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Reducing inequality through inclusive agro-allied industrialisation

9th June 2017

     

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By: Moses Obinyeluaku

Much has been said regarding the level of poverty in Africa. But why are we poor? We are poor mainly because of the increasing risk of self- reinforcing poverty conditions in rural economies, which have manifested themselves in the wide gap between the urban and rural economies in African countries. Inequality of opportunity often informs inequality of outcomes.

We are also poor because we have not been able to use what we have in abundance – which others do not have – to strategically and pragmatically position ourselves for what we do not currently produce.

Inequality in Africa is reinforced by the continued dual nature of agriculture on the continent. On the one hand, there are a few large-scale farmers, with most of them farming the largest land areas and using the most technologically advanced production methods (commercial farmers). On the other hand, there are large smallholder farmers located in poverty-stricken areas who lack adequate infrastructure and institutional support, with low income and a poor resource base. Most such farmers are women.

Until the majority of the poor smallholder farmers go beyond subsistence farming to become large commercial farmers, Africa’s economic potential cannot rise to the point where poverty and unemployment will finally be eliminated. But how can this be achieved?

International experience shows that countries that have achieved structural transformation of both agriculture and industry (agro-allied industrialisation) have done so by adopting technology, which leads to increased joint productivity of land, labour and capital (that is, total factor productivity).

Technology change and innovation are inherently part of the structural economic transformation process, which has been slow in Africa. Despite decades of support through different government interventions, smallholder farmers have not gone beyond the level of subsistence farming.

There is a need to form a tripartite platform involving higher learning institutions, government and firms to boost innovations. African countries should consider building an institute to develop skills, amass knowledge and solve problems for a small number of products in which they have a comparative advantage. The institute should partner with private producers, work with them to solve their problems and prepare graduates for careers in the product, either as staff or as entrepreneurs. Chile has done this for fish and fruit, and Finland for forest products.

Further, successful clusters based on ‘multifaceted innovation’ that incorporates improvements in product quality, branding, the use of reliable input suppliers and effective distribution, combined with an appropriate management system, can also promote a dual structural transformation of agriculture and industry.

Foreign direct investment (FDI) flows into manufacturing activities, particularly the agro-based sector, can also boost technological catch-up. However, countries need to avoid offering excessive incentives to foreign investors at the expense of their local firms. Policies should reflect pronounced complementarity between consistently proactive policies to attract FDI and coherent and equally proactive policies in support of the development of the capabilities of local firms.

Amid the foregoing, growth and opportunity in the agriculture sector are constrained by limited access to capital. While public-sector investment in agriculture is important, the private sector ultimately drives activity and growth in agricultural development. Against this background, private-sector-led innovative financing tools have great promise to improve access to capital in Africa’s agriculture by catalysing private investment and addressing market failures or instructional barriers. Innovative financing introduces new approaches or financing products to address established problems, extends proven financing products to new markets or customers and/or includes new types of investors or sources of capital to address development problems.

Regional value chains can create larger markets for domestic agro-based firms and promote inclusive industrialisation as a result of the greater ease through which parts of a product’s manufacturing in one African country may be outsourced and located in various countries within the continent. The more we connect to the world, the better we should be able to connect to one another and create the ‘African factory’.

Moreover, just as national roads and other means of transport are needed to integrate and widen the market within a country, regional roads and other transport systems are also required to widen regional markets. Arrangements enabling countries that have infrastructure (like seaports) to develop them at scale so as to also serve neighbouring countries at lower costs (than those countries could produce for themselves, if at all) could promote faster and inclusive transformation in both countries.

By building innovation capacity and competences, Africa will be able to turn its enormous natural and human resources into wealth. Policy must balance competing domestic social and economic needs, while, at the same time, considering the realities of globalisation.

Africa requires policy certitude and consistency and not only a willingness but also a desire to work with the private sector. It needs policy commitment to continuity of change. Each successive administration has to build on the development successes achieved by predecessor administrations and take stock of ongoing challenges and develop strategic responses to address the limitations to agricultural growth and productivity.

Dr Obinyeluaku is chief economist at the International Trade Administration Commission of South Africa. He writes in his personal capacity.

Edited by Creamer Media Reporter

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