Invest in Agricultural Processing Facilities in Africa
By: Elenah Kimaru
Average Reading Time: 3 minutes
Foreign companies have often viewed Africa as a repository of mineral and agricultural raw materials without considering the continent’s manufacturing potential. This is not just a missed opportunity for companies that could increase their supply chain efficiency and enjoy tax breaks geared towards agriculture processors in many African countries; it also prevents local Africans from reaping the economic benefits of their country’s agricultural commodities.
Africa’s Raw Materials
Africa produces 57% of the world’s cashews, only 5-6% of which is processed locally. Zanzibar opened its first milk processing plant in 2017. Cocoa is one of the crops with the highest rate of on-continent processing, but the rate still stands at only 26%. Since West Africa produces 70% of the world’s cocoa, increasing the capacity for local cocoa processing can not only benefit local farmers and entrepreneurs but also normalize consumption of African-made foodstuff globally.
Coronavirus Accelerated the Development of Manufacturing in Africa
The Coronavirus pandemic, which has disrupted agricultural supply chains and restricted imports to and exports from the continent, has further highlighted the need to build up local agricultural processing capacity on the continent. African entrepreneurs who in the past would have established import business have begun thinking about staying local and opening manufacturing plants directly on the continent.
The BBC reports an increase in import of machinery to build production capacity directly on the continent, rather than importing finished goods from abroad and selling them in Africa at a high markup. Multinational corporations are also re-evaluating their supply chain strategies, and looking to Africa to take over some of the manufacturing previously carried out in Asia.
Challenges Facing Africa’s Foodstuff Processing
Currently, most African countries do not have local processing industries, the correct electrical infrastructure, storage facilities, or roads for large scale foodstuff processing, and farmers are not offered incentives such as credits and inputs.
Now, however, thanks to rising electrification and urbanization coupled with tax incentives in place in many countries to stimulate manufacturing, industry, and agriculture, the conditions are ripe for investing in agricultural processing on the continent.
Trend Towards Establishing Processing Plants in Africa
Several international consortiums have already successfully set processing plants in Africa, including Delmonte Fresh, Danone, and Dole. Companies and investors that enter the market now can benefit from the large untapped potential, enjoy a first-mover advantage, and set themselves up to control a large portion of the market share. These companies can also play a critical role in developing infrastructures, such as roads and storage facilities, because of their financial capacity.
Now is the Time to Invest in Agricultural Value Addition in Africa
African farmers and investors can benefit greatly from adding value locally to agricultural commodities produced in Africa. Investing in local manufacturing plants, capacity building of its local entrepreneurs, creating a reliable supply chain, and providing incentives to foreign and local companies that would like to set up shop in Africa can help unlock Africa’s agricultural and economic potential. As the global population continues to grow, Africa’s agricultural production will become increasingly critical to the global food supply. Investing now in Africa’s value-addition capacity can bring sustainable economic growth to Africa while guaranteeing the future of the world’s food arsenal.