ETG Chairperson Mahesh Patel (second right) with Ugandan President Yoweri Museveni. Photo Credit: ETG

Why the right time to invest in Africa’s agriculture is now

Mahesh Patel
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[rt_dropcap_style dropcap_letter=”F” dropcap_content=”ROM my 40 years of personal experience empowering African farmers by connecting them to a global value chain, I believe in a strong future for agricultural business growth on the continent.”]

Africa’s agro-ecological conditions and strong market dynamics provide a perfect environment for investments.

Most importantly, the government here is committed to marketdriven growth making it a perfect destination for business investments. The seeds that we had sown 20 years back, for example, have grown into bountiful trees and are now producing a great harvest of fruits.

I have plenty of ideas to share with you on what you could do if you are considering investing in Africa and the answers to some of the common questions often raised about the continent’s economic future.

Is Africa rising? Why is now the right time to invest in Africa? What will a rising Africa demand? Who will supply that demand and how will they get it to the market? Former Indian Prime Minister Manmohan Singh recognised Africa as the growth pole of the world back in 2011.

Data indicate that Africa is rising, at a rapid rate, and the economic, demographic, political and social factors necessary to sustain growth are present. Africa has started a journey of economic transition over the past five years. East African countries have experienced at least 5.0 percent growth rates from 2017, led by Kenya, Ethiopia, Rwanda, and Tanzania.

Investors are drawn to East Africa alone for a variety of reasons, including its favourable economic growth, political stability, improved regulatory environment, and a sizable market of about 120 million people.

Because it is a sizable economic region with a steadily expanding consumer market, East African nations are becoming more and more attractive to major consumer firms and foreign investors.

East Africa’s economy is booming with a yearly GDP growth trending upwards. Its geographic location provides connectivity with the rest of the world thus boosting its capital markets as well as well-established private sectors lead its growth.

Agriculture accounts for around 36 percent of the East African economy’s GDP and a massive 17 percent of the entire African continent’s GDP. A wide range of food and cash crops are available for large-scale commercial farming.

Agriculture is the backbone here, playing a key role in the continent’s industrial development and trade. This sector itself employs about 80 percent of its labour force and accounts for about 65 percent of foreign exchange earnings.

It contributes to more than 50 percent of raw materials to the industrial sector alone. From this, Tanzania contributes 65 percent share of total employment in agriculture sector.

Global trade

A century ago, the ratio of global trade to global GDP was 8.0 percent, today it is approximately 25 percent. Trade is a huge contributor to prosperity. Africa faces tremendous logistical challenges, yet the continent has made major strides in increasing trade levels – trade with China alone has grown from $11 billion to $166 billion in the past decade.

Resources

Africa has 8.0 percent of the world’s proven oil reserves and 7.0 percent of proven natural gas reserves, 40 percent of the gold reserves and about 85 percent of the chromium and platinum metal group.

Africa has 600 million hectares of uncultivated, arable land, representing 60 percent of that remaining in the world. The continent is extremely resource-rich, and there is still plenty of opportunity for long-term, sustainable, and equitable investment.

Innovation

Africa starts from such a low base that available, accessible technology has the potential to fuel major leaps in productivity. Mobile phones are the engines of commerce and have become the de-facto banking networks. Some estimates contend that over 30 percent of GDP in Kenya flows through the M-Pesa network.

Farm yields can increase dramatically with a little more fertiliser application and basic farm management training. Family farmers are increasingly using innovative approaches and scientific research, combined with traditional knowledge, to increase the productivity of their fields, diversify their crops, boost their nutrition, and build climate resilience.

This shift can go much further with the addition of digital tools, increased links to the markets and greater efficiency along agrifood chains, especially if the private sector and national policies support the effort.

Resilience

The world has seen how Africa has kept rising despite several challenges posed by the pandemic and the effects from the Russia-Ukraine war. The war will probably have an impact on sub-Saharan African economies through higher commodity prices, higher food, fuel, and headline inflation, tighter global financial conditions, and reduced foreign financing flows into the region, despite the small direct trade and financial ties with Russia and Ukraine.

Around 30 million people in Africa were pushed into extreme poverty in 2021 and about 22 million jobs were lost in the same year because of the pandemic. And the trend is expected to continue through the second half of 2022 and on into 2023.

Nevertheless, economic growth in Africa continues to recover from these unprecedented events. The economic growth is estimated to firm up in 2022 to 4.0 percent, which is an increase from a mere 2.0 percent in 2020.

Among commodity exporters, strong global demand and high prices provide a promising outlook. The upturn in global commodity prices is giving some breathing room to energy, metals and agricultural producers after two commodity price crashes in five years. The financial windfall is providing crucial improvements in national income and government spending and investment.

