tag:theconversation.com,2011:/au/topics/agro-processing-25472/articlesagro-processing – The Conversation2022-09-19T13:18:10Ztag:theconversation.com,2011:article/1899872022-09-19T13:18:10Z2022-09-19T13:18:10ZSouth Africa’s farm exports are an economic lifeline – with weak spots<figure><img src="https://images.theconversation.com/files/484013/original/file-20220912-14-ql33wg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Citrus, table grapes and a range of deciduous fruits dominate South Africa's agricultural exports</span> <span class="attribution"><span class="source">Getty Images</span></span></figcaption></figure><p>International trade has been at the core of South Africa’s <a href="https://academic.oup.com/edited-volume/37171/chapter-abstract/323739043?redirectedFrom=fulltext">agricultural progress</a> since the early 2000s. Since 1994, the country has excelled in opening up <a href="https://www.econ3x3.org/article/south-africas-trade-policy-failing-agricultural-sector">new markets, as evidenced by several free trade agreements</a> with critical regional and international markets.</p>
<p>The country exports <a href="https://www.dalrrd.gov.za/Portals/0/Statistics%20and%20Economic%20Analysis/Statistical%20Information/Abstract%202021.pdf">roughly half of its produce in value terms</a>. The top exportable products are high value and labour-intensive horticulture produce, a subsector that expanded significantly over the past two decades. Citrus, table grapes and a range of deciduous fruits dominate the export list.</p>
<p>This means international trade has become crucial for sustaining farm profitability and <a href="https://www.statssa.gov.za/publications/P0211/P02112ndQuarter2022.pdf">job creation in South African agriculture</a>.</p>
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<img alt="SA agriculture exports" src="https://images.theconversation.com/files/483978/original/file-20220912-26-iank1f.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/483978/original/file-20220912-26-iank1f.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=351&fit=crop&dpr=1 600w, https://images.theconversation.com/files/483978/original/file-20220912-26-iank1f.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=351&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/483978/original/file-20220912-26-iank1f.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=351&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/483978/original/file-20220912-26-iank1f.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=441&fit=crop&dpr=1 754w, https://images.theconversation.com/files/483978/original/file-20220912-26-iank1f.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=441&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/483978/original/file-20220912-26-iank1f.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=441&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">SA agriculture exports.</span>
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<p>Over the past decade, agriculture and agro-processing exports have averaged <a href="https://www.trademap.org/Product_SelCountry_TS.aspx?nvpm=1%7c710%7c%7c%7c%7c%7c75088%7c%7c2%7c1%7c1%7c2%7c2%7c1%7c1%7c1%7c1%7c1">11% of the country’s overall exports</a>, up from <a href="https://www.trademap.org/Product_SelCountry_TS.aspx?nvpm=1%7c710%7c%7c%7c%7c%7c75088%7c%7c2%7c1%7c1%7c2%7c2%7c1%7c1%7c1%7c1%7c1">9% in the decade before</a>. This shows South Africa’s success in opening export markets, and farmers’ ability to produce high quality products that meet global standards and needs. </p>
<p>Even though agriculture’s share of gross domestic product (GDP), a measure of economic output, has shrunk over the years, from just under 10% in the 1960s to around 2.5% now, the sector has grown in both <a href="https://www.dailymaverick.co.za/opinionista/2019-08-07-twenty-five-years-since-democracy-how-has-sas-agricultural-sector-performed/">output and value terms</a>. Trade has been the core of the sector’s growth. </p>
<p>Still, South Africa’s agricultural sector remains vulnerable on two fronts. It is too <a href="https://www.econ3x3.org/article/south-africas-trade-policy-failing-agricultural-sector">reliant on a few markets</a>. And there are <a href="https://wandilesihlobo.com/2022/08/29/challenges-that-keep-south-african-farming-community-up-at-night/">inefficiencies in the domestic logistics chains</a>. </p>
<p>It is against this background that talk about <a href="https://www.namc.co.za/aamp/#:%7E:text=The%20AAMP%20is%20one%20of,post%20the%20Covid%2D19%20pandemic%22%22">potential expansion of production</a> should be viewed. First there should be a greater effort to increase access to existing and new markets. There should also be a sharper focus on improving the efficiency of logistics to move produce domestically and to export markets.</p>
<p>Over the past few months, there have been several reports of <a href="https://theconversation.com/south-african-farming-new-policy-offers-promise-but-theres-fixing-to-be-done-too-175152">efficiency challenges in the domestic ports</a> and <a href="https://www.bloomberg.com/news/articles/2022-08-10/eu-s-new-rules-cost-south-african-citrus-exporters-12-million#xj4y7vzkg">market access constraints</a> in key export markets such as the EU. These could hinder long term growth of the sector, as new land comes into production to expand output. </p>
<h2>Recent challenges in key agriculture export markets</h2>
<p>An example of South Africa’s vulnerability to a lack of diversification was illustrated recently by two events. China temporarily banned imports of South African wool and the EU restricted <a href="https://theconversation.com/south-african-citrus-new-eu-rules-are-unjust-and-punitive-188387">citrus imports</a>.</p>
<p>This mattered because outside the African continent, South Africa’s agricultural exports are heavily concentrated in a few Asian countries and the EU. </p>
<p>Export diversification contributes to a country’s economic resilience, especially in the face of disruptions to global supply chains or if one of the major markets imposes non-tariff barriers to protect its producers from competition, as it is <a href="https://theconversation.com/south-african-citrus-new-eu-rules-are-unjust-and-punitive-188387">increasingly the case</a>. </p>
<p>Recent challenges regarding South Africa’s access to the wool market in China have <a href="https://wandilesihlobo.com/2022/09/04/co-operation-between-the-south-african-government-and-farmers-over-the-wool-ban-is-a-template-for-other-issues/">now been resolved</a>. But the losses from when the ban was in place are clear in the <a href="https://www.trademap.org/Index.aspx?nvpm=1%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c">trade data</a>. Wool exports fell by <a href="https://www.trademap.org/Index.aspx?nvpm=1%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c">42% in the second quarter of 2022</a> compared with the corresponding period in 2021.</p>
<p>For citrus, which continues to experience <a href="https://wandilesihlobo.com/2022/07/09/rising-protectionism-across-the-world-presents-threats-to-south-africas-agriculture/">protectionist tendencies</a> in the EU after changes in plant regulations, the impact could show more pointedly in the third quarter of the year. Still, a lot will depend on the engagements between the South African and EU authorities on the <a href="https://wandilesihlobo.com/2022/07/09/rising-protectionism-across-the-world-presents-threats-to-south-africas-agriculture/">new plant safety regulations</a>, which involve stringent new cold treatment requirements.</p>
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<a href="https://theconversation.com/south-african-citrus-new-eu-rules-are-unjust-and-punitive-188387">South African citrus: new EU rules are unjust and punitive</a>
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<p>In the second quarter of this year, citrus was still the top exportable agricultural product by value in South Africa, although down by <a href="https://www.trademap.org/Index.aspx?nvpm=1%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c">22% from the second quarter of 2021</a>. The loss of the Black Sea market since the start of the Ukraine war might have also contributed to the slowing of exports. Before the war, Russia accounted, on average, for <a href="https://theconversation.com/how-russia-ukraine-conflict-could-influence-africas-food-supplies-177843">7% of South Africa’s citrus exports in value terms</a>. It also accounted for <a href="https://theconversation.com/how-russia-ukraine-conflict-could-influence-africas-food-supplies-177843">12% of South Africa’s apples and pears exports</a>.</p>
<p>The other challenge is logistics. The state-owned tranport facility Transnet showed great agility in <a href="https://wandilesihlobo.com/2022/08/21/south-africas-agricultural-exports-to-slow-amid-barriers-to-wool-beef-and-citrus/">rebuilding the port of Durban after the destructive floods</a> in April this year.</p>
<p>Similar energy and focus are necessary to improve the ports and rail functioning. Another example is the road network that is in <a href="https://theconversation.com/small-towns-are-collapsing-across-south-africa-how-its-starting-to-affect-farming-162697">disrepair across numerous agricultural towns</a>. It could slow export activity if not properly improved.</p>
<h2>What’s driving growth</h2>
<p>In the second half of this year, South Africa’s agricultural exports rose by <a href="https://www.trademap.org/Index.aspx?nvpm=1%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c">5% year on year, reaching US$3.4 billion</a>. The top exportable products were citrus, maize, apples, pears, wine, grapes, figs, dates, avocados, nuts, fruit juices, wheat, wool and sugar, among others. We expect some of these products to have continued to dominate the export list in the third quarter.</p>
<p>Underpinning this robust export value are the sizeable agricultural output in the 2021/22 production season and generally solid global demand, even at higher commodity prices for maize.</p>
<p>Maize, apples and pears, grapes, and sunflower oil saw a significant uptick from the first quarter of 2021, and thus overshadowed the decline in citrus exports during the period under review.</p>
<p>There are still ample agricultural and beverage exports, which should support the activity in the third and last quarter of the year.</p>
<p>The African continent remained South Africa’s largest agricultural exports market in the first quarter of this year, accounting for <a href="https://www.trademap.org/Index.aspx?nvpm=1%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c%7c">35% in value terms</a>. Asia was the second largest region (28%) and the EU held the third position with a 21% share.</p>
<p>The UK is one of the most important agricultural markets for South Africa and accounted for 7% of overall exports in the second quarter. The balance of 9% value constitutes the Americas and other regions of the world.</p>
<p>The country’s trade policy and activity are not one-directional. South Africa is also a significant importer of agricultural products. It relies on other countries for crucial food products such as wheat, rice, palm oil, sunflower oil and poultry.</p>
<h2>Policy direction</h2>
<p>South Africa’s agricultural sector is export-oriented. Thus, any improvements in production through various development plans, such as the <a href="https://www.namc.co.za/aamp/#:%7E:text=The%20AAMP%20is%20one%20of,post%20the%20Covid%2D19%20pandemic.">Agriculture and Agro-processing Master Plan</a>, should be anchored on expanding export markets.</p>
<p>Japan, China, India, Saudi Arabia, Bangladesh, the Philippines and South Korea are key markets in which South African <a href="https://wandilesihlobo.com/2022/08/29/challenges-that-keep-south-african-farming-community-up-at-night/">agribusinesses and farmers are interested in expanding their presence</a>. It’s also important to maintain a relationship with the existing key markets.</p>
