African agriculture offers a lot of potential for investors across the world: large patches of fertile land, plenty of water resources and a growing focus by African governments on improving infrastructure. Against this setting, it’s remarkable that, while farming in sub-Saharan Africa uses up a small percentage of arable land, many African countries are unable to satisfy local food demands, thus resort to importing food. Population growth on the continent is pegged at just under 3 percent annually, meaning food demand is expected to double every three decades. Increased investment in agriculture would cut Africa’s food import bill, which runs into billions of dollars annually.
Agriculture accounts for a big portion of many African economies, thus, it is a sector that can play a major role in eradicating poverty, increasing trade and investment, boosting economic diversification, creating jobs, and providing sustainable modes of economic growth. Indeed, countries like Ghana, Nigeria, Ethiopia, Burkina Faso, and Senegal, which have focused on increasing agricultural investment, have benefited from a reduction in poverty and hunger levels and increase in economic output.
Since the turn of the new millennium, African economies have seen steadier growth than other regions of the world. Agriculture, which makes up a third of the continent’s gross domestic product (GDP), is seen as the game-changing sector that can help take Africa to the next level. Member countries of the African Union have shown their desire to invest in the agriculture by committing to invest no less than 10 percent of national budgets to the sector. Such moves have made an impact, not only to African economies but in the minds of local and international investors. Ashay Mervyn, a trader in Emerging Market Assets, can be counted among those looking forward to seeing improved agricultural practises furthering Africa as a good investment destination.
The gains made through a renewed focus on agriculture are becoming evident by the day. Poverty in Ethiopia has reduced by as much as 33 percent since 2000, according to the World Bank. Mali’s cereal output has made it an exporter of maize to neighbouring countries. In West Africa, where agricultural gains far exceed other regions in the continent, small and medium enterprises (SMEs) that are agriculture-related account for more than 70 percent of firms. These SMEs are responsible for moving a significant portion of the overall agricultural output.
At a 2016 Grow Africa Investment Forum held in Rwanda, it was reported that over half a billion dollars were invested through private sector initiatives in agriculture. Collectively, African and global investors have committed over $10 billion, with these financial resources reaching more than 10 million small farmers and creating thousands of jobs for many. According to the Forum, the first quarter of 2016 saw investors commit almost $500 million, suggesting that interest in African agriculture remains strong.
As investors seem ready and willing to stake their futures on Africa’s agricultural prospects, there remain a number of concerns that have to be addressed to create a sustainable environment.
While not unique to Africa, unpredictable weather patterns make agriculture particularly vulnerable. There are justifiable fears over the sustainability of agricultural efforts, especially since many African countries have not demonstrated a healthy track record of sustained success in this area. Policy changes, brought on by leadership changes with every election cycle, are partly to blame for this.
Agricultural farming for production is capital intensive, and where local infrastructure for addressing these needs is lacking, farmers’ expenses increase. Foreign investors are typically looking for higher returns on investment to justify taking on the business risks, and for many, the political and business risks far outweigh the benefits. Governments have been receptive to international investors, but coming up with sustainable business models has been a challenge. Local economies are not fully capable of supporting large scale production, necessitating the intervention of foreign governments, which sometimes have been more exploitative than supporting. On the other end, business models focused on harnessing the power of small-scale farming may be productive but are unlikely to make a significant contribution to national output.
The next business frontier?
It’s estimated that the agribusiness and food market will hit the trillion-dollar mark by 2030, thus providing Africa with enormous opportunities to capitalise on this. The continent may not yet be able to manufacture a commercial airplane, but it can certainly become a global agricultural powerhouse.
For Africa to realise its potential, the narrative around it has to change. Agriculture is more than just a way of life, it’s a business that can help economies diversify and grow, reduce reliance on food imports, create job opportunities, and reduce hunger and poverty. Africa has to think big in order to unlock its true potential.