Import substitution on the rise in African agriculture

With Africa’s food import bill only set to grow, the opportunity for the private sector to fill the gap has never been bigger. Last month, the Nigerian government wanted the central bank to stop certain foods being imported to encourage local production. But what is happening in terms of agricultural investment?

African agriculture is starting to attract more interest from governments and investment from the private sector, although all too often governments only turn their attention to boosting agricultural productivity and yields when export revenues from other sectors fall. For instance, the newfound desire of Abuja and Luanda to cut their food import bills has coincided with the long downturn in oil prices.

Agriculture accounts for 16% of the GDP of sub-Saharan Africa, about five times more than the global average. Half the population of Chad and Guinea-Bissau are economically dependent on agriculture, while most East African countries have rates of about 30%.

There has long been discussion of the high cost of food imports in African countries with fertile soil and plenty of sunshine that allows three crops a year to be grown. Yet some respected organisations have suggested that the problem is about to get a great deal worse.

The AfDB has estimated Africa’s annual food import bill at US$35bn in 2016, rising to $110bn by 2025. This would be fine if it were due to a step increase in cross-border African trade driven by a desire by each country to specialise in particular crops, but it is all too often caused by shortcomings in domestic agriculture and an over-reliance on processed food imports, often from the industrialised world.

The AfDB has a $24bn budget to finance African agricultural projects over 2017-27 but it needs the support of governments and the private sector if progress is to be made on food security, sustainability and boosting GDP.

Part of this money will be used to tackle food insecurity, the result of droughts or other one-off events, but the bulk is supposed to radically transform agricultural production in Africa.

Abuja blocks food imports

The Nigerian government has announced that it plans to encourage local agricultural production by making imports more difficult, in a strategy apparently driven by President Muhammadu Buhari himself. According to figures from the country’s National Bureau of Statistics, Nigerian food and drink imports cost the country $4.1bn in 2017.

In mid-August, Abuja told the Central Bank of Nigeria to reject requests for foreign currency from food importers. This policy has already been used to deter rice, sugar, barley and steel imports, with some success, but will now be implemented more generally. Similarly, the government of Zambia banned some fruit and vegetable imports in March.

Annual Nigerian rice production increased from an average of 7.1m tonnes in the five years up to 2017 to 8.9m tonnes in 2018. Despite the positive results, it does seem a rather blunter tool than imposing duties on imports that can be gradually increased or reduced in a more nuanced way.

The big fear is that blocking the import of basic foodstuffs will drive up prices and could even lead to food shortages. The government is offering subsidies on some products, but on production rather than consumption, in order to encourage farmers to invest in increasing yields.

Although agriculture employs more people than any other sector in Nigeria, the country is reliant on the import of many basic foodstuffs. The all-embracing obsession with oil has long been blamed for diverting attention and resources away from other parts of the economy.

Moreover, restricting imports and regulating prices by whatever means can also encourage smuggling. The cocoa industry, which is discussed on page 38, has long experience of smuggling across the Ghanaian-Ivorian border, as farmers seek to take advantage of higher regulated prices on either side of the border.

In early August, South Africa’s Absa Corporate and Investment Bank announced that rising investment levels in African agriculture had persuaded it to offer agricultural finance in more African states, including Kenya, Tanzania, Uganda and Ghana. Banks operating across the continent are often reluctant to invest in agricultural projects where production levels are variable because of wide fluctuations in rainfall and the impact of disease.

The impact of new technology on African agriculture has been well documented. From the use of drones to monitor crops to mobile-based insurance systems, improved access to information is making African farmers more secure and encouraging them to invest.

One of the most recent innovations is the Hello Tractor smartphone app, which puts farmers needing tractors in touch with others able to rent theirs out. It launched in Nigeria in 2014 and now operates in other markets. US OEM John Deere provides Hello Tractor to farmers to help cover the cost of buying new machinery.

Such products could seem obvious but have huge potential benefits and could be particularly welcome given the weakness in traditional tractor sales in some of the continent’s biggest markets. For instance, the South African Agricultural Machinery Association predicts that South African tractor sales will be up to 20% lower this year compared to 2018.

Big projects

Bigger companies often have the resources to invest in better quality inputs and infrastructure. For instance, Kwale International Sugar Company has invested heavily in irrigation and machinery to boost its production, an option that has not always been available to the state-owned companies that operate in the sector.

In 2017, it produced 28,000 tonnes of sugar from the 290,000 tonnes of sugar cane that it harvested, taking advantage of the fact that it operates across the production chain, from farm to factory.

It is installing sub-surface drip irrigation over 4,200 hectares of land with the water supplied by boreholes. It is already producing 110 tonnes on each irrigated hectare, in comparison with an average yield of 40 tonnes by older producers.

While Kwale avoids the import of raw sugar, the company is actually benefitting Kenya’s trade balance by exporting half of its production. The Kenyan government has promised to privatise the state-owned mills that rely on imported sugar but, as so often with Kenyan divestiture plans, the sales have been repeatedly delayed.

The entry of some of Africa’s biggest businesses into agribusiness in recent years has been welcomed but some have had to adapt their strategies as they discover the pitfalls.

For instance, Nigeria’s Dangote Group had planned to produce rice and sugar itself but has now decided to focus on other parts of the value chain because of the difficulties involved in operating over huge areas of land.

Speaking at the AfDB Investment Forum for the new Special Agro-Processing Zones in July, the group executive director for government and strategic relations, Mansur Ahmed, said:

“We initially planned to go into large- scale farming but we found that it is not practicable at the moment. We acquired 12,000 hectares in Jigawa State about four years ago and when we wanted to move in our tech, we found that there are about 15,000 farmers and their families occupying that land and it is simply not possible to move them out of it, so we have to engage these same farmers in an out-grower’s scheme.”

Dangote Group is pressing ahead with the construction of six big food factories in different Nigerian states to process the crops produced by smallscale farmers. Its Katsina plant, for instance, will turn tomatoes into tomato puree, helping to reduce the 189 tonnes of tomato puree that the country imported in 2018.