<p>All this should happen while domestic efforts to improve the functioning of the network industries are under way. This will be the only realistic path to maintaining the growth of this sector and, with that, job creation and vibrancy of the rural towns.</p><img src="https://counter.theconversation.com/content/189987/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Wandile Sihlobo is the Chief Economist of the Agricultural Business Chamber of South Africa (Agbiz) and a member of the Presidential Economic Advisory Council (PEAC).</span></em></p>South Africa’s agricultural exports are vulnerable because of reliance on a few markets and weaknesses in domestic logistics chains.Wandile Sihlobo, Senior Fellow, Department of Agricultural Economics, Stellenbosch UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1659872021-09-14T16:11:11Z2021-09-14T16:11:11ZAfrican farmers and agribusinesses need fair access to markets in face of climate change<figure><img src="https://images.theconversation.com/files/420049/original/file-20210908-13-16jx5l3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Agricultural commodity prices spiked after cyclone Kenneth had hit northern Mozambique in 2019.</span> <span class="attribution"><span class="source">Getty Images</span></span></figcaption></figure><p>Southern and Eastern Africa face the twin challenges of growing agricultural production to meet food demand while adapting to extreme weather. And climate change makes addressing these challenges extremely urgent.</p>
<p>Southern Africa is <a href="https://theconversation.com/what-latest-assessment-on-global-warming-means-for-southern-africa-104644">a climate change hotspot</a>. Eastern Africa is projected to still have good average rainfall, although temperatures will increase and floodings become more frequent.</p>
<p>There is huge potential for meeting these twin challenges across Eastern and Southern Africa, where there are in fact <a href="https://static1.squarespace.com/static/52246331e4b0a46e5f1b8ce5/t/5f43657bf186f763e265c86b/1598252427643/CCRED+WP+2_2020+Southern+African+Market+Observatory.pdf">good soils and water availability</a> in many countries. </p>
<p>However, markets are not working well, especially for small and medium-scale farmers and agri-businesses which are at the heart of inclusive food value chains. These participants are often not receiving fair prices for their produce due to the way markets have been working, including powerful interests, high transport costs and poor facilities such as those for storage. </p>
<p>Analysing market failures requires information. Yet, poor market information has made the ability to monitor market prices in close to real time difficult across much of the region. Up-to-date information on food prices is critical to understanding agricultural food systems in the region and for collectively planning responses. Information on food prices should be accompanied by other market information relating to production and market structures.</p>
<p>To address this, the University of Johannesburg’s <a href="https://www.competition.org.za/">Centre for Competition, Regulation and Economic Development</a> has launched a <a href="https://www.competition.org.za/marketobservatory">market observatory</a>. This is one part of supporting smaller producers in negotiating fair prices and in identifying measures to make markets work better across the region. </p>
<h2>Markets not working well</h2>
<p><a href="http://www.fao.org/3/i3907e/i3907e.pdf">Volatility over time</a>, and very <a href="http://www.fao.org/3/i3907e/i3907e.pdf">large price differentials</a> between areas in Eastern and Southern Africa for key crops such as soybeans and maize, reflect markets that are not working well for producers or buyers such as agro-processors. </p>
<p>The price differentials point to potential local market power being exploited and big profit margins being earned by large traders. The spread of larger traders across the region is meant to have heralded more efficient markets. However, market outcomes and high levels of concentration at various levels of supply chains indicate that there are also major concerns about market power.</p>
<p>For example, over the past 12 months, the patchy data supported by anecdotal information indicate that <a href="https://static1.squarespace.com/static/52246331e4b0a46e5f1b8ce5/t/5f43657bf186f763e265c86b/1598252427643/CCRED+WP+2_2020+Southern+African+Market+Observatory.pdf">soybean prices</a> have been extremely high in Dar es Salaam and Nairobi (above US$900 per tonne). This while there is great potential to supply from areas within Tanzania as well as from Uganda, Malawi and Zambia. </p>
<p>Prices in areas such as <a href="https://static1.squarespace.com/static/52246331e4b0a46e5f1b8ce5/t/5f43657bf186f763e265c86b/1598252427643/CCRED+WP+2_2020+Southern+African+Market+Observatory.pdf">Zambia and southwest Tanzania</a> were below $400/t in May after the harvest and around $500 in Malawi. The difference between the producing areas and the cities is consistent with farmers getting offered unfairly low prices by large buyers. Large buyers are taking advantage of the poor storage and the lack of other market options available for the farmers. Farmers have to accept the low prices being offered.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/415647/original/file-20210811-19-1ncuon1.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/415647/original/file-20210811-19-1ncuon1.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=359&fit=crop&dpr=1 600w, https://images.theconversation.com/files/415647/original/file-20210811-19-1ncuon1.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=359&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/415647/original/file-20210811-19-1ncuon1.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=359&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/415647/original/file-20210811-19-1ncuon1.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=451&fit=crop&dpr=1 754w, https://images.theconversation.com/files/415647/original/file-20210811-19-1ncuon1.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=451&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/415647/original/file-20210811-19-1ncuon1.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=451&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p>The transport costs to the main urban markets should not account for more than $100/t of the difference between $400 or $500 and $900, meaning that massive profits have been made by the “middle-men” or traders. In competitive markets, trading margins would reflect reasonable costs and not super profits.</p>
<p>These profit margins are at the expense of farmers, who receive low prices, while high prices are charged to agribusinesses and consumers in urban areas. This undermines production in the region. It also contributes to high food prices and compounds reliance on imports.</p>
<p>This especially affects smaller market participants. Large and integrated processors and traders have their own transporters and infrastructure, and better market information. </p>
<p>Smaller market participants are charged massively inflated transport costs where they look to bypass traders and organise their own sales. This undermines effective market integration across the region. In <a href="https://static1.squarespace.com/static/52246331e4b0a46e5f1b8ce5/t/611504af8d2b162b32f8637e/1628767408243/Price+tracker+4+DRAFT_Final.pdf">our research</a>, market participants in Malawi indicated that those looking to export from Malawi were being charged as much as three times what were reasonable rates. </p>
<p>There are also high rates being set by local transporters within some countries. This suggests market power in transport and trading, including on the part of influential large trucking companies in some countries. Some market participants in Tanzania have resorted to placing loads on buses in recent months, incurring very high costs and yet still receiving the product at much lower than the prevailing prices in Dar es Salaam.</p>
<h2>Next steps</h2>
<p>Smaller producers and agribusinesses are integral in growing production and ensuring the fairer and more competitive markets required for the benefits to be widely shared and sustainable. Small to medium sized farms and agribusinesses have been growing strongly in many countries yet face many disadvantages in markets, especially relative to large multinational trading groups. </p>
<p>Action, including market monitoring, effective competition enforcement and investment in the necessary infrastructure and support, is required to shape markets to work better. </p>
<p>Steps to support smaller producers are important in any event. However, the climate emergency means they are imperative and that the time to act is running out fast. The extreme weather currently in the Americas is a warning not to be complacent. </p>
<p>The El Niño state brings drought in southern Africa while inducing heavy rainfall and floods in Eastern Africa. The 2015/16 period saw the worst drought in Southern Africa for around 30 years. This led to maize shortages and prices jumping in countries such as <a href="https://meetingorganizer.copernicus.org/EGU2018/EGU2018-6979.pdf">South Africa, Mozambique and Malawi</a>. Extreme weather patterns also contributed to price volatility in subsequent years with, for example, <a href="http://www.fao.org/3/ca7638en/ca7638en.pdf">cyclones in Mozambique</a>, poor rainfall and drought concerns in 2019 seeing prices spike again.</p>
<p>Adaptation to the effects of climate change means supporting increased production, such as through irrigation, coupled with intra-regional trade across Eastern and Southern Africa. According to the latest <a href="https://www.ipcc.ch/report/ar6/wg1/#SPM">Intergovernmental Panel on Climate Change assessment</a>, while Southern Africa will experience less rainfall and more droughts, Central to Eastern Africa is projected to maintain precipitation levels, on average. When extreme weather hits one part of the region there will likely still be good harvests from other areas.</p>
<p>Urgent measures are required to support agricultural practices for farmers to adapt to climate change and increase production while ensuring markets work effectively across the region. The good news is that the region has the potential to substantially improve its resilience and increase earnings for farmers and jobs in the related value chains. This requires fair market prices and support for investments in areas including irrigation, production, storage and processing.</p><img src="https://counter.theconversation.com/content/165987/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Grace Nsomba is affiliated with the Centre for Competition, Regulation and Economic Development at the University of Johannesburg.</span></em></p><p class="fine-print"><em><span>Simon Roberts is affiliated with the Centre for Competition, Regulation and Economic Development at the University of Johannesburg and the Institute for Innovation and Public Purpose at University College London</span></em></p><p class="fine-print"><em><span>Ntombifuthi Tshabalala is affiliated with the Centre for Competition, Regulation and Economic Development at the University of Johannesburg.</span></em></p><p class="fine-print"><em><span>Namhla Landani does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Small and medium-scale farmers and agri-businesses in Southern and Eastern Africa, which are at the heart of inclusive food value chains, are not receiving fair prices for their produce.Grace Nsomba, Associate Researcher at Centre for Competition, Regulation and Economic Development, University of JohannesburgSimon Roberts, Professor of Economics and Lead Researcher, Centre for Competition, Regulation and Economic Development, UJ, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1464132021-02-15T14:30:59Z2021-02-15T14:30:59ZTechnology and supermarket chains can help strengthen southern Africa’s food systems<figure><img src="https://images.theconversation.com/files/366439/original/file-20201029-13-1mzuygh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Small and medium enterprises could use technology to take advantage of the growing global demand for fruit</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Agriculture and agro-processing value chains have been under pressure during the COVID-19 pandemic. This has been particularly marked where they remain underdeveloped, as is the case in South Africa and the rest of the region.</p>
