Africa: strong growth in foreign investment
Africa and especially the Sub-Saharan region are looking extraordinarily dynamic and promising on the world economic scene. Agriculture is the driver of African economic development but the sector is in need of infrastructure and technologies. The development process is speeding up thanks to the growth of foreign direct investments which are, however, no longer the prerogative of the traditional European and United States partners but coming in from the emerging Asian and Latin American countries
It has become clear that agriculture is the real locomotive for the lasting and stable development of Africa. This is true especially in Sub-Saharan African where 60% of the workforce is committed to farming which accounts for 50% of GDP. Thus it is now evident that investments in agriculture are not only driving development but also providing great opportunities for business in that the International Finance Corporation (IFC) in the World Bank Group has reported that by 2030, agriculture on the continent can be expected to generate one trillion dollars in new activities.
The problem here is firmly identified as technologies and above all integrating the sector into the global supply chain so the first step is the approach to producers and linking them to the markets. This is a challenge to be met not only by technology but also logistics and agro-business services. The issue of the certification of products, for example, is now on the agenda. For the big commodities of cacao and coffee the example of work in Uganda, Tanzania and Kenya can be cited for the voluntary certification of coffee with the support of the World Bank and private international businesses. On consumer products there is a process/product certification scheme in the Du Toitskloof wine making district on the Western Cape of South Africa. The Ivory Coast's voluntary certification of cacao production has had an extraordinary effect: per hectare production at 576 kg compared to non-certified production at 334 kg and per hectare earnings of 403 dollars compared to 113 dollars for non-certified farms.
Another strategic issue is infrastructure, beginning with the conservations of products for which there is an equally strong commitment by international organizations led by the World Bank. Among the highly interesting and compelling projects funded by the IFC was a system devised for harvesting and storing tea in Kenya which serves 500,000 local producers. Another key sector involves operations for extending irrigated lands to close another gap in African agriculture. This is happening in a more complex setting in which the depth of biodiversity cannot be compared to that in South East Asia, for example, where the cultivation of rice alone can be extended to millions of hectares.
And then the lack of infrastructure has a fundamental role for services, information and communications technology and mobile telephones. These, in face, can become the instruments for facilitating the access of farmers, often located in difficult to reach areas, to supply chains. These new technologies are essential for communications in real time, for coping with weather events for example, and for gaining access to services, such as those involving payments and financial matters.
In all these areas, new players are taking on significant roles on the continent. To begin with there are such big distributors as Unilever and Massmart arriving in strength in Sub-Saharan Africa. These giant businesses are carrying out extremely efficient initiatives. An example is that of the multinational GDO investing in the development of local products, including palm oil and sorbitol, also known as glucitol, used in many personal care products such as toothpaste and now imported from Asia at a great cost which impacts economic resources and obviously conditions the production cycle.
But what is more striking, and something our enterprises must carefully monitor, is the role other emerging countries are playing in the agro-industry sector in Africa. An updated snapshot of investments in Africa was made public in London in December last year by a Financial Times Live presentation of the most recent report on global investments and political risk edited by the World Bank's Multilateral Investment Guarantee.
Of a total of some 1.5 trillion dollars in foreign direct investments, the share directed to low income countries in 2013 reach the record level of 41%, a percentage which comes in absolute terms to as much as 617 billion dollars. Markets in 2013 reported that the highest rates of growth for foreign direct investments – meaning that the countries targeted appeared more attractive – were bound for South Asia and Sub-Saharan Africa where foreign investments soared by 21% and 19% respectively. Eastern Europe and the rest of Asia, on the other hand, have suffered more as the result of the economic cycle in the European Union and the slowdown of the economy in China.
The growth of South-South FDI is highly significant. These are initiatives which involve low per capita income countries acting as investors as well as countries for investing in. After recalling that China, India and Brazil accounted for the lion's share of the emerging market receiving FDI by taking up 50% of them reported for 2000, we can note that these same countries are now in the front rank as investors as well.
