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African agriculture - prime time to invest?

Despite fears of a world recession, African agriculture could be a wise investment (IRIN)
Despite fears of a world recession, African agriculture could be a wise investment

As the world economy teeters on the edge of a full-blown recession, what will this mean for agriculture in Africa in 2009 and beyond? While some predict that aid and investment funds will dry up as the developed world nurses its wounds in the wake of the biggest financial crisis in over half-a-century, others believe that Africa could now be a safe place to invest, and agriculture could be in line for an unprecedented financial boost.

At the recent Africa Finance and Investment Forum 2008, in Paris, France, leading lights in investment, agribusiness and development met to discuss what the crisis could mean for Africa and how investment in agriculture might be stimulated. As well as the need for caution, there was also a spirit of optimism that, while the banks in Europe, the USA and Asia feel the pinch, Africa, which has so far been relatively immune to the crisis, could now be very fertile ground for investors looking for an alternative place to put their money.

These are some of the questions put to delegates by New Agriculturist for this edition's Points of view.

Opportunity or threat?

The World Bank's World Development Report 2008 showed that agriculture really is the path that Africa should take. I think this is going to be a huge opportunity, partly because markets in Africa are the frontier markets, they are the markets where there are high returns. They are a bit more risky but firms are going to have to go this way.
Prof Loic Sadoulet, INSEAD Business School, France

Africa generates a large chunk of its capital from remittances, aid and philanthropic money from the west, and for as long as the credit crunch exists some of these sources of capital are going to shrink. But if someone prudently invests in the African agriculture sector there is a lot of room for money to be made, because there are a lot of virgin grounds in Africa. For example, in Uganda I would confidently say over 60 per cent of the land has not been fully utilised; we can make use of this land and produce cereals and commodities that we can sell.
Patrick Oketa, chief investment officer, African Agricultural Capital, Uganda

With the right investment, Africa can make substantial gains in production (WRENmedia)
With the right investment, Africa can make substantial gains in production

Africa is not a big player in the global financial situation, but it is supported by global money. Now, because of the situation with global financing, I believe you're about to see less money available from the aid side, and less available from the equity side.
Rev. Mario Martinez, managing director, Lead international, USA

As far as I see, the situation in Africa is booming and this crisis has no effect on what is going on there. In my capacity I don't feel the crisis, and I think because Africa is the new future source for food for the whole world, I believe the world will invest in Africa and find more and more projects, especially in agriculture.
Refael Dayan, general manager, Green 2000, Israel

The global crisis is a source of uncertainty: right now no-one knows how this will unfold. The impact will differ across different countries but I'm quite worried about the potential negative effects.
Marylou Uy, director for private and financial sector in Africa, World Bank, USA

What can farmers do?

Probably one of the critical steps is trying to achieve economies of scale because people who are looking to provide support - development organisations and so on - are looking for organisations that have scale and that are able to become self-sustaining. The struggling farmer needs ideally to be able to come into a community which is able to purchase seed more efficiently, fertiliser inputs more efficiently, able to market more strongly, because they're able with larger volumes to command better prices.
Piers Cumberledge, Lundin for Africa

Individual farmers are less likely to gain from economies of scale (World Bank)
Individual farmers are less likely to gain from economies of scale
World Bank

From our perspective we strongly believe in organising famers in cooperatives and member-based organisations. Through that cooperation they can be financed, or they can develop new products, or they can get access to financial markets or access producer organisations. Women farmers are very important in this case. We see a lot of cooperatives organised by women and they are also the people who get micro-loans because the repayment for women is even higher than for men. From a banking perspective this is more secure.
Pierre Van Hadel, managing director, Rabobank Foundation, Netherlands

Many people in Africa have not taken agriculture as a profession: they see my grandfather, my father and my mother in the village with nothing to do, who have been farming. Let's encourage agriculture to be a profession; the government has a role to play in this.
Albert Mwegwa, managing director, Intercontinental Bank, Ghana

Let's start to produce food, not oil.
Jean Quequipa, Ministry of Economy, Angola

Good governance - the final hurdle?

There is so much poor governance that still exists in Africa that even while organisations are pushing to have better systems, better governments, better regulations, it is still the person who knows the president, who knows the prime minister, and is willing to pay corruption, that gets the money from the banks. That continues to be a huge problem.
Mario Martinez, Lead international

Governance is one of the big risks in Africa. There are a few countries that are very stable at the moment but, for instance, one year ago we thought it was perfect to do business in Kenya. Now there are a lot of people doubting about Kenya, not because the people in Kenya have changed but because the political climate is changing.
Pierre Van Hadel, Rabobank Foundation

Concerns over security and corruption in some African countries continue to disuade investors (IRIN)
Concerns over security and corruption in some African countries continue to disuade investors

Africa has been an area where good governance has not been present and it has been difficult to attract investment. Business people are built to live with tough economic conditions, but they want to know where they're going, where the government is going, to make sure the rules are clear, and the rules are followed. Without that it becomes unsafe to invest.
Rejean Frenette, vice-president, BDA Foundation, Canada

Good governance is critical. Corruption, environmental laws, the regulatory framework - all these have to be addressed. But the nice story, I think, is that a lot of countries realise that, and they are moving in the right direction. I think governments are beginning to realise the power of doing these kinds of reforms and making things more clear and straightforward.
Rustom Masalawala, associate director, The Earth Institute, Columbia University, USA

How to make Africa an attractive option

Enable the private sector to look after itself. Deregulate, and encourage individual entrepreneurs to develop themselves and their businesses, whether it's in agriculture or maybe in agriculture-related sectors. But encourage entrepreneurship and take the heavy hand of regulation off business.
Piers Cumberledge, Lundin for Africa

There needs to be a better protection of property rights, smoother business procedures and a bit more transparency in governance. Infrastructure is also very important. The everlasting example is that if we fix the infrastructure in Uganda it will be enough to feed the whole of Africa - that means that everything else we could produce in Africa would be for profit.
Loic Sadoulet, INSEAD Business School

Encouraging entrepreneurship is essential to promoting investment in African agriculture (WRENmedia)
Encouraging entrepreneurship is essential to promoting investment in African agriculture

Financial institutions have got to become more innovative and think about things more like a farmer rather than like a banker. I think very often financial institutions go into Africa thinking, How can I make money out of businesses in Africa? If they look closely at the needs of the farmers, and structure deals or sources of funding to suit the needs of the farmers, I think that would be the best thing. The African farmer is asking for capital that is reasonable in price, they are asking for capital that is patient, so we need to focus more closely on the needs of the farmer.
Patrick Oketa, African Agricultural Capital

First of all, the African governments need to look at the land tenure systems, how the land is owned. They must make it easier for people to acquire land for agriculture, there must be government tax incentives, low interest rebates. Foreign companies will see this and want to come to Africa.
Albert Mwegwa, Intercontinental Bank

Investment in agriculture is definitely the way forward. Humans are taking over the planet and there's not enough food to keep the whole world going. You have to remember that Africa has got such a great climate, such a large amount of space: if we can make people understand what potential Africa has for agriculture then our job is done really.
Tabitha Wood, director, Cru Investment Management, UK

The world needs Africa and now is the right time for Africa to wake up to the opportunity. The world community needs to be involved in Africa and support Africa - but for all the right reasons. That means not taking food out of Africa for their own use; they should feed the Africans first, grow the wealth and the economy in Africa, and then the rest of the world will benefit.
David Wakeford MBE, director of international trade, Commonwealth Business School, UK

Date published: January 2009


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