<p>Regulatory responses to the pandemic disrupted agriculture and agro-processing activities. For example, agro-processing systems have been slowed down by rigorous border checks. Some countries, including South Africa, closed land border <a href="https://www.accord.org.za/analysis/trade-under-covid-19-restrictions-in-eastern-and-southern-africa/">posts</a>. Curfews and social distancing protocols also caused labour shortages, which in turn affected productivity.</p>
<p>COVID restrictions also <a href="https://iiap.info/wp-content/uploads/2020/07/Covid19_MaizeDairy_2206_AB.pdf">added to</a> the high barriers to entry generally faced by small players. Small and medium enterprises (SMEs) have <a href="https://www.ifc.org/wps/wcm/connect/03522e90-a13d-4a02-87cd-9ee9a297b311/121264-WP-PUBLIC-MSMEReportFINAL.pdf?MOD=AJPERES&CVID=m5SwAQA">limited access</a> to finance, skills and training. They also lack access to infrastructure such as storage facilities as well as market information. </p>
<p>Linking small-scale farmers to markets has also been a challenge. COVID-19 restrictions on restaurants and catering have led to supermarkets being the key route to market. This has made suppliers, SMEs in particular, more vulnerable to the exertion of buyer power by leading supermarkets. Some SME suppliers are able to meet basic phytosanitary and food quality standards, but <a href="https://www.wider.unu.edu/publication/expansion-regional-supermarket-chains">many lack capabilities</a> to meet higher, private standards of supermarkets which place more pressure on suppliers.</p>
<p>The development of stronger and more localised agriculture and agro-processing <a href="http://www.fao.org/family-farming/detail/en/c/381860/">systems</a> is crucial for food security, fostering rapid industrialisation and economic diversification, and job creation beyond the crisis. </p>
<p>New technologies and supermarket supplier development programmes can help overcome weaknesses. They can be used to promote smallholder farmers and SME agro-processors in the region. Kenya’s innovative platforms such as <a href="http://www.fao.org/fileadmin/templates/dimitra/pdf/dim_24_e_p18.pdf">Sokopepe</a>, <a href="https://www.ujuzikilimo.com/">Ujuzi Kilimo</a> and the ubiquitous <a href="https://www.vodafone.com/what-we-do/services/m-pesa">M-Pesa</a> are good examples. Sokopepe disseminates market information, Ujuzi Kilimo promotes climate smart agricultural practice, and M-Pesa facilitates mobile money transfers.</p>
<h2>Technology solutions</h2>
<p>Our recent research on regional growth and development, and on agro-processing value chains, has helped identify where governments and the private sector can use <a href="https://static1.squarespace.com/static/52246331e4b0a46e5f1b8ce5/t/5e82d7ba42c101597f4a2e0f/1585633214941/Das+Nair+%26+Landani+%282020%29.pdf">technologies</a> and <a href="https://www.tandfonline.com/doi/abs/10.1080/0376835X.2020.1780565?journalCode=cdsa20">supplier development programmes</a> to clear <a href="https://www.competition.org.za/ccred-blog-thinkingaheadsa/2020/8/7/covid-19-has-hit-smes-in-south-africas-food-sector-hard-what-can-be-done-to-help-them">bottlenecks</a>. These keep small players out of food value chains. </p>
<p>There are several technology solutions already in use for agriculture and SMEs in various African countries. Kenya’s <a href="https://www.ewb.ca/en/venture/farmdrive/#how">FarmDrive</a>, Nigeria’s <a href="https://cellulant.com/blog/agritech-in-africa-how-an-e-wallet-solution-powered-nigeria-governments-ges-scheme/">eWallet</a> and South Africa’s <a href="https://static1.squarespace.com/static/52246331e4b0a46e5f1b8ce5/t/5dd630cf41a56d7f7653a757/1574318295632/IDTT+2+Fruit+1+Working+Paper+4+final.pdf">Traderly</a> are examples. </p>
<p>These platforms help facilitate loans, fast-track trade payments, and make government subsidies for inputs easily accessible to farmers. Similar financing solutions may be useful in disseminating the COVID-19 relief funds. They can also be used where government departments have limited technology and data capturing capabilities.</p>
<p>These technologies can also be used to combat corruption. This is because each user of these platforms has a unique identifier, ensuring that support reaches the intended beneficiary. These platforms are easily accessible, and at low cost. They only require a mobile phone and their language can be customised to the user’s requirement.</p>
<p>Technology can enable smallholder farmers to access markets, locally and internationally. They could, for example, use technology to take advantage of the growing global demand for fruit. Fruits, particularly citrus, are in great demand because of their health benefits. There are real <a href="https://iiap.info/wp-content/uploads/2020/07/Covid-19-impacts-and-opportunities-for-citrus.pdf">opportunities</a> to expand in global markets. Here too there are platforms already in use. For example, Ghana’s <a href="https://mergdata.com/industry/">Mergdata</a>, multinational <a href="https://odimpact.org/files/case-esoko.pdf">Esoko</a>, and South Africa’s <a href="https://static1.squarespace.com/static/52246331e4b0a46e5f1b8ce5/t/5dd630cf41a56d7f7653a757/1574318295632/IDTT+2+Fruit+1+Working+Paper+4+final.pdf">Phytclean</a> offer traceability. They also offer farmers training on meeting buyer specifications, market data, and official e-certification.</p>
<p>Small-scale farmers in the region, however, face some challenges with adopting technologies. Some are relatively expensive. There is also the concentrated nature of agro-processing and agriculture value chains. These may result in SME farmers either <a href="http://www.chronicpoverty.org/uploads/publication_files/WP81_Hickey_duToit.pdf">being excluded or adversely incorporated </a> into technology driven supply chains. This would force them to incur high costs of upgrading their technologies but receiving limited rewards. </p>
<p>One way around this is for governments to work with the private sector to provide smaller players with support. This includes using existing supply chains and programmes – such as those driven by supermarket groups.</p>
<h2>Developing supplier capabilities</h2>
<p>In the past, South African supermarket chains have <a href="https://www.tandfonline.com/eprint/JZ3TDEI4QDQG8YICG9BX/full?target=10.1080/0376835X.2020.1780565">helped</a> small suppliers meet food safety requirements. They did this by providing technical assistance, business development and market readiness. They have also assisted them with climate change risk mitigation, access to infrastructure such as packhouses, irrigation facilities and distribution centres. </p>
<p>The impact of these programmes was limited because they were ad hoc and in place for short periods. They were typically undertaken as part of corporate social responsibility and done to <a href="https://www.bbbeecommission.co.za/b-bbee-codes-of-good-practice/#:%7E:text=It%20presents%20the%20industry%20with,over%20the%20next%2010%20years">comply</a> with the country’s measures aimed at increasing the participation of black South Africans and firms in the mainstream economy. </p>
<p>Interviews for our research conducted with some supermarkets suggest that there is a positive move toward more long-term, commercially oriented and mutually beneficial programmes. These go beyond limited corporate social investment or responsibility initiatives. <a href="https://doi.org/10.1080/0376835X.2020.1780565">With this approach</a>, supermarkets ‘project manage’ a supplier, using turnaround strategists and industrial engineers. Financial managers assist a supplier with the management of working capital, which is a key constraint for small businesses. </p>
<p>This approach can help improve the efficiency of a supplier and reduce warehousing and transport costs – all of which should also benefit a supermarket chain.</p>
<p>There are potential downsides too. The close management and tighter control exerted by a supermarket over a supplier can lead to governance problems, including a lack of independence and control over company decision making for SMEs. The arrangement can also give a supermarket chain stronger bargaining power, leading to poorer terms of trade for the SMEs. </p>
<h2>Next steps</h2>
<p>For technologies and supermarkets to be key drivers of more resilient food systems in the region, governments must provide the enabling infrastructure.</p>
<p>For example, governments can promote technology adoption by releasing additional spectrum to encourage competition in telecoms. This can over time reduce data costs for internet related technologies and improve connectivity in farming areas.</p>
<p>When it comes to the role of supermarkets, governments must ensure that terms of trade are fair for smaller suppliers. The <a href="https://www.google.com/search?q=buyer+power+regulations&rlz=1C1GCEV_enZA860ZA860&oq=buyer+power+regulations&aqs=chrome..69i57l2j69i61l3j69i60l3.5176j0j7&sourceid=chrome&ie=UTF-8">buyer power</a> regulations enacted in South Africa in 2020 go some way to doing this.</p>
<p>The recent approaches used by South African supermarkets need to be broadened, deepened and replicated across the region, which would benefit from a <a href="https://doi.org/10.1080/0376835X.2020.1780565">regional retail charter</a>. Drawing on the positive lessons from the <a href="http://www.ntf.org.na/index.php/projects/29-retail-charter">Namibian Retail Charter</a>, the regional charter would seek to ensure fair relations between suppliers and supermarket chains. The charter could also be useful in ensuring that southern African food systems are better prepared to deal with crises such as COVID-19. </p>
<p><em>This article draws on underlying research as part of the <a href="https://sa-tied.wider.unu.edu/">Southern Africa – Towards Inclusive Economic Development</a>.</em></p><img src="https://counter.theconversation.com/content/146413/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Thando Vilakazi writes in his own capacity. He is affiliated with the Centre for Competition, Regulation and Economic Development (CCRED) at the University of Johannesburg. CCRED has received external funding from UNU-WIDER to conduct the underlying research.</span></em></p><p class="fine-print"><em><span>Namhla Landani is affiliated with the Centre for Competition, Regulation and Economic Development (CCRED) at the University of Johannesburg. CCRED has received external funding from UNU-WIDER to conduct the underlying research.</span></em></p>New technologies and supermarket supplier development programmes can help integrate small agro businesses into local and global value chains.Thando Vilakazi, Executive Director of the Centre for Competition, Regulation and Economic Development, University of JohannesburgNamhla Landani, Economist and Associate Researcher at the Centre for Competition, Regulation and Economic Development, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1420642020-08-05T14:38:46Z2020-08-05T14:38:46ZCOVID-19 has hit SMEs in South Africa’s food sector hard. What can be done to help them<figure><img src="https://images.theconversation.com/files/349660/original/file-20200727-37-2ojaec.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">COVID-19 has further emphasised the need for a more diverse food system, in which SMEs play a key role</span> </figcaption></figure><p>COVID-19 has prompted widespread discussion of the resilience of food systems and how efficiency and competitiveness have been previously understood. Recent decades have seen the growth of increasingly complex food value chains. These are underpinned by just-in-time delivery systems, a growing share of food products sold through supermarkets, and increasing concentration of ownership among powerful, large food manufacturers. </p>