The 164 billion dollars in FDI from the developing countries in 2012 came to 12% of the total. This means that many emerging countries are now authoritatively seated around the table of global foreign investors. In summary, despite the slowdown of their economies, these countries have maintained and increased their work of expansion on foreign markets. In 2012 alone, Brazil, China and India could claim nearly half of these FDI, equal to as much as 68 billion dollars. Among other points to take into account is that World Bank surveys, owing to the maximum pro capita income parameter, do not bring into the category of developing countries such countries as Russia, which alone accounts for 51 billion dollars in FDI, or Chile and Uruguay, which are very dynamic investors among the emerging countries. On the most recent trend surfacing, a report from the Multilateral Investment Guarantee Agency (MIGA) in the World Bank Group points out China's shift from Africa to Latin America where China's investments have shown strong growth. Another noteworthy aspect to touch on is the activism of countries in the high pro capita income category which have become promoters of FDI in emerging markets. The most interesting among these cases are Malaysia and Mexico. And finally, the quality of the promoters of investments has become something new. In the emerging countries the investors can often be traced back to state control, to the so-called State Owned Enterprises (SOE). Part of this vitality can be accounted for by strongly liquid sovereign funds held by developing countries with great natural or energy resources. The MIGA report also stressed that south-based investors, though they have a perception of the risks similar to that of investors in other countries, appear to be less sensitive to political risk and more concerned about economic instability and access to financing. This might be explained by a different understanding of risk as well as by greater direct experience which allows them to worry less about their own investments in other developing markets. The conclusion of the report on this point is quite clear. South-South FDI are expected to grow over the coming three years.
Countries like Brazil, China, Argentina, Thailand, Indonesia and Chile which have turned in remarkable performances in the export of food products, have earmarked considerable resources for research and development in agriculture to become prime candidates for transferring their experiences to Africa. They look to be the partners most committed to raising the share of agricultural production processed into processed foods directly on African territory.
Brazil for example – a leading exporter of coffee, sugar, soya and meat coming in second for poultry and fourth for pork – has started up a far reaching investment program on technical cooperation in southern Africa in the sector of cotton in Benin, Burkina Faso and Mali, in rice and soya cultivation in Mozambique and obviously in the field of agricultural mechanization. With a tractor inventory of one per 3,000 members of the population, Brazil is a natural for intervening on the continent with a ratio of one per 70,000 people. As expressed by UNIDO data, the 13 tractors for every 100 km² of land under crops in Africa are very few compared to 129 units in South East Asia and to the world average of 200 tractors.
China is another big South-South investor committed to the agricultural sector. Much discussion has centered on China's race for the acquisition of raw materials, in Africa as well, but the country has been involved on the continent for at least the past ten years in technical and economic cooperation activities. Investment programs extend from the cotton sector in Egypt to tobacco in Zimbabwe, in sisal, the tough fiber of the Agave sisalana plant used for making ropes, twine and other products, in Tanzania and on to fruit production in Nigeria. In some cases, African government authorities have actively fostered the arrival of investment sectors such as agro-industry investments in Egyptian areas.
Agro-industries and investments originating in India, Brazil, China and the United Arab Emirates have been especially active in Africa and now, recent data indicate that the most appealing targets for agro-industry investments are Zambia, South Africa and Namibia immediately ahead of Angola, Nigeria and Ghana. Also useful is to note that surveys conducted by authoritative African financial institutions have disclosed that the main risk factor for small African producers, 50% of them, is the fluctuation of interest rates on what are usually five to ten year loans in the local currency on the domestic market whereas, as opposed to a common opinion, the influence of weather events posing risk for economic activities is rated at only a 15%.
In conclusion, the reasons for favoring FDI in agriculture, also south-south investments, are quite clear and confirm recent reports on the finding of enterprises. These opinions point to prospects for the mid-term growth of these markets on the base of an increasing numbers of consumers, the great availability of natural resources and the strong focus of international organizations on African development through work in the agricultural sector. It is evident, however, that structured economic and commercial relations are being built which no longer rely on traditional partners in Europe and North America and that these results will have to be closely monitored and studied by the Italian enterprise system as well.
