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L EVERAGING INVESTMENTS IN AGRICULTURE FOR PROSPERITY Moraka N MAKHURA (Land Bank) Land & Agricultural Development Bank of South Africa Presented at the.

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Presentation on theme: "L EVERAGING INVESTMENTS IN AGRICULTURE FOR PROSPERITY Moraka N MAKHURA (Land Bank) Land & Agricultural Development Bank of South Africa Presented at the."— Presentation transcript:

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2 L EVERAGING INVESTMENTS IN AGRICULTURE FOR PROSPERITY Moraka N MAKHURA (Land Bank) Land & Agricultural Development Bank of South Africa Presented at the Botswana Investment & Trade Conference, Botswana Conference & Exhibition Centre; Gaborone, Oct 2013

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8 K EY MESSAGES The Friend (ship) of the Farmer & Agri Activism Botswana, a sparkling spot to be made bright (ie positive macro fundamentals ready 4 sustenance) Low agri-intra regional trade defies logic of agro-ecological diversity (comparative advantage) Agri investments to be guided by phases of agric Sustainable agro investments to respond to basic drivers of production and development Mitigate inherent risk in agriculture 7

9 I NTRODUCTION Agriculture plays a multipurpose role: food, natural resource management, and wealth creation Leveraging investments in agriculture requires broader understanding This presentation covers: macroeconomic position of Botswana in the continent, agriculture, and enabling environment 8

10 B OTSWANA IN MACRO CONTEXT 9

11 Ratings of Long Term Debt Emerging Markets Standard & PoorsMoody'sFitch ChinaAA-Aa3A+ ChileAA-Aa3A+ Czech RepublicAA-A1A+ South KoreaA+Aa3AA- BotswanaA-A2 - MalaysiaA-A3A- PolandA-A2A- TaiwanAA-Aa3A+ ThailandBBB+Baa1BBB+ MexicoBBBBaa1BBB+ South AfricaBBBBaa1BBB RussiaBBBBaa1BBB PeruBBB+Baa2BBB IndiaBBB-Baa3BBB- BrazilBBBBaa2BBB ColombiaBBBBaa3BBB- IndonesiaBB+Baa3BBB- HungaryBBBa1BB+ PhilippinesBBB-Baa3BBB- TurkeyBB+Baa3BBB- VenezuelaBB2B+ EgyptBB2B+ NigeriaBB-Ba3BB- KenyaB+B1B+ GhanaBB1B ArgentinaCCC+B3CC Source: Trading Economics in Econometrix Investment Grade

12 IMF Forecasts for Growth of Sub-Saharan Countries Democratic Republic of the Congo8.1 Mozambique8.0 Côte d'Ivoire7.7 Ethiopia7.2 Rwanda7.1 Tanzania6.9 Nigeria6.8 Uganda6.7 Ghana6.3 Malawi6.2 Kenya6.2 Angola5.8 Zambia5.8 Morocco5.0 Senegal4.7 Lesotho4.7 Mauritius4.3 Namibia4.3 Botswana4.1 Zimbabwe4.1 Algeria3.6 Egypt3.5 South Africa3.1 Swaziland0.3 Source: IMF WEO, Oct13

13 Current account balance (% of GDP) 2012 Angola12.1 Nigeria7.8 Zambia0.0 Egypt, Arab Rep.-2.7 Botswana-5.5 South Africa-6.3 Uganda-11.2 Mauritius-11.2 Rwanda-11.6 Tanzania-12.9 Mozambique-35.4 Source: The World Bank in Econometrix

14 2012 D IRECT I NVESTMENT T RENDS Source: World Bank  Sub-Saharan Africa +5.5%  Other developing countries -6.6%  Share of Sub Saharan Africa in World direct investment: 2007: 3.2% 2012: 5.6%

15 A GRICULTURE IN A FRICA & SADC 14

16 Resources In Africa Key resource% of world reserves Platinum89 Diamond66 Cobalt56 Chromium37 Manganese34 Gold16 Gas8 Crude Oil9 Coal5 Copper5 Agriculture60 Source: Where to Invest in Africa Report, RMB & Econometrix Data as at September 2012

17 SACU TOP 10 T RADED A GRI P RODUCTS Is there any product Botswana can identify with? In food security complex you either produce or consume. ExportImport CitrusWheat MaizeRice WinePalm oil GrapeMeat & offal poultry WoolSoyabean oil cake Apples, pear, quinceSunflower & cotton seed oil JuicesCotton SugarTobacco Reserved fruit & nutPreparation in animal feed Food preparationCoffee 51 ml45 ml 16

18 SACU TOP 10 T RADING P ARTNERS Very few countries in SADC region (even Africa) trade with SACU Where is Botswana in the list? ExportImport UKArgentina NetherlandsBrazil ZimbabweUnited States MozambiqueThailand GermanyUK AngolaChina KoreaMalysia USIndonesia Hong KongIndia ItalyAustralia 17