<p>The pandemic has further emphasised the need for a more diverse and inclusive food system, in which small and medium sized enterprises (SMEs) play a key role. </p>
<p>As part of a <a href="https://iiap.info/">larger project</a> investigating challenges faced by agro-processing SMEs, we conducted qualitative telephone interviews with 16 SME maize milling and dairy firms during lockdown to gauge the effects of the pandemic.</p>
<p>As essential businesses, food manufacturers continued to operate through lockdown, and it might be assumed COVID-19’s impacts on this industry were minimal. This was not the case. While aggregate production levels were maintained – super maize meal output in April was 25% higher than the same month last year – and consumer prices remained relatively stable, SMEs in these industries faced multiple disruptions throughout their supply chains.</p>
<p>There are still steps that can be taken to shield these enterprises from the worst effects of the pandemic. This should go beyond financial aid and improved access to credit to include, for example, supporting them in diversifying their routes to markets. Such support is critical because the exit of SMEs will exacerbate high levels of concentration and reduce diversity, with consequences for social inclusion and food system resilience. The implications for South Africa’s food system would be far reaching.</p>
<h2>Precarious</h2>
<p>Many agro-processing SMEs were precarious before COVID-19 struck. Power in the South African food system lies with big businesses. In 2017, the 10 largest enterprises <a href="http://www.statssa.gov.za/publications/Report-30-02-03/Report-30-02-032017.pdf">accounted for 72% of revenue</a> in the manufacture of dairy products. In milling, the 10 largest accounted for 76%. </p>
<p>SMEs still play a critical role supplying localised and under-served markets, providing rural employment. They are also important for linkages with other small businesses. Typically they avoid doing business with the big supermarkets due to onerous conditions. Instead they target independent wholesalers and retailers, buyer groups and informal “spaza” shops. They also sell directly to local communities, school feeding schemes and catering. </p>
<p>COVID-19 has reduced SME access to these routes and therefore increased their vulnerability.</p>
<h2>What we found</h2>
<p>During lockdown, supermarkets’ sophisticated distribution systems enabled seamless operations. Panic-buying also diverted sales towards large retailers with higher stock levels. However, our qualitative research interviews found that the retailers relied on by most SMEs were less well-resourced, and faced a range of logistical and operational setbacks, with financial strains resulting in increased defaults on payments to suppliers.</p>
<p>The SMEs reliant on non-retail sales channels were the worst affected. The cessation of school feeding schemes and closure of hospitality and catering had devastating effects on suppliers. All dairy processing SMEs interviewed suffered major sales reductions, of between 20% and 66%. Some millers reported lower revenue, with some closing down entirely. </p>
<p>Switching to supplying mainstream supermarkets was not a feasible alternative. It would have pitted SMEs against large companies. They would also have had to meet higher standards for product quality, packaging, hygiene and traceability. SMEs would have had to accept the mainstream supermarkets’ longer repayment periods, and often onerous rebate and returns policies. Government’s emergency food parcel schemes meanwhile had been supplied by large firms, reflecting longer-standing challenges for SMEs with public procurement.</p>
<p>Perishability of raw materials and close links to farming were a further complicating feature. This was particularly common in the dairy sector in instances where SME processors were backwardly integrated into milk producers. Some started selling surplus raw milk to rivals or plan to retire herds because their normal routes to market were cut. </p>
<p>Milling SMEs faced severe difficulties sourcing raw material. They were also exposed to maize price volatility and the adverse rand-dollar exchange rate movement, given their lesser ability to hedge. Interviewees from both dairy and milling companies also described severe difficulties securing machinery parts, repairs and maintenance services. Compliance with hygiene regulations was a major cost for SMEs in ordinary circumstances. This dramatically escalated with the need to source personal protective equipment and sanitisers at elevated prices.</p>
<h2>The consequences</h2>
<p>Most firms in our sample said they were forced to lay off workers, cut their pay or work reduced hours. Investments that had been planned to improve businesses were halted. </p>
<p>Sadly, government’s business support measures provided insufficient remedy. The top-down approach to support provision, with a fragmented array of schemes, and complex application processes and qualifying criteria, proved confusing or too costly even to firms in need. </p>
<p>The <a href="https://www.ufiling.co.za/uif/">Unemployment Insurance Fund</a> provided a lifeline. Other measures, however, such as the <a href="https://www.sars.gov.za/ClientSegments/Businesses/SmallBusinesses/Pages/default.aspx">tax relief</a>, <a href="http://www.dsbd.gov.za/wp-content/uploads/2020/04/COVID-19-SMME-INTERVENTION-MEASURES.jpg">Department of Small Business Development funds</a> and commercial bank support through the <a href="https://businesstech.co.za/news/banking/395092/south-africas-banks-have-coronavirus-finance-relief-options-but-dont-expect-a-debt-write-off/">loan guarantee scheme</a>, were less accessible. </p>
<p>Notably, firms in difficulty were typically reluctant to take on commercial debt. They argued that despite the loan guarantee scheme, interest rates are prohibitively high. One welcome development in relation to this was the announcement in June’s <a href="http://www.treasury.gov.za/documents/National%20Budget/2020S/speech/speech.pdf">Supplementary Budget</a> of the relaxation of terms and conditions and extension of repayment holidays.</p>
<p>Even without a repeat lockdown, without greater support, many SMEs will fail or be severely weakened in this period of economic disruption. Adaptation is going to require significant and costly changes to business models. </p>
<h2>What could help?</h2>
<p>We see three key actions that could help. </p>
<p>First, there should be commitments by the major retailers to offer SMEs preferential shelf space and to introduce local procurement policies at preferential terms. </p>
<p>Second, alternative routes to market need to be strengthened. This can involve improving infrastructure and implementing regulations that enable SMEs to operate in the peri and non-urban areas. Public procurement can also provide SMEs with consistent revenue streams but needs to be reconfigured to accommodate SMEs’ needs. Delays by the state in paying SMEs and often complex and dysfunctional tendering processes remain a big problem. The expansion of inclusive e-commerce platforms for retail and digital management of food logistics and sales can help SMEs access multiple new routes to market. But this requires state support to build firms’ digital capabilities. It also requires policies and regulations to create a competitive digital space and curb the market power of dominant platforms.</p>
<p>Thirdly and finally, there should be improved short-term emergency support, with streamlined application processes and broadened access conditions. Commercial bank loans are inappropriate for SMEs in severe difficulties, and grant finance should be more easily available. Government should also provide assistance with personal protective equipment and sanitisers, in addition to training and advice on how to adapt to new requirements. </p>
<p>In the longer term, South Africa needs to consider how markets may undermine inclusive food systems through ‘<a href="https://www.harpercollins.com/products/competition-overdose-maurice-e-stuckeariel-ezrachi">toxic competition</a>’. The country needs to rethink ‘market shaping’ policies and value chain governance to emphasise the critical role of the state and collective action.</p><img src="https://counter.theconversation.com/content/142064/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Bowman receives funding from the Economic and Social Research Council (UKRI) (ES/S0001352/1). </span></em></p><p class="fine-print"><em><span>Reena das Nair is a Senior Researcher at the Centre for Competition, Regulation and Economic Development (CCRED). CCRED receives project-based funding from multiple sources including the Department of Trade, Industry and Competition, the United Nations World Institute for Development Economics Research (UNU-WIDER) and the Economic and Social Research Council (UKRI) (ES/S0001352/1).</span></em></p>South Africa’s food system is dominated by big firms, leaving small businesses to supply localised and under-served markets, and provide rural employment. It needs to be inclusive and diverse.Andrew Bowman, Lecturer in Africa and International Development, The University of EdinburghReena das Nair, Senior Researcher, Centre for Competition, Regulation and Economic Development, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1405622020-06-21T17:18:38Z2020-06-21T17:18:38ZHow incoherent farm policies undermine Kenya’s transformation agenda<figure><img src="https://images.theconversation.com/files/342389/original/file-20200617-94066-1ogtq8w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A farmer carries farming tools to her sorghum field in the arid Turkana County, northern Kenya. </span> <span class="attribution"><span class="source">(Photo by Luis Tato/AFP via Getty Images)</span></span></figcaption></figure><p>A key objective of <a href="http://www.kilimo.go.ke/wp-content/uploads/2019/05/ASTGS-Abridged-version.pdf">Kenya’s agriculture growth and transformation strategy</a> and <a href="https://www.president.go.ke/food-security-and-nutrition/">the Big Four Agenda</a> is increasing smallholder productivity and incomes. The strategies also aim to enhance value-addition and agro-processing, which could create employment in agricultural value chains. The overall goal is to transform rural economies into commercially viable concerns.</p>
<p>But the government sometimes pursues policies that undermine these objectives. </p>
<p>Sorghum farming is a case in point. In Kenya, sorghum is mainly grown in areas characterised by low rainfall and high temperatures. For decades, there was little incentive to grow the crop because production costs were high, market integration low, and yields consistently low at about 0.7 tons per hectare. Ethiopia has consistently attained a national yield of 2.5 tons/ha. Farmers were unable to break even. Production was mainly for domestic consumption.</p>
<p>But thanks to the government policy supporting the use of sorghum for commercial beer brewing in <a href="http://oar.icrisat.org/7840/1/SDPS_16.pdf">2004,</a> through waiver of the excise duty, demand for sorghum increased, giving smallholder farmers an opportunity to <a href="https://www.businessdailyafrica.com/analysis/ideas/Sorghum-can-transform-farming-in-semi-arid-areas/4259414-5240256-y8tw9iz/index.html">transform</a> their <a href="https://smartfarmerkenya.com/new-sorghum-beer-boon-for-farmers-and-industry/">agriculture and livelihoods</a>. </p>