As a result, this year in Tanzania the budget for agriculture is thrice of what it would usually be in the history of the country.

The need for economic reform and diversification remains high on the development agenda. The government here has agreed to support in all development projects that lead to sustainability and empower the youth and women in the country.

Why is now the right time to invest in Africa?

Sustainable development potential

Africa has the opportunity to evaluate what is effective elsewhere and then develop its own solutions in sectors like supply chain design and energy technology.

The continent is free to adopt new methods and technologies. Africa is capable of developing flexible fuel systems that can produce power using a combination of readily available wind, solar, water, and bioenergy as well as conventional fuels like oil.

Africa is a continent where significant advancements in agricultural and productivity techniques in food production are foreseen. The majority of the world’s arable land is in Africa. High soil fertility and quality allow for significant agricultural output.

Trade barriers have fallen

Because of the new trade deal known as the African Continental Free Trade Area, which was ratified by 44 of its 55 members in 2018, Africa now has the largest free-trade region by the number of its members.

The agreement includes trade protocols, customs cooperation, trade facilitation, and a tariff reduction on 90 percent of all goods. Even the smallest African country’s GDP will grow significantly during the next few years.

Several African nations are available for manufacturers to establish production and assembly facilities. Products are easily exportable between African nations. Here, as an investor, you will have access to a sizable market of potential customers for your goods.

New high-growth and profitable sectors

Our economies are diversifying and developing African talents. As investors you can set up your manufacturing units here, train, employ and create an inhouse task force that will help to create a bigger impact.

The costs involved to produce and export from here will be much cheaper and the returns will be promising too. Additionally, you are also working towards sustainable businesses and contributing to the socio-economic development of African youth.

A playground for digitisation

By all means, technology can bridge several gaps between the farmers, the market and the consumers.

There could be newer methods of monitoring crops, use of artificial intelligence and robotics that could impact positively upon investments. We have the work force that you need. All you have to do is be on the ground, upskill them and deploy technology creatively.

The global workforce is diminishing, whereas Africa’s workforce will be around 1.2 billion people which is higher than the combined workforce of China

and India. Almost 60 percent of the African population will be under 25 years by 2050 making it a hotbed for significant economic transformation and growth as compared to the rest of the world.

Geographic location In East Africa, we are connected to the world by a network of ports and international airports like Mombasa in Kenya, and Dar es Salaam, Mtwara and Tanga in Tanzania.

Scope for development

Due to lack of efficient storage and distribution infrastructure in Africa, up to 50 percent of African produce of fruits and vegetables perish before they even enter market.

There are several opportunities for organisations to solve this problem, reduce wastage and increase productivity.

What will a rising Africa demand? A expanding middle class will demand energy, infrastructure, food, and consumer goods.

Despite its vast agricultural potential, Africa is a net importer of food. Over the past 50 years, most of the continent did not demonstrate significant growth in food demand.

This is set to change. The UN forecasts a 10 percent increase in per capita caloric intake over the next twenty years.

When multiplied by the population growth and considering the shift to meat, a more resource intensive protein, developments along the agricultural value chain will need to be massive.

Second, the massive increases in consumer spending means Africans will demand more goods… and they will demand higher quality goods.

A rising Africa demands creative and sustainable business opportunities that can employ African people, bring foreign investments and expertise so that the trends in agriculture, mining, infrastructure and other sectors can improve and compete with that of international standards.

Who will supply that demand and how will they get it to the market?

Africa has had difficulties moving up the classical development curve and building manufacturing economies.

Sub-Saharan Africa’s share of world manufacturing production has changed marginally since 1980 and remains at about 0.4 percent. Consequently, 90 percent of Africa’s goods are imported. So, in the near term, it certainly will not be Africa who supplies its own demand.

However, there are reasons to believe that this will change. First, the changes in the manufacturing environment in China. The cost advantage has decreased as wages have quadrupled in the last decade and are expected to increase in the coming years.

In addition, a general trend away from basic manufacturing in China has emerged and several companies have begun to look beyond China to diversify their manufacturing operations. High distribution costs compress margins, increase working capital and hurt returns.

So, consumerfocused companies need to cut costs somewhere – the logical way is by sourcing and manufacturing locally. So, there are reasons to believe that Africa will further increase its installed manufacturing capacity and we have begun to see the results as companies have increased their investments in African production assets.

To conclude, I invite policy makers, civil society organisations, research institutions, the private sector, donor partners, and all stakeholders interested in Africa’s transformation by innovation in agriculture to come together. I strongly believe that together we can transform Africa’s agriculture to achieve The Africa We Want. And, a seed today is a forest tomorrow.

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