LEVERAGING INVESTMENTS IN AGRICULTURE FOR PROSPERITY
Moraka N MAKHURA
(Land Bank) Land & Agricultural Development Bank of South Africa
Presented at the Botswana Investment & Trade Conference , Botswana Conference & Exhibition Centre; Gaborone, 20-21 Oct 2013
KEY MESSAGES
The Friend(ship) of the Farmer & Agri Activism Botswana, a sparkling spot to be made bright (ie positive macro fundamentals ready 4 sustenance) Low agri-intra regional trade defies logic of agro-ecological diversity (comparative advantage) Agri investments to be guided by phases of agric Sustainable agro investments to respond to basic drivers of production and development Mitigate inherent risk in agriculture
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INTRODUCTION
Agriculture plays a multipurpose role: food, natural resource management, and wealth creation Leveraging investments in agriculture requires broader understanding This presentation covers: macroeconomic position of Botswana in the continent, agriculture, and enabling environment
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BOTSWANA IN MACRO CONTEXT 4
Investment Grade
IMF Forecasts for Growth of Sub-Saharan Countries 2013-2018
Democratic Republic of the Congo 8.1 Mozambique 8.0 Côte d'Ivoire 7.7 Ethiopia 7.2 Rwanda 7.1 Tanzania 6.9 Nigeria 6.8 Uganda 6.7 Ghana 6.3 Malawi 6.2 Kenya 6.2 Angola 5.8 Zambia 5.8 Morocco 5.0 Senegal 4.7 Lesotho 4.7 Mauritius 4.3 Namibia 4.3 Botswana 4.1 Zimbabwe 4.1 Algeria 3.6 Egypt 3.5 South Africa 3.1 Swaziland 0.3 Source: IMF WEO, Oct13
Current account balance (% of GDP) 2012 Angola 12.1 Nigeria 7.8 Zambia 0.0 Egypt, Arab Rep. -2.7 Botswana -5.5 South Africa -6.3 Uganda -11.2 Mauritius -11.2 Rwanda -11.6 Tanzania -12.9 Mozambique -35.4 Source: The World Bank in Econometrix
2012 DIRECT INVESTMENT TRENDS
Source: World Bank
Sub-Saharan Africa +5.5%
Other developing countries -6.6%
Share of Sub Saharan Africa in World direct investment:
2007: 3.2% 2012: 5.6%
AGRICULTURE IN AFRICA & SADC 9
Resources In Africa Key resource % of world reserves Platinum 89 Diamond 66 Cobalt 56 Chromium 37 Manganese 34 Gold 16 Gas 8 Crude Oil 9 Coal 5 Copper 5 Agriculture 60 Source: Where to Invest in Africa Report, RMB & Econometrix
Data as at September 2012
SACU TOP 10 TRADED AGRI PRODUCTS
Is there any product Botswana can identify with?
In food security complex you either produce or consume.
Export Import
Citrus Wheat
Maize Rice
Wine Palm oil
Grape Meat & offal poultry
Wool Soyabean oil cake
Apples, pear, quince Sunflower & cotton seed oil
Juices Cotton
Sugar Tobacco
Reserved fruit & nut Preparation in animal feed
Food preparation Coffee
51 ml 45 ml 11
SACU TOP 10 TRADING PARTNERS
Very few countries in SADC region (even Africa) trade with SACU
Where is Botswana in the list?
Export Import
UK Argentina Netherlands Brazil Zimbabwe United States Mozambique Thailand Germany UK Angola China Korea Malysia US Indonesia Hong Kong India Italy Australia
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REGIONAL AGRICULTURAL POLICY (RAP)
STRATEGIC OUTCOMES Production, productivity and competitiveness Regional and International Trade of Agricultural products Private and Public Sector Engagement and Investment in the Agricultural Value Chains Reduced Social and Economic Vulnerability
VISION: From poverty focused policy to prosperity or wealth creating agriculture?
