Since Olam’s inception in Nigeria – sourcing cashews – in 1989, the agricultural landscape in Africa has evolved into an engine for economic growth, job creation, poverty reduction and food security. Prompted by the reality of the global financial crisis and market volatility, the liberalisation of the agricultural sector by African governments has created new opportunities for private investment, boosting economic growth and with it, the opportunity for smallholder farmers.
Since then, huge strides have been made from this renewed focus on agriculture, with countries seeing productivity and exports rise. In Côte d’Ivoire, for instance, cocoa and cotton production has doubled and cashew nut production tripled. Not every country, however, can tell the same success story and significant challenges for investment remain. Currency and counterparty risk probably top the fear factors for potential investors but, generally, the ‘failures’ tend to come down to due diligence issues. These include inadequate market analysis and an assumption that business models can simply be transplanted across markets. Ghana, for example, is no more like Mozambique than Singapore is like Indonesia. You have to have boots on the ground.
Any investment, foreign or national, can incur a considerable reputational and financial cost if it fails to undertake its own due diligence and be willing to commit to ongoing engagement with local stakeholders. A World Bank conference in 2016 heard that 45% of land investments fail in Africa due to community conflicts. The investor has a responsibility alongside the beneficiary country to make their investments work; it’s not enough to rely on government assurances, companies need to substantiate their social licence to operate by applying their own risk assessment – such as Environmental & Social Impact Assessments (ESIA) – with a reputed third party. A foreign investor will also think about the country risk, but this can be addressed through strong public-private partnerships to make investments, which benefit the population and the government development agenda.
Prioritising the right investments
Meanwhile, farmers continue to face poor infrastructure and inadequate access to credit and markets. In processing and distribution, the challenges essentially boil down to the problem of preserving product quality, given the lack of infrastructure for storage and transport. In Nigeria, for instance, even though groundnuts are a key crop, the country is unable to export them; the lack of warehousing means the groundnuts are left too long in the fields leading to the growth of aflatoxins, which prime export markets, like the US, do not accept due to health risks. Overall, the most significant bottleneck lies in the logistics part of the African supply chain, including road, rail and port access. Agribusinesses like Olam can invest in storage, but ports – being highly congested, generally inefficient and costly – are a different matter.
Addressing these issues would not only encourage trade but help to reduce food waste, which in turn helps global food security. Some African governments are already making moves in the right direction, but more needs to be done before Africa becomes a serious player in the global productivity stakes. That said, this status shouldn’t belie the potential that the continent still holds for agricultural growth – if managed sustainably. Indeed, with about half of the world’s fertile, but as-yet, uncultivated land, it’s estimated that agribusiness in Africa will grow to be a US$1 trillion (€880 billion) industry in Africa by 2030. Then there is Africa’s demographic dividend, from having the fastest growing and youthful population in the world (40% below 15 and 20% below 24), which if provided with adequate education and training, presents a huge opportunity in terms of labour force and consumer spending.
Focusing on people and infrastructure
For three decades, Olam has grown alongside Africa, investing US$2.8 billion (€2.47 billion) across 25 countries from Côte d’Ivoire in the West, Tanzania in the East, to Zambia in the South. But any company wanting to capitalise on this high-potential region has to be mindful of not approaching it with a broad brush. Each country is different and requires individual time and resources in order to demonstrate benefits which help both the business and the country to grow.
To achieve this, you need to invest in people, infrastructure and help to support a business environment, where national companies and entrepreneurs can thrive alongside their international counterparts. So, from starting in Africa as an exporter of cash crops, the development of Olam’s packaged foods, and rice and wheat milling operations for the domestic market, means we can truly say that we are doing business in Africa, for Africa.
If we consider that African agriculture is essentially built on the activity of more than 35 million smallholders, any investment which doesn’t catalyse their productivity won’t be sustainable. So, placing a strong focus on supporting the 2.8 million smallholder farmers that supply Olam with crops, ranging from coffee and cotton to cashews and rice, makes business sense, especially given the challenges they face, as mentioned previously. Our ability to continue supplying our customers depends on lifting these farmers out of poverty and ensuring they can produce sustainable volumes in the face of any market or climate-related risks.
Without question, delivering scale of impact through our investment has required collaboration with NGOs and development finance institutions. It is only through these alliances that we are able to move these smallholders out of subsistence farming and achieve real change on the ground. Looking ahead, we see tremendous potential for economic development in Africa, which remains a key part of Olam’s growth story. For this reason, we will continue to prioritise the region as a globally competitive supply for our commodities, as well as maximise its strong underlying demand growth through our domestic foods business.
ABOUT THE AUTHOR
Venkataramani Srivathsan, managing director for Africa and the Middle East, joined Olam International in 1994. Mr Srivathsan has presented many papers on smallholder farming at Pan-African forums and been part of the advisory committees for the Nigerian ministries of agriculture and of trade and industry. Under his leadership, Olam Nigeria has won several international and national awards. In 2010, Mr Srivathsan was awarded a prestigious World Business for Peace Award. He is also a member of the Advisory Panel of the NTU-SBF Centre for African Studies.