Zambia could become a successful investment destination for agribusinesses

As part of my duties at the Agribusiness Chamber (Agbiz), I recently engaged with agribusiness leaders in the agricultural inputs and insurance industries to share my observations regarding crop production trends in Southern Africa in the 2015/16 season.

My analysis of these trends revealed an interesting pattern, where the southern and western parts of Southern Africa were dry and warm, while the northern parts of Zambia and East Africa saw higher rainfall – essential for agricultural production.

This rainfall pattern resonates with maize production estimates from the Bureau for Food and Agricultural Policy (BFAP), which indicate that in 2015/16, Kenya’s maize production could reach 3.8 million tons, up by 6 per cent year-on-year, while Tanzania’s maize production could reach 5.8 million tons, down by just 2 per cent from the previous season. Still in line with the observed regional rainfall trend, maize production in South Africa is estimated at 7.5 million tons, down 24 per cent year-on-year mainly due to drier conditions.

These observations of the vulnerability of agricultural production in certain regions of Southern Africa propelled an ongoing discussion among agribusinesses regarding their desire to expand operations beyond South African borders. When asked which countries were likely to become bread baskets, and in turn safer investment destinations regionally, logic led me to mention Zambia, Tanzania and Kenya. I based this view on a number of factors, the key ones being climatic and infrastructural development relative to other Southern African countries.

The Zambian government has also expressed its appetite for foreign investment. Speaking recently at the Agri All Africa’s Zambian Seminar in Johannesburg, the Zambian Minister of Lusaka Province, Japhen Mwakalombe, enticed South African farmers and agribusinesses to invest in Zambia. He noted that their government is planning to start a number of projects aimed at improving road networks and railway lines, which might enable farmers to connect to regional markets. Mwakalombe’s message is quite encouraging to local agribusinesses that have been looking towards Zambia for investment opportunities.

Regardless of these interesting climatic and infrastructural developments, policy uncertainty in Zambia remains a key concern, particularly around agricultural market regulation. Recently, the Zambian Agricultural Secretary, Julius Shawa, cancelled previously issued maize export permits and further insisted that market participants forget the export market and focus only on meeting domestic demand. This move was in response to concerns that maize exports were driving up domestic staple food prices.

On the one hand, the government’s action to intervene in the maize market shows a concern for the consumers’ wellbeing. On the other hand, farmers and agribusinesses might see this as being negative for business confidence. Such government control could also disincentivise maize production.

Besides climatic endowment, policy certainty is important in agriculture, as it allows businesses to make long-term plans and investments. To successfully attract South African investment, Zambia needs to emulate the South African policy model on free markets in agriculture. Since the deregulation of agricultural markets in 1997/98, South Africa has been thriving on open markets, assisted by a number of regulatory institutions. These include the International Trade Administration Commission as well as a number of directorates within the Department of Agriculture, Forestry and Fisheries.

In the 2016/17 marketing season, South Africa is set to be a net importer of maize due to lower production volumes. However, the country continues to export maize to regional markets, with the Supply and Demand Estimates Committee predicting that exports could reach 930 000 tons. This has led to an increase in domestic maize prices which are currently at levels around US$260 per ton for white maize (up by roughly 13 per cent from the previous year) and yellow maize at levels around US$240 per ton (up by approximately 16 per cent from last year).

These higher prices will incentivise domestic farmers to increase production in the 2016/17 maize production season. In fact, the International Grains Council estimates that South Africa’s 2016/17 maize production could reach 12.9 million tons, which would be a 72 per cent year-on-year rebound.

Policy and infrastructure in South Africa are arguably the most developed in the region. Climate, however, remains a big uncertainty. As agribusinesses continue to look at the continent with an optimistic view to increase safer investments and market participation, the mix of policy, climatic and infrastructural endowment will increasingly influence investment decision-making.

African policy makers must increasingly look at the big picture of global business and trade, and now more than ever, play a part in ensuring policy certainty. In the long run, regional consumers will be the main beneficiaries if agribusiness gets the necessary state support to thrive within Southern Africa.

Wandile Sihlobo (@WandileSihlobo) is Head of Economic and Agribusiness Research at the Agricultural Business Chamber (Agbiz) in South Africa.




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