Agriculture in Africa: Revival Strategies
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Since the mid-1990s, after two decades of structural adjustment programs, Africa's economic indicators are growing again. This growth is largely on account of good macroeconomic fundamentals, improving governance, the surge of mobile and digital technologies, increasing foreign capital inflows, and improvements in the business climate. After languishing for decades on the fringes of the global markets, Africa is now being increasingly integrated into the globalization process. The continent's consumer spending is set to rise by 80 percent by 2020, as a fast growing middle class is expected to increase from 60 million to 100 million people by 2015.
Africa has become one of the world’s top growth areas (5.6% per annum) and is fast becoming an urban, booming continent, which will soon host 20% of the world’s population. Ten of the African Union’s 54 member states have a GDP per capita higher than China and as many African countries shed outdated metrics for calculating their economic output, Africa's collective GDP is said to be close to $2 trillion. In fact, on a global level, today, seven of the ten fastest growing economies in the world are in Africa - hence the label "Africa Rising". But unfortunately this growth is not inclusive. While rising economic indicators are important, it is not necessarily what changes lives for the better. It is therefore essential that this growth should translate into tangible benefits that can be felt by majority of our people.
Africa’s rural economies harbor the greatest share of those being left behind or excluded. We must therefore ensure that the nature of the new growth in Africa is one that opens up the rural economies, and by so doing lifts hundreds of millions out of poverty. A totally revived rural economy must become the new economy of Africa.
Our rural economies are largely dependent on agriculture and reviving them requires a renewed focus on unleashing the potential of agriculture to create wealth. We must end the era of prodigal economics, where Africa ignores its own agricultural potential and turns itself into a net food-importing region. In 2014, the African Progress Panel estimates that, excluding fish, Africa spends a whopping $35 billion on food imports annually. Yet, 65% of all available arable land to feed the 9 billion people in the world by 2050 lies in Africa. Years of ignoring Africa’s agricultural potential have turned our rural areas into dead economic spaces, which we must now revive and utilize to deliver shared wealth that derives increased economic growth.
To unleash the continent's agricultural potential, African countries need to set a new vision for agricultural transformation. This new vision must be one that sees agriculture as a business and not as a development program. This new vision must be focused on government encouraging and enabling the private sector to invest massively in the agricultural sector. This new vision for transforming Africa’s agriculture is what I call “government-enabled private-sector led agricultural transformation agenda”. Under this new vision, governments must become innovators, developing innovative policies and institutions that will create and expand opportunities for the private sector, especially farmers who themselves form the largest private sector in our countries. Agriculture must be treated as a business.
These innovative polices must include bold support initiatives that enable farmers to access the inputs they need to increase their productivity. African governments must not shy away from supporting their farmers with affordable farm inputs, while at the same time ensuring that markets work for farmers. Some may argue that supporting farmers in Africa is not sustainable. I argue that poverty is not sustainable. It is the many years of neglect of our farmers by governments that has created large numbers of poor farmers who are unable to compete in the global agricultural space. Africa must not become a museum of poverty. Poverty is not a tradable commodity nor is it an industry, so Africa must not grow poverty. The key to "a government-enabled private sector-led agricultural transformation agenda" is developing ways of effectively targeting support to reach farmers directly, while ensuring that it is the private sector, and not government, that delivers farm support to farmers.
This is what we did in Nigeria. When I took office as Minister of Agriculture in 2011, we ended four decades of fertilizer sector corruption within 90 days and with it the era of government buying and distributing seeds and fertilizers came to an end. With the overwhelming support of Nigeria's President Goodluck Ebele Jonathan, we replaced a government centered fertilizer procurement and distribution system with a private sector-driven system. The role of government shifted to providing targeted farm support directly to farmers for seeds and fertilizers via electronic coupons on mobile phones or “e-wallets”. Between 2012 and 2014, a total of 14 million farmers received their subsidized farm inputs using electronic vouchers on their mobile phones to directly pay private sector input retailers. Nigeria is the first in the world to develop an electronic wallet system for the purpose of delivering subsidized inputs directly to its farmers at scale. Several African counties including Kenya, Uganda, Tanzania and Ghana are adopting Nigeria's e-wallet system for distributing subsidized inputs to their farmers. The World Bank has decided to scale up Nigeria's e-wallet system across Africa.
