Why Africa offers growing opportunities for agricultural products

© T.Tulik – za.fotolia.com

Population growth brings greater demand, urbanisation leads to more people buying food rather than producing their own, economic growth increases purchasing power while changing diets implies that people are opting for diverse, and sometimes healthier, consumption.

Africa is expected to double its population from 1.2 billion to 2.4 billion by 2050, making it the fastest growing region in the world. The continent is also urbanising rapidly. More than 50% of the population still lives in rural areas but this is changing. The continent is expected to have one of the highest urbanisation rates in the world over the next 35 years.

The fact that the growth factors are present on the continent and most are increasing presents opportunities for businesses connected to the agricultural sector. For South Africa, this is a chance to widen opportunities for its struggling agricultural industry. The foundation has been laid by some agro-processing companies and retailers that have successfully set up operations in countries north of the Limpopo River.

Taking the gap

South Africa's agribusinesses and retailers have set themselves up to take advantage of these opportunities. Its businesses started increasing their participation on the continent soon after 1994 when the country was accepted in the international community.

Supermarket group Shoprite, for example, had 131 stores in 16 countries (excluding South Africa) in 2013. Woolworths has 65 stores in 11 countries; Pick n Pay 110 stores, including joint ventures.

These retailers are usually linked with agribusiness in the home country and thus source most of the food, fresh and processed from South Africa. In return, South African exports of food and agricultural products benefit.

South African exports to the rest of the continent have more than doubled from the mid 1990s to 2014. In 1994, Africa accounted for less than 10% of total exports. By 2014 the continent was the leading destination for agricultural and agro-processed products, accounting for more than 45% of all exports and surpassing some of South Africa's historical partners in the European Union and the US.

Products that have benefited most are maize, apples, wines and processed food. The main destination countries are Zambia, Angola, Nigeria and Ghana. These countries achieved higher rates of economic growth over the past decade than the global average. Nigeria is not only the most populous country on the continent, but it is now the largest economy. In the last 15 years, Zambia achieved GDP per capita growth of more than four times, from about $400 to $1800. Angola managed an average annual growth rate of more than 10%, supported mainly by oil resources.

Targeting the affluent

General incomes have been growing in most African countries. In the past five years at least four African countries have been making the list of the fastest growing economies in the world. They include Nigeria, Ghana, Zambia, Mozambique and Kenya. In theory, the growing economies improve average incomes and affordability.

But one of the weaknesses with these growth rates and progress in economic growth is that the gains have not been evenly distributed. Income inequality in many countries remains high and continues to increase in others. For example, the wealth gap in Zambia and Nigeria is growing. The richest 20% in Zambia had national income share of about 57% in 1993, and their income share increased to 62% in 2010. In Nigeria, the richest 20% controlled 45% of income in 1985, and then increased to 49% by 2010.

South African companies have targeted the rich segments of the economy. Stores are usually located in the main centres, with high population density, relatively better infrastructure than the rest of the country and generally high income than the rest.

This practice has led to criticism being levelled against South African companies. Resentment from local businesses has been fuelled by the fact that South Africans are not developing local capacities in agro-processing, manufacturing and other value adding activities that will make local products meet the required standards of those retailers.

Africa is not for sissies

Businesses face a number of constraints and potential threats.

Infrastructure in many countries is relatively undeveloped and weak, especially in rural areas. As a result, the cost of moving goods across the continent is higher, making the products unaffordable to many.

There are still concerns about political instability and social unrest even though a great many more African countries have become peaceful over the last 20 years.

There are also concerns about the sustainability of current growth rates. This is because most of the fast growing countries rely on resources for their growth. These include oil, copper, gas, gold and other minerals. These commodities are usually exported in raw form or with little value added and their prices are highly volatile.

Competition from countries such as China, Indian and the developed world is also increasing. Although it is fragmented, it remains a concern.

There is a need to manage trade relations on the continent and deepen integration. The right foundation has been set with the completion of the SADC free trade area as well as the signing of the tripartite free trade area in June 2015 providing additional access to African markets. This expands duty free markets in 25 countries, a combined population of more than 620 million and aggregated economic value of $1.2 trillion.

Intra-Africa trade is very low at about 10%, but this widening of market access should help to improve that trade. It should also encourage further expansion of South African retailers which in turn will facilitate that intra-Africa trade. South Africa is already the largest contributor to intra-Africa exports, accounting for one third of the total export value. This contribution serves a a useful building block for both deeper economic integration and further capacity development for future growth of the people of the African continent.