Company information

Farming – the one area where Africa can have a competitive advantage

Agriculture in Africa offers many diverse opportunities. This is one area where Africa can have a competitive advantage over every other continent for some of the following basic reasons:

  • Agriculture is ingrained in the culture; over 60% of Africans are already involved in farming, though largely subsistence.
  • There is an abundance of arable land estimated at a potential of over 300 million hectares, according to the Food Agriculture Organisation (FAO).
  • The climate is largely favourable.
  • There is access to water.
  • Africa can meet diverse agricultural requirements.
  • There is a market right in Africa – local consumption currently far outstrips production.
  • There are relatively low labour costs.

Potential arable land and market size

Citing an FAO study, the UNEP/GRID Arendal website says that there is a potential of 300 million hectares of rain-fed arable land above current availability. This would be a potential increase anywhere from 150% to 750%. The greatest potential is in Southern Africa.

McKinsey estimates that Africa’s agricultural sector currently generates crops valued at $280 billion each year. It believes this could grow to $500 billion in 2020 and as much as $880 billion in 2030.

The vast market opportunities come first from meeting the needs of the large, local population. Many African nations are currently net importers of food, spending billions of dollars on food imports yearly. For instance, the FAO reports that Nigeria imported $2.5-$2.7 billion in agricultural products between 2005 and 2007. Much of this food requirement can be produced locally.

Exports and foreign involvement in African farmland

The FAO estimates that Africa’s total agricultural exports reached a little over 25 billion in 2007. According to the OECD Development Centre, “The agricultural export composition has experienced a major shift. It has diversified from bulk commodities to horticultural products and, to a smaller extent, processed products …” However, Africa accounted for less than 3% of agricultural exports globally.

But think about it, this is a huge opportunity. Food consumption is expected to rise globally and Africa holds about 60% of the world’s unused arable land.

In fact, the focus on African agriculture has accelerated tremendously in the past few years, following the trend where foreign governments, international agribusinesses, investment banks, hedge funds, commodity traders, sovereign wealth funds, as well as pension funds, foundations, and individuals are investing in Africa’s land for the purpose of producing food for export.

This is probably by far the biggest single trend involving African agriculture in recent times. Rich nations currently hold millions of hectares of African farmland in a bid to tackle food shortages.

One example is Saudi Star in Ethiopia as reported in The Guardian. Saudi Star has huge facilities, which pack 50 tons of food a day for export to markets in the Middle East. It currently employs over 1,000 women.

Though the benefits of this trend to Africans are still being debated in many quarters, the foreign interest is contributing to an increase in the value of agriculture on the continent. Analysts from Neuafrika.com believe that if this foreign supply is well balanced with local supply, it will add to creating an even larger potential market for agricultural products. Also, if properly handled, it will continue to bring in investment funds, technology, and create jobs. If poorly handled, it has the potential to become another form of colonisation.

Tackling challenges of agriculture while creating opportunities

Some of the challenges faced by the agricultural sector in Africa are inadequate infrastructure, e.g., roads, electricity, shortage of inputs like seeds and fertiliser, limited access to equipment and machinery for large scale farming, and land ownership issues. Every one of these challenges offers an investment opportunity.

In the Naivasha district of Kenya, for instance, the challenge of bad road infrastructure adversely affected rose growers. Competing growers got together and fixed up their roads, thereby supporting the industry. The horticulture industry is one of Kenya’s top foreign exchange earners, making $922 million in 2009. Kenya exports 1,000 tons of produce and flowers, including roses, carnations, and lilies, per day. This sub-sector employs 50,000-70,000 people directly and over 1.5 million people indirectly.

Another solution, which is systematic, is agriculture growth corridors. They are development corridors focused on the entire agricultural value chain from growing to harvesting to transporting to exporting. They are seen as a means to catalyse both agricultural and economic development. They follow the development of existing transport corridors, e.g., Harare-Mutare-Beira.

In Africa, private sector, government, and NGOs collaborate on such initiatives. Yara International, one of the biggest fertiliser producers globally, and the African Green Revolution Forum (AGRF) are spearheading two agricultural growth corridors – Beira covering Mozambique, Malawi, and Zimbabwe, and Southern covering Tanzania, Malawi, Zambia, and the DRC.

NEPAD has thrown its support into the concept of leveraging the improvements expected along 12 development corridors in Africa for agriculture. They have set up a separate organisation called TransFarm Africa (TFA) to spearhead the initiative. Among its initiatives is an enterprise investment fund for agriculture called TFA Transformation Fund.

As these develop, expect opportunities to grow like along transport corridors connecting major cities along the coast and in the interior of Africa. If foreign investors, or businesses, partner with local African agricultural firms, they will be able to leverage more of the benefits from these initiatives.

With Africa’s natural assets conducive to agriculture and the increasing demand for food globally, Africa is headed down the path of being the key breadbasket for the world, if developed correctly.

This offers extraordinary opportunities for businesses and investors for a long time.

Conclusion

Food is a basic element for human survival, so it is a sector that doesn’t require much imagination as to its potential. The opportunities multiply as the global population is expected to be one-third more in 2050 than today.

The FAO anticipates that there will be a 70% increase in food demand in 2050 based on the growing global population, but also the fact that people will have moved up the socioeconomic scale and increased consumption.

Africa is a logical place for pursuing agricultural ventures because of the potential arable land and water. The challenges, such as yields, inputs, and infrastructure, can be addressed with systematic interventions.

The rationale for Africa being a strategic location for the global agricultural food chain is strengthened by the current onslaught of foreign firms leasing land from African nations for agricultural production. It is also strategic in that firms can develop ventures to meet local consumption while exporting to other regions, offering many markets for food products. And markets like the United States provide preferential import mechanisms for certain agricultural products from Africa.

Nissi Ekpott is a Nigerian-born entrepreneur. This article was first published in Redefining Business in the New Africa (2011). Click here to buy the book.

, ,


Simple Share Buttons