Growth potential

Unlocking the continent’s agricultural opportunities could be one of the fastest and most productive ways to diversify economies as well as providing for rapidly developing populations.
Growth potential

Africa’s population is expected to double between 2015 and 2050 to about 2.4 billion people, the largest proportional change of any region, and then almost double again over the next 50 years to reach about 4.4 billion people by 2100, according to the latest forecasts by the UN and World Bank.

At the current projected rate of urbanisation, by 2050, more than half of all people in Africa will be living in cities. In order to satisfy the rising demand for food needed by such a fast-growing population, food production in Africa will have to increase at a rapid rate. Failure to unlock Africa’s agricultural potential will see the number of undernourished people on the continent increase from 240 million in 2015 to 320 million by 2025, according to the strategy for agricultural transformation in Africa, as envisaged by the African Development Bank. In addition, if local production is not scaled up, food imports are expected to grow from US$35 billion per year in 2015 to more than US$110 billion by 2025.

In countries such as South Africa, Nigeria and Angola, which have traditionally had an over-reliance on the export of mineral and petroleum commodities, agroprocessing has proven to be an important sector to help these countries realise value-added growth amid the fall in mineral commodity prices. A report by the International Trade Administration Commission (ITAC) of South Africa highlights the critical role that agroprocessing plays in employment creation and poverty eradication in South Africa.

‘The agroprocessing sector contributes a significant component of total manufacturing value added as well as employment. The average contribution of agroprocessing to the output and value added of the manufacturing sector was 18.2% and 19.8%, respectively, during 2012 to 2014,’ according to the ITAC. The agroprocessing sector’s contribution to domestic fixed investment was 15.1%, and 18% to employment during the same period, the report states.

Between 2006 and 2014, agroprocessing output in South Africa grew at 1.4% per year and from 2010 to 2014, employment grew by 0.3% despite a contraction of 1.2% in employment in the manufacturing sector as a whole. ‘This is an indication that the processing of agricultural products can offer a new base for economic growth amid the fall in mineral commodity prices – it can also promote inclusive industrialisation,’ the ITAC states in the report.

Some of the potential growth industries, identified in the report include the manufacture and export of wine, fresh grapes, animal feeds, breakfast cereals and non-alcoholic beverages. Traditionally, South Africa’s top agroprocessing exports have been wine, fruit and vegetable juices and preserved fruits. According to the ITAC, about one-fourth of South Africa’s total exports of agroprocessing products are destined for Namibia, Botswana and Mozambique followed by Germany, Netherlands and the UK (10%) and Zimbabwe, Zambia and Lesotho (9.6%). Growing the agroprocessing sector would require not only greater diversification in the range of products exported, but South Africa will also have to ensure entry to new markets.

In 2015 Germany, Sweden, the US and Canada, for example, together consumed almost half of South Africa’s wine exports, but demand from these countries was already under pressure and, as the ITAC report states, ‘given the modest economic growth projection for these countries, South Africa may continue to experience less than average growth in demand for the product from these countries in the near future’.

Potential new markets that South Africa could target to grow wine exports include China, India and Malaysia.

By taking advantage of growing primary agricultural sectors in countries such as Ghana, Kenya and Uganda, South Africa can increase its exports in animal feeds to these markets. Several African countries, including Zambia, Malawi and Uganda, provide an opportunity to grow breakfast cereal exports. Although the markets remain relatively small, the ITAC reports argues that South Africa should act now to tap into the benefit of the growing demand for the product or risk losing out on these markets to its competitors as was already happening in other product categories. For example, the demand for non-alcoholic beverages in Botswana and Namibia grew by 22% and 5% respectively in 2015, and South Africa managed to capture just 17% and 11% of the demand in these respective countries.

Africa is driving most of South Africa’s agroprocessing export growth, but the country is facing competition from China, the EU, India and the US. According to the Centre for Competition, Regulation and Economic Development at the University of Johannesburg, South Africa’s exports of processed food products to SADC countries between 2004 and 2014, grew at a CAGR of 13% per annum, from US$484 million in 2004 to more than US$1.64 billion in 2014.