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STATE OF AGRICULTURAL DEVELOPMENT AND INVESTMENT APPROACH
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AGRO INVESTMENT DEPENDS ON PHASE OF AGRICULTURAL TRANSFORMATION: 5 PHASES
through institutional change, technology, incentives and infrastructure (Mosher): Food deficit: Quest for food self sufficiency Invest in technology & institutions
linkages with industry, create healthy agric sector, mobilise resources (Johnston-Melor): Realisation of food self-sufficiency Invest in resources to make agric viable
responding to macro-economic instruments, efficiency, resources out, rural/urban disparities (Schultz-Ruttan): Vulnerability due to less focus on production Invest in information & insurance
small share of agric, unemployment & need for labour in agriculture, income disparities (DG Johnson) Food self reliance Invest in human capacity & WC
Getting agriculture moving Making agriculture contribute to the economy Integrating agriculture into the macro-economy Agriculture in industrial economies
CONTRIBUTION OF AGRICULTURE GENERALLY UNDER-ESTIMATED. NEED TO RESTATE
Quant (2011) Qual
GDP 2,4% - 3 % (R140 billion GV)
GY (R131bn) & GDP (R63bn) increasing
Employment 9 % (800000 w)
Primary sector job decline
Forward Linkages: Output supply for manufacturing
+68% All value is linked forward (R140 bn)
Backward Linkages: Agric demand for intm inputs
R79 bn Fuel, Fert, Feed, material etc.
Foreign exchange: Agric trade (x+m)
(+R51 – R45)bn Net exporter of food
Value of trade R96 bn
Food security state Self reliance (From income to price insecurity) 16
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Agriculture position in food security driven by mainly the nature of the input and output markets
Output market
s
Input market
s
Food production stability and profit era:
Agric output markets value increasing
Use of cheaper and accessible input
Focus on production
Cost price squeeze:
Inputs becoming more expensive than output price
Support & incentives sustained agriculture contribution
Focus on production
Output market deregulation:
Output markets becoming volatile
Output market intelligence guiding decision making
Focus on profit
Agric in market economy
Output /input markets becoming volatile & cyclical
Forward decision making
Vulnerability to food availability due to focus on profit
1990 2000 1948?
Mar
ket v
alue
/ins
tabi
lity
International vs domestic dev
Intensify agri support
NATURE OF INPUT/OUTPUT MARKETS
Food Production Stability
Cost Price Squeeze
Output Market Deregulation
Agriculture in market economy
Output value increasing
Output value decelerating
Output market volatile
Output / inputs markets volatile
Inputs cheaper & accessible
Inputs costs accelerating
Input cost increase steadily
Performance cyclical
Invest in Production
Invest in subsidy Invest in information
Forward decision making
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CREATING RESPONSIVE INVESTMENT MECHANISMS
FR / RA * Intervention/Instr Prosperity level Source of Finance
Low-FR:Low-RA Zero interest (waver) / grants
Poverty alleviation / Subsistence farmers
Government / F&F
Low-Increasing FA: Low-Declining RA
Long/ medium-term finance / Subsidised i
Transition / Transforming farmer
Development Finance
High-Increasing FA: High-Volatile RA
Medium /Short term finance /Discounted i
Income generation / Commercial Farmer
Dev finance / Private finance
High-Volatile FA: High-Volatile RA
Short-term finance / Investment / Spec
Wealth Creation / Agribusinesses /
Private finance / Fund managers (training)
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* FR = Financial Requirements; RA = Repayment Ability
MARKET IMPERATIVES DRIVING AGRICULTURE IN 21ST CENTURY
From business of farming to business of agriculture (value chain). From single demand & supply to a series of more valuable demands and supplies linked with global markets From cooperatives to corporations ie from services to members to shareholder profit
From control boards to futures & food retail industry chains competing fresh produce & depots From producer kingdom to consumer queendom
Business focus: Market structure: Service sector: Market system: Driver of demand:
21 MARKET IMPERATIVES DRIVING AGRIBUSINESS
From food production to wealth creation From collateral (balance sheet) to value chain (income st) based financing. From creating business (agri entrepreneurs’ interest) to creating investment vehicles (investors’ interest)
Purpose of farming: Financing : Approach of
participation:
LEVERAGING THROUGH FACTORS OF PRODUCTION
Land Land investment; Land development; Agri
entrepreneurs
Capital Financial; institutional; human;
Labour Human development; worker to entrepreneur!