Nowhere is the impact of these policies more evident than in our drive to become self-sufficient in rice production. Between 2012 and 2014, 6 million rice farmers were reached with improved rice varieties. Nigeria's total cumulative cultivated rice area rose by 2 million hectares. National paddy rice production expanded by an additional 7 million MT. Our new rice policy has attracted $1.6 billion of private sector investments, and we expect that Nigeria will become a net exporter of rice, just like Thailand or India, within the next four years.
As a result, national food production increased by an additional 21 million MT between 2012 and 2014, surpassing the set target of 20 million MT set for 2015. Nigeria met its MDG Goal One on hunger and extreme poverty, two years ahead of the 2015 United Nations target. Nigeria’s food import bill declined from $6.9 billion in 2009 to $4.35 billion in December 2013 and continues to decline. Such is the power of a government-enabled private sector-led agricultural transformation, when coupled with strong political will and supportive policies.
To increase the levels of agricultural productivity, farmers require access to affordable financing. Agricultural financing continues to be a challenge to agricultural transformation because the main source of credit to farmers is the government. Governments in most cases are over stretched and are unable to meet the credit need of farmers. We must therefore unlock new sources of financing for agriculture. With rapid economic growth in Africa, the pool of funds in the private sector is expanding and dwarfs public funds. Our banks are awash with cash. With the right financial mechanisms, such cash can be leveraged and turned into much needed capital flows. Pension funds, sovereign wealth funds, equity markets and bond markets all offer great opportunities to deploy financing for development of agriculture infrastructure, roads, rails and ports and irrigation. We must leverage these resources to create capital flows for the long term financing for agriculture.
To do so, we must de-risk the financial value chains. Africa is succeeding in doing this. For example, using innovative financing tools, I led a team few years ago that successfully leveraged banks in Kenya, Tanzania, Uganda, Ghana and Mozambique to lend over $100 million to small farmers and input retailers. In Nigeria, I also led the team that designed a $350 million risk sharing facility of the Central Bank of Nigeria, which leveraged $3.5 billion of lending from the balance sheets of banks to finance various agricultural value chains. In all these cases, the default rates by farmers and agribusinesses has been less than 2-3%, and in the case of Nigeria it has been 0% for the past three years. Governments need to continue to encourage the development of innovative ways of providing farmers with affordable single-digit interest rates to further spur growth across Africa's rural areas.
Unlocking Africa's agricultural potential requires a committed drive by the private sector to mechanize Africa's agriculture. We must face the fact that hoes and cutlasses are outdated technologies and a continued reliance on them cannot lead to the attainment of the levels of increased agricultural productivity required to make commercial agro processing viable. In Nigeria, we have started on the drive to mechanize our agriculture. About two months ago, President Jonathan launched a $340 million farm mechanization policy, which will replace hoes and cutlasses with affordable and appropriate modern farm machinery. In line with our vision for a government-enabled, private sector-led agricultural transformation, the Nigerian government's agricultural mechanization policy enables the private sector tractor manufacturers and service operators to establish 1,200 Agricultural Equipment Hiring Enterprises across the country. Government will provide mechanization grants to farmers via their mobile phones, which they will use to access mechanization services from private sector mechanization service operators in their areas.
Mechanizing Africa's agriculture also provides us with the tools to address the problem of the rapidly ageing population of the farmers on the continent. In many countries, the average age of farmers is 60 years. As the youth continues to migrate from rural into urban areas, Africa faces the risk of having no farmers left within 20 years. To avoid this “ageing farmer crisis" and take decisive policy steps to get the youth into agriculture, Nigeria has established the Youth Employment in Agriculture Program. It's goal: develop 750,000 new cadres of young commercial farmers and agribusiness entrepreneurs over the next five years. They will be supported with access to technical and business skills, access to land and affordable finance and market development support systems. We must make agriculture exciting for the youth. Agriculture can be "cool."
