Foreign Investment Opportunities in Agribusiness in Africa

Most economic experts believe that the key to unlocking Africa’s prosperity is through Agriculture. For a long time, the youth shunned Agriculture assuming it was anything but lucrative. Fortunately, they are now seeing the potential in agribusiness and are becoming more involved. However, despite the increased interest in Agribusiness by the youth in Africa, their passion has been in vain as the investment in Agriculture has remained low.

Even though Agriculture contributes about 23% to the GDP, financial institutions are yet to offer adequate financial support to the masses, enough to see growth in the Agricultural sector. Commercial banks have been lending farmers less than 10% of the total loans granted, with Uganda and Tanzania lending 9.2%, Morocco 4% and Guinea-Bissau only lending 0.06%.

The 2003 Maputo Declaration obligated African governments to provide at least 10% of its budgetary support to the Agriculture sector within five years. In 2014, Mozambique, Zimbabwe, Niger, and Malawi were the only countries which followed the guidelines of this declaration. The other states allocated less than 10% of the GDP to the Agriculture sector.

Public investment in the Agricultural sector in Africa in 2014

During the same period, nine countries invested between 5% and 10% of the country’s GDP in Agriculture. 14 counties invested less than 5% in Agriculture, with Angola investing only 1% of its GDP. Some states like Botswana saw a significant drop in public investment. In 1994, Botswana invested 31% in Agriculture. In 2014, only 9% of its GDP went to Agriculture.

Public and private investment in Agriculture as it is currently is not sustainable. The world has approximately 500 million small farms. Of these, 41 million are in Africa. These account for at least 80% of the agricultural land in Africa. Africa and the rest of the world will not be able to improve food security if the status quo remains. Foreign investment is essential to revamp this sector if it is to be sustainable and reliable.

Reasons why foreign investment is ideal for Africa

It is difficult for Africa to make all the necessary investments at once

Africa finds itself in an awkward place, especially since most of its budget goes to recurrent expenditure. It is only able to give so much to the agricultural sector. Some African countries have their priorities set on other industries, without realizing the potential Agriculture has. For the Agriculture sector in Africa to grow, enough to guarantee food security, foreign investment is essential.

Foreign Direct Investment (FDI) is insufficient

Africa has been receiving loans and donations for several years now. Unfortunately, these have been intermittent and restrictive. It is not sufficient for the sort of investment that the Agricultural sector needs. Compared to other continents, Africa receives 22% of FDI, America 29%and Europe gets the most significant share of 43%. Between 2001 and 2011, Africa received about $260 million in FDI. Africa’s potential has attracted many foreigners who have made a personal investment in the Agriculture sector.

There is a need for intensive Agricultural practices

Agribusiness, as it is currently, is at a microscopic scale. For example, Africa uses about 8kg of fertilizers per hectare. This is quite low compared to the world’s average of 102kg per hectare. For farmers in Africa to boost production, they need financing and the right supply of fertilizer. Unfortunately, absence of fertilizer is a frequent challenge in many countries in Africa. This has forced many farmers to be content with limited production or suffer from a low output. There have also been cases of low-quality fertilizer which has left many farmers disheartened. Readily available fertilizer that is well suited for the different soil types will be a welcome change for the farmers in Africa.

Most farmers in Africa do not employ mechanization in their farming practices. This has forced many to retain small-scale farming practices because they do not want to be overwhelmed during the production process. Africa is missing out on some of the latest technologies which would boost production and increase agricultural output. The quality of seeds used also needs to be improved. For example, many maize farmers would tell you they keep recycling the seeds they harvest every year. This has played a critical role in the fall in output and is threatening food security in Africa.

Plenty of opportunities in the agriculture production chain

There is a lot a foreign investor can do in the agricultural sector. One of the reasons why small-scale farming is prevalent is the absence of storage facilities. Rather than lose some of their produce, especially the perishable ones, farmers would instead produce enough for subsistence and the surplus for sale locally. With the right storage facilities, food production could increase. Farmers will also be willing to invest more in the sector as losses will reduce.

There is also the need for processing units for value addition. Africa has been unable to compete favorably in the international market because most of the food it exports is in raw form. Creation of processing units will result in employment opportunities and increased production. Agricultural products will also compete favorably in the international market. Improving the value chain will also boost the use of domestic inputs which will, in turn, have a higher multiplier effect on the economies of African countries.

At the moment the packaging of Agricultural products is still very poor or even non-existent in certain areas. Foreigners interested in investing the agricultural sector could consider the possibilities of this part in the production process. If well done and executed, it has great potential. Packaging plays a critical role in the safety and valuation of agricultural products, especially for export.

Many African countries have favorable investment opportunities

African countries understand the importance of the agriculture sector, and the value foreign investors bring to the table. This is why many countries encourage individuals and corporations to invest in the industry. Most of these countries lease public agricultural land for 49 years and others for 99 years. These leases are renewable. However, it is important for foreigners to understand that there are high expectations which include creation of employment opportunities, positive impact on the economy and improved food security. Before investing, research on the viability of the project is essential.

Climate change has become a great challenge for the agriculture sector. The African governments cannot single-handedly handle the difficulties arising from climate change. It needs the support of foreign investors to help improve the production process and food security. With the right approach and investment, foreign investors are bound to reap big while at the same time create employment, boost food security and revamp the economies of African countries.