<p>First, sorghum beer processing provided a stable market. Contracts entered between the main brewer and farmers guaranteed farmers a market and stable prices. Farmers responded by increasing their production. Some attained up to 3.3 tons/ha, which translated to an increase in incomes of about 220%.</p>
<p>Contract farming for sorghum beer processing expanded from three counties in 2010 to the current ten counties, with four more in the pipeline. During this period, the number of farmers has grown from 2,300 to 48,000 and farm-gate price per kilogram from 23 to 37 KES. Yield has improved due to better agronomic services and inputs provided on credit by the industry. </p>
<p>Second, researchers have been given an incentive to support the industry and responded by doubling the number of improved varieties from 20 in 2012 to <a href="https://www.tegemeo.org/images/downloads/publications/technical_reports/TR34.pdf">40</a> in 2017. These improved varieties are higher yielding, drought tolerant, pest and disease resistant and tailored for specific soils, rainfall and temperature. </p>
<p>Third, the policies on flour blending provide additional uses for sorghum in agro-processing. Despite this growth, Kenya remains a net importer of sorghum. </p>
<p>But the sorghum value chain, which is now years in the making, faces severe disruption. The National Treasury now <a href="https://www.treasury.go.ke/media-centre/news-updates/725-excise-duty-remission-of-excise-duty-amendment-regulations-2020.html">seeks</a> to reduce the excise duty waiver for beer made from locally grown sorghum, millet or cassava or any other agricultural produce from 80% to 60%. This measure is of course intended to increase tax revenue for the government.</p>
<p>But this policy will likely result in <a href="https://www.the-star.co.ke/business/kenya/2020-06-05-keg-beer-prices-to-go-up-as-yatani-seeks-cut-on-govt-excise-tax-burden/">increased prices for the end consumers</a>. This will in turn force the processor to cut down on production, and thereby reduce demand for the raw material. It is important to note that the main objective of changing the policy in 2004 was to fight illicit brews by making sorghum beer more affordable for people with low incomes. </p>
<p>Reduced demand will not only lower sorghum prices but increase costs for farmers forced to invest in storage and management of unsold produce. And <a href="https://www.the-star.co.ke/business/2020-06-05-330000-jobs-at-risk-if-proposed-tax-on-low-priced-beer-is-effected-keg-sellers/">more jobs will be lost</a> along the value chain as economic activity scales down.</p>
<h2>Learning from past policy failures</h2>
<p><a href="http://www.tegemeo.org/images/downloads/publications/policy_briefs/Policy_Brief16.pdf%20updated.pdf">Existing evidence</a> shows that such a policy move is counterproductive. In 2013, a similar proposal was implemented when a 50% excise duty was introduced. As a result, the price of sorghum beer increased as the added tax was passed on to consumers. The demand for sorghum plummeted as the beer processors scaled down processed volumes and also cancelled contracts for farmers. </p>
<p>This had a <a href="https://unctad.org/meetings/en/Contribution/DITC2020_Contribution_UNCTAD%20Illicit%20Trade%20Forum_Diageo_en.pdf">negative impact</a> <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2803526">not only for farmers</a>, but for others in the value chain, like input sellers, grain aggregators and transporters. Instead of the government raising revenue, it actually <a href="http://www.tegemeo.org/images/downloads/publications/policy_briefs/Policy_Brief16.pdf%20updated.pdf">lost Ksh 2 billion in forgone tax revenue</a> due to losses accruing to the sorghum beer processors and others in the chain. </p>
<p>The policy measure <a href="https://agra.org/news/big-win-for-sorghum-farmers/">was rescinded</a> in 2015. </p>
<p>The new regulation is ill-timed. This year, the agriculture sector has suffered several shocks. From December 2019, the desert <a href="https://theconversation.com/how-changes-in-weather-patterns-could-lead-to-more-insect-invasions-131917">locust invasion</a> affected most of the arid and semi-arid lands. Also, excessive rainfall has been experienced in most parts of the country. Although the former did not pose a severe threat to sorghum farming, the latter posed a significant threat to productivity arising from <a href="https://reliefweb.int/report/kenya/kenya-floods-flash-update-no-1-7-may-2020">flooding and waterlogging</a>. </p>
<p>The COVID-19 pandemic has disrupted the economy in a way never experienced before. The demand for sorghum beer was already depressed following the <a href="https://www.nation.co.ke/dailynation/news/flights-suspended-bars-closed-in-war-against-coronavirus-280550">closure of bars, restaurants and hotels in March 2020</a>. Curtailing the industry during such economic shocks can only lead to worse effects for the economy.</p>
<h2>Inconsistent policy choices</h2>
<p>The adverse policy also contradicts other government’s policies and investments. The government, through support from development partners such as the World Bank and European Union, has also invested heavily in the sorghum and millet value chains through the projects like <a href="https://www.kcsap.go.ke/">Kenya Climate Smart Agriculture Project</a>, the <a href="https://narigp.go.ke/">National Agricultural and Rural Inclusive Growth Project</a> and the <a href="http://www.kcepcral.go.ke/">Kenya Cereal Enhancement Programme</a>. Several counties have prioritised sorghum as an essential food and commercial crop. </p>
<p>The president <a href="https://www.standardmedia.co.ke/business/article/2001247240/jobs-on-the-card-as-president-uhuru-breaks-ground-for-sh15b-kisumu-brewery">opened a Ksh 14 billion plant in Kisumu County</a> two years ago which is serving as a key market for farmers in the western region. Another processing plant is being set up in Nakuru County. These investments have been made as a result of a stable and <a href="https://citizentv.co.ke/business/duty-remission-on-keg-sorghum-beers-extended-144936/">predictable policy environment</a> that has existed in the past. </p>
<p>Across the value chain various players have invested and continue to do so with the expectation that this environment will persist and guarantee them a return on their investments. These actors include seed breeders working on sorghum varieties, seed companies, grain processors and investments in post-harvest storage and management. </p>
<p>The proposed regulation will be a disincentive to such investments, especially by the private sector, and possibly lead to capital flight.</p><img src="https://counter.theconversation.com/content/140562/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A consistent, predictable and friendly policy environment can attract private sector investments in agriculture to drive transformation.Timothy Njagi Njeru, Research Fellow, Tegemeo Institute, Egerton UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1130462019-03-06T14:37:48Z2019-03-06T14:37:48ZWhat Buhari has to do to take Nigeria’s economy to the next level<figure><img src="https://images.theconversation.com/files/262432/original/file-20190306-100772-jpc1as.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Nigerians celebrate the announcement of Muhammadu Buhari’s victory. But can he deliver jobs this time round?</span> <span class="attribution"><span class="source">EPA/Stringer</span></span></figcaption></figure><p>One of the main reasons newly-elected Nigerian president Muhammadu Buhari had been widely expected to lose his bid for a second term was the poor state of the country’s economy. Under his presidency, Nigeria’s <a href="https://tradingeconomics.com/nigeria/unemployment-rate">unemployment rate more than doubled</a>, from 10.4% in January 2016 to 23.1% in July 2018 </p>
<p>In his first four years, Buhari also failed to address poverty. Under his watch, Nigeria overtook India as the country with the <a href="https://www.cnn.com/2018/06/26/africa/nigeria-overtakes-india-extreme-poverty-intl/index.html">largest number of people living in extreme poverty</a>. About 87 million Nigerians, or half the population, live on less than US$1.90 per day.</p>
<p>And economic growth has been lacklustre since his election in 2015. The country went into recession in 2016, with a negative 1.6% growth rate. There was a rebound in economic growth of about 2% in 2018. Nevertheless the IMF <a href="https://www.imf.org/external/pubs/ft/weo/2018/01/weodata/weorept.aspx?sy=2015&ey=2023&scsm=1&ssd=1&sort=country&ds=.&br=1&pr1.x=19&pr1.y=10&c=694&s=NGDP_RPCH&grp=0&a">forecasts</a> that growth will remain anaemic at an annual average of about 1.9% from 2019 – 2023.</p>
<p>By reelecting Buhari despite his unimpressive economic performance, Nigerians are giving him a second chance. One of Buhari’s campaign catchphrases was “Next Level,” signalling his determination to build on programmes initiated in the first term. These include conditional cash transfers to vulnerable citizens, school feeding programmes, giving young people critical skills, and implementing a microcredit scheme for small traders and artisans. </p>
<p>But these initiatives, however noble, are not widespread and substantive enough to touch a majority of the Nigerian population. Buhari should be planning a massive stimulus package to jump start the economy. This is particularly important given the fact that economic growth is going to be so lacklustre.</p>
<h2>High unemployment</h2>
<p>Nigeria’s high unemployment rate has created a bloated and unproductive informal sector, replete with millions of underemployed youths. </p>
<p>Buhari’s response in the first term was to create jobs by providing credit to micro and small enterprises, especially in the agro-processing sector. But job creation by small enterprises usually takes time. And the number of jobs is never on the scale of large enterprises. The end result has been that most Nigerians feel economically marginalised in spite of Buhari’s best efforts. </p>
<p>The Buhari administration is well aware of the bleak economic conditions. In February 2017 it launched the ambitious <a href="https://yourbudgit.com/wp-content/uploads/2017/03/Economic-Recovery-Growth-Plan-2017-2020.pdf">economic and growth plan</a>. Its overarching objective was to restore growth and build a competitive economy through investment in infrastructure and creation of an enabling business environment. </p>
<p>Laudable as the plan might have been, there’s a cynicism about whether Buhari will get any of it implemented given that he only has another four years in office. </p>
<p>I believe that he needs to be a great deal more bold, and to come up with a new set of interventions that truly take Nigeria to the “next level”.</p>
<h2>The next level</h2>
<p>Nigeria urgently needs a massive economic stimulus programme. If he can summon the energy, Buhari should significantly increase spending in sectors, projects and programmes that boost the economy, generate employment and promote inclusive growth. He should prioritise infrastructure, labour-intensive manufacturing such as textiles and footwear, agro-processing, youth entrepreneurship projects, health and education.</p>
<p>Nigeria has a very large stock of human and natural resources that aren’t being used optimally. Meanwhile, there is a huge infrastructural deficit. These range from dilapidated roads, epileptic electricity supply, acute water shortages, crumbling public buildings, grossly underfunded public tertiary institutions and so on. The gap can be closed through public works projects executed with direct labour. </p>