Africa is today the continent with the largest share of youth in its population. Close to 70% of the population of Africa is under the age of 30 years, while 21% of its population is between the age of 15 and 24 years, and 42% is below the age of 15 years. As the rest of the developed world experiences a shrinking youth population due to low birth rates, Africa’s high birth rate is leading to a massive demographic transition. But Africa's youth also make up 60% of the continent's unemployed population. This combination of increasing unemployment and an increasing youth population is lethal, and some have referred to it has "the ticking bomb of Africa's youth unemployment."
I, on the other hand, get excited about Africa's growing youth population. In the hands of such a youthful population, my vision of a government-enabled private sector-driven transformation goes beyond the agricultural sector. With governments leading the way by developing innovative policies and institutions to create and expand opportunities for the private sector, not only in agriculture, but across all sectors, Africa's large youth population suddenly moves from being "a ticking bomb" to becoming the largest labor force the world has ever seen.
Today, rather than being an asset, the story is different. Most of the continent's youth are underemployed, lack decent jobs and engage mostly in the informal sector, with low wages, or as unpaid family labor. Tens of thousands of Africa’s youth, excluded from the economic growth process, and some escaping political conflicts, take to the deadly trips across the Mediterranean Sea to Europe or the Sahara desert, in search of economic opportunities. Socially discontent youths fueled riots in Tunisia, Egypt, South Africa, Nigeria, and more recently in Burkina Faso. Over 50% of the youths that were involved in the civil wars in Liberia and Sierra Leone did so because of unemployment.
We must create hope and opportunities for Africa's youth. For the urban youth, investments should prioritize reducing labor market rigidities, use of labor market employment incentives to create demand for labor in the private sector and provide work experience for unemployed youths, reducing skills mismatch, development of entrepreneurship, use of internships, and improving the curriculum in universities and colleges to focus on skills required in the labor market. Vocational and apprenticeship skills should also be promoted. Investments are also needed to expand insurance, health and social housing programs that specifically target the youth.
To address the unemployment among the rural youth, focus should be on using agriculture to create massive amounts of jobs, which I have earlier indicated, requires the rapid modernization of agriculture, promotion of mechanized farms, expansion of small and medium sized agribusinesses in rural areas and rural non-farm employment opportunities. The development of large infrastructure-enabled skills enhancement zones, through public private partnerships, that provide young graduates with exposure to skills demanded in the labor market, will offer them wider opportunities to enter the labor market or create jobs for themselves. The development of venture capital funds can be used to encourage entrepreneurship among the youth. Progress should be accelerated to expand the representation of the youth in parliaments, training and engagement of the youth in public policy dialogues to ensure political accountability and the use of quotas for enhancing political participation of the youth at all levels of political institutions.
Greater focus should be placed on programs that expand the participation of girls in schools, especially in sciences, engineering and information and communication technologies. Affirmative labor market policies are required to raise labor market participation for women. To encourage financial independence and self-employment for young women, financial incentives should be promoted to provide affordable finance for small and medium scale enterprises. An affirmative finance action for women is needed and at least 35% of all loans by commercial banks should be specifically dedicated to SMEs owned and operated by women. Investment in women pays!
But the potential, dynamism, innovation and labor locked in Africa's youth cannot be unleashed until Africa tackles its infrastructure gap, especially its energy deficit, as only 5% of the rural areas and 50% of urban areas have electricity.