Management Infrastructure: green technology & water infrastructure
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MITIGATING RISK FACTORS
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• Drought • Floods
• Carbon emission • Acid mine drainage
• Animal diseases and export ban • Plant diseases and quality
• Human factors (crime/ theft) • Animal factor (predation)
AGRO-INDUSTRY STRATEGIES
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• Continued support for strategic industries (maize, sugar).
• Consider deficit industries (such as meat, wheat).
• Counter-cyclical approach: target industries in distress (currently, sub-tropical fruit, sugar, milk).
• Excluded/forgotten industries (cotton, sisal?).
INVESTMENTS IN AGRI- VALUE CHAIN
FINANCE
Balance Sheet
Cash flow
Input Supply Farm Business
Agri-business Food Retail
Land & Fixed Assets Value
Income & Sales potential
Knowledge
LAND BANK BUSINESS MODEL Introduction of SAM
Establishment of REM
Refocusing of the approach to have
maximum impact
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RE
M
Str
ate
gic
P
rio
riti
es • Maturity to commercial
farmers
• Development impact a priority
• Less focus on profit
• Creation of new farmers
Government funding
Multilateral funding
Land Bank
Retail Emerging Markets
Retail Commercial Banking;
Business & Corporate Banking
Land Bank Insurance Company
% profit for development
% profit for development
Launch: Land Bank History Book (23 April 2013)
CONSIDERATIONS Botswana has distinguished itself as a potential investment hub – need to continue a break the barriers of self-limitation to put foothold in agriculture. Identify and communicate agro-ecological zones Agri investments require strategic position and tactical response: identify strategic agro industries and develop agri-entrepreneurs, supporting institutions and water infrastructure. Partnerships: agribusiness networks; agri-entrepreurs pairing; Vertical integration across the chain; Agri-coops for infant agro industries. 27
KGOTSO! PULA! PULA! PULA E NE!
Thank you!
Africa: Judicial independence
Country 2005 2010 Change in rating
Botswana 7.2 7.3 0.1 Rwanda n/a 7.0 n/a South Africa 7.6 6.6 -1.0 Mauritius 6.1 6.4 0.3 Egypt 6.4 6.3 -0.1 Malawi 5.9 5.6 -0.3 Ghana n/a 5.1 n/a Tunisia 6.8 5.1 -1.7 Uganda 4.6 4.6 0.0 Nigeria 3.6 4.5 0.9 Tanzania 4.9 4.4 -0.5 Morocco 4.1 4.3 0.2 Zambia 2.9 4.1 1.2 Ethiopia 2.0 3.5 1.5 Kenya 3.3 3.2 -0.1 Cameroon 2.1 2.9 0.8 Senegal n/a 2.9 n/a Mozambique 2.5 2.8 0.3 Zimbabwe 1.1 2.7 1.6 Algeria 4.6 2.5 -2.1 Angola 3.1 2.4 -0.7 Cote d'Ivoire n/a 1.3 n/a Congo, Dem. R. n/a na n/a Source: Economic Freedom of the World:2012 Annual Report
Africa: Legal System & Property Rights
