The World Bank projects that agriculture and
agribusiness in Africa will grow to be a US$1 trillion industry in Africa by
2030. To promote this outcome, the continent must review its incentive
structures.
Agriculture averages 24% of GDP across the
continent. With post-harvest activities taken into account, agriculture-related
industry accounts for nearly half of all economic activity in sub-Saharan
Africa.
The region holds about half of the world’s
fertile and as-yet-unused land – and yet it spends US$25 billion annually
importing food. It also uses only a tiny percentage of its renewable water
resources.
The role of the small players
The potential growth of Africa’s food and
beverage markets will only be possible with adequate investment in small and
medium-sized agribusiness enterprises.
Small African firms engaged in agribusiness
greatly outnumber the large players. Former Malawian president Bingu Wa
Mutharika observed:
“In West Africa, 75% of agriculture-related
firms are micro or small enterprises, 20% are semi-industrial, and 5% are
industrial.”
Value chains in many African countries feature
an informal chain that serves lower-income consumers and a formal chain that
caters for high-income domestic consumers or exports. In many sectors the vast
majority of the volume moves through the smaller, less formal businesses. More
than 95% of the fruit and vegetables produced in Kenya move through
smallholders and small and medium enterprises (SMEs).
Policymakers need to support agribusiness and
technology incubators, export-processing zones and production networks. They
must also sharpen the skills associated with these sectors.
Banks and financial institutions also play key
roles in fostering technological innovation and supporting investment in
homegrown businesses. Unfortunately, their record in promoting technological
innovation in Africa has been poor.
Capital markets have played a critical role in
creating SMEs in developed countries. They bring money to the table and also
help groom small and medium-sized start-ups into successful enterprises.
Venture capital in Africa, however, barely exists outside South Africa.
African countries also need to make a
concerted effort to leverage expertise in the diaspora. This cohort provides
links to existing know-how, establish links to global markets and train local
workers to perform new tasks.
Much is already known about how to support
business development. The available policy tools include:
·
direct financing via
matching grants;
·
taxation policies;
·
government or public
procurement policies;
·
advance purchase
arrangements; and
·
prizes to recognise
creativity and innovation.
These can be complemented by simple ways to
promote rural innovation that involve low levels of funding, higher local
commitments and consistent government policy. For example, China’s
mission-oriented “Spark Program”, created to popularise modern technology in
rural areas, had spread to more than 90% of the country’s counties by 2005.
What China did for small businesses
There is growing evidence that the Chinese
economic miracle is a consequence of the rural entrepreneurship which started
in the 1980s. This contradicts classical interpretations that focus on
state-led enterprises and receptiveness to foreign direct investment.
Millions of township and village enterprises
were created in provinces like Zhejiang, Anhui and Hunan. This played a key
role in stimulating rural industrialisation. Over the past 60 years, China has
experimented extensively with policies and programmes to encourage the growth
of rural enterprises. These include providing isolated agricultural areas with
key producer inputs and access to post-harvest, value-added food processing.
By 1995, China’s village enterprises had
helped bring about a revolution in the country’s agriculture. They had evolved
to account for approximately 25% of GDP, 66% of all rural economic output and
more than 33% of total export earnings. Most of them have become private
enterprises that focus on areas outside agricultural inputs or food processing.
China’s initial rural enterprise strategy
focused on the so-called five small industries it deemed crucial to
agricultural growth:
·
chemical fertiliser;
·
cement;
·
energy;
·
iron and steel; and
·
farm machinery.
With strong backward linkages between these
rural enterprises and Chinese farmers, agricultural development in China grew
substantially in the late 1970s and 1980s. This happened through farmland
capital construction, chemical fertilisation and mechanisation. This expansion,
coupled with high population growth, led to a surplus of labour and a scarcity
of farmland.
As a result, China’s rural enterprises
increasingly shifted from supplying agricultural producer inputs to
labour-intensive consumer goods for domestic and international markets.
From the mid-1980s to the 1990s, China’s
township and village enterprises saw explosive growth in these areas. At the
same time they continued to supply agricultural producers with access to key
inputs, new technologies and food-processing services. The most successful were
those with strong links to:
·
urban and peri-urban
industries with which they could form joint ventures and share technical
information;
·
those in private
ownership; and
·
those who were willing
to shift from supplying producer inputs for farmers to manufacturing consumer
goods.
China’s experience provides a mechanism for
enhancing rural access to agricultural inputs such as fertilisers and
mechanisation, as well as post-harvest food processing. Rural enterprises may
make the most sense in areas where farm-to-market roads cannot be easily
established.
Along with sparking agricultural productivity,
rural enterprises may also help provide employment for farm labourers who have
been displaced by agricultural mechanisation.
By keeping workers and economic activity in
rural areas, China has helped expand rural markets and limit rural-urban
migration. This has also helped create conditions under which it is easier for
the government to provide key social services such as health care and education.
Township and village enterprises enjoyed
government support, but retained a degree of autonomy in their operations.
The way forward
Some non-profit organisations and foundations
are experimenting with promoting rural entrepreneurship by donating cows or
other livestock to rural communities. Organisations like Heifer International
provide cows, along with training about how to raise them and profit from
animal husbandry.
But the impact of these programmes is
relatively limited. In Malawi, for instance, Heifer International is
implementing a programme alongside USAID that is designed to stimulate a dairy
industry. But it serves only 180 smallholder farmers.
The lesson from China’s experience is that
development must be viewed as an expression of human potentialities, not as a
product of external interventions.
This article is published in collaboration
with Quartz Africa. Publication does not imply endorsement of views
by the World Economic Forum.
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Author: Calestous Juma is Professor of the
Practice of International Development at Harvard Kennedy School (HKS).
Image: Koos Mthimkhulu inspects his crop at
his farm in Senekal, about 287km (178 miles) in the Eastern Free State, in this
February 29, 2012 file photo. REUTERS.
