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Why Africa offers growing opportunities for agricultural products

The main drivers of demand for agricultural products are population growth, urbanisation, economic growth and changing diets.

Population growth brings greater demand, urbanisation leads to more people buying food rather than producing their own, economic growth increases purchasing power while changing diets implies that people are opting for diverse, and sometimes healthier, consumption.

Africa is expected to double its population from 1.2 billion to 2.4 billion by 2050, making it the fastest growing region in the world. The continent is also urbanising rapidly. More than 50% of the population still lives in rural areas but this is changing. The continent is expected to have one of the highest urbanisation rates in the world over the next 35 years.

The fact that the growth factors are present on the continent and most are increasing presents opportunities for businesses connected to the agricultural sector. For South Africa, this is a chance to widen opportunities for its struggling agricultural industry. The foundation has been laid by some agro-processing companies and retailers that have successfully set up operations in countries north of the Limpopo River.

Taking the gap

South Africa’s agribusinesses and retailers have set themselves up to take advantage of these opportunities. Its businesses started increasing their participation on the continent soon after 1994 when the country was accepted in the international community.

Supermarket group Shoprite, for example, had 131 stores in 16 countries (excluding South Africa) in 2013. Woolworths has 65 stores in 11 countries; Pick n Pay 110 stores, including joint ventures.

These retailers are usually linked with agribusiness in the home country and thus source most of the food, fresh and processed from South Africa. In return, South African exports of food and agricultural products benefit.

South African exports to the rest of the continent have more than doubled from the mid 1990s to 2014. In 1994, Africa accounted for less than 10% of total exports. By 2014 the continent was the leading destination for agricultural and agro-processed products, accounting for more than 45% of all exports and surpassing some of South Africa’s historical partners in the European Union and the US.

Products that have benefited most are maize, apples, wines and processed food. The main destination countries are Zambia, Angola, Nigeria and Ghana. These countries achieved higher rates of economic growth over the past decade than the global average. Nigeria is not only the most populous country on the continent, but it is now the largest economy. In the last 15 years, Zambia achieved GDP per capita growth of more than four times, from about $400 to $1800. Angola managed an average annual growth rate of more than 10%, supported mainly by oil resources.

Targeting the affluent

General incomes have been growing in most African countries. In the past five years at least four African countries have been making the list of the fastest growing [economies]((https://www.washingtonpost.com/news/worldviews/wp/2014/01/09/these-10-countries-are-set-to-be-the-fastest-growing-economies-in-2014/) in the world. They include Nigeria, Ghana, Zambia, Mozambique and Kenya. In theory, the growing economies improve average incomes and affordability.

But one of the weaknesses with these growth rates and progress in economic growth is that the gains have not been evenly distributed. Income inequality in many countries remains high and continues to increase in others. For example, the wealth gap in Zambia and Nigeria is growing. The richest 20% in Zambia had national income share of about 57% in 1993, and their income share increased to 62% in 2010. In Nigeria, the richest 20% controlled 45% of income in 1985, and then increased to 49% by 2010.

South African companies have targeted the rich segments of the economy. Stores are usually located in the main centres, with high population density, relatively better infrastructure than the rest of the country and generally high income than the rest.

This practice has led to criticism being levelled against South African companies. Resentment from local businesses has been fuelled by the fact that South Africans are not developing local capacities in agro-processing, manufacturing and other value adding activities that will make local products meet the required standards of those retailers.

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Africa is not for sissies

Businesses face a number of constraints and potential threats.

Infrastructure in many countries is relatively undeveloped and weak, especially in rural areas. As a result, the cost of moving goods across the continent is higher, making the products unaffordable to many.

There are still concerns about political instability and social unrest even though a great many more African countries have become peaceful over the last 20 years.

There are also concerns about the sustainability of current growth rates. This is because most of the fast growing countries rely on resources for their growth. These include oil, copper, gas, gold and other minerals. These commodities are usually exported in raw form or with little value added and their prices are highly volatile.

Competition from countries such as China, Indian and the developed world is also increasing. Although it is fragmented, it remains a concern.

There is a need to manage trade relations on the continent and deepen integration. The right foundation has been set with the completion of the [SADC free trade]((http://www.brookings.edu/blogs/africa-in-focus/posts/2015/06/17-tripartite-free-trade-area-andriamananjara) area as well as the signing of the tripartite free trade area in June 2015 providing additional access to African markets. This expands duty free markets in 25 countries, a combined population of more than 620 million and aggregated economic value of $1.2 trillion.

