Cb e africa_01


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Cb e africa_01

  1. 1. Give a man a fish and he will eat for a day. Teach a man to fish and he will eat for the rest of his life” is an old Chinese proverb – finance the fishing boat and things would move on even further.The encroaching famine onthe North Kenya, Somaliaand Ethiopia border isfighting for space in thewestern media againstimpending financial doom.Poor farming methods,lack of infrastructureand negligence by localgovernments has meantthat the area is patheticallyequipped to deal withdrought. Lack of irrigation,infrastructure, farm inputscompounded by droughtresults in starvation.However the regionsinvolved are also part ofsome of the fastest growingeconomies in the world.How is it that food securityis still so poorly guarded?East African GrowthAfrican populace and GDP growth has beenwell documented. East Africa in particularis looking forward to strong economicdevelopment accompanied by increasingpopulation and literacy. Africa has thehighest rate of people living in rural areas inthe world but urban centres are attractingmore people and the middle class isincreasing.Domestic Protein DemandThe combination of population, urbanisationand GDP growth are common denominatorsto successful emerging markets which hasseen per capita consumption drive forwardthroughout the BRIC’s. Kenya’s populationhas doubled over the last 25 years, to about40 million people, and rapid population ©2011
  2. 2. growth is set to continue. Kenya’s population crop yields creating a better food supply A similar progression as seen in evolutionwill grow by around 1 million per year – providing the farms are there to plant of the Brazilian farming capability which led3,000 people every day – over the next them. The region also struggles to produce Brazil to become an agricultural powerhouse40 years and will reach about 85 million by soybeans due to the short day light hours in is needed in Africa. The critical factor which2050. The East African Community (EAC) East Africa. Soybeans are the most efficient distinguishes East Africa from Brazil isrepresents a current population of 80Million protein provider for livestock feeds and as the high density of small holders. Brazil’sall demanding an improvement of not just such a critical cog in the food-production cerrados were largely deserted – this isthe quantity, but also the nutritional value wheel. Work is being done to develop lines not the case in East Africa – a partnershipof their food, i.e., increasing protein levels of soybeans which can cope with short day between industrial food production whichin diets. light hours. engages small holders is inevitable however challenging.At a time of impending food crisis on the Industrialised farming and associatedSomalia/Ethiopia/Kenya borders – figures accompanying investments could transformare being released showing Sub-Saharan Africa’s food security situation into a Natural resources & TechnologyAfrican demand for food is expected major exporter of commodities. A key to to meet regional demandto reach US$100 billion by 2015 double developing the agricultural production levels Someone described agriculture in Africalevels of 2000. Currently the sub-Saharan in East Africa is farm inputs; fertilizers, to me as ‘heart breaking’ and indeed thecontinent imports 45% of its rice and 85% genetics (plant and animal) crop protection part about access to land and dealing withof its wheat. chemicals, infrastructure (irrigation, routes local authorities is exactly that. Teams of to market etc). professional farmers with access to topMeanwhile in the urban hubs of Dar es seeds, fertilizer and crop protection methodSalaam, Kampala and Nairobi increasingly are being denied the opportunity to changewestern diets demand quality meat, e.g.poultry, which in Nairobi is currently more Replacing subsistence Africa’s farming profile because of localexpensive than beef. Kenya is home to a crop raising methods governance. Land ownership/leasehold is an emotivenumber of food and agricultural companiesbenefitting from increasing urban middle with high performance subject following a chequered historyclasses. Their business model is viablebecause they can serve a multi-million farming technology which has left behind a convoluted process compounded by corruption.customer base, which has increased by 25% would ensure Africa There are examples where industries haveover the last 10 years and which continuesto grow rapidly. Kenchic, Kenya’s largest realises its agronomic evolved and flourished in Africa. Cut flowers in Kenya, cassava chips in Ghana, tilapiapoultry producer is riding the wave ofincreasing chicken and egg consumption potential production in Malawi, coffee in Tanzania are examples of commercial agribusinesses.supplying both retail and butcheries as wellas