AGRIBUSINESS: Key to Africa’s Economy-Wide Growth (An Expert Analysis)

Farm management and production is one of the most important economic sectors in the majority of sub Saharan Africa. It is no longer news that about 75% of Africans rely on it to sustain their livelihoods. As a matter of fact, Africa’s economic performance over the last decade has been remarkable, having reached an average growth of 5%. If this growth is maintained, projections indicate Africa’s GDP should increase approximately threefold by 2030 and sevenfold by 2050, outstripping Asia’s. Yet this growth has not translated to creating jobs or tackling inequalities.

History illustrates that agriculture, particularly the developed agribusiness and agro-allied sectors, has been the driver of economic growth in countries across the globe such as Brazil and China. In Africa, agribusiness and agro-industries account for more than 30% of the continent’s national incomes, as well as the bulk of its export revenues and employment. Scaling-up agribusiness could be the next growth frontier. Moreover, it could offer immediate value-addition through commodity-based industrialization that exploits forward and backward linkages with the rest of the economy. Such industrialization could lift many rural dwellers out of poverty while creating jobs across the economy.

It is traditionally thought that as an economy develops, the role of agriculture in the economy’s GDP and employment rates decreases. This trend has been observed in Sub-Saharan Africa where agriculture’s contribution to GDP has fallen from 43 percent in 1965 to 12 percent in 2008. If agricultural activity continues to be limited to crop and livestock production, it will fail to contribute to output growth and poverty reduction. However, agriculture’s contribution could be significantly enhanced by strengthening linkages with industry through agro-processing and providing value-addition to agricultural products, as well as improving post-harvest operations, storage, distribution and logistics. Such an agribusiness development path paves the way for economic growth, structural transformation and improved technical skills which in turn can catalyze economic activities and connect major economic sectors on the African continent. In addition to stimulating economic growth, an agribusiness development path would contribute substantially to poverty reduction and improved social outcomes, forming part of a socially-inclusive development strategy. According to the World Bank, strong synergies exist between agribusiness, agricultural performance and poverty reduction in Sub-Saharan Africa.

Essentially, several key opportunities are within reach in agribusiness. The underlying premise of diversification of such growth sources should curb the pattern of over-dependence on primary commodities in order to generate export revenues. For instance, 90% of the total income from Africa’s coffee, calculated as the average retail price of a pound of coffee, after it is roasted and grounded, goes to the consuming countries. Hence, this clearly underscores the fact that continued dependence on the export of unprocessed soft commodities, as opposed to a focus on increased value-addition, which would invariably adversely affect future growth in the region.

Surmounting bottlenecks

There are several opportunities which Africa could exploit in overcoming the existing challenges facing agribusiness. It behoves on us to outline the bottlenecks as ways of surmounting them.
Firstly, despite possessing the world’s largest reservoir of unused arable land, about 60%, Africa has the lowest agricultural productivity, amounting to approximately 10% of global agricultural output. Cereal yields in Africa average only 1.2 tons per hectare, compared with more than 3 tons per hectare for Asia and Latin America and about 5.5 tons per hectare for the European Union. Ironically, Africa has been a net importer of agricultural products since the 1980s. The continent spends between $40 billion and $50 billion yearly on imported agricultural products. More importantly, Africa is exporting jobs by not being able to increase its value addition.

Importantly, Africa has the potentialities to feed Africa. It is therefore, well-endowed and has the market for it. But it needs more than good technology policies. Scaling up productivity means tapping water resources for irrigation, providing stable prices while doing away with artificial subsidies, using seeds with better yields, providing basic transport infrastructure, providing incentives for financial institutions to invest in agriculture as much as in commercial farming, and developing a profitable and competitive agribusiness sector. By drawing on lessons from other regions such as Asia, Argentina and Brazil, Africa can turn its fortunes around gradually.

Secondly, sustaining the continent’s growth and overcoming current energy challenges is possible. African energy use per capita (which incorporates hydropower, fossil fuels and biomass) is currently only one quarter of the global average. Yet Africa’s renewable energy potential is substantially larger than the current and projected power consumption of the continent. With abundant low-carbon renewable resources, a growing energy demand and falling technology costs, Africa has the opportunity to deliver economically competitive energy solutions for both remote rural and growing urban locales. And bringing power to rural communities will not only improve the quality of individual lives, but also help scale up agribusiness.

