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Rainfall set to boost growth in southern Africa

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Africa is back in the headlines for all the wrong reasons when it comes to food security. According to the UN, the world is enduring its worst humanitarian disaster since 1945, with 20m people facing the threat of famine and starvation in Somalia, South Sudan, and Nigeria, as well as Yemen. While not downplaying the suffering in the afflicted areas, there is at least good news to report on agricultural output elsewhere on the African continent, which should be powerful enough to meaningfully raise economic growth.

Southern Africa’s rebound

The picture is brightest in southern Africa, where a severe drought in 2015-16, driven by the El Niño weather phenomenon, has abated.

In South Africa, a 7.8 percent fall in agricultural production as a result of the drought was enough to knock 0.2 percentage points off economic growth last year, according to the country’s national statistics agency. With growing conditions now returning to normal, production of maize, Africa’s most important food staple, will rise by 65 percent this year in South Africa, according to a forecast by the US Department of Agriculture.

Using the maize forecast as a proxy for overall agricultural activity, Oliver Allen, a researcher at Capital Economics, a London based consultancy, estimates that agricultural gross domestic product should rise by about 15 percent this year, as the first chart indicates.

That in turn should boost overall GDP by about 0.3 percentage points and reduce inflation, given that futures prices for South African white maize have fallen 60 percent in a year handy for a country likely to face higher imported inflation following the rand’s 10 percent slide against the dollar in the wake of President Jacob Zuma’s sacking of Pravin Gordhan, the internationally respected finance minister.

Indeed, the likely rebound in South Africa’s agricultural output is a key reason why Capital Economics forecasts the country’s GDP will rise 2 percent this year, well above the consensus estimate of 1.1 per cent.

This is despite agriculture accounting for just 2.1 percent of South Africa’s GDP, and hydroelectric power, another industry dependent on healthy rainfall, constituting just 0.4 percent of its domestic energy production, according to figures from Capital Economics.

Countries such as Ethiopia, Kenya, and Tanzania, where farming accounts for 30 percent or more of GDP, or those where hydroelectricity is by far and away the major source of power, such as Zambia, Ethiopia again and Uganda, as the second and third charts illustrate, is clearly more rainfall dependent.

A substantial boost for Zambia

Consequently, Zambia, another of the countries struck by the Southern African drought, could be a major beneficiary this year. “Zambia is one of the breadbaskets in the region and last year was hit pretty hard,” said Yvonne Mhango, sub-Saharan economist at Renaissance Capital, a Moscow-based investment bank with a focus on emerging markets.

“The government is suggesting growth will be 3.7 percent [this year]. There are upside risks to that, I think it will be over 4 percent because of much better agricultural output,” said Mhango, who is based in South Africa and reports that food prices are already easing.

Higher hydropower production should also lower energy costs for businesses and households, given that it accounts for 99 percent of the country’s energy generation. “The return to normal weather patterns will give a substantial boost to Zambia’s otherwise struggling economy,” Allen said. “Recent reports suggest that water levels at the Kariba Dam, the country’s largest, have risen sharply since January, after two years of operating at below normal levels.”

Fitch Ratings cited the likelihood that increased rainfall would boost agricultural output and “aid the nation’s strained power generation capacity” in its decision in February to maintain Zambia’s singleB credit rating, despite the country being on negative outlook.

Mixed picture for East Africa

The picture in East Africa is more mixed, however. Ethiopia was also hit by drought last year, but the UN has forecast a rebound in crop yields this year, a recovery that it predicts will halve the number of people dependent on food aid to 5m. Given that 80 percent of the Ethiopian workforce is employed in the agricultural sector, this should provide widespread gains. However, parts of the country are still seeing little rainfall, suggesting that the UN’s forecasts may not come to pass.

Renewed drought may also hit harvests in Tanzania and in Kenya where, as a result, Allen sees inflation rising to 8 percent this year from 6.3 percent in 2016 preventing the central bank from cutting interest rates below 9.5 percent. Mhango is more worried still, fearing that Kenya’s inflation trajectory since the turn of the year “is similar to that of 2011” when inflation peaked at 20 percent, with knock-on effects. Inflation hit 10.3 percent in the year to March, the highest rate since 2012, with food inflation higher still at 18.6 percent, according to official data.

