It is no secret that Africa is on the rise and increasingly offering lucrative opportunities to South African businesses due to the continent’s steady economic growth, increased disposable income and high consumer confidence.
Hennie Heymans, Managing Director of DHL Express South Africa, says that one particular sector which has seen significant growth in Africa is agribusiness, which entails the full value chain from agricultural production by farmers through secondary processing, distribution and retailing to the consumer (farm-to-fork concept).
“The retail sector is booming in Africa, with large South African retailers choosing to expand their chains across the continent. As a result of this expansion, there is a greater availability of and demand for good quality agricultural produce and processed food products than ever before.”
He points to the recent report by World Bank – Growing Africa: Unlocking the Potential of Agribusiness – which revealed that Africa’s farmers and agribusinesses could create a trillion-dollar food market by 2030 – a three-fold increase from the current size of the market which is estimated to be worth $313 billion.
“This expected growth highlights the growing market and many opportunities for South African agribusiness and related value chain role players to expand into Africa,” says Heymans.
According to Hennie van der Merwe, CEO of the Agribusiness Development Corporation (ADC), the South African commercial farming sector is currently seeing little growth due to challenges such as arable land and water scarcity, increasing labour costs and rising electricity tariffs and that due to these challenges, South African farmers and other agribusiness firms are increasingly looking to Africa for growth opportunities and new markets.
“Given its increased spending power, demand for goods and untapped land resources, Africa is currently experiencing a revival in terms of its focus on agribusiness, not only to increase food self-sufficiency, but also to create jobs and economic activity, specifically in rural areas,” says van der Merwe.
Van der Merwe says that growth in the South African agricultural sector and market has been slow and that growth prospects in the sector has been tempered by various factors, including perceived lack of political support for commercial farming and issues around land ownership and redistribution. He refers to the Agbiz / IDC Agribusiness Confidence Index for the third quarter of 2013, which indicates that only half of agribusiness decision-makers and executives are positive about the local agribusiness environment.
“In the current climate, Africa is increasingly offering greater growth forecasts. The South Africa commercial agriculture sector is in a low growth cycle due to numerous challenges the sector is facing. While Africa on the other hand is offering exciting growth opportunities due to the fact that on a global scale, around 60% of underdeveloped high potential arable land and substantial untapped water resources are in Africa.”
He explains that while Africa is well-endowed with resources, it often lacks much of the necessary expertise to unlock the commercial potential of its agriculture resources, whereas South Africa is well regarded for its expertise in commercial farming and agribusiness.
“One of the major limitations on agribusiness development in Africa is a human capacity and human skills constraint. The ability and experience to develop and manage commercial farming and agribusiness ventures are largely lacking in the African environment and that major technology transfer and capacity building initiatives would be necessary in this regard.”
Van der Merwe says the partnership between South Africa’s technology and expertise and Africa’s resources is where the opportunity lies for local businesses and farmers.
Heymans says that infrastructure is another significant constraint, as the lack of access roads hinders the delivering of produce to the market.
“Efficient infrastructure is critical for the effective functioning of agribusiness. Removing logistical barriers will increase productivity and improve service delivery greatly.”
Heymans adds that that while it was previously a great risk to get involved in Africa, today it is an even bigger risk not to be involved in Africa. “Most major South African brands are now involved in Africa and small and medium enterprises (SMEs) are now also actively seeking opportunities. A big differentiator between businesses which are successful in Africa and those which aren’t is effective supply chain management, as the continent is still relatively new to businesses expanding into the area.”
Van der Merwe adds that it is vital to have partnerships in place before venturing into projects in Africa.
“Partnerships with a local business or association in the specific country are necessary as South African business owners need to be provided with assistance, guidance and sometimes protection when in the area. It is also essential to ensure that all the building blocks for working value chains are in place to ensure successful operation. A local partnership will also assist with analysing the market carefully to evaluate what the real market needs, requirements and opportunities are.”
“The market in Africa is there and ready, but the question is how South African businesses create a direct link to service the market needs,” concludes Heymans.