Agroprocessing will open new markets to Africa’s goods and boost exports

 

South Africa needs to raise its competitiveness in order to increase and sustain its share in these markets, but the heavy reliance of both the primary farming sector and the agroprocessing sector on imported inputs is having an impact on South Africa’s ability to compete in light of the weaker rand, according to the ITAC.

In a presentation given at the WEF annual meeting earlier this year, president and CEO of Tanzanian-based MeTL Group, Mohammed Dewji, singles agroprocessing and value addition out as one of four key trends driving large-scale private sector growth on the continent. MeTL is a highly diversified business, employing 24 000 people across the country, in areas that include agriculture, manufacturing, energy and petroleum. Its activities in the agricultural space include the large-scale production and processing of cotton, cashew and palm oil.

In an article published by the WEF, Dewji writes that with its growing population and increasingly skilled labour force, Africa is ideally placed to benefit from agroprocessing and value addition.

‘Over 80% of value in the global food industry is in value-added components such as sorting, cleaning and packaging fruits and vegetables. The various forms of value-addition provide opportunities for the private sector to expand their commercial activities and access higher-value markets, either for domestic consumers or exports,’ writes Dewji.

‘Not only do they provide employment at all levels, but they have proven time and time again to drastically change the economic landscape of countries.’

He refers to Kenya as an example, where the export value of fresh vegetables grew by as much as 250% after it stopped simply exporting raw material and started incorporating value-added tasks such as cleaning, packaging and freezing products.

One of the fastest-growing economies in East Africa, which also represents major opportunities for farming and agroprocessing growth, is Ethiopia. Between 2017 and 2020, the country is expected to achieve annual GDP growth in excess of 7%. Ethiopia’s population is forecast to grow from 99 million in 2015 to 188 million people by 2050.

According to Ethiopian-based investment services company, East Africa Gate (EAGate), growth in the country’s agroprocessing sector is supported by vast untapped potential to grow the primary farming sector and by the opportunity to grow Ethiopia’s market share in value-added food exports to import to dependent countries such as Sudan, South Sudan, Somalia and Djibouti. Ethiopia has 74 million ha of total arable land, of which only 13 million ha are currently being used for agricultural purposes.

In information supplied to potential investors, EAGate says proceeds from the export of semi-processed and processed foods earned Ethiopia US$300 million from Somalia, US$93 million from Sudan and US$75 million from Djibouti in 2013.

One of the challenges in terms of expanding agroprocessing in Africa will be to ensure a reliable and steady stream of raw products from farms

Overall, the regional market offers even greater shares and, according to EAGate, there is room to improve export performances to the East African region especially in the following product categories: dairy; processed fruit and vegetable products; animal feed; vegetable oils; and cereals.

Despite encouraging signs that the agroprocessing sector in Africa is growing, according to the Alliance for a Green Revolution in Africa (AGRA), the annual growth of agricultural value added between 2005 and 2012 was 1.95% for South Africa, 8.35% for Ethiopia, 2.72% for Kenya and 6.15% for Nigeria. The local production, especially for the main staple grains, is simply not keeping up with the pace of demand growth.

In its most recent Africa Agriculture Status Report, AGRA suggests that, based on projections by the Food and Agriculture Organisation of the UN, over the period from 2011 to 2023 an increasing share of Africa’s growing demand for high-value food products associated with rising consumer incomes will be met by imports. As a result, potential gains in job creation in downstream stages of the agrifood system are being lost to overseas suppliers.

According to AGRA, many of the challenges to expand agroprocessing in Africa can be traced back to farm level where ‘a general lack of a reliable supply of local raw materials of consistent quality’ is still impeding expanding downstream growth opportunities in the agrifood system.

For Africa to unlock its agroprocessing potential, equal attention must be given to greater expansion of local farm production to ensure adequate supply of raw materials.

By Alida van Heerden
Image: Gallo/GettyImages

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