“A comparison of 1980/2012 macro data from drought and non-drought periods tells us that the 2017 drought will have a marked effect on consumer spending and tea output,” Mhango said, with “weak” credit growth and a slowdown in capital expenditure ahead of August’s presidential election “likely to compound the drought’s impact on growth”.

Agriculture is Kenya’s most important sector, accounting for 22 percent of GDP and employing two-thirds of the workforce. Tea alone constitutes 20 percent of the country’s exports. Mhango’s analysis suggests Kenya’s economic growth tends to be 1.5 percentage points weaker during drought years, and as such she is pencilling in growth of just 4.2 percent this year, down from 5.8 percent in 2016 which would be the weakest figure since 2009.

One saving grace for Kenya is that thanks to the expansion of geothermal power, hydropower now accounts for just 3,540 percent of energy supply, down from 5560 percent in 2007.

Knock-on effect in neighbouring countries

However, Mhango fears that rising food prices in Kenya are likely to have a knock-on effect in neighbouring countries.

“In East Africa, there is a lot of trade between countries. As prices go up in places like Kenya, you start to see the impact hitting Tanzania and Uganda, not because their harvests are poor but because prices are going up across the region,” she warned.

Food price inflation has already risen to 11.5 per cent in Uganda, from just 3.5 percent in October 2016, and to 7.6 percent in Tanzania, from 6 percent in October. Rwanda has seen a leap to 24.5 percent, which Mhango said was related to disruption in imports from Burundi, on top of the regional trend.

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Agriculture

CAP-F Partners Pledge Support for Private Sector Agribusiness Investments in Nigeria

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CAP-F Partners and NABG Officials (Image: Supplied)

The food situation in Africa is quite dire but full of potential. According to the United Nations Conferences on Trade and Development (UNCTD), between 2016 and 2018, the continent imported about 85% of its food from outside the continent. This cost the continent about $35 billion. What’s worse? This cost is expected to rise to $110 billion by 2025. The impact of this is two-fold; African economies are unable to guarantee food security for the continent and are unable to take advantage of the global food market, which is expected to reach $11 trillion by 2030.

To achieve Africa’s agricultural potential, The Grow Africa Partnership was jointly founded in 2011 by the African Union,  African Union Development Agency-New Partnership for Africa’s Development (AUDA-NEPAD) and the World Economic Forum. Grow Africa’s mission is to increase private sector investment in Agriculture. Grow Africa’s flagship programme is the Country Agribusiness Partnership Framework (CAP-F), a mechanism for establishing effective public private engagement to create agribusiness partnerships in a country. CAP-F facilitates the alignment of private sector investments commitments with public sector policy/infrastructure obligations and provides a mechanism for all parties to hold each other accountable for their obligations. CAP-F’s footprint currently spans 16 African countries.

During a recent CAP-F private sector stakeholder sensitization engagement, CAP-F’s partners, including AUDA-NEPAD, Alliance for a Green Revolution in Africa (AGRA) and Nigeria Agribusiness Group (NABG), pledged to work with multi-stakeholder agriculture value chain platforms to promote private sector investments that can improve agriculture productivity in Nigeria.

In his welcome address, Emmanuel Ijewere, Vice President, Nigeria Agribusiness Group (NABG) expounded on the context of a private-sector led agribusiness investment ecosystem in Nigeria. “Agriculture has the credentials to be Nigeria’s most attractive investment option. It is very important that stakeholders across the public and private sectors work together to align their interests and expectations. This is the value that CAP-F brings to the table,” Ijewere noted.

