INTERVIEW | “Why AfCFTA could stabilize food prices, improve food security in Africa” – Babafemi Oyewole

Babafemi Oyewole is CEO of the African Agribusiness Alliance, which seeks to transform Africa’s agricultural value chain into a commercially viable and environmentally sustainable one, for local and international investors

By Adam Alqali

Newspage: The African Continental Free Trade Area (AfCFTA) is said to have the potential to lift millions of African people out of poverty. How crucial is agriculture and agribusiness in the AfCFTA’s implementation?

Oyewole: The development of agriculture and agribusiness is very crucial in the implementation of AfCFTA because both will help Africa address its poverty challenge.  These sectors are currently dominated by smallholder farmers and Small and Medium Enterprises (SMEs); they employ majority of Africa’s population.

When fully implemented, the AfCFTA would boost intra-African trade by over 50% through the development and promotion of regional and continental agriculture and agribusiness value chains. The AfCFTA will expand intra-African trade by breaking down tariffs and non-tariff barriers and enhance mutually advantageous commercial relations through trade liberalization schemes, because trade has made and will continue to make a tremendous contribution to the economies of African countries.

Trade enables countries to specialize and export goods that they can produce cheaply, in exchange for what other countries can provide at a lower cost.  This is what drives economic development. Consequently, if trade is a pathway towards achieving growth and development, then removing the barriers that inhibit trade in agriculture and agribusiness can only help increase their economic impact. Thus, free trade is an important instrument for removing such impediments and promoting greater levels of agric and agribusiness trade among African countries, thereby creating wealth, and reducing poverty.

Newspage: What will you say are the key constraints or rather inhibitors for intra-African agribusiness trade?

Oyewole: The promotion of intra-African trade in agribusiness under the AfCFTA requires huge financial resources to create the facilitating and complementary infrastructure. African countries are in general financially weak and lack the capacity to undertake such investments. They are grappling with infrastructure deficits that are integral to boosting trade and industrialization.

The AfDB estimates that Africa’s infrastructure deficit accounts for between 30% to 60% of productivity losses of firms and between 40% to 80% of this is due to deficits in the energy sector. Access to energy is therefore crucial for reducing the costs of doing business and also for the creation of new jobs in the agriculture and agribusiness sectors. Another challenge is the unfavorable business environment present in a number of African countries.

The World Bank Doing Business 2020 report notes that economies in Sub-Saharan Africa continue to lag in terms of reforms.  Several countries also lack the institutional, human capital and compliance capacity to implement industrialization policies. There is also the direct financial requirement to set up necessary trade-related infrastructure such as roads, water ways, airways,  as well as Information and Communication Technologies (ICTs).

Moreover, African countries need to take expeditious action in diversifying their exports base, because concentration on a few exports, mainly raw materials, and primary commodities, cannot ensure long-term growth. There is also the need to develop mechanisms for standardization of agribusiness products and services to meet international standards which will allow African agribusiness products and services to compete favourably, not only within African markets but also at the global market. Furthermore, the AfCFTA must promote policies that will enhance cross-border trade in agribusiness.

These are the key constraints or inhibitors to  intra-African agribusiness trade in products and services, which must be vigorously addressed by the AfCFTA Secretariat to promote cross-border trade in agribusiness and thereby, encourage the flow of private investment capital into the development of agribusiness value chains.

Newspage: World Bank projections show the value of Africa’s agriculture and agribusiness industry would more than triple to reach USD 1 trillion by 2030. What must the key AfCFTA promoters, namely African Union, Member States, AfCFTA Secretariat, and Economic Commission for Africa, amongst others, do to mainstream marginalized groups such as women, youth, and SMEs in the AfCFTA’s agribusiness agenda?

Oyewole: Agriculture and agribusiness sectors are projected to become a one trillion-dollar industry in sub-Saharan Africa by 2030; Agro-based industries can provide jobs and incomes. There is now a phenomenal growth in global and regional agri-food markets and an unprecedented level of interest in African agribusiness by the private sector which will be enhanced by the AfCFTA.

Therefore, key promoters of AfCFTA will need to enact legislations that will enable goods, capital, and information to flow freely and easily across African borders. Competitive business environments will boost productivity and investment. Increased foreign competition will put pressure on domestic firms to increase productivity or risk losing market share. For most African firms, the best way to raise productivity and increase market share will be to invest in technological capabilities that will enable them to develop domestic and regional value chains while taking advantage of the opportunities offered by global value chains.

