Agribusiness in Africa: CEOs cautiously optimistic

Africa’s agribusiness sector is confident about its growth prospects in the short to medium terms despite widespread economic and political uncertainty. Most CEOs expect revenue growth in the next 12 months to be between 6% and 10%, with a significant number of CEOs expecting an optimistic 20%+ growth rate in the short to medium terms. This response is more bullish from the one received a year ago, but certainly underpinned by the necessary level of caution.

This is according to PwC’s Africa Agribusiness Insights survey 2017/2018. “The main reason for growth expectations of agribusinesses as indicated by CEOs is better penetration of existing markets on the African continent. CEOs are looking for diversification within their current commodity value chain before moving into new commodities,” says Frans Weilbach, PwC Africa agribusiness industry leader. This strategy of first maximising the opportunities on their current playing fields might be a reflection of the current uncertainty around significant challenges facing agribusinesses.

The growth expectations at the beginning of the year certainly realised in the southern part of the continent, with agricultural GDP growing by 38.7% and 44.2% q/q in the second and third quarters of the year, respectively. This is according to Agbiz in South Africa, where a number of respondents to the PwC survey are based.

A high level of caution is, however, reflected in the results of the South African Agbiz/IDC Agribusiness Confidence Index, which showed a further q/q decline of five index points to settle on 49 points in the fourth quarter of 2017. According to Agbiz this confidence index “has proven to be a leading indicator of agricultural GDP performance” in the past few years. They indicated, however, that the recent deterioration in confidence might well be based on only a few factors, such as the drought in the Western Cape province of South Africa, and that it might not necessarily result in a similar decline in agricultural GDP.

PwC’s survey was carried out among a group of agribusinesses in Africa with operations spanning a number of commodity value chains ranging from primary production to food processing.

CEOs of agribusinesses are positive towards the possibility of expansion into the rest of Africa, with 40% indicating that they would pursue such opportunities. Agribusinesses cited Angola, Botswana, Ethiopia, Malawi and Namibia as the top five destinations for expansion.

“Africa holds immense potential and is widely regarded as the future breadbasket for the rest of the world. Agribusinesses need to be alert to opportunities to improve their footprint on the continent in order to fully leverage off these,” says Weilbach.

Despite the opportunities of cross-border expansion, agribusiness owners have a number of challenges to overcome when they move across borders into new territories. The most significant of these relate to inefficient and bureaucratic governments as well as corruption crime and theft. Inadequate infrastructure and political instability are further concerns. Africa possesses unrivalled opportunities if policy makers can remove some of these challenges.

Access to technology remains the main inhibitor of business growth, with modern farms and agricultural operations working differently from those a few decades ago. This is mainly due to advancements in technology. Today’s agricultural operations routinely use sophisticated technologies such as robots, temperature and moisture sensors, aerial images and GPS technology. It remains imperative for agribusinesses to keep up with the latest technology in order to grow.

All over the world there are a number of incidents that may impact businesses growth on the African continent. Some of these include the UK Brexit vote and the US presidential elections a year ago. Agribusinesses that have a strong linkage with the UK may be impacted by Brexit. The real impact, however, will only be seen once a significant period of time has lapsed. The effect of the recent Zimbabwean leadership change on agriculture in the region is certainly something to watch in the coming months.

“When doing business in the agribusiness sector in Africa, it is important to fully understand the boundaries of the playing field, the external factors having an impact thereon and the ever-changing rules of the game in order not only to survive, but thrive and be leaders in the field,” Weilbach concludes.

This article was originally published by PwC.