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Investors focus on southern Africa’s agri-corridorsFor Africa’s landlocked territories, transport corridors through neighbouring states are essential. The importing of food, fuel, and commodities vital to the makeup of foreign export earnings occur through these channels.
The fact remains, however, that international corridor transport in the majority of sub-Saharan Africa is costly, slow and unreliable. Africa is the only region in the world where hunger is worsening, and per capita food production has stagnated over the past decade.
With focus being increasingly shifted towards factors such as the creation and upgrade of existing transport corridors, a new and innovative investment focus has befallen the private sector – that of “agri-corridors”.
Southern Africa plays host to some of the most arable and agriculturally rich land on earth, and is at long last realising the potential hidden beneath its very feet.
While one cannot ignore influences such as poverty and political mismanagement, the fact remains that within its very soil lies the potential to not only abolish starvation among its own people, but also to boost greatly the region’s export market capabilities.
It seems that these facts are finally coming to the fore, with both the public and private sector realising the positive potential from not only a return on investment in the short term, but with terms such as “recession” finally beginning to fade, the longer term as well.
An example of this would be the work that private entities are currently undertaking in the creation of an agriculture growth corridor along the existing Beira trading corridor in Mozambique, which clearly illustrates a new way forward.
A private project – initiated in partnership with the government of Mozambique, and organisations including the Norwegian Government, Alliance for a Green Revolution in Africa (Agra), World Bank, African Development Bank and InfraCo – provides an example of how to tackle constraints such as low yields, limited access to finance and poor quality infrastructure, through a holistic and co-ordinated approach.
From a commercial export perspective, more and more organisations are finally turning their attention to aiding countries in their bid to boost overall agricultural production, while at the same time having a positive effect on overall export profitability from both a public as well as private perspective.
Last year saw Yara – the world’s largest supplier of mineral fertilisers – announce two large investments that will turn two key African ports into regional distribution hubs.
The two ports, located at Beira in Mozambique, as well as Dar es Salaam in Tanzania, will see an overall investment of $60 million over the coming years in a bid to develop a strategy for harmonising transport linkages, including ports, in the delivery of agricultural products.
From a southern African perspective, private investors feel that with a favourable climate, decent port facilities and huge tracts of land available for farming, Mozambique can once again become a major agricultural player within the southeastern African region.
Norwegian-based Yara has also underlined that with the country’s recent economic and infrastructural growth, the largely forgotten nation has the potential to pair it with Tanzania in becoming a regional hub for inward- and outward-bound agricultural commodities.
Part of the reason halting foreign and, indeed, local private investment has been that the current ports system in these countries is highly ineffective, with agricultural shipments taking three to four times longer to clear customs and be delivered, than at other commercial ports.
This investment has therefore opened up a unique and innovative private investment opportunity. These investments, while largely based on an agricultural import/export angle, will undoubtedly have a positive knock-on effect for a much larger private investment community.
If these corridors were to become an economically viable success, the entire country and its surrounding regions will undoubtedly present themselves in a more positive light from a private investment standpoint.
The concept of agricultural corridors is not only making waves from a private investment point of view, but is one that has gripped the attention of global organisations.
The endorsement by United Nations Secretary-General Ban Ki-Moon of the Growth Corridor concept at the UN Private Sector Forum marked the beginning of a closer partnership between the UN and the private sector in addressing the global food crisis, and effectively triggered a scale-up of support for global development goals.
The Forum, which witnessed a gathering of over 100 chief executive officers, civil society leaders, heads of foundations and UN agencies, launched the “Business Call to Action”, aimed at engaging private enterprise in achieving set targets, as well as the “Framework for Business Engagement with the United Nations”, which has been set in motion to develop more effectively mobilised private sector efforts.
The importance being attached to areas of growth was again listed as a focal point at the World Economic Forum Annual General Meeting held earlier in the year in Davos, Switzerland.
This meeting underlined the aim of such corridors as being to “stimulate investment-led agricultural growth and development; reduce food insecurity; facilitate internal and external trade; enhance the competitiveness of the agriculture sector as a component of African economies and; promote regional integration and wealth creation”.
This unique concept, and certainly a pulling factor from an investment perspective, is that the corridor business model plans to build on existing foundation structures already in place, yet currently deemed ineffective due to factors such as low funding and crude mismanagement.
Building on past initiatives, current and future agricultural-corridor opportunities are aimed at promoting a more competitive agricultural sector through the improvement of efficiency through supply chains.
Overall, the growth corridor should aim to invest in communication routes with existing infrastructure in order to aid in achieving economies of scale, developing clusters and strengthening input-output markets.
Increasing numbers of private investors are also beginning to realise that the corridor initiative needs to focus funding on particular areas of the model, such as the need to ensure that markets exist for increased output, as well as ensure that farmers have access to local, regional or international market analysis.
With the help of both the public sector and private investment, many feel that the proposed agricultural corridor initiative will effectively:
• contribute to improving food security and economic growth in the African region;
• harness efficiencies along specific agricultural value chains/promote regional integration of agricultural markets;
• identify possible agricultural development opportunities that may form part of an agricultural investment pipeline which could, in the long term, complement specific infrastructure projects; and
• co-ordinate different activities along the value chain and make agriculture projects competitive and attractive to international and domestic investors.
In the longer term, Africa’s agricultural sector has the potential to be the epicentre of regional growth, particularly as we can no longer expect the same level of revenues traditionally delivered by other commodities.
Despite factors such as the economic downturn, now is the time to increase investment into agriculture as well as drive forward policies and action to support innovation and agricultural sector growth.
The above efforts clearly underline the need for a renewed and concerted effort towards development of agriculture as a core component of Africa’s overall economic development.
The key overarching challenge faced by both private and public investment is to harmonise this complex agricultural value chain and channel it more effectively. From farm to marketplace, a particular emphasis on an effective upgrade of the commercial viability of small-scale African farmers and the overall agri-business sector needs to occur.
To date, infrastructure development in Africa has not been particularly focused on the needs of promoting agricultural value chains, presenting the perfect scenario for today’s investors – one that can benefit the people with regards to food production as well as one that can satisfy the private investor with an effective return on investment and overall profitability.
Regarding investment opportunity – now is the time.
Adam Currie