Africa, with over 1.5 billion people, generates power equal to that of Spain with a population of 45 million. Only 42% of Africans have access to electricity compared to 75% in all developing countries. The situation is much worse in Sub-Saharan Africa, where 30% of the population has access to electricity. Africa has an installed energy capacity of just 147 GW, the same as Belgium. The average Nigerian, who uses 136
KWH per year, consumes just 5 percent of the average energy a Chinese citizen consumes and under a quarter of the energy an average Indian consumes. Yet Africa has over 50% of the world’s renewable energy, including wind, geothermal, solar and hydropower sources. For example, Africa has a potential of 20,000 MW of geothermal but only 130 MW is being used, mainly in Kenya (150 MW) and Ethiopia (7.3 MW). Africa currently uses only 8% of its hydropower potential compared to Western Europe that uses 85% of its hydropower sources.
Africa must rapidly unlock its capacity in renewable energy. Kenya is building the world’s largest geothermal plant in the Rift valley, as well as the largest wind farm in Africa. Algeria is building its capacity to become a solar power net exporter by 2030. Morocco already has an installed wind power production capacity of 495 MW, with more than 800 MW of capacity under construction.
Solving Africa’s energy needs will require rapidly increasing power generation, transmission and distribution. A mix of energy sources will be needed, and the challenge is to get the right balance between renewable energy and fossil fuels to power Africa. Because of the high cost of transmission of electricity, a mix of grid, mini-grid and off-grid is required. There should be focus on development of large regional power projects that can generate electricity for several countries. The great Inga dam in the Democratic Republic of Congo, with a capacity to generate 40,000 MW, is more than enough to light up 60% of Africa. This potential should be unlocked rapidly, while paying attention to environmental safeguard issues. Such regional power projects are needed to provide energy for several countries. Regional power pools are necessary to help overcome the small size of national energy markets. South Africa, for example, has signed on to play the role of a "reliable purchaser" of electricity to be generated by the Inga dam project.
Expanding regional energy markets and promoting intra-Africa energy trade lowers power investment costs and improve the rates of returns on energy investments.
Investments in regional power transmission lines to connect countries will allow easier and cost effective evacuation of electricity across borders. The Central Transmission Corridor connects Mozambique power supply to Namibia and Angola. In East Africa, the Kenya-Zambia-Tanzania interconnector supports power transmission across the countries. The “ZiZaBoNa connector” will evacuate power generated from the Victoria Falls and distribute this through a 300 kilometers of 330 KV lines that links Zimbabwe and Zambia to landlocked Botswana and Namibia. In West Africa, regional energy infrastructure includes the Nigeria-Benin coastal transmission backbone, while the North-South power transmission lines links Egypt to South Africa, connecting 11 countries. The North Africa transmission line links Morocco to Egypt.
But all the above examples of energy investments, though laudable, are still a drop in the bucket. Africa would need close to $550 billion by 2030 to finance its energy needs. Innovative finance will be critical to reducing risks facing investors. Like we have pioneered in agriculture, African countries will have to innovate with the use of credit guarantees, risk insurance and debt financing in preparing the bankable projects necessary to leverage the capital needed to boost Africa’s energy supply.
The Africa 50 Fund of the African Development Bank is a laudable initiative, targeted at leveraging capital markets in Africa to finance Africa’s infrastructure needs, including regional and national projects on energy, transport, ICT and water. This should be strongly supported. For it is Africa's own homegrown solution, tapping into its financial capital markets, to meet its energy and infrastructure challenges.
The Power Africa Initiative, launched by the US President Barak Obama, plans to add an additional 30,000 MW of power to the energy supply in six African countries and improve access to electricity for at least 60 million households. Private sector investment commitment under the initiative has exceeded $20 billion, including new initiatives that support off-grid small-scale energy solutions that can expand access to electricity to remote areas of the continent. The Power Africa Initiative is an excellent example of government-enabled private sector led transformation agenda in Africa.
