Tuesday, 22 September 2015

The Africa I dream of everyday

Photo Credit: ILRI/Stevie Mann

I have just been thinking about Africa lately. Our continent is currently at a crossroads, we can either make it or break it. It is becoming apparent to the world that the future of food production and agribusiness is strongly linked to Africa. The continent still has potential to expand area under production and to intensify production through new technologies. The developed countries are well aware of this and seem to be ready to do business with Africa. But where is the deadlock? Why is the puzzle not fitting together?

In addition to the resources advantages of good land, climate and minerals, Africa has another advantage - a burgeoning and most youthful population. While the developed world has to deal with an ageing population, Africa is carrying a 'ticking time bomb' or a demographic dividend for the continent - the youth. If these young men and women do not get jobs or fail to become true value-creating entrepreneurs, the whole continent could just explode! But if they do get the right skills to stand on the global stage, negotiate mutually beneficial world class business deals the continent could also explode, but this time in a more positive way :-). When Africa's youth get it wired in their heads that 'yes, we can build Africa' - the African continent would explode and the next century could be the continent's golden century.

The 'Africa I dream of' is one idea I am not afraid to share. Keeping it to myself will not help me or anyone else, but if anyone would jump onto it, I am guaranteed that the returns will be positive. Here we go... 'What does Africa need the most?'... money, food?... Well yes, all of that is important to help people to respond to negative shocks in the short to medium term. But I believe what Africa needs the most is 'human capital development.' Yes; you heard me right, 'human capital development.' Let's just call it HCD for simplicity.

In my perspective, HCD is NOT synonymous with education, though education is an essential element of HCD. HCD goes beyond the desk, or college graduation. HCD 'goes beyond the desk, or college graduation'? What does that mean? It means HCD includes a change in mindset and belief system. We might... but we don't always get this kind of support in the classroom or the college halls, (well I speak as far as Africa is concerned). HCD is something that should start and continues in the home and the community in which the school or college is just one part (though a very essential one). HCD is also a cultural issue, it is a continuous, multi-faceted yet targeted process of building the required skill set and belief system into the African child and equipping him and her for the global opportunity. It is the gradual development of the freedom to make informed and strategic decisions whose impacts go beyond oneself and one's immediate surrounding. HCD is about taking the African child and broadening their vision beyond the savanna, and giving them a world perspective. One of my early career mentors, Prof Rukuni, used to say, 'development is about people, helping people help themselves.' A truthful statement I have never forgotten, it actually feels so real whenever I say it or write it.

My dream for Africa in the context of a rapidly urbanizing world, is to see some young men and women decide to stay in the farming community because they 'want to' spend their lives producing quality food for the world's cities. My hope is that this nightmare will end, where the majority of African youths are in farming not by choice but by default - a fate of circumstances largely caused by an HCD gap. My dream is of young Africans who choose to take to the metropolis and build or help build technologies that solve human challenges such as poor access to health services. I dream of young men and women who will choose to code until until they make doing business easier for their fellow farmers through building systems that reduce supply chain inefficiency in Africa.

HCD will empower young Africans to choose to make Africa a better place, in ways that are unique to all of them. HCD will help us find our place. If you ever get the chance to educate an African child or youth, please do it with all your heart, you could be making the first step to taking Africa to the 'next level.' 

On the belief system as part of HCD, the African society has a huge role to play. Noone can do this for us, we have to do this for ourselves. I dream of the young African professional who chooses to say NO to corruption and chooses to put 'delivering value first, before the money.' This is the basic ethic of business... we cannot thrive sustainably without it, for 'one should not expect earn what he has not created value to exchange the money for.' Money will always follow value. I dream of the African youth who will choose hospitality before pride and make Africa the warmest and safest place to be.

Though, all these be dreams for now, I know all this is possible. It is possible when I wake up to do it and inspire you to do it. And when you do it and inspire one more; everyday we will inspire more young men and women to build this 'Africa I dream of everyday.'

Thursday, 9 April 2015

Zimbabwe’s limited fiscal space is constraining agricultural growth and development

Photo Credit: M. Granados - CIMMYT

Defining fiscal space

Fiscal space is defined by the balance between government revenue (i.e. tax), denoted by T and government expenditure, denoted by G, through time. For instance, if G < T, then there is a fiscal surplus, but if G > T, then there is a fiscal deficit. A sustained or perpetual deficit through time results in build-up of annual deficits, leading to an unsustainable high debt. With a high level of debt, the government cannot borrow on the international market, and its ability to finance future deficits, i.e. the fiscal space is limited. 

Zimbabwe currently endures very limited fiscal space since debt distress is undermining the capacity of the country to service its debt obligations. Accumulation of external payment arrears since 2000 (including interest charges) has resulted in public and publicly guaranteed debt reaching 51% of GDP and was projected to reach US$7.2 billion by December 2014 (Chinamasa, 2014).

Fiscal space is constraining agricultural growth

The country’s credit worthiness in the international community has been eroded and efforts are currently being made to reengage with the international community. While there may seem to be sufficient ground to argue that limited fiscal space has constrained agricultural growth; constraints to agriculture sector growth may emanate from a variety of angles.