<p>The benefits of this are clear. These projects would provide temporary employment for unskilled workers in government-funded projects, which would enable these workers to gain experience needed for permanent jobs. In addition, the targeted stimulus spending on productive and value-creating projects would spur growth, while also addressing inclusivity. The beneficiaries of economic growth in Nigeria have typically been politicians, workers in the oil and gas sector, high-level public officials, and executives of financial institutions. A vast majority of Nigerians are usually left out.</p>
<p>Some may wonder how the Buhari administration could possibly finance a massive stimulus spending, given <a href="https://allafrica.com/stories/201811280074.html">dwindling oil revenues</a> and a volatile global oil market. </p>
<p>There’s an answer to this conundrum: Nigeria could follow the example of Asian countries that financed their <a href="http://siteresources.worldbank.org/INTSDNETWORK/Resources/3167518-1247856570643/3.7_Infrastructure_and_the_financial_crisis_in_EAP_July2009.pdf">stimulus programmes</a> through domestic borrowing mainly by issuing government bonds. Borrowing money domestically in a <a href="https://blogs.worldbank.org/opendata/are-south-asian-countries-sinking-debt-trap">local currency</a> isn’t nearly as problematic as external borrowing. </p>
<p>Of course, financing stimulus spending via domestic borrowing comes at a price: it may crowd-out domestic private investment by raising interest rates. But this would be a temporary hiccup, as the increase in aggregate demand generated by stimulus spending would subsequently crowd-in investment in the production of goods and services. This ultimately will generate employment opportunities.</p>
<p>One of the usual concerns about stimulus spending is the risk of inflation. But unemployment, economic disempowerment and youth restiveness are bigger threats to the stability of the Nigerian economy in the short to medium term. </p>
<p>A big chunk of Buhari’s stimulus spending should be directed toward manufacturing and agro-processing. The <a href="https://www.researchgate.net/publication/263752096_The_Performance_of_the_Nigerian_Manufacturing_Sector_A_52-Year_Analysis_of_Growth_and_Retrogression_1960-2012">manufacturing sector</a> accounts for only 12% of employment in the country, down from a high of over 30% in the 1980s. During its heydays in the 1970s-1980s, the Nigerian textile industry alone employed almost 1 million workers. Today it employs about <a href="https://opinion.premiumtimesng.com/2017/02/06/nigeria-exports-two-million-jobs-to-china-as-textile-industry-is-dysfunctional-by-paul-alaje/">30,000 workers</a>. </p>
<p>According to the Manufacturers Association of Nigeria, the contribution of manufacturing to the country’s GDP has been flat at 4%. This is well below the 12% targeted by the government. </p>
<h2>Taking charge</h2>
<p>In this first term, Buhari ceded too much economic policymaking responsibility to Vice President Yemi Osinbajo. Though a brilliant lawyer and professor, Osinbajo has no experience in economic management. </p>
<p>To move the economy to the next level, and thus regain the trust of Nigerians who have given him a second chance, the president must surround himself with a more talented team of economists.</p><img src="https://counter.theconversation.com/content/113046/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Onyeiwu does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Nigeria’s high unemployment rate has created a bloated and unproductive informal sector.Stephen Onyeiwu, Professor and Chair of the Economics Department, Allegheny CollegeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/788682017-08-22T15:10:36Z2017-08-22T15:10:36ZWhat sub-Sahara can learn from India’s ‘Green revolution’: the good and the bad<figure><img src="https://images.theconversation.com/files/180692/original/file-20170802-5576-1szwc0x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Sub-Saharan Africa has huge potential to become a global food basket, but it is far from being realised. The region is <a href="http://www.aaainitiative.org/sites/aaainitiative.org/files/AAA_livre%20blanc_ENG.pdf">estimated</a> to have 60% of the globally available and unexploited arable land yet it remains <a href="https://www.pwc.in/assets/pdfs/publications/2016/india-africa-partnership-in-agriculture-current-and-future-prospects.pdf">food deficient</a>. </p>
<p>Even when arable land is cultivated, hurdles such as limited irrigation, small sized farms, lack of fertiliser and modern agro-technology has kept productivity low. Currently, Africa’s shortfall in agricultural output is met by food <a href="https://www.afdb.org/fileadmin/uploads/afdb/Documents/Generic-Documents/Feed_Africa-_Strategy_for_Agricultural_Transformation_in_Africa_2016-2025.pdf">imports</a> that are expected to grow from USD$35 billion in 2015 to approximately USD$110 billion in 2025.</p>
<p>Low productivity and increasing food demand – due to a 3% per year population growth rate – requires that food production be <a href="http://documents.worldbank.org/curated/en/847331472710963734/pdf/108109-REVISED-WP-PUBLIC.pdf">increased</a> by 60% over the next 15 years. </p>
<p>India’s <a href="http://www.twn.my/title2/resurgence/2009/223/cover6.htm">“Green Revolution”</a> could be a useful model if adapted to African conditions. <a href="https://www.diva-portal.org/smash/get/diva2:617151/FULLTEXT01.pdf">Half a century ago</a> the country too had an underdeveloped agriculture sector. In the mid 1960s and early 1970s, the it faced serious food shortages. And then severe famines in 1965-1966 in eastern India compelled the country to look to food aid. </p>
<p>The severity of the crisis gave birth to a new approach to agriculture. Known as the Green Revolution, the policy involved improvements in technology combined with state led initiatives to support farmers. Less than 10 years later India was <a href="https://thewire.in/72400/paul-ehrlich-norman-borlaug-green-revolution/">self-sufficient</a> in cereals.</p>
<p>Though imperfect, the “Green Revolution” model offers important lessons for countries in the sub Saharan region. It underscores the importance of government support for agriculture as well as investment in technology such as irrigation, mechanisation and inputs to improve yields. Sub-Saharan Africa could learn from the Indian experience.</p>
<h2>The Indian ‘Green Revolution’</h2>
<p>India began to increase budget allocation to the agriculture sector when it realised that excessive dependence on food imports wasn’t viable. In 1961, at the outset of the Third Five Year Plan, it set about increasing agricultural productivity with limited land. Interventions focused on <a href="https://www.jstor.org/stable/4363316?seq=1#page_scan_tab_contents">modernising</a> the agricultural sector by:</p>
<ul>
<li><p>introducing high yield varieties of seeds, </p></li>
<li><p>making fertilisers and insecticide more widely available,</p></li>
<li><p>manufacturing farm equipment, </p></li>
<li><p>upgrading irrigation practices, and</p></li>
<li><p>providing <a href="http://www.twn.my/title2/resurgence/2009/223/cover6.htm">institutional support</a> to farmers.</p></li>
</ul>
<p>Institutional support played a critical role. It included government subsidies for inputs, research and development to produce new varieties of seeds and provision of irrigation facilities. Access to credit and markets, extension of minimum support prices and good infrastructure were key to the success of the Green Revolution.</p>
<p>A combination of increased investments and institutional support led to an overall increase in productivity.</p>
<p>Today, India is <a href="http://www1.wfp.org/countries/india">self-reliant</a> in food grains. It has shortfall in a few agro-commodities, mainly oilseeds and pulses, which are imported from various sources, including countries in Africa.</p>
<p>In 2015, India’s prime minister Narendra Modi, called for a <a href="http://www.thehindubusinessline.com/opinion/for-a-second-green-revolution-in-india/article7554316.ece">second Green Revolution</a>. This is set to engage new strategies to revitalise the agricultural sector.</p>
<h2>Weaknesses</h2>
<p>India’s Green Revolution came with its own limitations. Its effects were selective as only a few pockets in the country benefited. Only irrigated areas benefited while water scarce drylands lagged behind. </p>
<p>The states of Punjab and Haryana, which were suitable to wheat cultivation and had access to irrigation, <a href="http://www.global.ucsb.edu/punjab/sites/secure.lsit.ucsb.edu.gisp.d7_sp/files/sitefiles/journals/volume12/no2/12.2_Singh_Kohli.pdf">flourished</a>. The rice producing areas in the south and east of the country, trailed behind. </p>
<p>The Green Revolution also exacerbated the rural divide. Most agriculturists were small holder subsistence farmers who could not afford expensive inputs and capital investments. This segment of farmers couldn’t access credit in the same way as large farmers who are generally landowners from the higher caste. As a result <a href="https://www.jstor.org/stable/4377016?seq=1#page_scan_tab_contents">rich farmers</a> were the main beneficiaries of increased productivity and profits.</p>
<p>Other problems emerged too. The <a href="http://livingheritage.org/green-revolution.htm">capital intensive technology</a> led to soil erosion, reduced genetic diversity and soil fertility, displacement of small farmers, rural impoverishment and increased conflict in rural settings.</p>
<h2>Lessons for Africa</h2>
<p>African countries could benefit from India’s <a href="http://www.gatewayhouse.in/india-africa-project-partnership-creating-possibilities-delivering-values/">“triple A”</a> approach. This denotes “appropriate, adaptable and affordable” technology for equipment and irrigation. With some adaptation to local rural conditions, these “triple A” technologies can benefit large numbers of small holder farmers who depend heavily on income from agriculture. </p>
<p>And countries on the continent can avoid the shortcomings of the Green Revolution by planning ahead and ring-fencing pitfalls from the outset. This would include managing the high costs of inputs and the negative effects of excessive use of chemical fertilisers. It needs to be recognised that the shift today is towards organic farming.</p>
<p>Political will, state and institutional intervention are essential. This is to ensure that farmers with small farms and meagre incomes can also be part of the Green Revolution. </p>
<p>The crucial questions African governments should ask are:</p>
<ul>
<li><p>Should the agriculture sector be viewed solely as a “business sector”?</p></li>
<li><p>What approaches should be adopted for financing small holder agriculture? </p></li>
<li><p>How can small holder farmers with limited collateral (or none), access credit to combine agriculture and entrepreneurship, and also be able to add value to agricultural products? </p></li>
</ul>
<p>One key lesson is that governments need to work with the private sector by providing incentives to invest in agriculture and allied industries. This partnership will ensure that small farmers enjoy access to markets, price stability, minimum post harvest losses and value-addition to their agricultural products.</p>
<p>At the same time the private sector has to be closely regulated to ensure that the social agenda and profit making motives are carefully balanced.</p>
<p>Africa has the benefit of hindsight in learning from India’s Green Revolution- its advantages and shortfalls. Countries can objectively weigh the pros and cons of technological intervention and adapt them to suit the local conditions, to attain food sufficiency and shape the future of food in the local contexts and the world.</p>
<p><em>Rhea D’Silva, an M.Phil. candidate at the Department of Sociology, University of Mumbai, and a research associate at the Centre for African Studies contributed to this article.</em></p><img src="https://counter.theconversation.com/content/78868/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Renu MODI receives funding from:
Indian Council for Social Science Research, ICSSR, New Delhi.
