CHARMAINE RAMBIRE: Agriculture is a slumbering giant in sub-Saharan Africa
Targeted policies and incentives to attract investment and funding and promote agro-processing are required to fully unlock the sector’s undoubted potential
Agriculture is an integral part of sub-Saharan Africa, where more than 60% of the population is smallholder farmers. It also contributes about 15% to the region’s GDP. However, the value of the sector as a dominant industry is largely underutilised.
The agricultural sector is also characterised by a $18bn trade deficit. Exports consist of raw products such as cocoa beans and tobacco, while imports consist of higher-value finished agricultural products, including but not limited to frozen meat and prepared foods. Major agricultural traders include SA, Ghana, Nigeria, and Ethiopia.
To fully capture the benefit of the agricultural market, several interventions are needed at both country and regional level. They include encouraging land utilisation for agriculture, such as the farming of crops, the building of factories for agro-processing, prioritising agro-processing capability and promoting agricultural investment and financing.
Through these interventions sub-Saharan countries will be able to expand agricultural productivity, lessen the reliance on imports through beneficiation and add value to agricultural produce through agro-processing, and encourage growth in the sector.
In response to becoming more self-sufficient, several sub-Saharan countries have a variety of master plans and policies. However, most of these policies are rarely fully implemented. Land policy is one of the key regulatory policies that has limited the full realisation of the potential of the agricultural sector.
Africa has an abundance of arable land (about 224-million ha), most of which is uncultivated. The The Food and Agriculture Organisation estimates that Africa accounts for 60% of the global uncultivated arable land, and most of this land is unregistered. The African Centre for Economic Transformation (ACET) estimates that 90%-95% of land falls under a customary tenure system, with largely communal and unregistered ownership, and as a result access to the land becomes challenging.
Taking SA as an example, the government has various land reform policies targeting the redistribution of land to black farmers. However, the success of the policies hasn’t been fully realised because the government has failed to transfer land rights to beneficiaries; and with those who have obtained land, receiving non-tradable land leases. This limits the growth potential of the agricultural sector as beneficiaries will face difficulties in using the land as collateral to attract investment funding.
The government thus needs to adjust its policies to grant title deeds or tradable long-term leases so that individuals can attract investment funding. Other policies governments can introduce include giving smallholder farmers access to high-quality inputs at lower costs and promoting market access for these farmers to help improve agricultural productivity and profitability. That way more individuals can become a part of the agriculture value chain.
Agriculture investment and financing
Sub-Saharan Africa’s food demands continue to rise with annual population of about 3%. The agriculture market will require more than $8bn in investment (according to McKinsey & Co) to be able to meet growing and future food demand. Difficulty in accessing capital is one of the greatest challenges of the industry in sub-Saharan Africa. Commercial loans are costly (lending interest rates average 15% — 10% higher than other regions — according to the World Bank), and most agribusinesses operate on a small and medium-sized base with little or no collateral.
Sub-Saharan African countries should thus promote investment into the agricultural sector by offering incentives such as tax breaks, regulatory concessions and preferential market access to attract investors. With funding, agribusinesses can expand into agro-processing, obtain better inputs and benefit from technological advancements and other innovations. In addition, non-financial products such as business and financial literacy can be offered to farmers so that they can show their financial viability to potential investors.
This is possible only if the regulatory and operational environment of countries in sub-Saharan Africa encourage investment. Until the policies change to promote and support investment within the sector, growth in the sector will continue to be stifled.
Call to action
Sub-Saharan African countries rely heavily on imports of high-value finished agricultural goods. Covid-19 has highlighted the need for African countries to be regionally sustainable in the event of future crises. A survey carried out in Ghana on the impact of Covid-19 on agribusinesses found that almost 70% of agribusinesses experienced a decline in sales as the supply of inputs to firms fell.
As a result, agribusinesses in Ghana took steps to mitigate the impact; diversifying of imput sources to include more domestic supply was a key measure. Thus, sub-Saharan African countries need to prioritise local agro-processing capability.
According to an analysis by the ACET, most (75%) of sub-Saharan Africa’s agro-processing industries operate on an artisanal and semi-artisanal scale. These businesses struggle to remain competitive with larger industrial and semi-industrial international business due to low productivity, limited market access and a lack of high-quality affordable inputs. The result is that the ratio of agro-processing manufacturing value added to agricultural value added is less than 50% across the region, excluding Mauritius and SA.
Commercialisation of the agriculture sector and linking agriculture to other sectors could help grow both the export-orientated agro-processing and domestic agro-processing. Though there has been progress to promote agro-processing thanks to the implementation of special economic zones (SEZs) and incentives, governments have to ensure the full implementation of these incentives and policies for them to be successes.
In conclusion, the success of agriculture ultimately relies on a conducive regulatory environment that attracts investment and funding and promotes agro-processing for domestic consumption and export. However, before sub-Saharan African countries target export markets they must promote and foster growth in the domestic agro-processing industry by promoting agricultural activity and productivity to reduce the high import burden for agricultural commodities.
Furthermore, investment is needed in agriculture infrastructure by building factories and plants for agro-processing, so that the sector’s potential can be fully realised.
• Rambire is an analyst at research and advisory firm Birguid.
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