Sub-Saharan Africa should, by any measure, be a global agricultural powerhouse. The continent has vast swathes of arable land, underutilized by the smallholder, and subsistence agriculture that dominates the sector. While climatic conditions obviously differ—and are still changing in the face of global climate change—several regions have the right temperatures and amounts of precipitation to produce two or even three crops a year. And with a rapidly growing urban population, there is mounting demand for reliable sources of affordable food. Africa is a huge market with nearly a billion people; a recent World Bank report estimates the continent’s food market will be valued at more than $1 trillion by 2028.
Instead, as in so many other sectors, Africa disappoints, importing approximately $60 billion in food every year when it has the potential to be a net exporter. Food security in many countries is tenuous, particularly in states plagued by political insecurity and unrest. A lack of regional integration and bad policies, like price controls, have further undermined the sector. Not all of this is the fault of governments. Southern and east Africa historically have been susceptible to drought, with El Nino conditions unleashing one of the worst on record throughout 2015, while creeping desertification from the Sahara undermines Sahelian agricultural viability. But overall, governments’ inability or unwillingness to invest in agriculture and the infrastructure necessary to bring it to market has prevented the continent from reaching its potential.
Slowly but surely, however, things are changing, with governments, international donors, and private firms looking at agriculture with a keen eye. With an estimated 70 percent of working-age Africans employed in some way by the agricultural sector, governments are working to expand infrastructure and market opportunities for farmers (in part to slow movement to already overcrowded cities). World Bank investment in the sector currently amounts to more than $6 billion, an increase of 50 percent since 2011, while investing in agriculture is equally attractive to bilateral donors like USAID and DFID. Perhaps more transformational to the sector is the interest of private concerns, notably from European private equity investors, and quasi-governmental investment entities, particularly from China and the Middle East. These firms are particularly focused on large-scale production, cobbling together thousands of hectares of productive land and introducing intensive, mechanized farming. This has proven controversial, with small farmers claiming they have been forced off of their holdings. But the significantly higher yields suggest the practice is set to continue, particularly in east Africa.
Given the agricultural sector’s upward trajectory, the question turns to how US companies—not just multinationals, but also small- and medium-sized companies—can take advantage of business opportunities. At ISI, we see agribusiness as the sector with perhaps the most diverse set of investment possibilities on the continent, particularly given the breadth of the term “agribusiness.” For many, the term conjures up the image of agricultural production, raising crops and animals for food production. This is obviously a key part of the chain, but there are an immense number of subsidiary opportunities:
- Public and private infrastructure is a necessity for both improving yields and bringing products to market (or processing facilities). This ranges from road and rail from rural to urban areas to the necessities of a commercial farm—irrigation equipment, dam-building, crop storage facilities, worker housing, and so on. Often underserved by the electricity grid, African commercial farms also are increasing their reliance on renewable energy, particularly solar power.
- Commercial farms, and even smallholders, need farm equipment—particularly tractors—to increase production. American equipment, such as Caterpillar, is highly thought of on the continent, particularly compared to Chinese competition. The issue has long been cost, but national and provincial governments are looking to leasing schemes to increase availability and lower costs.
- Production is only the first step in the agribusiness chain; processing facilities are also a necessity, and one for which there is growing demand. Canneries, packaging plants, slaughterhouses, animal feed production facilities…the list is endless, and there is demand for all of them, as well as their associated warehouses and cold storage facilities.
Let’s not overlook the farms themselves, which demand an equally diverse set of inputs depending on their specialties. Dairies (which are in very short supply on the continent) need milking machines; wheat farms will need threshers and other large equipment, as well as possible specialized seed hybrids; vegetables may require greenhouses. US companies have the ability to answer this demand, probably better than any other in the world.
Overall, the sector is promising, and—unlike many on the continent—open for business. African governments and donors see the need for outside investment and expertise, and broadly welcome Western involvement in the sector. Due diligence is necessary; questions of land ownership can be particularly thorny, and local partners will need scrutiny. ISI can help your company identify appropriate investment opportunities in Africa and facilitate the relationships you will need to be successful.
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