India & Africa Agriculture, the Recipe for Growth

Africa has potential not only to achieve food security for the continent, but also to become a major player in the global food market. This potential lies in its abundant natural resources and huge population base, which offer opportunities in terms of a large labour market and an enormous food market. Africa’s middle class is estimated at 350-500 million, which is larger than India’s, and has a rising per capita income and greater propensity to trade and invest. The continent is, today, the third fastest growing economic region in the world and its rate of urbanisation is higher than that of India.

Agriculture forms a significant portion of the economies of all African countries and therefore can contribute towards major continental priorities, such as eradicating poverty and hunger, boosting intra-Africa trade and investments, rapid industrialisation and economic diversification, and sustainable resource and environmental management.

Agriculture is Africa’s largest economic sector, representing more than 15 percent of the continent’s total Gross Domestic Product (GDP) (more than $100 billion annually), and employs more than 70 percent of its workforce on approximately 783 million hectares of its arable land (27% of the world’s total). However, agricultural GDP in Africa is highly concentrated, with Egypt and Nigeria alone accounting for one-third of the total agricultural output.

Africa’s agro-ecological potential is massively larger than its current output, and so are its food requirements. While more than one-quarter of the world’s arable land lies on this continent, it generates only 10 percent of the global agricultural output.

There exists huge potential for growth in this sector, which is currently expanding at a rate of 2–5 percent a year. Underinvestment is one of the major challenges inhibiting the faster growth of agricultural output in Africa. Experts estimate that sub-Saharan Africa alone requires additional annual investments of as much as $50 billion to make the agricultural system work better.

Over the last decade, countries that have increased investments in agriculture as per Comprehensive Africa Agriculture Development Programme (CAADP) targets (or have exceeded) have seen reductions in hunger and poverty, and more productivity. Ghana, Togo, Zambia, Burundi, Burkina Faso, Mali, Niger, Congo, Senegal, Ethiopia and Malawi are some examples.

However, as is evident from the agricultural performance numbers, Africa still needs substantial efforts to boost investments and productivity, stir intra-African trade and establish market-oriented agri-food value chains.

African agriculture, therefore, needs business models that can significantly increase the level of investment from private and public sectors, as well as donors.

Current Investments

In 2014, Africa attracted Foreign Direct Investment (FDI) inflows of $54 billion, which represented a 4.4 percent share of the total global FDI inflows in that year. South Africa, Congo, Mozambique, Egypt and Nigeria were the top investment hotspots in Africa.

In terms of inward FDI stocks by sector, 47 percent of the total FDI stocks are invested in the services sector, followed by 31 percent in the primary sector and 21 percent in the manufacturing sector. The remaining goes into miscellaneous unspecified sectors.

Sector-level data are fragmented for African countries and even more so for the agribusiness sector, which is spread across primary, secondary (manufacturing) and tertiary services (marketing and distribution). Despite the paucity of data, it is observed that though domestic private sector participation and foreign investment in the agribusiness sector in Africa are very limited, they have witnessed an increasing trend over recent years. The total value of agriculture and agribusiness industries in sub-Saharan Africa is projected to reach $1 trillion by 2030 from $313 billion in 2010.

In terms of commodity categories, cereals (including rice, maize and wheat) and livestock products (dairy and meat) represent more than 50 percent of Africa’s total food imports. ‘Non-traditional’ export products (flowers, semi-processed fruits and vegetables, and textile products), traditional products (coffee, cocoa, tea and spices) and tobacco constitute a major share of Africa’s agricultural exports.

Major agricultural commodities exported by Africa include cocoa and cocoa preparations, fresh fruits, vegetables and nuts, and fish/marine products. In value terms, on an average, exports to India represented a meagre share of 4.8 percent for these major agri commodities exported from Africa, whereas 11 percent of India’s agricultural imports were from Africa. The year-wise trend for FY10 to FY14 shows that India’s bilateral trade with Africa was limited to 5 major product categories in these years: fresh fruits, nuts and melons; fresh vegetables; coffee, tea and spices; cotton; and fertilisers. Further, trends across these 5 product categories have fluctuated over the years.

The writer is Director, Agri and Natural Resources at PricewaterhouseCoopers India - PricewaterhouseCoopers Pvt Ltd (Extracts from theme paper released on India Africa Partnership in Agriculture current and Future Prospects).