having a strong presence on the high-street in the form of fast food restaurants.The industrialised meat industry is stridingto improve its efficiency – coping withthe local challenge of access to qualityfeedstuffs such as soybeans and maize.Feed additives in the form of vitaminsand phytase are arriving but only in theindustrialised commercial arena. Betterperforming genetic stock is being sourcedfrom industry leaders such as Aviagen,Genus.There is a growing awareness by foodcompanies that these urban hubs areincreasingly centres of a new wealthy middleclass. Global companies are starting to wakeup to Africa’s significance; Kentucky FriedChicken, Coca Cola, Charoen Pokphand areall ‘casing the East African urban joint’.The critical challenge to unlocking thepotential in the region is to improve basicfood stuff production efficiencies. Too muchof the regions basic commodity food stuffssuch as maize and oilseeds are producedby inefficient subsistence farmers who areentirely at the mercy of the weather andonly have access to inefficient farm inputs.Crop production in East Africa is constrainedby a shortage of appropriate seeds.Research for appropriate maize, rice andwheat lines is underway at Syngenta,Pioneer and Monsanto. In the long term Flower farming in Kenyaseeds developed for the region with increase ©2011
  3. 3. Within East Africa new dynamics between of that funding has vanished. Political risk they are trying to teach the man to fish tothe trading community are showing signs as seen in Zimbabwe has shadowed foreign feed himself, his family and then to sell aof evolution. Kenya, no longer has an direct investment in African agriculture. bulk to his local village.abundance of good farm land with water,but does have a strong labour force and The question is can these small scale unitseconomy. Kenya is subsequently evolvinginto a processing centre, utilizing its strong Oil and gas has really change the face of food security inlogistics capability that has been borne out brought wealth Africa? Perhaps large scale farming has gottenof its coffee, tea and horticultural industries.Tanzania and Uganda, have the opportunity to those nations itself a bad name – especially foreignto become a production centre. fortunate to enough to backed projects. The label ‘Land Grab’ has certainly been pinned on Chinese, MiddleTanzania has been slow to realise its farmingpotential due to the inefficiencies of its have discovered it – it East and Korean backed projects. Certainly African nations are dealing with an influx ofland title process. Growing pressure fromthe World Bank will proactively encourage will be the source of Chinese interest; most of Tanzania’s roads have arrived courtesy of Chinese convicts.Tanzania to speed up the establishment of economic growth for However it is industrialised farming whichindustrial farming. Given its endowments ofland, climate and labour East Africa should East Africa has the best potential to change Africa’s food security situation. Production perhave a strong comparative advantage in square hectare will always be highest whenagriculture. Across Africa small banks have been top inputs/technologies and infrastructure/The economy of this corner of Africa formed over the last two decades to focus irrigation systems are available – and theseis buoyed by the off shore oil and gas on financing agriculture. Most of these happen with scale. Companies providingexploration. UK operator BG Group made entities failed, their exposure to small scale those inputs will be far more inclined totwo discoveries in the Rovuma Basin off agriculture was too concentrated, all their develop their ‘African offering’ if agricultureTanzania’s southern coast in late 2010, eggs in many tiny uneconomical baskets in the region is viable.which lifted the country’s proven gas with no collateral. Few of the projects they A growing number of investment fundsreserves to 212.3bn cubic metres. Seventeen financed had the critical mass to make them have woken up to the potential of Africancompanies, including industry majors viable. The banks were also in many cases food production. It is a strong investmentExxonMobil, Statoil and Petrobras, are hi-jacked by politicians eager to dip into the story – with such strong local demand, highexploring 31 licensed blocks in Tanzania. available funds. Agriculture is characterised commodity prices (e.g. rice prices in Africa is as capital intensive with narrow margins –Oil and gas has brought wealth to those on average 20% above global trading prices) for these specialised banks agriculture was anations fortunate to enough to have and abundant resources – if you can make fiscal drain.discovered it – it will be the source of good agriculture happen you are going toeconomic growth for East Africa. win. The rewards can be both monetary and So what kind of financing is