Africa's agricultural sector requires foreign investment to realise its potential

25 March 2019 3 min. read
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Much like it is for most other sectors across the African economy, foreign investment appears to be the key to growth in the region’s agricultural sector, according to a new report from global management consultancy McKinsey & Company, compiled using analysis and on-the-ground research.

Africa remains one of the regions in the world with the most economic potential. The continent cumulatively has the youngest median age in the world, and targeted investment in education has the potential to generate the largest workforce in the world in the near future.

The digital wave has also hit Africa, and the region is set to have as many as 1 billion internet connections by 2021. These factors combine to make the region one of the most promising areas for investment, although several economies in the continent continue to struggle with one key issue – a lack of diversification.

Coarse grain production in Africa

While much of the debate on diversification in Africa has centred on its heavy reliance on the oil & commodity trade – which has led to economic turbulence in recent years – another sector that economies in the continent remain disproportionately reliant on is the agricultural industry.

According to analysis from McKinsey & Company, over 60% of the population in sub-Saharan Africa is currently engaged in agriculture, predominantly as “smallholder farmers.” The imbalance is apparent when the report reveals that the sector contributes under 25% of the region’s GDP.

Some would focus on diversification as the solution, while McKinsey has elucidated how productivity in the sector could be improved significantly to rectify this imbalance. For instance, the firm asserts that Africa has the potential to produce two or three times more cereals and grains in the current scenario.

Example investment requirements

If this potential were to be realised, Africa’s position as a major economic centre would further be highlighted, given that it would increase the global volume of grains and cereals by as much as 20%. Currently, the output of grains and cereals across the globe stands at 2.6 billion tonnes.

Similar numbers would come into consideration when examining both the horticulture and the livestock segments. As per McKinsey’s analysis, the key to covering this gap between potential output and current output is to increase the amount of foreign investment in agriculture.

This solution is based on a breakdown of the requirements for the sector to increase output to its optimal level. One area that requires investment is fertilizer. If the potential is to be realised, McKinsey reveals that the region would require eight times more fertilizer than it currently employs.

Performance by region and metric

Add to this six times more seeds, and the levels of investment required already escalates solely with respect to supplements. In addition, developing the means and space to store this new volume of goods will require investment of $8 billion, while irrigation to feed this growth will require $65 billion in investments.

The report states, “While the challenges are many, relatively low–investment opportunities exist to innovate on route-to-market approaches along the supply chain. Demand-side farmer engagement, potentially in partnership with other ecosystem players, can help build markets to realize Africa’s significant potential.”