19 R EGIONAL A GRICULTURAL POLICY (RAP) STRATEGIC OUTCOMES Production, productivity and competitiveness Regional and International Trade of Agricultural products Private and Public Sector Engagement and Investment in the Agricultural Value Chains Reduced Social and Economic Vulnerability VISION: From poverty focused policy to prosperity or wealth creating agriculture? 18

20 S TATE OF AGRICULTURAL DEVELOPMENT AND INVESTMENT APPROACH 19

21 20 AGRO INVESTMENT DEPENDS ON PHASE OF AGRICULTURAL TRANSFORMATION: 5 PHASES through institutional change, technology, incentives and infrastructure (Mosher): Food deficit: Quest for food self sufficiency Invest in technology & institutions linkages with industry, create healthy agric sector, mobilise resources (Johnston-Melor): Realisation of food self-sufficiency Invest in resources to make agric viable responding to macro-economic instruments, efficiency, resources out, rural/urban disparities (Schultz-Ruttan): Vulnerability due to less focus on production Invest in information & insurance small share of agric, unemployment & need for labour in agriculture, income disparities (DG Johnson) Food self reliance Invest in human capacity & WC Getting agriculture moving Making agriculture contribute to the economy Integrating agriculture into the macro- economy Agriculture in industrial economies

22 C ONTRIBUTION OF AGRICULTURE GENERALLY UNDER - ESTIMATED. N EED TO RESTATE Quant (2011)Qual GDP2,4% - 3 % (R140 billion GV) GY (R131bn) & GDP (R63bn) increasing Employment9 % ( w) Primary sector job decline Forward Linkages: Output supply for manufacturing +68%All value is linked forward (R140 bn) Backward Linkages: Agric demand for intm inputs R79 bnFuel, Fert, Feed, material etc. Foreign exchange: Agric trade (x+m) (+R51 – R45)bn Net exporter of food Value of trade R96 bn Food security stateSelf reliance(From income to price insecurity) 21

23 22 Agriculture position in food security driven by mainly the nature of the input and output markets Output market s Input market s  Food production stability and profit era:  Agric output markets value increasing  Use of cheaper and accessible input  Focus on production  Cost price squeeze:  Inputs becoming more expensive than output price  Support & incentives sustained agriculture contribution  Focus on production  Output market deregulation:  Output markets becoming volatile  Output market intelligence guiding decision making  Focus on profit  Agric in market economy  Output /input markets becoming volatile & cyclical  Forward decision making  Vulnerability to food availability due to focus on profit ? Market value /instability  International vs domestic dev  Intensify agri support

24 N ATURE OF INPUT / OUTPUT MARKETS Food Production Stability Cost Price Squeeze Output Market Deregulation Agriculture in market economy Output value increasing Output value decelerating Output market volatile Output / inputs markets volatile Inputs cheaper & accessible Inputs costs accelerating Input cost increase steadily Performance cyclical Invest in Production Invest in subsidyInvest in information Forward decision making 23

25 C REATING R ESPONSIVE INVESTMENT MECHANISMS FR / RA *Intervention/InstrProsperity levelSource of Finance Low-FR:Low-RAZero interest (waver) / grants Poverty alleviation / Subsistence farmers Government / F&F Low-Increasing FA: Low- Declining RA Long/ medium-term finance / Subsidised i Transition / Transforming farmer Development Finance High-Increasing FA: High-Volatile RA Medium /Short term finance /Discounted i Income generation / Commercial Farmer Dev finance / Private finance High-Volatile FA: High-Volatile RA Short-term finance / Investment / Spec Wealth Creation / Agribusinesses / Private finance / Fund managers (training) 24 * FR = Financial Requirements; RA = Repayment Ability

26 M ARKET IMPERATIVES DRIVING A GRICULTURE IN 21 ST C ENTURY From business of farming to business of agriculture (value chain). From single demand & supply to a series of more valuable demands and supplies linked with global markets From cooperatives to corporations ie from services to members to shareholder profit From control boards to futures & food retail industry chains competing fresh produce & depots From producer kingdom to consumer queendom Business focus: Market structure: Service sector: Market system: Driver of demand:

27 26 M ARKET IMPERATIVES DRIVING A GRIBUSINESS From food production to wealth creation From collateral (balance sheet) to value chain (income st) based financing. From creating business (agri entrepreneurs’ interest) to creating investment vehicles (investors’ interest) Purpose of farming: Financing : Approach of participation:

28 L EVERAGING THROUGH FACTORS OF PRODUCTION Land Land investment; Land development; Agri entrepreneurs Capital Financial; institutional; human; Labour Human development; worker to entrepreneur! Management Infrastructure : green technology & water infrastructure 27

29 M ITIGATING R ISK F ACTORS 28 Drought Floods Carbon emission Acid mine drainage Animal diseases and export ban Plant diseases and quality Human factors (crime/ theft) Animal factor (predation)

30 A GRO - INDUSTRY STRATEGIES 29 Continued support for strategic industries (maize, sugar). Consider deficit industries (such as meat, wheat). Counter-cyclica l approach: target industries in distress (currently, sub-tropical fruit, sugar, milk). Excluded/forgotten industries (cotton, sisal?). Continued support for strategic industries (maize, sugar). Consider deficit industries (such as meat, wheat). Counter-cyclica l approach: target industries in distress (currently, sub-tropical fruit, sugar, milk). Excluded/forgotten industries (cotton, sisal?).