happening in humanitarian. African Agriculture?Access to finance The commercial investment fundsThe critical limiting factor to the developing industrialised agriculture indevelopment of farming in the region isaccess to financing. Despite the banking Today donor backed the region include; SilverStreet Capital, Phatisa Group, African Agricultural Capital,industry’s rapid growth in the region a funds such as Emergent, Africa Century and Lions Headpitiful amount of banks’ portfolios goestowards food and agribusiness. According AgDevCo and the Capital – to name but a few. These groups are striving to develop food production into industry sources less than 5% of EastAfrica’s banking portfolios is represented African Enterprise the region at varying points in the supply chain. The projects have a combination ofby agriculture. In Tanzania agriculture Challenge fund – critical scale, good management and accessrepresents less than 2% of banking to technology. These projects have theportfolios. are increasingly potential to not only win strong financialDrawing more comparisons to the evolution supporting small- gains but also to make a relevant change in food supply across the region and beyond.of Brazilian agriculture – now a breadbasket to the world; Brazilian growers are holder agriculture The basic dynamics of the East Africanwell financed not only by banks but also area are extremely promising but concernthe major input suppliers and commodity regarding country risk – and in particular The projects are small with a focus onprocessors. Growers can access capital to political risk remain foremost in investors’ impact rather than financial gains. Thepay for their top notch farming inputs and minds. The higher the risk level the greater investments are often classed as ‘patientmachinery before planting – these loans are the prospective returns should be. Investors capital’. This money aims to support thesecured against the promise of resulting have stated that unless a project can development of small-holder farmingcrops. In Africa such access to capital is deliver over 25% in return on investment enterprises and groups in targeted areasnot available prior to harvest; a grower can then dealing with the ‘African risk’ is just of Africa.only access financing once his barn is full. not worth it. The East African economySo how is that farmer supposed to fill his There are also purely charitable entities has shown itself to be highly resilient tobarn if he can’t afford the seed to plant? The teaching subsistence farmers to be more the factors which are shaking the west’sfinancing of planting has existed in Africa – market orientated such as Farm Africa. economic ground. 2009 saw major growthin Zimbabwe – where agricultural production Both the patient capital funds and charity across the region where as other emergingwas strong and efficient and there was faith entities focus on commercialisation of small markets were struck down – e.g., Brazil andin the farmers by the banks. With the tragic holder agriculture. It is not about “giving a Russia. Trade flows between East Africademise of agriculture and the disappearance man a fish so that he can eat for a day nor and Asia as well as the Gulf countries,of the professional farmer the availability teaching a man to just fish for himself” – underpins the sub-region’s solid growth. ©2011
  4. 4. The intensity of these trade relations varies Debt availability is also key – the African Notes on the author: Emma Cardy-Brown isacross individual East African Countries, banks are searching for ways to securitize the founder of the agribusiness consultancywith Tanzania exporting about 25% of its their lending to food producers – much Cardy-Brown & Co Ltd.exports to Asian and Middle Eastern markets easier to do when dealing with large scalein 2009. agricultural projects with clean land title www.cardy-brown.com and an asset base to include buildings and The company seeks to support commercialIn terms of the ‘Ease of doing Business’ machinery – harder to do for half an acre food and agricultural development in– a ranking developed by the world bank and machete. emerging markets and has successfullyEastern African countries are comparableto the other BRIC countries, with Kenya aided companies in all continents of theoutperforming Brazil, Russia and India world. Emma’s professional background– see below. includes management positions at Rabobank, Syngenta and Monsanto asAfrica risk is neither economic nor based well as years working on the family beefon bureaucracy – Africa risk is basically operation in Mato Grosso, Brazil.referring to governance. Access tofinancing will ultimately make the leap toindustrialised agriculture feasible in Africa.This requires the development of ‘faith inthe system’ a key to winning foreign directinvestment into food production. ©2011