Turning Agriculture into a Business
(IRIN)--A plan by the Africa Commission to side-step African governments and target the private sector to invigorate the continent’s business and agricultural capacity, thereby stimulating job creation, was launched in the Danish capital, Copenhagen, on 6 May.
According to the Commission’s committee members - heads of state, members of civil society, academia and international and regional organisations, mainly from Africa - the proposals break from the ever-growing catalogue of help schemes for the world’s poorest continent.
The main goal of the Danish government’s initiative is to put economic growth and employment in Africa higher on the international agenda, and improve the effectiveness of international development cooperation with the continent. The new US$3 billion financing scheme will provide the rarest of commodities to entrepreneurs and small businesses - access to finance.
Yet agriculture employs about 65 percent of Africa’s population. Danish development minister Ulla Tornaes told IRIN: ‘We cannot dictate to African countries on agriculture; African countries need to prioritise areas where they want to see job creation.’
Donald Kaberuka, president of the African Development Bank, noted that ‘We are not ignoring agriculture, it is the largest private sector on the continent, but it has to be a business and needs loans from banks to develop,’ after questions were raised at a gathering at Copenhagen University on 7 May.
‘Small and medium-sized businesses and entrepreneurs lack access to financing for investments, and the economic crisis has just worsened the situation. That is why we need to establish the African Guarantee Facility, with the aim of mobilising loans for US$3 billion. This can open up about $20 billion in investments, equalling 1.5 percent of Africa’s GDP,’ Kaberuka said in a statement.
Agricultural production in Africa has been in the doldrums for the past four decades, mirroring the rise in agricultural subsidies by developed nations - currently amounting to about a billion dollars a day - and the failure of about $400 billion in aid (equivalent to about six Marshall Plans) between 1960 and 1997 to meaningfully change the status quo of poverty.
Ngozi Okonjo-Iweala, the World Bank’s managing director and a former Nigerian finance minister, admitted to a sense of weariness when asked to join the initiative. ‘Not another Africa commission’ she said, and at first declined to be part of it unless there was a ‘specific programme’.
A different tact
Tornaes said the Africa Commission was different from its predecessors - it was not another commission highlighting well-known issues facing the continent, it had consulted African stakeholders ‘to come up with the answers’, and had the vision to create millions of jobs.
‘It’s different from the Blair commission, which was just a description of challenges. The Africa Commission is very focused, it does not have 84 recommendations like the Blair commission, just five [initiatives],’ she said.
The success of the commission rests on setting up an African Guarantee Fund in partnership with the African Development Bank; the promotion of sustainable energy; improving business competiveness; creating an enabling environment for entrepreneurs; supporting higher education and research, and linking this to ‘business practices, especially to expanding agricultural output’.
Africa’s reliance on exporting commodities, from minerals to agricultural products - which, with beneficiation, would create greater profits and provide sustainable and better paid jobs - is identified as a major obstacle to wealth creation on the continent.
For example, Africa produces one-third of the world’s cashew nuts, but there has been little investment in processing facilities, improving economic relations with smallholder farmers, or increasing production. According to the commission, if 650,000 metric tonnes of cashews were processed by Africa it would create 1,000 new businesses, 250,000 new jobs and an extra $150 million in annual revenue.
The commission cited successes in Ethiopia, where cut-flower exports increased from under $1 million in 2001 to more than $20 million in six years, and in Uganda, where exports of organically grown products have reached $7 million, rewarding the farmers with a profit margin 80 percent to 100 percent higher than those using traditional farming methods. Uganda has 200,000 hectares of certified organic farmland, worked by about 200,000 producers.
Kaberuka said the growth fund would provide 50 percent of approved loans as a ‘bridge’, but did not want ‘to give 100 per cent loans, as this could create another dependency.’
Okonjo-Iweala said, ‘For a period of time we did not pay enough attention to agriculture, during the 1980s and 1990s, but agriculture has remained unsolved. How are we going to get more productive agriculture?’ She told IRIN the trade distortions created by agricultural subsidies in the developed world would ‘have to go’, and ‘it will not be easy for African agriculture to be competitive under these circumstances.’
A meeting in October 2008 in the Ugandan capital, Kampala, recognised that ‘Few countries have experienced sustained growth at a high level without growth in agricultural productivity,’ and that ‘Increasing food prices and the search for sustainable bio-fuels could, however, make it more profitable to invest in agriculture in many African countries.’
But prevailing conditions that have contributed to the food crisis in Africa, such as poor agricultural planning, weak land tenure policies, and a low capacity to adapt to changing circumstances and markets, often counter such incentives.
Bridging the energy gap
Apart from many developed states refusing to end agricultural subsidies - Denmark is one of a handful of developed nations favouring an end to them - insufficient energy is another stumbling block to developing competitiveness.
About half of sub-Saharan African companies across all sectors reflect a shortage of power as a major constraint, and around 75 per cent of the population have no access to electricity, rising to more than 90 per cent in rural areas, which all adds up to the world’s lowest level of electricity access.
‘For the vast majority outside the national energy system, the absence of electricity and other modern forms of energy has profound implications for productivity, employment, communication, health-care and education,’ the commission noted.
In such an environment, energy production is often decentralised and innovative: the Indian Ocean island of Mauritius produces 40 percent of its energy requirement from sugar cane residue; in Mali, female entrepreneurs dry mangos by means of solar energy; in Nigeria, one of the continent’s leading oil producers, 40 percent of electricity is generated privately at costs three times higher than that obtained from the national grid.
Africa has the lowest greenhouse gas emissions, causing the least climate change, but will suffer most from it. The Africa Commission believes the continent’s almost clean slate provides a template for developing renewable energy sources, in tandem with offering small and medium enterprises a decentralised niche industry.
The commission will provide policy guidelines to governments, and support and finance for small business development in the sector. ‘There are promising market opportunities in Africa for SMEs [small and medium enterprises],’ the report said, ‘both as energy providers and energy consumers, be it in agriculture, agro-industries, tourism or commerce.’
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