Intra-Africa trade is very low at about 10%, but this widening of market access should help to improve that trade. It should also encourage further expansion of South African retailers which in turn will facilitate that intra-Africa trade. South Africa is already the largest contributor to intra-Africa exports, accounting for one third of the total export value. This contribution serves a a useful building block for both deeper economic integration and further capacity development for future growth of the people of the African continent.

 

Source: THE CONVERSATION

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Africa must start by treating agriculture as a business

No region of the world has ever moved to industrialised economy status without a transformation of the agricultural sector. Agriculture, which contributes 16.2% of the GDP of Africa, and gives some form of employment to over 60% of the population, holds the key to accelerated growth, diversification and job creation for African economies.

But the performance of the sector has historically been low. Cereal yields are significantly below the global average. Modern farm inputs, including improved seeds, mechanisation, and irrigation, are severely limited.
In the past, agriculture was seen as the domain of the humanitarian development sector, as a way to manage poverty. It was not seen as a business sector for wealth creation. Yet Africa has huge potential in agriculture – and with it huge investment potential. Some 65% of all the uncultivated arable land left in the world lies in Africa. When Africa manages to feed itself, as – within a generation – it will, it will also be able to feed the nine billion people who will inhabit the planet in 2050.

However, Africa is wasting vast amounts of money and resources by underrating its agriculture sector. For example, it spends $35 billion in foreign currency annually importing food, a figure that is set to rise to over $100 billion per year by 2030. In so doing, Africa is choking its own economic future. It is importing the food that it should be growing itself. It is exporting, often to developed countries, the jobs it needs to keep and nurture. It also has to pay inflated prices resulting from global commodity supply fluctuations.

The food and agribusiness sector is projected to grow from $330 billion today to $1 trillion by 2030, and remember that there will also be two billion people looking for food and clothing. African enterprises and investors need to convert this opportunity and unlock this potential for Africa and Africans.

Related: Farmers already earning more from Macadamia nuts and hass Avocados

Agriculture as business

Africa must start by treating agriculture as a business. It must learn fast from experiences elsewhere, for example in south-east Asia, where agriculture has been the foundation for fast-paced economic growth, built on a strong food processing and agro-industrial manufacturing base.

This is the transformation formula: agriculture allied with industry, manufacturing and processing capability equals strong and sustainable economic development, which creates wealth throughout the economy. Africa must not miss opportunities for such linkages whenever and wherever they occur. We must reduce food system losses all along the food chain, from the farm, storage, transport, processing and retail marketing.

To drive agro-industrialisation, we must be able to finance the sector. Doing so will help unlock the potential of agriculture as a business on the continent. Under its Feed Africa strategy, the African Development Bank will invest $24 billion in agriculture and agribusiness over the next ten years. This is a 400% increase in financing, from the current levels of $600 million per year.

A key component will be providing $700 million to a flagship programme known as “Technologies for African Agricultural Transformation” for the scaling up of agricultural technologies to reach millions of farmers in Africa in the next ten years.

Finance and farming have not always been easy partners in Africa. Another pillar of the Bank’s strategy is to accelerate commercial financing for agriculture. Despite its importance, the agriculture sector receives less than 3% of the overall industry financing provided by the banking sector. Risk sharing instruments may resolve this, by sharing the risk of lending by commercial banks to the agriculture sector. Development finance institutions and multilateral development banks should be setting up national risk-sharing facilities in every African country to leverage agricultural finance. And the African Development Bank is setting the pace based on a very successful risk-sharing scheme that I promoted while Agriculture Minister in Nigeria.

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Infrastructure

Rural infrastructure development is critical for the transformation of the agriculture sector, including electricity, water, roads and rail to transport finished agricultural and processed foods.

The lack of this infrastructure drives up the cost of doing business and has discouraged food manufacturing companies from getting established in rural areas. Governments should provide fiscal and infrastructure incentives for food manufacturing companies to move into rural areas, closer to zones of production than consumption.

This can be achieved by developing agro-industrial zones and staple crop processing zones in rural areas. These zones, supported with consolidated infrastructure, including roads, water, electricity and perhaps suitable accommodation, will drive down the cost of doing business for private food and agribusiness firms.

They will create new markets for farmers, boosting economic opportunities in rural areas, stimulating jobs and attracting higher domestic and foreign investments into the rural areas. This will drive down the cost of doing business, as well as significantly reduce the high level of African post-harvest losses. As agricultural income rises, neglected rural areas will become zones of economic prosperity.

Our goal is simple: to support massive agro-industrial development all across Africa. When that happens, Africa will have taken its rightful place as a global powerhouse in food production. It could well also be feeding the world. At this point, the economic transformation that we are all working for will be complete.

source: bizcommunity