In the few sectors where AfCFTA implementation results in job losses, governments will need to be ready to support workers, particularly the marginalized groups, with adequate safety nets and policies to retrain them. Additionally, policymakers will have to prepare for AfCFTA’s distributional impacts—across sectors and countries, on skilled and unskilled workers, and on female and male workers. Doing so will enable them design policies that will help boost the readiness of their workforce to take advantage of new opportunities.

Freer intra-African trade would help women by lowering the gender wage gap, and it would help youths and SMEs by increasing decent employment opportunities. A growing manufacturing sector would provide new job opportunities, especially for women and the youths. The implementation of AfCFTA will lead to an almost 10 percent increase in wages, with larger gains for unskilled workers and women.

Newspage: One of Africa’s greatest ironies is the continent’s huge export of agricultural raw materials only to import processed food products. Do you think if adequate investment is made in the continent’s agribusiness sector, it has the capacity to end Africa’s food importation and make the continent food secure?

Oyewole: Africa imports about 85% of its food leading to an annual food import bill of $35 billion, which is forecast to reach $110 billion by 2025. This heavy reliance on world markets is detrimental to food security, especially at a time of acute crisis. A situation exacerbated by the current COVID-19 crisis through its direct impacts on trade, logistics, production and value chains.

The continued export of primary commodities and raw materials to external markets translates into export of jobs, by-products and potential for industrial development or the development of allied industries.  There is need for intensive investment in manufacturing and processing industries that add value to Africa’s agricultural products and raw materials.

Skills development and productivity enhancement support programmes will reduce the costs of adjustment (contraction of import-substitution activities and expansion of export sectors) and increase the scope for dynamic benefits from export development. Furthermore, increasing competitiveness and productivity levels requires the enhancement of workers’ skills, the improvement of firms’ organizational and management structures and the development of supportive economic policies and infrastructure.

Newspage: Despite its potential competitive advantage in the agric and agribusiness sectors, Africa remains a net importer of basic food products, which had worsened under the Covid-19 crisis.  How big is the potential of agribusiness in terms of helping Africa recover from Covid-19 and build back better after the pandemic?

Oyewole: The COVID-19 crisis is also contributing to increased food insecurity as currencies are weakening and prices of staple foods are rising in many parts of the region. Policy responses that result in subregional trade blockages will increase transaction costs and lead to even larger welfare losses. In Sub-Saharan Africa, border closings have disproportionally affected the poor, particularly small-scale cross border traders, agricultural workers, and unskilled workers in the informal sector.

The COVID-19 pandemic has laid bare the deficiencies in trade facilitation and border management procedures, as many of these countries struggle to keep trade moving while increasing imports of essential supplies and mitigating the spread of the disease. In this context, a successful implementation of AfCFTA would be crucial. In the short term, the agreement would help cushion the negative effects of COVID-19 on economic growth by supporting regional trade and value chains through the reduction of trade costs.

In the long term, AfCFTA would allow countries to anchor expectations by providing a path for integration and growth-enhancing reforms. Agriculture is the largest employer of labour in Africa by sector, accounting for 38.5% of total employment and 17.23% of continental GDP, according to World Bank, making it an important sector in most countries. Many African countries depend on imports from outside the continent for their food security. This fact makes African economies vulnerable to both demand and supply-side shocks, a vulnerability exacerbated by the COVID-19 pandemic.

Continentally, while intra-regional trade has grown over the last decade, it only makes up 27% of total agri-food exports and 17% of total agri-food imports. These figures, however, do not capture informal unrecorded trade between neighbouring countries, much of which involves agri-food products. The manufacturing sector accounts for 12.6% of employment at the continental level, of which 42% is in food processing. With the implementation of the AfCFTA, pathways to transformation in agro-processing can be achieved by moving up the value chain and adding value to the process of traditional exports. Opportunities also abound in non-traditional agricultural exports such as horticulture products.

Certainly, the AfCFTA could play an important role in facilitating intra-regional trade in agri-food products, including from surplus to deficit areas, thereby stabilizing food prices and improving food security in Africa. The AfCFTA also offers an opportunity to promote agricultural transformation and improve competitiveness through regional agricultural value chain development. For this to happen, many countries will require accompanying policies to improve productive capacities and promote investment for value addition in their countries.