Rank Country 2005 2010 Change in rating
35 Botswana 6.5 6.8 0.3 37 Rwanda 3.0 6.7 3.7 44 Tunisia 7.0 6.5 -0.5 50 Mauritius 5.7 6.2 0.5 56 Morocco 6.2 6.0 -0.2 64 Tanzania 5.7 5.7 0.0 67 South Africa 5.9 5.7 -0.2 68 Zambia 5.2 5.7 0.5 71 Ghana 4.9 5.6 0.7 76 Malawi 5.0 5.5 0.5 77 Ethiopia 4.7 5.4 0.7 83 Egypt 5.5 5.2 -0.3 89 Uganda 4.7 5.1 0.4 100 Kenya 4.5 4.6 0.1 107 Algeria 5.3 4.4 -0.9 109 Senegal 3.8 4.4 0.6 118 Mozambique 3.2 4.2 1.0 121 Cameroon 3.5 4.0 0.5 124 Nigeria 3.6 4.0 0.4 127 Zimbabwe 3.5 3.9 0.4 130 Angola 3.2 3.7 0.6 138 Cote d'Ivoire 3.1 3.0 -0.1 142 Congo, Dem. R. 2.1 2.4 0.4
Source: Economic Freedom of the World:2012 Annual Report
Efficacy of corporate boards (corporates governance)
2013/14 Rank Country Score 1 South Africa 6.0 26 Mauritius 5.0 40 Morocco 4.9 39 Rwanda 4.9 41 Zambia 4.9 50 Botswana 4.8 55 Cameroon 4.8 46 Cote d'Ivoire 4.8 45 Senegal 4.8 60 Zimbabwe 4.7 67 Uganda 4.6 74 Kenya 4.5 79 Malawi 4.5 91 Ghana 4.4 102 Tanzania 4.2 113 Mozambique 4.1 108 Nigeria 4.1 139 Ethiopia 3.7 141 Egypt 3.6 143 Algeria 3.5 Source: World Competitiveness Report
RMB's Ranking of the most attractive countries for investment in Africa( the higher the score, the
better) Rank Country
1 South Africa 2 Egypt 3 Nigeria 4 Ghana 6 Morocco 8 Ethiopia 9 Kenya
10 Tanzania 12 Botswana 13 Zambia 14 Rwanda 15 Mauritius 16 Uganda 17 Angola 18 Mozambique 19 Cote d'Ivoire 20 Namibia 24 Madagascar 28 Malawi 31 DRC 41 Zimbabwe 42 Lesotho 45 Swaziland 47 CAR 52 Somalia
Note: As the score is dependent on the size and the growth rate of the economy, there is no minimum or maximum scoring Source: Where to Invest in Africa Report, RMB Data as at September 2012
Top 10 Countries providing a favourable macroeconomic backdrop for consumption growth
Rank Country
1 Nigeria
2 Ethiopia
3 DRC
4 Kenya
5 Tanzania
6 Egypt
7 Sudan
8 Uganda
9 Burkina Faso
10 Mozambique
Source: Where to Invest in Africa Report, RMB
Africa: Integrity of the legal system
2010 Tanzania 8.3 Morocco 8.3 Tunisia 8.3 Ethiopia 7.5 Zambia 6.7 Botswana 5.8 Egypt 5.8 Uganda 5.8 Algeria 5.0 Angola 5.0 Malawi 5.0 Mozambique 5.0 Senegal 5.0 Zimbabwe 5.0 Cote d'Ivoire 4.2 Ghana 4.2 South Africa 4.2 Cameroon 3.3 Kenya 3.3 Nigeria 3.3 Congo, Dem. R. 1.7 Mauritius na Rwanda na
Source: Economic Freedom of the World:2012 Annual Report
Africa: Legal enforcement of contracts
2010
Tanzania 6.1 Ghana 5.4 Morocco 5.1 Nigeria 5.1 Ethiopia 4.9 Tunisia 4.9 Zambia 4.6 Mauritius 4.5 Algeria 4.4 Kenya 4.1 Botswana 4.0 Uganda 4.0 Rwanda 3.9 South Africa 3.9 Egypt 3.4 Senegal 3.4 Malawi 3.1 Cote d'Ivoire 2.5 Zimbabwe 2.4 Angola 2.3 Cameroon 2.2 Congo, Dem. R. 0.9 Mozambique 0.0
Source: Economic Freedom of the World:2012 Annual Report