With more than 60% of its 1.166 billion people, living in rural areas, Africa’s economy is inherently dependent on agriculture. More than 32% of the continent’s gross domestic product comes from the sector. However, agricultural productivity still remains far from developed world standards. Over 90% of agriculture depends on rainfall, with no artificial irrigation aid. The techniques used to cultivate the soil are still far behind from what has been adopted in Asia and Americas, lacking not only irrigation, but also fertilizers, pesticides and access to high yield seeds. Agriculture in Africa also experiences basic infrastructural problems such as access to markets and financing.
Singapore is proving to be an engaged ally in the process of changing this reality. Some big players in the agricultural sector with their headquarters in Singapore, are investing heavily in Africa. Technology and skills are being transferred to smallholder farmers and the large scale producers are cooperating, playing a fair game that will help develop the sector and make it more sustainable. Singapore is also investing through private equity in local farmland and through investment in portfolio companies based in Africa, with a focus on agriculture.
Agriculture in Africa: An Overview
In Africa, agriculture accounts for two-thirds of livelihoods and food accounts for two-thirds of the household budgets of poor people. It makes up a very important part of the lives of African people, but in spite of it, it does not receive enough attention from the local governments.
The low productivity levels of agriculture in Africa has resulted in a worrisome scenario: it does not meet the growing demand for food from urban centres. The region is increasingly dependent on food imports, which accounted for US$35 billion in 2011, excluding fish. Only 5% of it is related to trading within the continent.
An increase in productivity, matched with the right set of policies and investment, could revert this situation. Africa could replace these imports with their own produce, which would in turn reduce poverty, enhance food and nutrition security, and provide sustainable growth to the respective societies.
Singapore Engagements in Agricultural Africa
There are some big Singaporean-based companies engaged in ventures in the agricultural sector in Africa. Olam, for example, deals with the sourcing, processing and distribution of raw materials such as cocoa, sugar, beans, palm oil, and nuts, and is the world’s biggest supplier of cashews and sesame seeds. It began operating in Tanzania in 1994, with its head office in the capital Dar es Salaam and branches spread out in 5 other cities. There the company manages an integrated supply chain for 4 key products: cotton, sesame, cocoa, and green coffee.
In 1997, Olam expanded to Uganda where it transacts the same products as in Tanzania, but also imports and distributes sugar and edible oil. The head office is located in the capital Kampala, and branches are spread through 8 locations. Olam has a broad operation there, extending along the value chain from origination and processing, to logistics and distribution. In fact, Africa plays an important role in the company’s portfolio: 27% of total sourcing volume comes from Africa, where 29% of sales turnover is generated.
Rice extension farming in Nigeria and outgrowers’ programmes in cashew processing in Tanzania and Mozambique exemplify Olam’s approach in linking farmers to its supply chain. In these countries, the company supports farmers through extension services, providing training, buying back produce and acquiring farm equipment.
Another example of the agricultural link between Singapore and Africa comes from Wilmar International, which in 2012 was the largest supplier of cooking oil to China and Vietnam. In 2010, the company founded a joint venture in Nigeria, PZ Wilmar, with the aim of building a sustainable future for palm oil in that country. Palm oil is used in cooking oil, confectionery and baked goods. Since the subsidiary was founded, it was responsible for creating up to 30,000 direct and indirect jobs; this helped reduce Nigeria’s current domestic palm oil production shortfall and import deficit.
Wilmar revitalised unproductive, previously owned, palm oil plantations and invested in new ones, helping to close the 350,000 tonne palm oil import gap. In this process, the company built a state-of-the-art palm oil refinery and packaging facility in Lagos.
Wilmar also ensures that skills are transferred via on-the-job training, to secure optimal harvests with minimal wastage. In addition, the company also owns oil palm plantations in Ghana, and through joint ventures, owns plantations in Uganda and West Africa. As at the end of 2014, Wilmar had more than 14,000 hectares of planted area in Africa.
Duxton Assets Management, a Singaporean private equity company specializing in agro-business, has investments in the 5 continents, in a total of 540,000 hectares of farmland, managed by more than 500 farmers. Duxton manages or advises assets of approximately US$690 million, of which US$460 million comprises agricultural investments. The company is heavily invested in Vietnam, but also has a good footprint in Africa. It had first invested in the continent in 2009. By 2012 it was a seasoned investor, managing one of the largest fund-structured agribusiness portfolios with direct investments of US$30.1 million between the DRC, Tanzania and Zambia.
Intrasia Capital is a Singapore-based private portfolio investor with a focus on companies in the energy and resources, real estate, financial services and agricultural sectors. One of its portfolio companies is Tanza Grain Limited. The company is in the process of securing a right to occupancy to 30,000 hectares of farmland in Ikwiriri in the Rufiji Basin, Tanzania. The land is located 140km south of Dar Es Salaam and has significant water resources, with one of Africa’s largest rivers, the Rufiji, running along the southern and eastern borders. Preliminary investigations indicate that 14,500 hectares are suitable for development of broad acre rice farming. Two crops are planned to be grown a year with Tanza Grain aiming to produce 200,000 tonnes of raw rice per annum.
Africa has the land, water and people needed to be an efficient agricultural producer – and to feed an expanding urban population. The Guinea Savannah, a vast area that spreads across 25 countries, has the potential to turn several African nations into global players in bulk commodity production. In addition, countries such as Ghana, Mali, Senegal, Mozambique and Tanzania, have large breadbasket areas that could feed regional populations, displace imports and generate exports.
Singapore is aware of Africa’s vast potential to become the world’s granary and is making the right moves to tap into this opportunity. By investing and transferring technology and skills to the local population, it ensures that best practices in agriculture can be easily adopted by future generations. The improvements achieved by Olam and Wilmar International in Africa are real examples that this is the right strategy to implement. Duxton Asset Management and Intrasia Capital have also placed large bets on the agricultural sector in the continent.
These strategies and investments will help Africa’s agriculture reach the standards of productivity and quality necessary to feed their own population and to become a net exporter of agricultural products in the near future.
Published:28 July 2016
This article was first published by AfricaBusiness.com on 28 July 2016.