Investing In African Agriculture: Finding The Best Opportunities In 2017
Sub-Saharan Africa continues to face the challenges of lower commodity prices. It is not surprising that many governments are looking to agriculture as an emerging (or returning) priority to buoy economic growth.
These are our favorite countries for 2017 in the agriculture space.
Ethiopia’s agriculture sector is stellar. Consider that 2016 brought drought but the sector has historically underpinned the economy and continues to be a base (and growth opportunity) for the future. It accounts for approximately 50 percent of the country’s GDP, 80 percent of the labor force, and more than 80 percent of exports. Government officials acknowledge a need for greater diversification with a focus on industrialization, and agricultural processing is a significant part of that industrial growth.
With some analysts estimating between 6-and-7 percent GDP growth, leaders will need to squeeze more from agriculture to sustain the economic growth seen in 2015 and 2016. This includes reforming the system around subsidies and tax rates as well as investing in agricultural infrastructure. Coffee will always remain a focus crop along with potatoes. And then there are Ethiopian flowers. But the country is also imagining itself as a top-10 sugar producer by 2020 with near 15 percent annual growth until then.
To achieve success in sugar and other subsectors, the next phase in Ethiopian success story will have to be improved technological capacity and efficiency. The Agricultural Transformation Agency continues to do its share in improving productivity. The Ethiopian Society of Rural Development and Agricultural Extension provides training centers and programs. But foreign investment is still required to further upgrade the sector. As the rain comes back this year, investors can expect even better returns in 2017 and beyond.
Cameroon is no different form many other African nations in that its agriculture sector is crucial to its economy. More than 60 percent of the Cameroonian population is employed in agriculture, according to World Bank data. The number could be higher, according to those on the ground. The sector regularly accounts for 50-to-60 percent of the country’s non-oil exports. That’s expected to grow in 2017 – albeit more related to the price of oil – but then reverse back as oil production grows.
Cameroon is also the potential agricultural hub for the Economic and Monetary Community which includes the Central African Republic, Chad, Equatorial Guinea, Gabon and the Republic of the Congo. While not a member, Nigeria should also be included as a potential purchaser of Cameroonian exports. Its GDP growth is expected to be relatively moderate, averaging 4 percent over the next five years, with rising oil production helping to offset low prices.
The economic growth, including additional investments in power and transport infrastructure, is expected to have great spillover effects for agriculture.
Strengthening transport and power networks means opportunities for increased in-country processing and packaging for neighboring countries and the local economy. Consider that Cameroon is the fifth largest producer of cocoa, Nearly 90 percent of the cocoa plantations in the country come from holdings of less than three hectares. The country is also Africa’s third largest producer of palm oil.
As Finance Minister Alamine Ousmane Mey said earlier this month on the country’s budget, agriculture is “an essential element of (the Cameroonian) economy considering the number of people involved.”
Smallholder farming cooperatives are finding ways to increase their production power by working together on investment but that is not enough. Now is the time to see more money invested in the sector from outside investors.
As a recognized gateway to Francophone Africa, Cote d’Ivoire is another country worth betting on the upside. It is ideally situated as a member of the Economic Community of West African States (ECOWAS). Some member countries including Ghana, Liberia, and Burkina Faso, are already importing from Africa’s new star country in investment circles.
Despite drought in 2016, agriculture remains vital to the Ivoirian economy. The country is well known as the largest producer of cocoa in the world, accounting for about 35 percent of the global production. It is also major producer of coffee, cashews, and palm oil. Despite an agricultural slowdown in 2016, the country is expected to return in 2017 with approximately 8 percent GDP growth to the economy, buoyed in part by gains in agriculture.
As part of the agricultural gains, the country’s leadership is looking to grow processing capabilities in the country. President Alassane Ouattara’s focus on industrialization targets the exploitation of Cote d’Ivoire’s manufacturing potential in moving up the value chain in agriculture. More importantly, this administration’s efforts to place the country at the center of regional and sustainable integration benefits neighboring countries hungry (pun intended) for Ivorian agricultural imports. Foreign investment could be key to Ivorian candy bars and specialty coffee, and even more for the economy.
Mali, the wildcard
French cosmetics company L’Oreal has invested in organic beeswax in Mali, the surprise country for 2017. That should say something. Economic growth should hover around 5-to-6 percent as agricultural production strengthens. Lack of investment or interest in the country in recent years mean there are unexploited opportunities with many investors still sitting on the sidelines. Opportunities exist in cashews, biofuels, shea butter and cotton. This year should see some investors put cash into the country, especially in agriculture.
Kurt Davis Jr. is an investment banker focusing on the natural resources and energy sectors, with private equity experience in emerging economies. He earned a law degree in tax and commercial law at the University of Virginia’s School of Law and a master’s of business administration in finance, entrepreneurship and operations from the University of Chicago. He can be reached at email@example.com.
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