_Agri-Africa Update 2020 – Economic diversification could favour farming investment

As a sector, agriculture remains the frontrunner for diversification in most commodity-driven markets.

Rising populations, increasing urbanisation, as well as the availability of arable land, are all factors that make a strong case for agricultural investment in Africa.

The UN’s Food & Agriculture Organisation (FAO) estimates that food production in Africa needs to increase by 60% over the next decade to feed its growing population.

Several countries have already made significant progress towards diversifying their economies.

In North Africa, the Green Morocco Plan, for example, has been lauded as a model that many African countries could draw inspiration from in order to meet their people’s expectations.

Since its launch, the plan has helped grow agricultural output by 60%, from US$8.17 billion in 2008 to almost US$13 billion in 2018. Morocco’s export agency Foodex estimates that the country’s agricultural exports almost doubled between 2010 and 2019.

The country has further invested in renewable energies as part of its strategy to reduce its carbon footprint by reducing its reliance on fossil fuels.

Prior to the onset of Covid-19, Angola was recovering from a four-year recession caused by weak oil prices and falling production.

Through a new National Development Plan, the country is seeking to transform its economy by attracting private investments, mainly in agriculture, and restore its former status as a significant producer and exporter of agricultural products.

Agricultural investment

With 58 million hectares, Angola’s area of agricultural land is approximately the size of France. Combined with a conducive climate and its location on the Atlantic coast, this makes the sector particularly attractive to investors.

An uptick in agriculture investment has already been observed with increasing interest in horticultural products and cereals.

The country currently aims to cover 60% of its chicken consumption and reduce imported milk to 15%. These products constitute the main agricultural imports to Angola.

Nigeria is another country trying to ramp up agricultural production and diversify its economy. It is aiming to achieve self-sufficiency in rice production and start exporting to other countries by 2022.

Given it has 84 million hectares of farmland, Nigeria is keen to ensure a massive revolution in agriculture by investing in machinery, infrastructure, agro-processing and research.

Zambia remains at the forefront of agri-business as diversification solution for the country’s copper-dependent economy.

Agri-businesses in Zambia benefit from a range of tax incentives and capital allowances. Corporation tax for agricultural businesses is only 10% compared with 35% for other sectors of the economy, and investors are also allowed to import agricultural equipment free of import duties.

Those investing over US$500,000 into specific agricultural subsectors including horticulture and cotton also qualify for a range of different incentives.

Primary risks

As Covid-19 unfolds, primary risks to agriculture have been witnessed at a country level through disruptions in food supply chains and loss of incomes impacting on consumer spending.

Food producers also face large losses on perishable and nutritious food as consumption patterns shift. As a result, countries like while Rwanda saw a 27% decline during its six-week lockdown.

Although Covid-19 has created short-term issues for agricultural producers - Nigeria recorded an 18% decline in agri-food GDP during its five-week lockdown - the pandemic has presented an opportunity for countries to reassess their agricultural investment commitments and audit their systems in ensuring sustainable food security.

In a bid to help agricultural exporters in Africa weather the Covid-19 crisis, several initiatives have been adopted such as the International Islamic Trade Finance Corporation (ITFC) provision of US$200 million to the African Export-Import Bank (Afreximbank) aimed at boosting agricultural exports.

Loan facility

Further, Ghana’s Cocoa Board (Cocobod) is set to launch a US$600 million syndicated loan facility that has been established with Development Finance Institutions (DFI) to provide funding for key investment projects within the cocoa industry.

This aims to boost productivity at a time where the value of cocoa has fallen dramatically by up to US$1 billion amidst the pandemic.

In Kenya, the World Bank is seeking to leverage digital technologies through ongoing partnerships with 15 AgTech start-ups to transform the delivery of inputs, soil testing, crop insurance, credit, extension advice and market linkages.

This will enable farmers to overcome temporary Covid-related constraints and ensure better targeting and more effective service delivery, especially in remote areas.

As governments reassess their policy priorities, they should not lose focus on the longer-term growth and poverty reduction that have underpinned Africa’s past decade of strong economic development.

Investing in their country’s agriculture remains fundamental in ensuring the wellbeing of their citizens and ensuring economic growth in the short to long term.