed by that list of reasons why not.

And really, this is where the world of Impact Investment Funding needs to focus. Impact Investing is full of risks, and full of costs. If it wasn’t, there would be a steady stream of private funding for these projects.

The role of an Impact Investor is not to avoid these risks. Those risks have to be carried by someone. And the starting point really should be the team that has carried the risk to this point, who is asking you to share it with them.

If you, as the Impact Investor, insist that they continue to carry it for you, then you are now a business risk.

And that is surely not the impact that you’re after?

For more updates on the farm, please follow us on our Instagram account or check out our LinkedIn pageOur website has more information on our values and operations.

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