Wednesday, December 07, 2011

Promising Trends in the African Continent

Le Grand Marche Lome. (C) Rafael Merchan 2008

In a time where developed countries continue to shrink their development aid portfolios, exciting things are happening in Africa that may hold the answer to solve the continent's chronic poverty. The news comes from South Africa's Standard Bank with the publication of an excellent series of reports about Africa's unprecedented potential to catch up to the rest of the world. A recent editorial and article by The Economist also cover this promising trend, citing some of the reports' findings.

The series, entitled "The Five Trends Powering Africa's Enduring Allure" provide a robust evidence about the continent's strategic position to meet the world appetite for food, natural resources, and manufacturing goods, all while reinvigorating local economies and bringing much needed revenue to the governments' treasures. More importantly, the report talks about how the urbanization process in the continent is resulting in a middle class with more disposable income. This extra cash is exactly what farmers need to market their product and diversified into more profitable activities.

Although those living in remote communities and/or subsistence poverty will likely be passed by the emerging local markets, with the spread of ICT, better rural infrastructure, and more committed local governments, their future does not seem as grim as a decade ago.  Finally, one of the reports highlights the central role of agriculture in this new development. Below are the main points made by the fantastic work of  Standar's Bank Simon Freemantle on his report about Africa's Dormant Resource Potential.

  • Donor institutions have re-prioritised development assistance for African agriculture as a means to elevate socio-economic prosperity.  Meanwhile, programmes such as NEPAD’s Comprehensive Africa Agriculture Development Programme (CAADP), and the Alliance for a Green Revolution in Africa (AGRA) are gaining momentum.
  • Foreign land leasing deals are on the increase. Estimates vary, yet it is believed that between 50 mn and 60 mn ha of land in SSA has been purchased or leased since 2001. The majority of land leasing agreements are structured on a government-to-government basis. Unsurprisingly, Gulf States have been prominent. Meanwhile, Asian nations, particularly China and South Korea, are prioritizing Africa as a means to ensure long-term food security. 
  • Private and institutional investor interest is growing. For instance, London-listed Agriterra owns a variety of agricultural assets in Africa, including 14,000 ha of land for ranching, as well as a maize processing facility in Mozambique. And, Indian horticultural firm Karuturi Global has emerged as the world’s largest exporter of fresh cut roses on the spine of its investments in Kenya and Ethiopia.
  • While there are meaningful objections to the nature and structure of much of the new investment in African agriculture, it is clear that the introduction of new capital, skills, and technology is an essential component in unlocking the continent’s ultimate allure. Africa’s agricultural sector has persistently underperformed for much of the past half century—having been a net food exporter in the early 1960s, Africa is now a net importer. Between 1998 and 2008 the number of hungry people in SSA increased by 20%. And, between 1967 and 2007, farm output per person in SSA fell by one-quarter, even while it doubled in South Asia and tripled in East Asia.
  • The reasons for Africa’s poor agricultural performance are complex, and myriad. For one, on average, African countries allocate only 4% of their budgetary expenditures to agriculture, compared to 14% in Asia. Only around 6.5% of African farmland is irrigated, compared to 40% in Asia. And, according to the World Bank, SSA uses just 11.6 kilograms (kg) of fertilizer per ha of arable land, compared to a world average of 119 kg/ha. Meanwhile, post-harvest grain losses due to inadequate storage and transport facilities in SSA are equal to USD4 bn per year around 15% of total output.
  • Though much is required, and a collective inertia still in large part remains, there are increasing signs of how Africa’s agricultural fortunes are changing. Under CAADP, 22 African countries have committed to raise the budget share for agriculture to 10%. And, in partnership with AGRA, commercial banks are beginning to lend to small-scale farmers. According to OECD/Food and Agriculture Organization (FAO) projections, Africa’s production of wheat is expected to increase by 30%, rice by 75%, and milk and sugar by 35% within the next decade. Approximately 25% of the source of crop production growth in SSA between 2010 and 2050 will come from arable land expansion, 7% from increases in cropping intensity, and 68% from an increase in yields. Other estimates have posited that the value of Africa’s annual agricultural output could double by 2020, based largely on gains produced by new land placed under cultivation, yield growth, and the transfer to higher-value crops.
  • Africa’s agricultural allure is vast, yet central to the realisation of commensurate socio-economic benefits is an appreciation, on the part of African stakeholders, of how pivotal and intensely valuable this opportunity is—and to position accordingly.