Also speaking at the engagement, Ibrahim Gourouza, Chief Operating Officer of Grow Africa noted that the optimised participation of private sector investors will help build more sophisticated agriculture value chains across Africa. This tasked Grow Africa with the responsibility of creating a private-sector inclusive agriculture investment ecosystem through CAP-F. On the design principles around CAP-F, he noted, “One of CAP-F’s key success factors is that it is owned by countries and anchored on existing structures. With this in mind, in collaboration with stakeholders, we selected NABG as the anchor of CAP-F coordination in Nigeria.”

He noted that Grow Africa is committed to CAP-F in Nigeria in a number of ways. “Grow Africa has provided the CAP-F Secretariat in Nigeria with a business model that has generated close to $500m in private sector investments in Africa across 6 countries and in 5 value chains. This will be an invaluable tool for business deal generation in Nigeria. We will continue to provide technical assistance for the team in Nigeria. While we have attracted funding from AGRA for the CAP-F Secretariat in Nigeria, we will work to expand the partnership support to ensure a more sustainable CAP-F implementation in Nigeria. Finally, we will provide a database of financiers who we will connect to provide sector deals in agriculture in Nigeria,” Gourouza noted.

The CAP-F business model focuses on collaborating with multi-stakeholder platforms across agriculture value chains in the country (existing and new platforms) and the development of business cases to identify investment opportunities in these value chains as well as inhibitors to these investment opportunities. The business model then creates matchmaking opportunities between various stakeholders, which culminates in a term sheet that aligns the commitments and expectations of all stakeholders from those investment opportunities. These term sheets are then taken from commitments on paper to actual investments that are concluded. The final stage of the business model is a mutual accountability and knowledge sharing activity, where updates on private sector investments are presented to the African Union.

CAP-F’s activities in Nigeria are funded by AGRA. In its address, the funders, represented by David Adama, Senior Programme Officer, noted that the engagement with private sector stakeholders is extremely important in driving agricultural transformation in the country. He stated, “CAP-F provides an opportunity for government and the private sector to engage on some of the opportunities that have been identified through the National Agriculture Investment Programme (NAIP) in order to know where private sector investments are necessary. This is particularly important, given the current challenges around public sector investments. AGRA is happy to work closely with Grow Africa and NABG in Nigeria to facilitate this.”

CAP-F Partners is also critical if Nigeria is able to move its millions of smallholder farmers into agripreneurs, who can actually create wealth through agriculture.

 

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Climate change report shines spotlight on Africa’s agriculture potential

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It seems almost incongruous to talk about the opportunity that exists in ensuring the world’s food security by bolstering Africa’s agricultural output when the very pressing and public crisis of climate change could be its undoing.

Particularly in the run up to COP26 and the “reality check” that came with this week’s release of the Intergovernmental Panel on Climate Change (IPCC) Six Assessment Report, it is clear the entire African continent is “highly exposed” to climate extremes, at a relatively “high level of vulnerability”.

With over two thirds of Africans deriving their livelihood off agriculture, climate change-led crises like droughts, floods and cyclones continue to threaten the continent’s economic growth, employment, and food security. And yet, ensuring Africa’s agricultural resilience would not just help Africa. It’s essential for ensuring global food security. 

What’s more, these climate-led natural disasters have the greatest and most disproportionate impact on small- to medium-scale farmers, comprising as much as 80% of Africa’s agricultural output, from maize and wheat to rice, cassava, and sorghum. 

“The UN Report confirmed that climate change is intensifying the water cycle and affecting rainfall patterns, bringing more intense rainfall and associated flooding, as well as more intense drought in many regions,” says Malvern Chirume, African Risk Capacity Limited Chief Underwriting Officer.

“These African farmers are the heart of the continent’s agriculture and are at the mercy of climate change events completely out of their control,” Chirume adds.

Established in 2014, ARC Limited provides natural disaster insurance relief to African countries which have joined the sovereign risk pool.

Along with its partners, which provide premium support, the insurer has already paid over US$65m to seven African countries to provide drought relief and address the economic concerns these countries’ most vulnerable citizens face.

Responding to the climate crisis

Traditionally, countries have responded to climate change-led disasters such as droughts or floods by raising funds for emergency relief. This approach is time-consuming and inefficient.

