The African continent has long been known as the largest and most diverse source of natural wealth in the world. Although in modern times oil and mineral resources have received the lion’s share of investment, the growth of these sectors has failed to drive broad-based economic and social advancement. Presently, as the global prices of these commodities have crashed, Africa has an opportunity to reinvigorate the call for a Green Revolution in Africa and unleash the potential of agricultural entrepreneurs to create and scale new home-grown businesses, spreading prosperity across millions throughout the continent.
Africa’s economic gains over the last decade have been impressive, but in many countries the pace of expansion has waned substantially in the last 12-18 months, and the continent’s overall rate of growth has decreased from 5.1 per cent growth in 2014 to 3.5 per cent last year, due primarily to over-dependence on the export of primary commodities such as oil and minerals. Although the continent has an untapped abundance of both, with 60 percent of the world’s uncultivated arable land, agriculture is the most significant source of potential long-term wealth creation. As the populations in more developed regions of the world continue to rise and as global food prices have increased, global demand for Africa’s fertile land is creating both new opportunities as well as new challenges for the African people.
Despite a reduction in the percentage of Africans living in poverty over the last 20 years, due to population growth the overall number of poor people has actually increased and with the total population expected to double to two billion people by 2050, ongoing and future food security is a major concern. Current cereal yields in Africa are only at roughly one-third of the developing world average, making the immediate priority with respect to African agriculture, the need to dramatically improve productivity.
As food security has become a major global concern and demand for fertile soil have increased substantially, investors around the world have turned to Africa for alternative sources of supply and growth opportunities. The combination of higher global food prices and increasing internal and international demand is expected to make Africa’s agriculture very profitable. Indeed, the World Bank has estimated that Africa’s food system could become a US$1 trillion market in 15 years.
In recognition of the food security needs of Africans as well as the investment opportunities for companies in their respective home countries, developed nations and international institutions have launched a variety of initiatives to bridge the gap between capacity and production. Responding to agriculture’s potential, thus far seventy private foreign companies including international giants such as Swiss companies Nestle and Syngenta, the Norwegian fertiliser company Yara, and the Anglo-Dutch multinational Unilever, have committed to invest a total of US$3 billion in the agricultural sector over the next few years.
While the establishment of large-scale, foreign-owned farming operations will undoubtedly bring new technologies and techniques to African agriculture, resulting in higher productivity, most of the harvest will be exported for processing and consumption outside of Africa, which not only does little for the food security of Africans, but also generates limited employment along with other related benefits to local African economies. In order for Africa to achieve both food security and economic prosperity, the millions of Africans currently engaged in subsistence and small-scale farming must be provided with the tools, training and inspiration to leverage their experience into scalable agriculture businesses.
Agriculture presently accounts for 32 percent of Africa’s gross domestic product – 90 percent of which is produced by primary livelihood and smallholder farmers – and employs over 65 percent of its labour force. According to research conducted by the Tony Elumelu Foundation released during theWorld Economic Forum Africa, agriculture is rapidly becoming a hotbed for entrepreneurs with new ideas for higher-quality products and advanced processes, integrated supply chains, value-added exports, and a variety of other lucrative business opportunities. The Foundation’s research is based on a survey of nearly 300 agricultural entrepreneurs in 28 different African countries selected to participate in the Tony Elumelu Entrepreneurship Programme (TEEP). The entrepreneurs indicated the need for training in farm operation management and advanced farming techniques, risk mitigation support to facilitate access to capital from banks uncertain about how to lend to African agriculture businesses, and a stronger commitment from African governments to help lower the cost of key inputs while simultaneously improving their quality.
TEEP entrepreneurs also responded that structural barriers remain a major concern as inadequate infrastructure, high transportation costs, under-developed markets, and trade barriers and restrictions inhibit their competitiveness. For example, an estimated 40 percent of produce is lost after harvest due to inadequate storage capacity, which is not surprising given the wide deficit in other basic elements such as adequate electricity to power critical cold storage facilities.
African firms, unlike the large-scale foreign multinationals in Africa’s agriculture sector, must grow their businesses in a way that is vertically integrated in order to directly address the systemic gaps in local value chains rather than just focus on one element such as production, processing or transportation. This not only makes business operations more expensive, complex and longer to develop, but also means there are a wide variety of business opportunities throughout the agriculture value chain for which local entrepreneurs are particularly well positioned to capitalize upon.
Fragmented value chains are the single biggest impediment to the commercialization of agriculture across the continent, and is not a problem that can be addressed by government, civil society or international development institutions alone. The solution to this challenge requires the efforts of all aforementioned stakeholders as well as a new approach by financiers who need to invest not just in one element of the value chain but in multiple aspects of the broader commercial agricultural ecosystem. Africa’s entrepreneurs will be the lifeblood of this emerging class of increasingly sophisticated and highly productive small businesses, creating integrated agricultural value chains; value chains that create jobs, share knowledge and technology and contribute in a more meaningful way to national wealth and development.
Our public leaders must take bold steps to create an enabling environment that encourages the ingenuity of local entrepreneurs with innovative ideas, but who fail because of the wide deficits in infrastructure and public services that government has failed to provide them, despite it being their obligation. Streamlining bureaucracy, providing easy access to important information, and seamless access to regulators to ensure an efficient flow of information are just some of the ways in which governments can improve the business climate simply by improving a variety of administrative procedures. In the right environment, a small seed of an idea today is the blooming flower of a company the idea turns into tomorrow.
Author: Tony Elumelu