University Grants Commission, New Delhi.</span></em></p>Faced with a massive food production shortfall, Africa can look towards India’s Green Revolution to jump start its agricultural output.Renu Modi, Lecturer in African Studies, University of Mumbai Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/775662017-06-01T14:03:02Z2017-06-01T14:03:02ZWhat Uganda needs to do to manufacture more and crack export markets<figure><img src="https://images.theconversation.com/files/171174/original/file-20170526-6415-v0rn2e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Ugandan worker picking tea as exports in the country grows.</span> <span class="attribution"><span class="source">Reuters/James Akena</span></span></figcaption></figure><p>Four years ago, Uganda adopted a <a href="http://npa.ug/wp-content/themes/npatheme/documents/vision2040.pdf">social and economic development plan</a> aimed at creating jobs and raising incomes. The plan acknowledges that Uganda must boost manufacturing, improve its services sector, and crack export markets to realise stronger growth. To do this, it must raise productivity. </p>
<p>Public sector reforms introduced in the last 20 years have improved government effectiveness in Uganda. But economic growth has <a href="http://www.worldbank.org/en/country/uganda/overview">slowed</a> in recent years in the face of global economic uncertainties, the high cost of credit, and adverse weather that has affected agriculture. Conflict in South Sudan, Uganda’s main export market, has also disrupted trade. </p>
<p>In this context, how could Uganda go about raising its economic growth? New <a href="http://www.theigc.org/wp-content/uploads/2017/01/Sherpherd-et-al-2016-paper.pdf">analysis</a> offers some suggestions on how the country can shift its economy to more productive activities. Key findings noted the importance of lowering trade costs, and increasing foreign investment, domestic value addition, competitiveness of the services sector, and export promotion.</p>
<p>Growing the share of manufacturing in the economy is also necessary. Manufacturing has a unique potential to raise incomes and create many jobs for many relatively unskilled workers. Manufacturing also allows for more cost saving at higher levels of production, as well as opportunities for innovation, technological progress and learning-by-doing.</p>
<h2>Manufacturing has been stagnant</h2>
<p>Uganda’s manufacturing sector has accounted for around <a href="http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators">9%</a> of the country’s GDP for the last decade. This is higher than the East African average of around <a href="http://www.theigc.org/wp-content/uploads/2017/01/Sherpherd-et-al-2016-paper.pdf">7.5%</a>. But it’s still smaller than other countries in other parts of the world that have used manufacturing to drive economic growth, such as Vietnam’s manufacturing contributes <a href="http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators">15%</a> to its GDP.</p>
<p>This shows that Uganda’s progress towards changing the structure of its economy has been relatively muted. This is also seen through export diversification and sophistication metrics. Greater export diversification shows more products have become competitive enough to export, and it makes the economy more resilient by reducing reliance on a few exports. Export sophistication measures how advanced the goods and services being exported are, with the idea that more sophisticated products need improved production processes. </p>
<p>The country has achieved some export diversification (of both products and export destinations). Services exports, such as tourism, transport and construction have increased notably. But Uganda’s level of export sophistication remains <a href="http://www.theigc.org/wp-content/uploads/2017/01/Sherpherd-et-al-2016-paper.pdf">low</a> compared to other East African countries, with most of its merchandise exports requiring relatively little processing, such as tea and coffee.</p>
<p>Size may have something to do with Uganda’s struggle to grow its manufacturing sector. The sector is still very small and is dominated by small and medium enterprises, which make up <a href="http://www.theigc.org/wp-content/uploads/2017/01/Sherpherd-et-al-2016-paper.pdf">93.5%</a> of the sector. The majority of firms are sole proprietorships with annual turnovers of less than <a href="http://www.ubos.org/onlinefiles/uploads/ubos/pdf%20documents/2010%20COBE%20Report.pdf">UGX 5 million</a> (£1,140). These manufacturers are mostly engaged in end-product assembly and processing raw materials. The main activity is <a href="https://www.wider.unu.edu/sites/default/files/wp2014-021.pdf">agro-processing</a>. </p>
<p>Given their small size, firms struggle to achieve production at scale or to sufficiently raise their productivity to absorb the additional costs of <a href="http://www.theigc.org/wp-content/uploads/2017/01/Sherpherd-et-al-2016-paper.pdf">exporting</a>. Other challenges include difficulties sourcing high quality inputs, lack of access to finance at affordable rates, and constrained electricity access. </p>
<p>High cost of credit limits firms’ ability to invest in improved <a href="http://www.theigc.org/wp-content/uploads/2017/01/Sherpherd-et-al-2016-paper.pdf">technologies</a>. In turn, this means they can’t meet the quality and standards required to crack export markets.</p>
<h2>A shifting landscape</h2>
<p>But there have been some changes over the past 10 years. Notably, there has been an increase in the share of merchandise exported. This suggests a <a href="http://www.theigc.org/wp-content/uploads/2017/01/Sherpherd-et-al-2016-paper.pdf">shift in focus</a> from the domestic to export markets in manufacturing.</p>
<p><a href="https://theconversation.com/uganda-needs-a-caffeine-fix-insights-from-vietnams-coffee-market-success-74180">Coffee</a> has been Uganda’s dominant export product for decades. In recent years exports of tea, cocoa, fish and tobacco have <a href="http://www.theigc.org/wp-content/uploads/2017/01/Sherpherd-et-al-2016-paper.pdf">gone up</a>. </p>
<p>Exports of non-food commodities have also been increasing and <a href="http://atlas.cid.harvard.edu/explore/tree_map/export/uga/all/show/2014/">diversifying</a>, especially light manufacturing industries such as cement, wood and leather.</p>
<p><a href="http://www.theigc.org/wp-content/uploads/2017/01/Sherpherd-et-al-2016-paper.pdf">Leather products</a> has been the highest growth product group. This growth has been enabled by upgrading the value chain. Uganda used to export mainly raw hides, but by 2015 this had changed and more domestic value addition was taking place. </p>
<p>There have been similar trends in other export goods too. While more than 90% of merchandise exports were primary products in 1995, this has now almost <a href="http://www.theigc.org/wp-content/uploads/2017/01/Sherpherd-et-al-2016-paper.pdf">halved</a>.</p>
<p>Export destinations have also been diversifying. In the 1990’s around 80% of Ugandan exports went to Europe. Africa is now Uganda’s most important export destination, receiving some <a href="http://www.theigc.org/wp-content/uploads/2017/01/Sherpherd-et-al-2016-paper.pdf">50%</a> of exports.</p>
<p>The diversification of exports as well as the discovery of export destinations indicates some progress in Ugandan firms’ ability to compete internationally. </p>
<h2>More needs to be done</h2>
<p>Ugandan firms need to start carving out niches in globalised production chains, taking advantage of goods or processes that are relatively cheaper in Uganda than elsewhere. For example, more processing of raw materials could be done domestically. This would raise the country’s <a href="http://www.theigc.org/wp-content/uploads/2017/01/Sherpherd-et-al-2016-paper.pdf">participation</a> in global value chains. This, in turn, would increase the transfer of technology and skills.</p>
<p>Experience has shown that participating in light manufacturing global value chains has been an entry point for low income countries to get on the first rung of global trade. </p>
<p>The government has an important role in ensuring policies are conducive for achieving greater growth. Notable initiatives include: </p>
<ul>
<li><p>Reducing transaction <a href="http://www.theigc.org/wp-content/uploads/2017/01/Sherpherd-et-al-2016-paper.pdf">costs</a> and upgrading logistics services. </p></li>
<li><p>Institutional support to link international firms to domestic suppliers, and to assist domestic producers with entering new export markets.</p></li>
<li><p>Promoting trade liberalisation. For example, there’s evidence that <a href="http://www.theigc.org/wp-content/uploads/2017/01/Sherpherd-et-al-2016-paper.pdf">protecting</a> domestic firms from the world market doesn’t lead to better productivity or competitiveness. Incentives may also be necessary to encourage domestic firms to produce for export rather than the domestic market. </p></li>
<li><p>Easing credit constraints to help firms move away from cheap, obsolete technologies. With improved <a href="http://www.theigc.org/wp-content/uploads/2017/01/Sherpherd-et-al-2016-paper.pdf">technologies</a> firms can produce higher quality goods that meet export market standards and quality.</p></li>
<li><p>Developing common standards and mutual recognition agreements within the East African Community.</p></li>
<li><p>Free zones or special economic zones, where improved infrastructure and services could be provided, could achieve success in the short- to medium-term.</p></li>
</ul>
<p>Countries such as China and Vietnam have shown that taking these kinds of measures can transform economies. With a strong manufacturing base, a more competitive services sector, and greater value chain participation, Uganda can begin to realise its ambition of creating an economy that produces more jobs and raises incomes.</p><img src="https://counter.theconversation.com/content/77566/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sarah Logan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Uganda needs to boost manufacturing and exports to realise the ambitions listed in its social and economic development plan.Sarah Logan, Economist, International Growth CentreLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/551142016-03-07T04:30:17Z2016-03-07T04:30:17ZNigeria needs a credible economic plan – not a confab<figure><img src="https://images.theconversation.com/files/113250/original/image-20160229-4105-e27qg5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Wole Soyinka should rather galvanise like-minded Nigerians and demand that Nigeria’s looted treasury be returned.</span> <span class="attribution"><span class="source">Reuters/Akintunde Akinleye</span></span></figcaption></figure><p>Nobel Laureate professor <a href="http://www.biography.com/people/wole-soyinka-9489566">Wole Soyinka</a> recently called for an emergency <a href="http://www.vanguardngr.com/2016/02/the-call-for-economic-confab/">national conference</a> on the Nigerian economy. This suggests that the economy is not only in dire straits, but headed toward a cataclysmic cliff. For an artistic and creative intellectual titan like <a href="http://www.nobelprize.org/nobel_prizes/literature/laureates/1986/soyinka-bio.html">Soyinka</a> to dabble in the <a href="http://www.theatlantic.com/business/archive/2013/12/why-economics-is-really-called-the-dismal-science/282454/">“dismal science”</a> of economics portrays an urgency that can’t easily be ignored.</p>