Even as Africa addresses these challenges, its growth trajectory is being challenged by the recent Ebola disease outbreak in West Africa. The epidemic has dampened the growth prospects for Liberia, Guinea and Sierra Leone. The outbreak, the worst in the continent, has led to high mortality of 2,750 deaths in Liberia, 1,259 in Sierra Leone and 904 deaths in Guinea so far. The economies of these countries have experienced a decline in growth, as farming, tourism, financial markets and service industries have been seriously affected. While these countries posted strong economic growth rates before the Ebola crisis, the IMF estimates show that the GDP of the affected countries will decline by over $380 million. The World Bank estimates the regional financial impact could reach $32.6 billion by 2015.
Ladies and gentlemen, Africa will end the Ebola crisis. The success of Nigeria in rapidly containing the pandemic has given impetus to the political leaders, that with strong political will and rapid response, the epidemic can be contained. But the rapid spread of Ebola virus is a wakeup call that has exposed decades of underinvestment in public health systems in many parts of Africa. Lack of doctors, health care workers, inadequate numbers of diagnostic centers and quarantine centers, have hampered the speed of response to the virus. The response of the global community, while late in coming, has risen as virus infection cases were reported in Spain and the United States of America.
The heroes of the frontline battle have been the resilient communities, health care workers who put their lives at risk, including local and foreign doctors from the Medicine Sans Frontiers, and foreign personnel dispatched from US, Europe, Cuba and Nigeria to provide much needed medical support and build new quarantine centers. The lesson from the Ebola pandemic is that Africa needs to significantly expand its investments in health care systems, especially the primary health care systems in rural areas. A lot more resources should be devoted to constructing more treatment and quarantine centers, developing vaccines, cheap diagnostic tools for rapid diagnosis.
Despite the challenges, Africa will recover from the Ebola pandemic, as African leaders are showing strong political will across countries, but it will require significant amounts of aid. The African Development Bank and the World Bank have committed over $700 million in support, including an additional $300 million in low interest commercial loans from the International Finance Corporation. Africa is also doing its part. Just last week at the Africa Union in Addis Ababa, leading African business organizations pledged $28.5 million to a fund to fight the Ebola outbreak. Foreign donors can also help affected countries with aid to provide fiscal buffers, reduce budget deficits, lower their debt exposure, rebuild their public health care systems, as well as lower interest and long term commercial loans to address trade, investment and employment challenges. Africa is resilient, and Africa will arise.
Africa will rise further and reduce inequalities across countries by boosting intra-regional trade. Africa needs to trade more with itself. Compared to the rest of the world, inter-Africa trade accounts for only 12%, compared to 65% in the European Union and 49% in the North America and 25% in Southeast Asian countries. Greater intra-Africa trade will foster regional integration, expand market size, spur greater investments in infrastructure and provide the building blocks needed to enhance Africa’s participation and competitiveness in global markets. Improving regional transport infrastructure, especially transnational highways, ports and aviation facilities and improved logistics, will open up African economies and enhance movement of people, goods and services.
But much still needs to be done to ensure a level playing field on the global market to allow Africa to increase its current very low global market share of 2.5%. Africa cannot finance its growth based on aid, neither should it aspire to. What is needed for even faster growth is to boost Africa’s share of global trade. This can be achieved by lowering trade barriers in developed countries. Africa can effectively position itself for expanded trade by strengthening diversification of its exports, moving up on global value chains, reducing tariff and non-tariff barriers, promoting trade facilitation, expanding trade-related infrastructure and boosting trade finance. In the transport sector, there is need to expand and upgrade selected trade corridors and road networks; invest in highways, ports and border-crossing facilities; and build one-stop border posts along major corridors.
Ladies and gentlemen, Africa must move up the global value chains and focus on manufacturing and higher value added processing for its commodities, instead of exporting raw materials. Nowhere is the need for this more poignant than in the case of cocoa. While farmers in Ivory Coast, Ghana, Cameroon and Nigeria produce over 70% of the cocoa beans globally, West Africa accounts for only 18 percent of all grindings, while Europe and the US account for over 70% of all grindings. In a recent book about the global chocolate market, West Africa is barely mentioned. The same applies if you take the tour of the Cadbury museum in Bourneville, England, even though two thirds of the cocoa in the company’s chocolates comes from West Africa. With the global market for chocolate estimated to be over $80 billion per year, Africans buy chocolates in Europe, but Africa gets a meager 3-5% of the price of a bar of chocolate. Africa should be producing chocolates.
