Saturday, 15 November 2014

The "Open" Secret of African Agricultural Transformation

Over the past three months, I have been in my first semester of Masters training in agricultural and applied economics, and I am yet to optimize the functions of maximizing my blogging passion and maximizing my grades all subject to a time constraint. 

After reading the transcript of a classic interview between the McKinsey Quarterly and Nobel Prize winning economist Robert Solow I thought I should come back to the blogging after a long period of silence and share what I dubbed the "open secret" of African agricultural transformation. You will realize by the end of this blog why I have called it an open secret. But first, let us start with a question:  
What really determines the differences in productivity between nations, sectors and firms?
Just as background information, Prof Robert Solow is internationally recognized for his contributions to the theory of economic growth and development. In the 1990s he worked with the McKinsey Global Institute  in some sector level studies across the globe. From the interview transcript, his view in response to the question I have just paraphrased above was that, the difference in productivity (across countries, sectors and consequentially firms) is not technology, and neither is it capital accumulation; rather, it is management, organizational behavior, how decisions are made, how tasks are allocated and I would add, how risk is managed.
 
Prof Robert Solow remarks in the interview:
"...the idea that everybody is everywhere and always maximizing profits (turns out) to be not quite right..." (emphasis mine)
Part 1 of the "open" secret: "To assume that all economic agents are naturally maximizing profit, or acting rationally is incorrect... the open secret is that 'competition' is actually the factor that spurs economic agents to do more... we have to acknowledge that competition is healthy if we wish to transform African agriculture." 

While this sounds a little like going hard on our so-called "poor" farmers and entrepreneurs whom we at times view a little too much as victims, it could be part of the secret behind a brighter, robust and sustainable growth path for our beautiful continent. But perhaps, the question in context could be, just how does competition result in transformation?  Prof Robert Solow also explains in the interview how "trailers" in an industry, nation or region actually move up to realize that inert potential and become trendsetters:
 
Part 2 of the "open" secret: The exposure to the competition of other players who are applying right practices (i.e. using the right tactics in the game), spurs "trailers" to do more and thus into higher levels of productivity.
 
Prof Robert Solow remarks again in the interview: 
"...international trade serves a purpose beyond exploiting comparative advantage. It exposes high-level managers in various countries to a little fright. And fright turns out to be an important motivation..."
Some might wonder, can African farmers stand global competition? Well, yes, African farmers can be very competitive. I have shared a few insights in this post that might be of interest in this subject. You can also learn a lot from this report. African  small farms have the potential to offer great value, for instance in supplying niche markets for healthy and more nutritious foods produced under intensive small scale management. Local agribusiness firms such fertilizer and input suppliers also benefit from healthy competition among themselves. Exposure to the practices of other firms within and beyond the country or region will spur local firms to be more efficient and produce better quality products and services.
 
Part 3 of the "open" secret: The primacy of the agriculture sector; a "productivity tipping point" 

On this point, I believe there is a lot we can learn from Jeff Bezos, the founder and CEO of Amazon one of the world's largest e-commerce companies. But before we get into the details, let me explain the last nugget from the classical interview between McKinsey Quarterly with Robert Solow in relation to our discussion. The McKinsey Global Institute studies in which Prof Solow was academic adviser, also found that wholesaling and retailing were the strongest accelerators or decelerators of productivity growth between nations and were at the time of the studies, low productivity growth sectors. However, entrepreneurs like Jeff Bezos managed to see the opportunity in these low productivity sectors and struck gold; not only for themselves but for the American nation and the world at large today. Wholesaling and retailing could have been "slow"sectors in most developed countries but also these sectors employed large proportions of the population, and this was the growth dividend, summed up by Prof Robert Solow in this way: 
"...a little improvement in the productivity of these sectors would make a large contribution to national productivity..."
Conclusion: Enhancing agricultural productivity; taking Africa beyond the tipping point

It is no longer a "hidden" secret today that the agriculture sector in Africa faces the challenge of low productivity, but in principle still employs the majority of people. When most people hear the word agriculture today, they think of either the few large scale commercial farms and estates. These have great potential as well but that is not where all the money is! Agriculture employs 65% of Africa's labor force, and where is that mostly? In small and medium scale farms whether in the rural areas or around growing rural towns and bigger cities. I would like to rephrase Prof Robert Solow's statement and say: a little improvement in the productivity of African smallholder farmers would make a large contribution to national and continental productivity, and by the way, you could make millions like Jeff Bezos did in transforming retailing in America and now in the world. Have you ever wondered what Africa's richest man is doing? Among three things, he derives his wealth from sugar and flour business, the third is cement.

Now is the time for Africa to go beyond the tipping point. Development and transformation is about growth in total factor productivity and the driver of total factor productivity is not capital accumulation, labor or natural resources. The distinction in total factor productivity between countries or firms is the spur to do more; the motivation to put the best tactics to use, i.e. leadership, management, organization, managing talent, managing risks. And the spur to do more comes from exposure to competition.

Now is the time for Africa to be bold enough to foster healthy competition, locally and externally, it is an "open" secret. It is time for African entrepreneurs and governments to see how agriculture will catapult the continent's economy from dormant potential beyond the tipping point. There is opportunity for nations and entrepreneurs in transforming African agriculture. Committing to the CAADP and creating conducive environments for competitive agribusiness to grow is key.