By Jacques Taylor
With the world’s focus on African agriculture continuously mounting
there are a number of trends shaping the African landscape which are likely to
have an impact on Africa’s agricultural sector.
The integration of emerging markets, including Africa, into the world
system (that is, the shift from G7/G8 to G20 countries driving the global
financial architecture) is setting the stage for long term economic growth and
development. South Africa, as a member of the G20, has sought to advance
Africa’s interests on the world stage, as well as reinforce economic links with
the developing world. Multilateral meetings between South Africa and Brazil,
Russia, India and China (BRICs) have become a feature of summitry in recent
years and the extensive growth in the BRIC countries, in particular, China and
India, has had a major impact on Africa. BRIC-Africa trade, as a proportion of total Africa
trade, has increased from 4.6% in 1993, to over 19% in 2008. Bilateral BRIC
trade has increased from $22.3bn in 2000 to $166bn in 2008. Much of this
remains China-Africa trade, followed by India and Brazil. In 2008, Africa had a surplus of $20.2bn with
the BRICs (unlike with the developed world).
In the past 10 years South Africa has remained a major economy, but
there has been shift of economic power to sub-Saharan Africa and North Africa
as well as a shift from aid towards investment and self development. Investors
are making more confident commitments to the continent as shown by changes in
foreign direct investment figures as compared to donor flows.
Changing demographics predicts that a bell shaped population curve will
occur in Africa by 2050. With better governance and policies in place, Africa
will reap the economic benefits of having a greater proportion of the population
falling in the economically active sector.
Technological advances are allowing Africa in some instances to leapfrog
to “best of breed” and to get around some of the shortfalls in hard
infrastructure – e.g. cell phones allow business people in Lagos to conduct
business more efficiently by phone, rather than face to face – to the benefit
of the economy and traffic congestion. With India and China joining the world
economy, long gone are the practices of sending antiquated factory machinery to
Africa. Capital goods manufacturers fight to sell equipment worldwide,
including into Africa. This is helping to raise the quality of goods produced
on the continent. New technology/techniques are also helping unlock Africa’s
natural resources, for example, vertical deepwater drilling is increasing
recoverable oil reserves in West Africa. An improved policy climate, higher FDI
flows, demographic advantages, commodity resources, and a faster growth rate
mean that Africa’s technology stock will grow rapidly, and in turn boost
growth.
Finally there is a
shift in Africa from relying on food aid to
focusing on food security. Land productivity on the continent is low by global
standards, and a decrease in real spending on agricultural extension has not
helped. Furthermore, approximately 40%
of the world’s reserve agricultural land (land that could be cultivated but is
not) is in Africa. Higher food prices around the world have pushed the focus
onto the use of Africa’s fallow arable land. This global focus combined with policy
shifts and the increased involvement of multinationals companies in
agribusiness bodes well for agriculture on the continent. In addition non-governmental organisations (NGOs) and
the donor community are working with African governments towards food security,
poverty alleviation, and the sustainable development of the continent.
These trends, which are changing the
continents landscape, are creating opportunities for African agriculture. These
opportunities include expanding agricultural
production by making use of Africa’s has abundant arable land and water.
Africa’s per capita water resource is 4,600m3, versus 3,000m3 and 164m3 in Asia and the Middle East respectively .
Furthermore, only 15% of Africa’s arable land is used, versus Asia’s 60% and
140% in the Middle East. The shift from food aid to food security is driving
policy changes and are there significant donor efforts to catalyse investment
in both commercial and small scale farming. Rising per capita incomes across
Africa are lifting domestic food demand, and attracting a wall of money from
donors as well as private investors.
The development of more complex and lucrative supply chains from farmers
to urban markets is benefitting Africa’s farmers. Many big Western branded food
companies are in a race to build a presence in emerging markets. Companies,
including Unilever, Nestle, Diagio and SAB Miller, are buying locally to ensure higher quality and a
lower cost of supply and are major supporters of small scale farmers, providing
both inputs and working capital. Primary processors such as poultry producers
and millers are seeking greater vertical integration, to secure inputs or
markets or add greater value to their product. All
participants see greater scalability and opportunity in building viable, large
scale commercial agricultural enterprises at the fragmented upstream level of
the value chain.
The number of private
public partnerships in the agricultural sector continues to grow. The
Agricultural Guarantee Fund Scheme is which is a
partnership between Standard Bank, the Alliance for a Green Revolution in
Africa (AGRA), OPEC Fund for International Development (OFID), Kilimo
Trust, Millennium Challenge Account (MCA) and Millennium Development Authority
(MiDA) that is operating in Ghana, Uganda, Tanzania
and Mozambique is an example such a private public partnership. The
lending structure makes use of a co-operative mechanism that includes linkages
to formal markets that provide minimum price guarantees (thus mitigating price
risk), includes weather index insurance (to mitigate climate risk) as well as
training and mentorship. The co-operative structure allows farmers to
consolidate their bargaining power which reduces input costs and contributes to
economies of scale in terms of output and market access. Partnerships such as
these may provide just the right catalyst for Africa to capitalise on the
trends shaping the continent.
With so many positive
factors coming together, the time is now for Africa to fulfil its
agricultural potential.
Jacques Taylor is Head of Agricultural Banking at Stanbic IBTC Bank PLC, member of the Standard Bank Group.
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