Thirdly, Africa’s population growth has to be turned into an asset. By 2050, Africa’s youths alone will constitute over a quarter of the world’s labour force. Its middle class is rising. Urbanization, at 3.7%, is taking place at more than twice the global rate. Combined, and given their sheer magnitude and pace, these phenomenal trends present a rare and historical opportunity for rapid industrialization.

Agribusiness holds the key to meeting urban consumers’ demand for food, particularly processed food. Emerging countries will also increase demand for Africa’s farm commodities. There is vast potential for establishing production and trade links, as well as synergies between different actors along the entire agribusiness value chain (producers, processors and exporters), through the provision of incentives that bolster private sector investments and encourage the competitiveness necessary to meet consumer requirements for price, quality and standards. The shift from primary production to modern integrated agribusiness will provide lucrative opportunities to many smallholder farmers, the majority of whom are women, as well as generating modern jobs for the continent’s youths.

Fourthly, rapidly changing demands and technologies indicate that Africa can power its way through the technological revolution. For instance, information and communication technology applications such as mobile banking solutions are playing an important role in connecting smallholder producers to buyers. Latecomer advantage can help leverage existing global knowledge towards strengthening the continent’s own technological efforts, its know-how and its innovation capabilities. This would make the continent’s agribusiness systems competitive.

Fifthly and finally, growing opportunities from investment in infrastructure will help overcome the current challenges associated with poor access between farm-level production and downstream activities, such as processing and marketing. This opens the door to increasing the production of higher agricultural value-added products while continuing to produce popular commodities such as coffee, tea, cocoa, cotton, livestock products, fresh vegetables and fruits. While regional integration is expected to help countries reach economies of scale, it should also help minimise high transaction costs associated with fragmented markets and price controls. As long as governments implement regional free trade policies such as abandoning export and import bans and removing non-tariff barriers, production for domestic markets will become increasingly attractive. This in turn should counter the effects of those existing tariff regimes that favour raw over processed goods.

Robust and enabling Policies

With the increasing need for a robust and enabling policy framework, enforcing policies is of great essence as that will help unfasten existing constraints on agro-industrialization and encourage investments. It should also include, but not be limited to, the following key components:
a) ensuring that the right combination of agricultural, industrial and trade policies is in place to encourage sufficient production of raw material as well as the efficient distribution of produced products;
b) ensuring that rights to land and natural resources are recognized and enforced to secure the transfer of rights to encourage productive use of land and boost investor confidence;
c) pursuing new and alternative sources of funding such as sovereign funds and domestic resources, creating incentives for the private sector to make investments; and
d) using public-private partnerships to finance agribusiness or facilitate capacity building through technical and entrepreneurial skills training.

According to Carlos Lopes, efficient agribusinesses may stimulate agricultural growth and strong linkages between agribusinesses and smallholders can reduce rural poverty. Agro-industrial development has a direct impact on the lives of the poor through increased employment in agro-industrial activities, as well as through increased demand for primary agricultural products. Early stage agro-industry is particularly labour-intensive and provides various opportunities for self and wage employment. Furthermore, young people make up the majority of Sub-Saharan Africa’s rural population and an investment in agribusiness will create employment opportunities for and improve the livelihoods of these youth.

Moreover, agro-industrial enterprises also provide “crucial inputs and services to the farm sector for those with no access to such inputs,” inducing productivity and product quality improvements. They also “stimulate market-induced innovation [through chains and networks],” facilitate linkages and allow domestic and export markets to become “more mutually supportive.” The agro-industry is fairly accessible and can be pursued at small-scale. It also requires low start-up cost and has low technical barriers to entry. Small and medium enterprises (SMEs) remain important actors in the largely informal networks that dominate urban Sub-Saharan Africa and have proved fairly adaptive amidst various challenges.
Kenya’s fresh vegetables firms have moved into high-value-added exports as a result of effective collaboration between the public and private sectors, and the strengthening of links between businesses and educational institutes. If Kenya did it, other African countries can do it as well. Lessons can also be drawn from China, which created scores of research and design institutes and universities focusing on agricultural innovation.

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