As the largest group of emerging market economies, Africa’s 53 diverse economies offer a range of opportunities to balance agribusiness investment opportunities. As net importers of food and fuel, the agribusiness opportunities range from biofuel to corn to livestock for dairy, meat, or aquaculture. Value-added processes, marketing and developing market information, equipment sales, farm and package agricultural inputs and final consumer goods round out the long list of advantages – all for burgeoning national and regional demand.
The “emerging markets” label is being attached to increasing numbers of African countries because key drivers of economic growth are demonstrating strength. Despite the expected consequence of the current global financial turmoil of a slowdown in investment flows to Africa, the IMF projects annual economic growth of 5 percent for the African continent, down from an average of close to 6 percent for the 2000-07 period. Prospects of strong performance of the agriculture value-chain are instrumental to the positive economic outlook for many of Africa’s economies.
Many African countries possess several of the characteristics of emerging markets:
- Per capita GNP of less than US $11,445 (the 2007 World Bank definition of low- and middle-income economies);
- Relatively recent economic liberation, including removal of foreign exchange controls and obstacles to foreign investment and privatization of previously state-owned companies;
- Recent history of rescheduling or sovereign debt and debt ratings below investment grade; and,
- Move towards greater public participation in the political process.
AGRICULTURE IS KEY
In the strategic framework developed by the Africa Union’s New Partnership for Africa’s Development (AU/NEPAD) agriculture is positioned as the anchor for investments to support regional economic growth. The Comprehensive Africa Agriculture Development Program (CAADP) identifies priorities for public and private investment. The target areas are: land and water management; rural infrastructure and trade-related capacities for improved market access; increasing food supply and reducing hunger, and agricultural research, technology dissemination and adoption. Through re-invigorated focus on agriculture, where more than 70 percent of Africa’s population is engaged in some way, and investment related industries, such as mobile telephone, renewable energy generation and east-west road networks, the economic transformation will be sustained and profitable returns realized.
African countries are working together to establish regional markets and economies. The five-country East African Community (EAC) is poised to have a common external tariff by December 2009. The Common Market for Eastern and Southern Africa (COMESA) accounts for over 406 million persons in 20 member countries from Egypt to Zambia, and the Economic Community of West African States (ECOWAS) is the leading group of 15 countries in the area of Africa that is geographically located and is closest to the U.S. Several public investments are on-going to provide a solid foundation for private investment, including the U.S. Department of Agriculture’s support of capacity building to ensure quality certification for trade in agriculture based products; U.S. Department of Commerce’s Commercial Law Development Program, a unique government-to-government approach that helps improve legal and regulatory environments and develops sustainable professional relationships with U.S. partners, and the Market Access and Compliance, Office of Africa in the Department of Commerce which ensures access to Africa’s markets for American companies. The U.S. Agency for International Development (U.S.A.I.D.) supports institution building that assist with systemizing trade in Africa.
Characteristics of a very young population that is rapidly benefiting from the wave of free primary education begun in the 1990s shape the opportunity for returns for product innovation and marketing. Opportunities to collaborate in developing agribusiness and food science education programs in Africa are wide-open. In the midst of economic slowdown expected as a result of the current financial market crises, Africa’s emerging economy markets will continue to grow at noticeably steady rates. Investing in transforming agriculture in Africa balances the portfolio in which expected growth hovers at 2-3 percent. Information about the deep, rich qualities of Africa’s soils is available to investors from the Regional Strategic Analysis and Knowledge Support System (ReSAKSS). Africa’s arable land is among the most productive, and with non-food crops such a jatropha for biofuel, marginal lands can also be brought to bear to reduce Africa’s fuel imports and increase overall productivity of the natural resources on the continent. Africa’s agroforestry industry will be important to carbon trading markets.
Growth in the number of private equity funds in Africa, Europe and the U.S. that include agribusiness as a target industry is not surprising. Private equity funds, similar to the rapid growth in cell phone networks and usage, are building blocks of emerging market economies. The IMF is working with country groups in Africa to improve the cross-border payments within the Regional Economic Communities. Commercial banks in Africa are developing cash-flow products for small-to medium-sized farmers to augment the services to an important segment of the supply chain. The commercial bank cash-flow product complements initiatives such as the warehouse receipt program successfully tested by the East Africa Grains Council.
The Corporate Council on Africa’s “Agriculture as Agribusiness” Web site [www.africacncl.org/ppai] provides current information about Africa’s dynamic economic growth landscape. This information can shape the investment strategies that leverage U.S. expertise in marketing and product design, or extend the profitability of nutrition research, or apply technologies that are simultaneously, commercially and environmentally sustainable. The characteristics of emerging markets shape business opportunities but key to capturing the returns is recognizing that Africa is a continent with diverse markets at the sub-regional and national levels.
Joyce Cacho Ph.D. is director, Agribusiness Initiatives Program; The Corporate Council on Africa. Established in 1993 and headquartered in Washington, DC, the Corporate Council on Africa is a non-profit, membership organization dedicated to strengthening commercial relationships between the U.S.A. and the African continent. Visit: www.africacncl.org. The Public-Private Agriculture Initiative (PPAI) serves to galvanize interest by U.S. agribusiness companies and financiers to invest and trade with Africa. The PPAI is also a mechanism that facilitates commercialization of best practices incubated by philanthropic and international research organizations. Visit: www.ifpri.org.