Agriculture, "forced" choice for Africa

The crisis of raw materials and the low oil prices are producing negative effects on the economies of many African countries. The loss of some traditional sectors of the economy, however, is producing an ever greater interest in agriculture and the economy of rural areas. Filling the technology and mechanization gap has become a priority for the continent's countries

Many economic commentators are wondering whether the African miracle has suddenly scaled down. After 10 years of formidable economic growth, Africa has to deal with two worrying phenomena: the collapse of commodity prices, particularly oil, and the slowdown in Chinese growth.

The two variables are partly related. They become even more so in a continent where China had greatly increased its presence in recent years.

The tangible effects are evident. The collapse in oil prices has put in serious difficulty producing countries such as Nigeria and Angola, as well as other markets that are sensitive to commodity prices, such as South Africa and Ghana. The most important investment programmes, often linked to raw materials, are undergoing a sharp slowdown, as is the case for projects to increase oil refining capacity in Nigeria or to increase copper production in Zambia. Drastic controls on imports have been enacted in order to curtail the outflow of hard currency.  Our exporters are beginning to suffer the effects. Chinese investments slow down, and above all become more selective, more cautious.

Yet in this context, the most attentive observers, as well as African politicians and economists, glimpse a positive sign: faced with the new scenario and its criticality, Africa has a great opportunity to start a new path of development. A recent survey by the FT recognizes that the continent “is not rising but changing”. During several economic meetings in London, the main lines of this new development path emerged.

The collapse of commodity prices is promoting a firm push to diversify.

More attention is given to the manufacturing sector, but also the services sector. The lack of adequate physical infrastructure is driving the development of mobile services, such as financial services for rural communities or more efficient management of remittances from emigrants. After all, the data on foreign direct investment in Africa in 2014 (FDI Intelligence) attest to the ongoing high interest of international investors. Foreign Direct Investments in the continent reached 87 billion dollars (+67%), distributed over 660 projects and more than 460 companies. Among international investors, Portugal and Greece also had an important role. Unfortunately we have to note that Italy is not at the top of the rankings.

With regard to the country prospects, the observers, including those who participated in the panels of the last African Summit 2015, are unanimous. Nigeria and South Africa remain the pillars of sub-Saharan Africa, but at this stage, East Africa offers the most attractive opportunities. Growth rates in this region are between 6 and 8%, the economies are not as linked to the performance of commodities and are therefore benefiting from lower prices. East Africa is also an area with greater regional integration, with a strong growth of the middle class, and public finances under better control. East Africa looks to China, and above all to the Gulf and India, with which it strengthens its ties of economic cooperation. The most recent significant event that sealed these bonds was the India Africa Summit held in New Delhi the last week of October (www.iafs.in). Where to invest? Kenya, Ethiopia, Mozambique are the focus of the greatest expectations.

Looking to the rest of sub-Saharan Africa, in addition to the cited Nigeria and South Africa (respectively the first and second economy of Africa), many point to the Ivory Coast and Uganda.

One thing is certain, investing on Africa means having a long-term view, focusing on projects that are centred on the growing youth population, and betting on the partnership with the local private sector. The latter is attracting initiatives of major international organizations. The local private enterprise is very dynamic, young, eager to free itself from the chronic corruption of public bureaucracies.

In this scenario, what is the role and importance of the agricultural sector? To answer this question we must start from the megatrends of the continent, and particularly of the sub-Saharan Africa (SSA) region. Here 70% of the population is employed in agriculture, which in turn accounts for just 30% of the Gross National Product. If to this data we add the figures on the population under 25, which is 62% of the total, and the rapid urbanization, it is clear that the issue for African agriculture is linked substantially with that of food security. The potential margins for intervention are considerable. Agricultural production in Africa is only 10% of the world, in a continent that has, however, 60% of vacant lands on the planet ... but imports each year 33 billion dollars worth of foodstuffs.  We must start from these scenarios to identify possible avenues of cooperation and opportunities for our agribusiness companies.

An important issue is certainly the ability to input into the global value chain the agricultural products of the SSA region, which means moving from the export of agricultural commodities (with sharply falling prices) to adding value to the product. This means the improvement of production methods and transformation processes, irrigation systems, product conservation and stocking, logistics, marketing and training of the sector’s operators. Italian companies are able to make a significant contribution on the entire chain. Ghana can be an example from this perspective. A country where about a quarter of the national product comes from agriculture, whose protagonists are SMEs. The supply structure revolves around cocoa, the main export product, but also sees the presence of the fishing industry, the cultivation of palm oil, rubber and pineapple. In the north there are areas devoted to cattle and the cultivationw of cotton, but also sweet potato, millet, rice, shea butter, kola nut.

The local government, and the development aid agencies push for the mechanization of the sector, with the aim of creating added value on the supply chain, reduce food imports, and increase employment, curbing the runaway urbanization.

However, in other countries, maybe less followed by the media, there are specific opportunities. For example in the case of Zimbabwe, the agrobusiness sectors in which to invest are the main local crops: maize and tobacco. Some local entrepreneurs have reported opportunities also in horticulture and flowers.

Another distinctive situation is the sugar industry in Mauritius, which is undergoing a major restructuring. The collapse of the price of sugar from USD 586 in 2012 to the current USD 400 resulted in a large reduction in production and number of plants. At the same time there are important industrial projects aiming to broaden the types of products, such as special sugars and ethanol.

Among the large countries of the sub-Saharan region, Kenya might be the one that devotes the most attention to innovation in the field of agrobusiness. The favourable conditions that we have already mentioned are attractive to foreign investors, there is a greater sensitivity to environmental issues, and the will to reduce the import of certain basic foods (such as rice and corn) is particularly significant.

Africa may be defining a new development paradigm, and this path seems to open new and broader business opportunities for Italian companies. The retreat of commodities as the only engine of growth and the scaling down of public development aid can represent for Italian companies the opportunity to set more permanent and diversified roots in the sub-Saharan region in different sectors of the local economy.