Behold the $1 Trillion Industry for African Entrepreneurs

The power of entrepreneurs and the free market is driving Africa’s economic growth from food production, as business wakes up to opportunities of a rapidly growing food market in Africa, that may be worth more than $1 trillion each year by 2030 to substitute imports with high value food made in Africa.

Agriculture will be Africa’s quiet revolution, with a focus on SMEs and smallholder farmers creating the high productivity jobs and sustainable economic growth that failed to materialise from mineral deposits and increased urbanisation. Despite 37 percent of the population now living in urban centres, most jobs have been created in lower paid, less productive services rather than in industry, with this service sector accounting for more than half of the continent’s GDP. Smart investments in the food system can change this picture dramatically if planned correctly.

To succeed, Africa’s agricultural revolution needs to be very different to those seen in the rest of world. It requires an inclusive approach that links millions of small farms to agribusinesses, creating extended food supply chains and employment opportunities for millions including those that will transition from farming. This is in contrast to the model often seen elsewhere in the world of moving to large scale commercial farming and food processing, which employs relatively few people and requires high levels of capital.

There is the opportunity for Africa to feed the continent with food made in Africa that meets the growing demand of affluent, fast growing urban populations on the continent looking for high value processed and pre-cooked foods. Furthermore, it advocates that this opportunity should be met by many of the continent’s existing smallholder farmers. Currently part of this growing demand for Africa’s food is met by imports. These amount to $35bn p.a. and are expected to cost $110bn by 2025 unless Africa improves the productivity and global competiveness of its agribusiness and agriculture sectors.

The following points have been identified as key issues.

•  Governments need to increase their investments in agriculture and rural infrastructure in line with their 10 per cent CAADP commitment
• Governments should take a holistic approach to improving the business environment for the entire agrifood system, from farm to fork
• Smallholder farmers need to be better organised to link to modern value chains
• Governments need to support the financial sector to meet the unserved financial needs of commercially oriented small farms and food producing SMEs
• Legislation and regulations that boost regional trade in agricultural products will make a significant contribution to the growth of Africa’s food production sector and have a tangible impact on reducing poverty

Yet, it is clear that left to the private sector alone, growth in the agrifood system will not be as fast as it could, nor will it benefit as many smallholder farmers and SMEs as it could. Government support is needed to both stimulate and guide the transition. As a high priority, governments need to create an enabling business environment and in particular, meet targets to invest ten percent of GDP in agriculture, agreed at the 2003 African Union (AU) Summit as part of The Comprehensive Africa Agriculture Development Programme (CAADP).

Governments must stimulate new private public partnerships for more innovative financing and insurance provision which can lead to increased resilience for farmers and their households. While globally agricultural insurance is a $2 billion business, Africa accounts for less than two percent of the market. Other fiscal stimulus measures suggested include improving financial regulations, developing better credit-reporting processes, opening up special economic zones, supporting digital warehouse receipt systems and sharing risk with lenders through credit guarantees and matching funds.

By AGRA Report