However, it is to a large extent, that Zimbabwe’s limited fiscal space has affected agricultural growth and rural development. Zimbabwe has not been able to access patient capital from international financial institutions (IFIs) as well as global agricultural investment funds.

International and regional lines of credit in Zimbabwe are few and are subject to a high risk premium, reflecting the perception of Zimbabwe as high risk due to the existing external debt payment arrears and debt overhang, said Agribank Chief Executive Officer Mr S. Malaba at an Agribusiness Conference late last year.

Failure to unlock patient money

With limited fiscal space reflected by an unfavorable credit worthiness, Zimbabwe has limited opportunities to unlock “patient” capital from IFIs. The IMF had closed its Zimbabwe office for over a decade. However, possibly in response to ongoing efforts to reengage with the international community, the IMF office in Zimbabwe has since been re-opened. 

IFIs are a source of patient money which is critical for agricultural growth and rural development given the capital intensive nature of agriculture as a business, and the high risk of smallholder agriculture.

Failure to unlock innovative agriculture investment

In the recent past, agriculture investment funds have grown in Africa as a region. In 2010, 31 agribusiness investment funds were targeted at Africa, with capitalization ranging from $8 million to $2.7 billion (Miller, et al., 2010). These have different asset classes (such as commodities) and financial instruments (for example bonds, listed securities and derivatives). These include both public/donor (with philanthropic objectives) funds as well as private investment funds. 

Due to the risk associated with Zimbabwe’s limited fiscal space, private investor funds, for instance debt funds, which are the type of funds that may provide loan capital directly to agriculture may shy away from Zimbabwe. 

Credit guarantee schemes are innovative tools that are being utilized to unlock financing of agriculture especially through value chain approaches. Some credit guarantee schemes may involve financiers who will require the government to be guarantor for external agricultural financing. Limited fiscal space compromises government’s ability to guarantee credit e.g. for financing smallholder agriculture.

Debt instruments such as treasury bonds are another form of instruments that the government can use to finance agro-industry and agricultural value chains. In 2014, treasury bonds were issued by the government to input suppliers for the debt owed for inputs supplied through the RBZ quasi-fiscal activities. Limited fiscal space may compromise the government’s ability to meet the commitments to the bonds. This constraints agricultural growth. 

In countries such as Nigeria and some Asian and Latin America countries that have benefitted from developed countries’ debt relief, FDI in agriculture/agribusiness is reasonably high. In Latin America and Asia, it is as high as 78% of FDI. Though in Nigeria, the value of agriculture related FDI is proportionately low compared to total FDI, falling within single digit percentages, the country’s agricultural sector benefits from investment funds such as Fund for Agricultural Finance in Nigeria, FAFIN (Ogwumike, 2013; Nigeria Sovereign Investment Authority, 2014). 

Agricultural investment funds and other innovative financing instruments can play a critical role in agricultural growth and rural development in Zimbabwe, but their success requires “space” for both social and market lending facilities.

Failure to absorb external hazards or shocks 

Most rural farmers in Zimbabwe still depend on rain-fed agriculture. However, rainfall patterns are increasingly becoming erratic and less predictable. This makes smallholder agriculture extremely risky and in need of the absorptive capacity of government to ensure resilience in the event of external hazards. The majority of livelihoods depend on agriculture and the growth of the smallholder agriculture and rural livelihoods improvements can be considered key in achieving economic growth and development. Limited fiscal space however limits ability of the government to absorb the effects of shock and in turn propel agricultural growth and rural development.

Limited investments in key drivers of agricultural growth such as research and development

Research and Development (R&D) can be considered one of the key drivers of agricultural growth and rural development. The United Nations recommended a minimum threshold of spending 1% of GDP on R&D. Given a scenario of limited fiscal space government has to negotiate this with other investment priorities. In the case of some “inescapable” budget requirements which have immediate/short term implications, resources are often channeled to other priorities e.g. the “next season’s” input support programme. Lower fiscal space and sustained budget deficits may result in starving of strategic investment areas such as R&D and extension.

Other factors constraining agricultural growth and development in Zimbabwe

While there may seem to be sufficient reason to argue that limited fiscal space constrains agricultural growth and rural development, it may seem also important to consider some of the forces that may be independent of limited fiscal space but also constrain agricultural growth and rural development. 

General macroeconomic policy gaps, for instance the lack of clarity on the indigenization policy and lack of resolution on land tenure instruments such as the 99 year lease also constrain agricultural growth. For instance, there is still debate whether ownership structures are the only means of complying with indigenization regulations. This form of uncertainty shies away even domestic investment which may then find better havens elsewhere. 

Additionally the lack of resolution on the bankability and transferability of the 99 Year Leases renders complications to the functioning of domestic land markets, suffocating domestic investment and hampering productivity. Surges in the local costs (financial and time-related costs) of doing business through high transaction costs hinder growth of agricultural businesses. For instance cumbersome processes related with acquisition of licenses and registration by traders also stifles local agribusiness.