Africa Up Close

Beyond its tremendous potential to create jobs, reduce poverty, and nourish the continent, agriculture can be the foundation for Africa’s economic transformation. Policymakers can make this happen by taking steps to strengthen the links between agriculture and manufacturing through agroprocessing.

The Paradox of African Agriculture

Agriculture in Africa is a paradox. In most countries in Sub-Saharan Africa (SSA), nearly half of the employed work in agriculture. Yet, in recent years, agriculture’s value added in production has been contributing only about 20 percent to SSA’s gross domestic product (GDP), which translates to low farmer incomes and high levels of poverty in rural areas. Besides, one in four people living in Sub-Saharan Africa is undernourished despite the continent being a net importer of food.

In a world of increasingly free trade, being a net importer of food is not by itself a failure, but it is a problem when Africa has comparative advantages in agriculture but remains uncompetitive and undernourished.  When you consider that 60 percent of the world’s arable, uncultivated land is on the continent, that average cereal yields in Africa are one-fifth those of East Asia’s, and that most of the food imported into Africa can be produced in Africa at a lower cost, with small increases in productivity, storage, and distribution, it becomes clear that agriculture is a vastly untapped area of economic growth, poverty reduction, and improved well-being across board.

Growth with DEPTH

For broader economic transformation, however, Africa needs to go further than feeding itself, even exporting food commodities. Economic transformation, as we think about it at the African Center for Economic Transformation, is Growth with DEPTH; that is, growth with diversification of the economy, export competitiveness, substantially higher productivity, upgraded technology, and noticeably improved human well-being through, in particular, higher employment and income levels. Transforming and linking agriculture to manufacturing is a necessary and critical part of this agenda.

Evidence from developed countries and the Green Revolution in Asia and Latin America suggest that agricultural transformation and growth have been the precursor to the acceleration of industrial growth in such countries as Japan, South Korea, and Taiwan, and, more recently, in emerging markets such as China and Brazil. In Africa, the reinforcing linkages between agriculture and manufacturing are yet to emerge.

African agriculture is currently based primarily on traditional smallholder farmers producing food items for subsistent consumption and local consumption through traditional markets, or for exports in unprocessed products. As we have seen in other economic transformation experiences, agriculture has provided the raw material inputs to feed processing plants in industry, and has also provided domestic markets for manufactures—as intermediate inputs, capital inputs or consumer products. How then do we start or scale up the processing industry that will add value to agricultural produce and also provide employment? In general, how do we stimulate agropocessing to be a catalyst for African transformation?

Take soybean. This is a crop mainly for processing—rather than for consuming it raw or cooked, making it a natural candidate for agroprocessing. Africa is a net importer of both soybean and processed soy products, but it has the capacity to produce substantial soybean volumes as an import-substitution opportunity. Soybean processing can also facilitate entry into generally high-price elastic markets for meat production, particularly poultry, in Sub-Saharan Africa. Driven by South Africa, the region’s production of soybean grew by an average of about 9% from 2008 to 2012, compared with 2% for the rest of the world in the same period. Nevertheless, the African share of global production remained inconsequential at less than 1 percent in 2012. One disincentive for going to soybean oil production has been finding markets for the soy cake, which makes up 82 percent of the output of a typical crushing facility. Soy cake is, however, an excellent source of protein to poultry, superior to corn and groundnuts, which are more typically used. Thus, recognizing the value chains and developing markets for the various by-products—including across borders—can help create robust businesses in soy processing and poultry farming. For instance, the Zambian soybean industry has grown in double digits in recent years in part due to exports of cake to Zimbabwe and South Africa.

Optimizing Agriculture in Africa

The paths forward for Africa would be to: 1) substitute soy imports,2) displace other oils and meals in the African market, and 3) target growth markets for soy cake.

These strategies plus those for fruits are fully explored in ACET’s African Transformation Report

Past efforts at agroprocessing have not been properly coordinated. Too often, agricultural policies are drafted independently of industrial policies. In fact, the only common theme between agricultural and industrial policies is their common goal of contributing to the national long-term vision. As a result, agriculture remains a sector for addressing food security because no real incentives are placed to connect it with the manufacturing sector. That is why policies geared to promote agro-processing, mainly designed by Ministries of Industries, are implemented without taking into account the realities of the agricultural sector and therefore seldom succeed in reaching the two sided objectives of reducing poverty and kickstarting industrialization. Governments therefore need to rethink industrial policies to align them with agricultural policies.

The optimal form of industrial policy would depend on the nature of the market imperfection at hand. In the past, Africa experienced Import Substituting Industrialization (ISI). Under this broader strategy, the state aspired to control the economy, which in the nascent industrial settings of the countries included the import-substituting factories that were being promoted. Thus governments either went into production themselves through state-owned enterprises or controlled the entry of entrepreneurs and heavily regulated the operations of private firms.  Despite initial successes in expanding the manufacturing sector, including agroprocessing, on the whole the results of the industrial policy pursued within the context of the state-led import substitution strategy subsequently proved to be quite disappointing.

Recently, a new model of state-private sector partnership in industrial policy has emerged:  “market-oriented industrial policy,” interpreted broadly as a set of policies that promote the efficient production and export of a diverse range of technologically upgraded goods and services, whether from agriculture, industry, or services. The core of this new industrial policy is to strike the right balance between the state and the private sector in their active collaboration. One of the important roles of the state in such partnership, other than the good management of the macroeconomic stability, is facilitating the private sector’s access to capabilities to become internationally competitive. A classic example of this new model can be found in Ghana’s cocoa processing sector. After the government issued a 20 percent discount on light cocoa beans to local processors in the mid-2000, the number of cocoa processing firms more than doubled as Ghana attracted world class players such as Cargill, ADM, among others.

Concluding Recommendations

In short, three elements can enable the next steps for Agroprocessing in a number of African countries. First, set the policy framework to motivate value addition to agriculture. Second, identify crops with comparative advantages and with the greatest impact, such as in terms of jobs, satisfaction of nutritional needs, and government revenue. And third, find the needs of businesses and open the doors for them to succeed.

Francis Mulangu is an agricultural economist, African Center for Economic Transformation (ACET)

Photo courtesy of Jerry Worster via Flickr Commons