A new global phenomenon, climate change, is affecting Africa. For millions of children their hope of a better Africa is being challenged by climate change. While Africa contributes less than 4% of global greenhouse emissions, compared to 38% in OECD countries and 25% in China, it suffers disproportionately from the negative effects. With the scorching heat, African children watch their parents’ farms shrivel from increased droughts. The Sahelian countries have not been spared. They lose their livestock, often the main store of asset and incomes that provide buffers against shocks, pay their medical bills and send them to school. Not only is the climate changing, their lives are changing and their economic opportunities are shrinking.
The global responsibility to address climate change is one of social and climate justice as well as a moral imperative. The principle of "joint but differentiated responsibility" for addressing climate change requires that the world reduce global emissions to less than 5% of the levels of 1990s. While the developed countries have had several decades to grow, expand and develop technological innovations that now allow them to move towards a low carbon economy, African countries don't have that luxury. They must address mitigation and adaptation simultaneously, and with urgency, to reduce the vulnerability climate change poses to their economies.
Africa needs significant amount of resources to finance adaptation to climate and reduce vulnerabilities of its population. But Africa is not getting those resources at the scale needed. The Clean Development Mechanism (CDM), set up to finance meeting the set carbon emissions reduction targets in the developed economies, through offsets of emissions in developing countries, has yet to benefit much of Africa. Of the over $400 billion in financed projects in 2000-2014, only 2 percent has been in Africa.
Over 80 percent of the carbon reduction credits have gone to India and China, focusing mainly on industrial emissions and energy. The CDMs support mitigation, which helps developed countries, but not adaptation, the primary challenge of Africa. Africa needs to address climate change adaptation and build resilience, with expanded investments in drought and flood tolerant crops, crop and livestock insurance, irrigation, improved land use management with agroforestry and zero tillage systems. Carbon bonds can be used to raise financing in Africa to support farmers’ sustainable intensification and sequestration of carbon through avoided deforestation and expansion of carbon sinks. On the path from Rio to France, on the long journey for addressing climate change, climate adaptation needs of Africa must be on the top of the agenda.
But Africa must develop with pride. Africa must mobilize its domestic resources through better tax collecting and smart leveraging of remittances through instruments such as Diaspora bonds. According to the United Nations Economic Commission for Africa, remittances from the African diaspora is estimated at over $60 billion, second only to foreign direct investment. The World Bank estimates that remittance flows to sub-Saharan Africa is estimated to grow to $41 billion by 2016. This is on par with Official Development Assistance to sub-Saharan Africa in 2014, according to the ONE Campaign 2014 Data Report. As India and Israel have successfully done, several African countries with large Diaspora communities are now posting Diaspora bonds - which are essentially a form of government debt targeted at citizens living abroad with emotional and financial ties to their countries or regions of birth. Also, the total size of assets under management by Pension Funds in Africa now totals over $379 billion. With appropriate reforms, Pension funds in Africa could potentially deploy up to $35 billion annually for investment in private equities to support long-term capital needs for Africa’s development.
Africa is not a poor continent, it just happens to have a lot of poor people. We must transition the poor into wealth and create economic ladders of opportunities. We must therefore, not only improve the private capital stocks for Africa; we must rapidly build Africa’s social capital stocks. We must work to improve Africa’s development outcomes, strengthen economic, social and political systems, and build an enduring Africa – prosperous, peaceful and stable. An Africa that is united and regionally integrated. An Africa that is globally competitive; a place of hope, opportunities, liberties and freedom, with shared prosperity for all. An Africa, Africans are proud to call home. An Africa, open to the world. An Africa, the place to be!
By Dr. Akinwumi Adesina
Minister of Agriculture and Rural Development, Nigeria.