31 INVESTMENTS IN AGRI - VALUE CHAIN FINANCE Balance Sheet Cash flow Input Supply Farm Business Agri-business Food Retail Land & Fixed Assets Value Income & Sales potential Knowledge

32 L AND B ANK B USINESS M ODEL 33 Government funding Multilateral funding Government funding Multilateral funding Land Bank Retail Emerging Markets Retail Commercial Banking; Business & Corporate Banking Land Bank Insurance Company % profit for development Launch: Land Bank History Book (23 April 2013)

33 C ONSIDERATIONS Botswana has distinguished itself as a potential investment hub – need to continue a break the barriers of self-limitation to put foothold in agriculture. Identify and communicate agro-ecological zones Agri investments require strategic position and tactical response: identify strategic agro industries and develop agri-entrepreneurs, supporting institutions and water infrastructure. Partnerships : agribusiness networks; agri- entrepreurs pairing; Vertical integration across the chain; Agri-coops for infant agro industries. 32

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36 K GOTSO ! P ULA ! P ULA ! P ULA E NE ! Thank you!

37 Africa: Judicial independence Country Change in rating Botswana Rwandan/a7.0n/a South Africa Mauritius Egypt Malawi Ghanan/a5.1n/a Tunisia Uganda Nigeria Tanzania Morocco Zambia Ethiopia Kenya Cameroon Senegaln/a2.9n/a Mozambique Zimbabwe Algeria Angola Cote d'Ivoiren/a1.3n/a Congo, Dem. R.n/anan/a Source: Economic Freedom of the World:2012 Annual Report

38 Africa: Legal System & Property Rights RankCountry Change in rating 35Botswana Rwanda Tunisia Mauritius Morocco Tanzania South Africa Zambia Ghana Malawi Ethiopia Egypt Uganda Kenya Algeria Senegal Mozambique Cameroon Nigeria Zimbabwe Angola Cote d'Ivoire Congo, Dem. R Source: Economic Freedom of the World:2012 Annual Report

39 Efficacy of corporate boards (corporates governance) 2013/14 RankCountryScore 1South Africa6.0 26Mauritius5.0 40Morocco4.9 39Rwanda4.9 41Zambia4.9 50Botswana4.8 55Cameroon4.8 46Cote d'Ivoire4.8 45Senegal4.8 60Zimbabwe4.7 67Uganda4.6 74Kenya4.5 79Malawi4.5 91Ghana Tanzania Mozambique Nigeria Ethiopia Egypt Algeria3.5 Source: World Competitiveness Report

40 RMB's Ranking of the most attractive countries for investment in Africa( the higher the score, the better) RankCountry 1South Africa 2Egypt 3Nigeria 4Ghana 6Morocco 8Ethiopia 9Kenya 10Tanzania 12Botswana 13Zambia 14Rwanda 15Mauritius 16Uganda 17Angola 18Mozambique 19Cote d'Ivoire 20Namibia 24Madagascar 28Malawi 31DRC 41Zimbabwe 42Lesotho 45Swaziland 47CAR 52Somalia Note: As the score is dependent on the size and the growth rate of the economy, there is no minimum or maximum scoring Source: Where to Invest in Africa Report, RMB Data as at September 2012

41 Top 10 Countries providing a favourable macroeconomic backdrop for consumption growth RankCountry 1Nigeria 2Ethiopia 3DRC 4Kenya 5Tanzania 6Egypt 7Sudan 8Uganda 9Burkina Faso 10Mozambique Source: Where to Invest in Africa Report, RMB

42 Africa: Integrity of the legal system 2010 Tanzania8.3 Morocco8.3 Tunisia8.3 Ethiopia7.5 Zambia6.7 Botswana5.8 Egypt5.8 Uganda5.8 Algeria5.0 Angola5.0 Malawi5.0 Mozambique5.0 Senegal5.0 Zimbabwe5.0 Cote d'Ivoire4.2 Ghana4.2 South Africa4.2 Cameroon3.3 Kenya3.3 Nigeria3.3 Congo, Dem. R.1.7 Mauritiusna Rwandana Source: Economic Freedom of the World:2012 Annual Report

43 Africa: Legal enforcement of contracts 2010 Tanzania6.1 Ghana5.4 Morocco5.1 Nigeria5.1 Ethiopia4.9 Tunisia4.9 Zambia4.6 Mauritius4.5 Algeria4.4 Kenya4.1 Botswana4.0 Uganda4.0 Rwanda3.9 South Africa3.9 Egypt3.4 Senegal3.4 Malawi3.1 Cote d'Ivoire2.5 Zimbabwe2.4 Angola2.3 Cameroon2.2 Congo, Dem. R.0.9 Mozambique0.0 Source: Economic Freedom of the World:2012 Annual Report


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