25 Jun 2020 / Article

Agribusiness: With or without Covid, competitiveness remains key

The Covid-19 crisis has limited many industrials on the continent to sourcing locally. But in the case of the agribusiness sector, for this trend to materialise in the long term, changes will have to be structural. 


The Covid-19 pandemic has disrupted the trade of agricultural goods, limiting exports and imports on a global scale. More than ever, self-sufficiency appears key for food security and the emergence of African agribusiness champions. “Agriculture employs close to 55-58% of our working population and contributes to 22-23% of the continent’s gross domestic product.”Lillian Kidane, Partner at Dalberg, a global consulting firm


“Since commodity prices are low, it’s cheaper now to import than to produce locally.”

Imad Bouziane, Senior Vice-President EMEA, Nitron Group 


Producing locally 

Lillian Kidane explains the reasons behind a local production strategy: “Agriculture continues to be one of the most important sectors in, and drivers of, our industrialisation journey. The competition across the continent is between locally sourced goods, often at a higher price, against the more affordable or cheaper imported alternatives. Something has to change if we want to build a resilient local food manufacturing capacity on the continent. Only 35% of raw materials used in typical African fast-moving consumer goods operations are sourced from Africa.”  


“Productivity and creating jobs in the sector will be the main game-changers for African agribusiness to thrive”

Wandile Sihlobo, Chief Economist, Agricultural Business Chamber of South Africa 


Why is it moving so slowly ?

Wandile Sihlobo, Chief Economist at the Agricultural Business Chamber of South Africa, calls for political incentives. “Increasing domestic production means that you need to be open to technology and to favourable policies at the farm level to allow investments. Yet I don’t know if African governments will be open to that. That depends on their long-term plan.” 


Imad Bouziane, Senior Vice-President EMEA at Nitron Group, a chemical and agricultural fertilisers company, is on the same page: “Governments don’t like agriculture because it’s a long-term investment. It’s a lot of hassle and requires more complicated programmes to be put in place. It takes years and years… Most of the time, they would rather go for fast return businesses.”


Vimal Shah, CEO of Bidco, a Kenyan multinational consumer goods company, sees two conditions for a true shift towards local sourcing. “First, governments need to say ‘let’s take action, we want to process locally’. That will have a benefit. Number two concerns tariff structures. I think many tariff structures are still geared towards importation of various products. Once you put in place a barrier on imports, you will start seeing local sourcing.”


What should be the priority?

Uche Ogboi, COO of Lori systems, a logistics coordination platform based in Nigeria, believes that the main stumbling block is elsewhere. “The biggest issue is infrastructure… Fix the roads! Governments must think about multimodal systems of transportation.” 


Ikenna Nzewi, CEO of Nigerian startup Releaf, a supply chain that works with farmers, concurs: “The high cost of local logistics is one of the biggest constraints in enabling efficient local sourcing.” Uche Ogboi adds: “If we are able to ensure that trucks are loaded on every trip and that they don’t have to make one empty trip, that automatically reduces transport costs.” 


Vimal Shah believes there is no need to be fatalistic, seeing the Africa Continental Free Trade Area (AfCFTA), launching on 1 January 2021, as a great opportunity. “Borders are the barriers that we need to bring down in Africa. If AfCFTA is going to work, we need to have freedom of movement of both people and goods across nations. It will be a big boost for African agribusiness.” And he doesn’t forget the potential for digital: “We can actually accelerate the competitiveness of our agriculture through digital solutions.” 


“We have all the resources. What we need to do is make ourselves competitive.”

Vimal Shah, CEO of Bidco


Successes that show it’s possible

Tanzania and Senegal have both gained successes in terms of local sourcing, as seen in examples from Lillian Kidane, Partner at Dalberg. “In the case of palm oil in Tanzania, we were able to see a successful investment that is now thriving and impacting 500,000 farmers in their lives and communities. Two-thirds of the palm oil consumed in Tanzania was imported, which was cheaper than the locally produced sunflower oil. With some investments into extraction machinery and distribution networks, locally sourced and produced sunflower oil became cheaper than imported palm oil.” 


“In Senegal, 90% of the milk consumed was imported as milk powder,” Kidane continues. “With long-term investments in collection and distribution infrastructure, a milk producer was able to offer fresh and highly quality products. Today, the milk producer has over 15,000 points of sale and has used its distribution model to supply other locally sourced products, allowing it to grow despite Covid.”


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