Agribusiness: Africa’s untapped potential

For decades, farming in Africa was viewed by many as a subsistence activity whose loftiest goal was food security for individual households. It was never seen as a business for wealth creation. That is why the performance of the sector has historically been low. Modern farm inputs, including improved seeds and mechanization, are severely limited. Infrastructure also is in an appalling condition.

Though producing food on small family farms has always been at the heart of the African experience, now we are embracing the agriculture of our future. Agriculture is beginning to enrich Africa with a series of compelling economic opportunities along production chain that can be tapped across the continent.

The family farm can now be the source and hub for a new generation of young entrepreneurs delivering innovations across the food system. But agricultural productivity in Africa still remains far from developed by world standards. Treating agriculture as a business will entail establishing a viable agricultural sector through massive investment that addresses the challenges of infrastructure and aligns agriculture with industry, thus create wealth throughout Africa and leverage the continent’s existing assets to catalyze economic transformation.

Vital infrastructure including electricity, water, roads and rail to transport finished agricultural and processed foods are critical for the transformation of the agricultural sector of Africa, mainly based in rural areas. This is because lack of these crucial infrastructures skyrocket the cost of doing business and has discouraged food manufacturing companies from getting established in rural areas. Governments should provide fiscal infrastructure incentives for food manufacturing companies to move into rural areas, closer to zones of production than consumption. This can be achieved by developing agro-industrial zones and staple crop processing zones in rural areas.

Equally important is the need for African governments to reach out to the private sector and civil society to forge partnerships that can benefit farmers in Africa especially in the areas of seed improvement, fertilizer production, and machinery procurement. This will maximize output while equally spurring inclusive growth and development.

More than two-thirds of Africans rely on agriculture for a living. Yet, because of the lack of complete information:  farmers, intermediaries, and buyers are unable to effectively collaborate in the fragmented market. Tackling this challenge will be by providing an integrated platform that uses various Information and Communication Technology (ICT) gadgets including mobile phones to provide stakeholders in agriculture with an end-to-end solution to procuring inputs, linking producers to buyers, and finalizing credit and payments thereby creating an open market for business to thrive. Currently, ICT is no longer a luxury in Africa, as Africans have begun to leverage new technologies and innovations in their daily lives.

All of the measures above that improve the sector’s profitability will make it a more investment-worthy client in the eyes of financial institutions. As agriculture is subjected to high systemic risks, engaging with the sector has traditionally been challenging for financial institutions, which are unable to adequately conceptualize and assess risk and, therefore, unable to develop sustainable financial products for actors in the agricultural value chain. According to a World Bank report in 2009, only about 10% of the total portfolio of commercial banks in Africa goes to agriculture, including agro-industries, and rarely extended are loans to smallholders.

Consequently, agricultural clients, notably smallholders, lack access to adequate financial services living them dependent on meager savings and informal sources of credit and therefore face severe growth constraints.  As can be seen under its “Feed Africa” strategy, the African Development Bank will invest $24 billion in agriculture and agribusiness over the next ten years, amounting to 400% increase in financing, from the current levels of $600 million per year.

Nevertheless, a growing number of farmers are turning around their fortunes by embracing improved seeds and inputs, value addition and plugging into global value chains. Farmers are increasingly viewing farming as a business and not just a way to subsist, agribusiness is also gaining momentum.

African countries also need to view agriculture from an entrepreneurial perspective. They need to proactively identify and create markets for fresh produce and processed food products. If this is done, Africa will have taken its rightful place as a global powerhouse in food production. It could well also be feeding a population expected to exceed 2 billion by 2050, mostly youths that might well turn agriculture into an entrepreneurial endeavor.

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