News / Africa

Foreign Investors See Potential in African Agriculture

Specialists say good governance and improved infrastructure could provide a boost to the sector

Part 2 of a 5 Part Series: Investment in Africa

Agriculture is one of the most important economic activities in Africa.  In addition to providing employment, agriculture has the potential to transform African societies through the increased export of produce to Western markets.

Many agree that transformation will not take place without increased investment in agriculture, including public or private loans to small farmers.  Statistics show that Africa has about 12% of the world’s arable land but 80% of it is not in use. Observers say there are many opportunities to develop land and even make it attractive to agribusinesses.

The Kenyan story

Among those taking advantage of new opportunities are Kenyan farmers, including some who are now making millions of dollars exporting flowers.

According to the International Food Policy Research Institute, horticulture has become the third largest source of foreign exchange in Kenya after tourism and tea.

But statistics show that farming in Kenya is still typically carried out by small farmers who usually cultivate no more than two hectares.

Adieno Achieng is a small scale farmer in Kisumu.  She says government can support farmers like herself by subsidizing farm inputs like fertilizers and seeds. She says that farmers would also benefit from access to agricultural loans.

Investment in small farmers

But in recent years,  government assistance to small farmers and to agriculture in general has been in decline.

Mohammed Beavogui is the director of the Western & Central Africa Division of International Fund for Agricultural Development (IFAD) in Rome, Italy.

He says even international development aid meant for agriculture “dropped from 20% to 4%...”
But he says that there are signs to show that this trend is changing because of the rise in food prices internationally.  “People complain of food prices, but for agriculture somewhere, it is an opportunity,” he says.

Leaders from many developing countries are also recognizing the need to invest in their own food security.

At the 2009 G8 Summit in L’Aquila, Italy, donors collectively committed $20 billion to agricultural development and a new approach to global food security.

Beavogui says, “The share of agriculture in development is increasing….  For example, my institution, the International Fund for Agricultural Development, got an increase of almost 50 percent of its replenishment to support agricultural projects….  All these are showing that there is an effort to invest in agriculture,” he says.

He says productivity in Africa has a long way to go to catch up with counterparts in developing nations in Asia.  “We still have to introduce new seeds…new technology,  and fertilizer…”

Improved Infrastructure Needed

Also needed, say development specialists are improved ways to take goods to market.

“If you want agriculture to work you need to allow agricultural products to get to the market, and that means you need roads,” Beavogui says.

The decision to invest in local agriculture often depends on a region’s ability to move goods from the farm to the factories or to ports for export.

Statistics indicate that only 34% of sub-Saharan Africa’s rural population lives within two kilometers of a paved road.         In most of Africa, poor road infrastructure accounts for investors deciding to look elsewhere.  “Every fifth African needs at least five hours to get to the nearest market….” Beavogui says.

Economists point to Malawi, which earns up to 70 percent of its foreign exchange from tobacco.  Most of it is grown in the rural areas, where farmers have to transport the crop many miles to the commercial capital, Blantyre.

Foreign Investment

There are some signs that local and western investors are slowly attracting interest in African agricultural potential.  The best example is the African Agricultural Land Fund, a private equity strategy that seeks to invest in food production across sub-Saharan Africa.

EmVest Asset Management is a joint venture between GrainVest South Africa and Emergent Asset Management of Britain.  EmVest is managed by people with an active interest in African agriculture.  GrainVest is a South African firm that is active throughout the agriculture production chain, including crops, maize milling and futures trading.

Patrick Devenish is the CEO of agro-industrial conglomerate AICO Africa, Ltd., incorporated in Zimbabwe.  He was recently in the United States to network with other African CEOs in New York.

He says that AICO has invested heavily in African agriculture and the returns have been good. In Zimbabwe, the company is involved in buying and seed cotton, from which it makes and sells cotton lint.

Devenish says the agricultural sector in Africa is a particularly under-targeted area that offers great returns for any western investor.  He’d also like to see US companies provide a market for African agricultural exports.  “We would like to see a demand pull rather than push,” he says. Government has a role to play in attracting investment, Devenish says.

“We would like to see a government focusing on providing an environment for conducive to business rather than getting directly involved in the business….   There are government interventions that have made life difficult.”

That includes Zimbabwe, he says, where the government confiscated the farms of once-successful farmers.

AICO Africa Ltd. has been providing financing to small-scale cotton farmers, says Devenish, because “the average small farmer in Zimbabwe doesn’t have access to [it]….”

Mohammed Beavogui of IFAD Beavogui says another project sponsored by Kofi Annan’s NGO,  the Alliance for a Green Revolution in Africa (AGRA), is developing a “breadbasket approach” to coordinate agricultural development efforts in a Ghana.  The plan will add up to US $500m to the agricultural component of GDP, create up to 15,000 new jobs and double the household incomes of close to 250,000 smallholders.

Meanwhile, a company called Africa Finance Corporation (AFC), which serves West Africa is helping small farmers.  Its CEO, Andrew Ali, says the strategy of investing in small farms is more useful “than replicating the big farms in the midwest of the US….”

Ali says it’s similar to the model used by Asian nations like Singapore where small farms are the cornerstone of the country’s relatively successfully agricultural export strategy.

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