The Changing Landscape of Africa’s Agriculture
March 03 2014
Africa’s agriculture is beginning to change. African governments’ have increased their investment in agriculture and are involving the private sector with new donor organizations, also becoming involved in the industry.
Africa’s growth has been accelerating. From 2000, the continent began to stir. Between 2002 and 2013 (estimate), real GDP in Africa grew on average by more than 5 per cent annually, more than twice as much as the 80’s and 90’s. Never before has Africa experienced such rapid growth rates for an extended period. Africa’s growth has been and will continue to be about government actions – ending political conflicts, improving macro-economic conditions and creating better business conditions. Future growth on the continent will be supported by external trends such as the global race for commodities. With world food production needing to rise 40% over the next 30 years, Africa could be an important part of the solution. There are almost 600 million hectares of cropland that can be brought into cultivation in an environmentally sustainable way. In addition, major crop yields have the potential to rise. Africa’s increased access to international capital and its ability to form new types of economic partnerships with foreign investors will aid further growth.*
Should Africa be successful in increasing the value of its agricultural output to $900 billion in 2030, the demand for upstream products (e.g. fertilizer and machinery) and downstream products (e.g. biofuel production and food processing) would greatly increase. Most African countries are net importers of food, and most citizens are net purchasers. The continent is extremely sensitive to fluctuating prices on the world market. Improving the productive capacity of the agricultural sector is among the continent’s most crucial challenges. Studies have indicated that increasing agricultural production could boost Africa’s overall GDP growth rate by one percentage point annually. Such growth would be additional to the increasing levels of urbanization and the expectation that the number of households with discretionary income will reach 128 billion in 2020 with Africa’s consumer spending reaching $1.4 trillion in the same year.
If recent trends continue, Africa will be playing an increasingly important role in the global economy in 2040. With a predicted labour force size of 1.1 billion, the size of Africa’s labour force will overtake China and India to become the largest worldwide. “However, the further industrialization of agriculture remains critical to drive growth,” says Jacques Taylor, Managing Director (John Deere Financial Sub Saharan Africa). The use of mechanisation and technology frees people from the arduous task of farming whilst enhancing efficiency and increasing production. Alongside this, income and other resources spent on food and clothing is freed up, to be spent on other goods and services. Ultimately agriculture becomes more efficient (through concentrated production and vertical integration) with few farmers, feeding more people, at a lower cost.
According to Taylor, “Investors and agricultural businesses should be looking to benefit from Africa’s growth. Ultimately this will mean producing more agricultural products with fewer resources.” This requires understanding your home country’s profile i.e. country risk vs. business profile. Is your home country low, medium or high risk in terms of issues such as corruption, level of democracy and the strength of its financial markets? Is the market opportunity high, medium or low in terms of issues such as GDP growth trends, population size and gross capital formation? As an investor or business owner in Africa, one’s own business model needs to be critically examined. In the face of your home country’s profile, is your current business model sustainable in the long term?
“Business owners and investors should find ways to be part of Africa’s opportunities. For example, expanding from strategic economic growth hubs to non-traditional markets; investing in human resources to ensure top quality management is in place and making use of cutting edge technologies,” says Taylor. He adds, “A growth strategy should always encompass the broader socioeconomic impact as the key to long term sustainability.”
McKinsey Global Institute: Lions on the Move (The progress and potential of African Economies)
Swedfund International: Can Africa’s Economic Momentum be a Platform for Take-off?