“It takes far too long for African countries to mobilise the immediate resources they need for relief efforts, to save lives and livelihoods. Our role at ARC Limited is to work with countries to prepare them for the risk exposure they have and how to respond swiftly to climate-related food security emergencies. This includes helping them to establish a rainy-day fund which pays out swiftly, before the problem has become worse, and more funding is needed.”

The ARC Limited model, built on parametric insurance (pre-specified pay-outs based upon a trigger event), has been highly successful, says Chirume.

“We have to date paid out close to $65 million dollars in claims. When one considers that every dollar in insurance pay-outs saves US$4 dollars, this makes the cumulative economic impact around US$240 million. With those funds, we’ve helped more than 5.9 million people whose livelihoods have been affected by climate change impacts,” Chirume explains.

While parametric insurance against natural disasters has enormous potential for the agricultural sector, it has a further economic impact. Because agriculture makes up such a significant portion of the continent’s economy, a downturn caused by a climate shock will echo through the broader economy of any nation affected.

This can bring an economic downturn, a lack of funding for key infrastructure and services at government level, and a loss of jobs as farmers struggle to recover. There is also evidence of migration away from areas experiencing drought, which can have a long-term impact on the regional economy.

Organisations such as ARC Limited have an essential role to play in this way in protecting agricultural value chains and the economies of and employment in Africa. “Our role is to help mitigate and manage the risk, building resilience and ensuring the African country is able to bounce back sooner after a natural disaster,” says Chirume.

With the negative impacts of climate change increasing and their potential to devastate the agricultural sectors and food security of African countries, it has become more important than ever to put sustainability at the heart of interventions.

“Creating an environment that limits the impact of climate shocks on the agricultural sector is about more than just securing economic transformation. At the heart of this investment is the need to ensure basic food security for the continent and the world,” says Chirume.

In its Sustainable Development Series, the World Bank says the African continent could play a leading role in ensuring food security for the earth’s estimated 9 billion people by 2050.

According to McKinsey, Africa’s full agricultural potential remains untapped. It determines that Africa could produce two to three times more cereals and grains, which would add 20% more cereals and grains to the world’s current output of 2.6 billion tons.

Given Africa’s productive potential, the continent could be a key contributor to feeding the world in the future. But to fully realise that potential will require overcoming many obstacles, including how it deals with the impact of climate change on agriculture and food security.

“We need broader collaboration between private and public sector to solve the climate change disaster response problem our continent faces. The problem is so big, that all of us have a role to play,” says Lesley Ndlovu, ARC Limited CEO.

With the support of the United Kingdom and German Government, ARC Limited has been equipped to help the member states of the African Union reduce the risk of loss and damage caused by extreme weather events affecting African populations.

“But there’s so much more work that still needs to go into reaching as many people as possible to help build the resilience of local communities and ensure they have the means to bounce back whenever they are impacted by a natural disaster,” concludes Ndlovu. 

 

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Agriculture

World Poultry Foundation (WPF) launches video series to help Africa’s farmers improve poultry production

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With poultry increasingly a focus for emerging farmers across Africa, the US-based World Poultry Foundation (WPF) has released a series of training videos to help farmers reduce waste and optimise profits.

Feed accounts for up to 70% of the costs of raising poultry, so proper feeding techniques enable farmers to reduce waste, cut production costs and raise healthier birds, says WPF. Water is equally important in poultry farming, with proper water management crucial for healthy birds.

WPF’s training series, with four videos dedicated to production, explains how farmers should store feed, proper feeding of poultry and how to prepare and manage zones of comfort to encourage proper brooding for chicks. The videos also explain the importance of litter in helping to prevent common diseases to improve production and returns.

World Poultry Foundation CEO Randall Ennis says the video series has been developed to address the most common challenges faced by emerging poultry farmers across Africa. “By applying best practice poultry farming methods, farmers can significantly increase their production, their incomes, and the nutrition available to their families and communities,” he says.

The training videos, as well as free checklists and worksheets, are available here

 

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