<p>But how bad, really, is the Nigerian economy? And would a conference help?</p>
<p>On the first question it is worth noting that economic downturns neither surprise nor alarm economists. We believe that every economy that reaches the peak of the business cycle must eventually slow down. Sometimes they reach what is referred to as a “trough”, or the very bottom of the cycle. </p>
<p>Some economies are more resilient than others. They are able to minimise the impact of an inevitable downturn, as well as rebound quickly, mainly through sound economic management. </p>
<p>On the second, I do not recall any country that has solved its economic problems via an emergency national confab. There is nothing wrong with discussing a nation’s economic problems, but seeking solutions through a conference will be at best far-fetched, and at worst illusory. </p>
<h2>How bad is it?</h2>
<p>The Nigerian economy is indeed under severe strain. But not everything is as bad as it seems.</p>
<p>The country’s currency has suffered a <a href="http://www.bloomberg.com/news/articles/2016-02-11/naira-drops-to-record-in-unofficial-trading-on-dollar-scarcity">steep slide</a>, depreciating by over 25% in the past year. But analysts should be circumspect when they generalise about the impact of Naira depreciation.</p>
<p>Subsistence farmers across Nigerian villages who receive <a href="http://www.vanguardngr.com/2015/04/nigerians-living-abroad-remitted-21bn-in-2014-world-bank/">remittances</a> from relatives abroad will find themselves unexpectedly awash with stacks of Naira. </p>
<p>Nor do <a href="http://www.economist.com/news/middle-east-and-africa/21577113-if-only-nigeria-could-revamp-its-farms-feed-yourself">subsistence farmers</a> have to fret about the inflationary implications of a depreciating currency since they produce nearly all of their daily needs. Farmers who sell exported products like cocoa, palm oil, palm kernel, and groundnuts might even see a spike in the demand for their products, following changes in relative prices induced by a depreciating Naira.</p>
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<img alt="" src="https://images.theconversation.com/files/113255/original/image-20160229-4090-13sqpao.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/113255/original/image-20160229-4090-13sqpao.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/113255/original/image-20160229-4090-13sqpao.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/113255/original/image-20160229-4090-13sqpao.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/113255/original/image-20160229-4090-13sqpao.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/113255/original/image-20160229-4090-13sqpao.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/113255/original/image-20160229-4090-13sqpao.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Farmers who sell exported products like cocoa and palm oil might benefit from the depreciation of the naira against the US dollar.</span>
<span class="attribution"><span class="source">Reuters/Joe Penney</span></span>
</figcaption>
</figure>
<p>Ordinary folks don’t shop at mega supermarkets and malls like Shoprite. This means that they don’t need to worry about a spike in the prices of imported goods. This, in turn, will be a boon to local manufacturers who source their production inputs locally. This would be good for jobs and for government revenue. Don’t forget that China boosted its exports of manufactured goods by deliberately undervaluing the Yuan. </p>
<p>I’m also not perturbed by the inexorable decline in Nigeria’s GDP growth rate, from an average of 9% between 2000 and 2010, to the current 4%. Stellar economic growth in Nigeria occurred when a barrel of crude oil sold for more than US$100. Now that a barrel barely sells for $30, the country’s growth rate is expected to shave a percentage point or so from the current level. </p>
<p>The country’s anaemic growth rate isn’t my main concern. A major concern is the fact that Nigeria’s economic growth has never been inclusive and equitable. </p>
<p>When the country’s growth rate peaked in the 2000s, a 2014 <a href="http://www.mckinsey.com/global-themes/middle-east-and-africa/nigerias-renewal-delivering-inclusive-growth">report</a> by the McKinsey Global Institute showed that only one-quarter of Nigerians benefited. The rest wallowed in abject poverty, which now stands at an alarming rate of 70% of the country’s <a href="http://data.un.org/CountryProfile.aspx?crName=NIGERIA">population</a> of almost 200 million.</p>
<p>And what about the country’s rapidly disappearing foreign reserves? Should I worry about that as well? No. Reserves in Nigeria have often been used to supply cheap foreign currencies to the Nigerian elite. They have used these for various unproductive activities and illicit financial transactions.</p>
<p>These include money laundering, medical tourism, acquisition of choice real estate in Dubai and other expensive cities, and lavish vacations. </p>
<p>There may be a silver lining to the depletion of Nigeria’s oil-driven <a href="http://thenewsnigeria.com.ng/2016/02/nigerias-forex-reserves-down-by-1-1bn/">foreign reserves</a> from $54 billion in 2008 to the current level of roughly $28 billion. It has the potential of forcing the country to explore broader sources of foreign exchange, including the neglected agricultural sector, agro-processing and resource-based industrialisation.</p>
<p>Nigerian President Muhammadu Buhari has said he is worried that a depreciating Naira and a rapidly depleting foreign reserves will have a negative impact on unemployment. Economists estimate that joblessness is more than 50% – a more credible figure than the National Bureau of Statistics’ 9.9%. </p>
<p>I believe that many Nigerian youths have in fact given up looking for jobs. They have come to the bitter realisation that looking for a job in Nigeria an exercise in futility. They have become what labour economists refer to as “discouraged workers” – that is, unemployed people who have looked for jobs for years and have given up doing so. </p>
<h2>How sound economic polices are made</h2>
<p>Countries solve their economic problems when citizens willingly elect leaders that credibly promise economic renaissance, and then hold them accountable. When elected leaders fail to deliver they ought to be voted out of power, as the previous administration in Nigeria learnt.</p>
<p>When US President Barack Obama assumed office in 2009 he inherited an economy that was more distressed than Nigeria’s. He was saddled with a whopping $10 trillion in <a href="http://www.cbsnews.com/news/national-debt-hits-record-11-trillion/">debt</a> (or 72% of the GDP), and an unemployment rate of 10%. </p>
<p>But Obama did not call for an emergency national conference. He assembled an economic team and proposed an economic blueprint for extricating the economy from the doldrums. His massive economic stimulus program worked. Four years later he cruised into re-election.</p>
<p>Buhari and his administration have pledged to turn the Nigerian economy around. They have also undertaken to provide economic succour to millions of Nigerians trapped in extreme poverty. </p>
<figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/113251/original/image-20160229-4063-1in2jim.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/113251/original/image-20160229-4063-1in2jim.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=402&fit=crop&dpr=1 600w, https://images.theconversation.com/files/113251/original/image-20160229-4063-1in2jim.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=402&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/113251/original/image-20160229-4063-1in2jim.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=402&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/113251/original/image-20160229-4063-1in2jim.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=506&fit=crop&dpr=1 754w, https://images.theconversation.com/files/113251/original/image-20160229-4063-1in2jim.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=506&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/113251/original/image-20160229-4063-1in2jim.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=506&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Muhammadu Buhari needs time to turn Nigeria’s economy around.</span>
<span class="attribution"><span class="source">Reuters/Vincent Kessler</span></span>
</figcaption>
</figure>
<p>Let us give them a chance to articulate and implement their economic policies. There will be plenty of time and talking heads ready to dissect the administration’s economic performance come 2019.</p>
<p>Rather than call for an emergency conference on the economy, Soyinka should do what he does best: galvanise like-minded Nigerians and demand that all those who looted Nigeria’s treasury (especially the over $2 billion designated for arms purchase to fight Boko Haram) <a href="http://www.vanguardngr.com/2015/11/treasury-looters-now-returning-stolen-funds-buhari-2/">return</a> their ill-gotten wealth. </p>
<p>Getting those stolen funds back and investing them productively in developing the agricultural sector, supporting small businesses, as well as providing microcredit to informal sector workers, would help cushion the effects of the slowdown in the economy, and perhaps lay the foundation for a diversified economy.</p>
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<p><em>Steve Onyeiwu is author of Emerging Issues in Contemporary African Economies (Palgrave/Macmillan, 2015).</em></p><img src="https://counter.theconversation.com/content/55114/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Onyeiwu does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Nigeria’s economy is indeed under severe strain but sub-Saharn Africa’s most populus nation won’t solve its economic problems via an emergency national confab.Stephen Onyeiwu, Professor of Economics, Allegheny CollegeLicensed as Creative Commons – attribution, no derivatives.