Foreign investment’s critical role in African agriculture’s transformation

Opinion

 
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The 23rd ordinary session of the African Union Summit, which was held in Malabo, in Equatorial Guinea, in June 2014, reconfirmed the principles and objectives of the Comprehensive Africa Agriculture Development Programme (CAADP, 2003) and defined a collection of commitments entitled, 'Agricultural growth and transformation objectives towards 2025'. The declaration included the commitment to allocate at least 10% of public expenditure to agriculture, as well as create a conducive environment for private sector investment in agriculture and agribusiness.

However, the increasing involvement of foreign investors in the agricultural sector, in particular in sub-Saharan Africa, and notably, via the phenomenon of 'hoarding' land, has triggered impassioned debates between analysts, political decision-makers and other interested parties.

Long-term advantages of foreign investment

Studies carried out by the FAO and the African Development Bank, for example, demonstrate that the main focuses of foreign investment in Africa are land, water, rural infrastructure, food security, research and technology. In these sectors, international and bilateral development partners are the principal sources of investment, except for purchases of land, which are primarily conducted by private parties.

Beneficiary countries hope that these foreign investments in agriculture will generate employment opportunities, and thereby improve purchasing power, in addition to tax receipts from both salaries and, ultimately, from profits. They also hope for other benefits, such as improvements in technical capacities, infrastructural improvements and accelerated technology transfers.

These aspirations often sit alongside a fear that foreign investment in agriculture simply serves to exacerbate food security problems in sub-Saharan Africa, by increasing food prices and imports of food products. For example, emerging consumers, who have benefitted from foreign investment, can stimulate demand through their increased revenues, which raise household consumption and cause additional price increases. There is also concern that agricultural investments, which create changes in production factors (including the availability of land and water, price fluctuations and technological progress), reduce the competiveness of small and medium-sized enterprises in national industries, such as food production and agricultural services.

Nevertheless, we know that agricultural improvements can be particularly efficient in combatting hunger and raising people out of poverty, and investment is a necessary factor for this agricultural growth. Many countries have managed to increase levels of foreign investment in their agricultural sector and are now on the right track to reach the Sustainable Development Goals to eliminate hunger, guarantee food security and promote sustainable agriculture, even if there is still a lot of work to do.

Foreign investments are required in order to increase and stabilise the availability of nutritional foodstuffs at reasonable prices, create employment, facilitate the sustainable use of natural resources and stimulate growth in secondary and tertiary sectors of the economy. The FAO estimates that agricultural investment needs to increase by at least 50% in developing countries to respond to the increasing global demand for food, and to meet the needs of 9 billion individuals by 2050.

Rwanda’s agricultural strategies

The political objectives of Rwanda are in line with the Malabo Declaration (2014) in the context of the CAADP of the African Union: 1) increase contribution to wealth creation, 2) generate economic opportunities and prosperity, 3) improve food security and the nutritional quality of foodstuffs, and 4) reinforce resiliency and sustainability. Phase 4 of the Rwandan Strategic Plan for Agricultural Transformation (PSTA 4) highlights the priority investments for agriculture and values the necessary resources for the agricultural sector, for the period 2018-2024, at €2.85 billion, with an annual growth rate of 8%.

During PSTA 3 (2013-2017), the income of farmers increased as a result of improved productivity. For example, the production of corn, wheat, soya, rice, cassava, horticultural products, meat and milk all increased significantly due to the government’s interventions under PSTA 3. Phase 4 is built upon the success of PSTA 3, whilst aiming to transform the agricultural sector from subsistence to value creation. Throughout PSTA 4, the focus will be on private investments, both domestic and foreign, as the government recognises that agricultural growth must be driven by the private sector. During PSTA 4, the government will become a facilitator rather than an actor in the market to give way for the increased role of the private sector.

Statistical analyses show us that domestic and foreign investments in Rwanda are increasing, and their impact on the overall development of the country is undeniable, according to reports from the Central Bank (BNR) and the relevant finance ministry (MINECOFIN). This investment is primarily being channelled into the development of marshland and hillside irrigation (25%), rural infrastructure (16%), market organisation (15%) and training of rural producers (13%). The contribution made by the private sector to Rwandan agriculture is expected to increase from 1% in 2018-2019 to 28% by 2023-2024, and foreign investment will be a critical proportion of this increase.