How Africa’s new Free Trade Area will turbocharge the continent’s agriculture industry

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Landry Signé, Senior Fellow, Global Economy and Development Program, Brookings Institution, Chido Munyati, Head of Regional Agenda, Africa, World Economic Forum

• Agriculture makes up 35% of Africa’s GDP and employs about half of its people, but the continent still imports billions of dollars of agri-product every year.
• Under the African Continental Free Trade Area (AfCFTA) agreement, Africa’s need to import so much will be reduced, and domestic processing capacity boosted massively.
• The benefits of the AfCFTA are outlined in a new report by the World Economic Forum: AfCFTA: A New Era for Global Business and Investment in Africa.

Agriculture accounts for roughly one-third of the African continent’s GDP, provides a livelihood for 50% of the population and feeds hundreds of millions of people on the continent and beyond every day.

The key role that agriculture plays in the continent’s economy is only set to grow in strength and size under the African Continental Free Trade Area (AfCFTA) agreement, struck in February 2021 and now in full swing.

A new era for African agriculture

According to the World Economic Forum’s Insight Report on the deal — AfCFTA: A New Era for Global Business and Investment in Africa — the free trade area, one of the world’s largest by number of people and economic size, is projected to host 1.7 billion people and oversee $6.7 trillion in consumer and business spending by 2030.

The deal will be transformative for many of Africa’s industries, but given agriculture’s already central role in the continent’s economy, and its huge potential for growth, agriculture will be a prime beneficiary.

According to the Forum’s report, agriculture has exceptional potential for increasing intra-African trade, meeting local demand, accelerating GDP growth, creating new jobs and improving inclusivity due to upstream and downstream linkages.

It will increase value addition, meet new local demand and bring smallholder farmers — who are responsible for 80% of Africa’s food production — into wider supply chains.

Opportunities abound in the AfCFTA for new investment in agro-processing, in particular.

Agro-processing and Africa’s agricultural ascension

Agro-processing has important implications for African food security, job creation and poverty reduction. Boosting it adds value to an already competitive agriculture sector.

Countries across Africa have already increased their focus on agro-processing in response to the food insecurity and price spikes caused by trade disruptions from global shocks — not least the Russian invasion of Ukraine — and because of the potential to transition economies away from the long-established but suboptimal model of exportation of raw materials.

With improved capacity to process their own agricultural goods — whether that’s grain, fertiliser or anything else — African countries can exploit the huge advantage many of them have in their established and sizeable agricultural sectors to build wealth and create new jobs and opportunities at home.

Scaling agro-processing has positive inclusivity impacts, too. Women make up 70% of employment in the overall agricultural sector and most of the domestic agro-processing workforce is female. A boost to African agriculture is a boost for the continent’s women.

New investment, new opportunities

This growth in agriculture and agro-processing will drive new investment from abroad, from within the continent and outside of it.

The common market introduced under the AfCFTA can leverage regional differences in the strengths and competitiveness of intra-African diversity in their food value chains, specialisations and key outputs.

Increased intra-African trade through the AfCFTA will help reduce dependency on foreign agricultural inputs. Currently, the continent imports about $50 billion worth of agricultural products per year. By 2030, intra-African agricultural trade is projected to increase by 574% if import tariffs are eliminated; a huge victory for a continent historically hobbled by unnecessary reliance on outside economies.

African-owned and run businesses will benefit from this intra-continental trade boost. The fertiliser industry, for example, is expected to boom. New agricultural activity is expected to require an 800% increase in fertiliser application for main nutrients. Irrigation is expected to benefit from $65 million in new investment, while more than $8 billion worth of investment in storage will also be required.

All of this, under the AfCFTA, can be fulfilled tariff-free by African enterprises.

Good for growth

The AfCFTA is paving the way for stronger business partnerships across the continent, with many companies taking up the fresh opportunities. Here are just a few:

OCP: Leveraging local partnerships

OCP is a Moroccan company that has developed into an industry leader in customized fertiliser solutions.

OCP Group has focused on Africa because it recognises the potential of the AfCFTA to bring unifying standards for fertiliser regulation and to increase intra-African trade for agricultural goods and supplies. With offices spanning 12 African countries, OCP represents a successful example of making use of local partnerships on the continent to expand reach and impact.

In three years, OCP established 80 farmer hubs in Nigeria and Côte d’Ivoire, which provide farmers with a range of inputs and agricultural services. The company’s success in reaching farmers locally is due to its strong partnerships with governments, non-profit organizations, research centres and universities across Africa. For example, OCP partners with Mohammed VI Polytechnic University (UM6P) in Marrakesh, which houses 80% of the company’s R&D capacity.

Coca Cola: Leveraging agro-processing and distribution

In the case of agro-processing, The Coca-Cola Company, a long-time partner that employs 50,000 people across Africa, has also found success by working with local suppliers and developing value chains as key components of its strategy on the continent.

Together with bottling partners, Coca-Cola’s Africa footprint is a thriving business, due to Africa’s young population. It is also contributing to wider economic growth through job creation, sustainability and the economic empowerment of women and youth. According to the company, the AfCFTA will help Coca-Cola further develop sourcing and production as well as packaging within African markets, and will drive down costs, giving more countries an equal chance to be suppliers for Coca-Cola.

Yara International: Drawing on close relationships with countries and communities

Yara International ASA is a Norwegian company that provides environmental and industrial solutions for crop nutrition across 12 African countries. Yara has found success in continuing to move parts of its value chain onto the continent, including a blending facility, a chemical enterprise and a sales office — especially as AfCFTA tariff reductions reduce the cost of infrastructure, transport and production.

Yara has cultivated relationships with farming communities through Yara Crop Nutrition Centers. They help the company understand how to best provide specific agronomic advice and methodologies that can improve farmers’ prosperity and make smallholder and commercial farmers more competitive and attractive to financial investors, including through digital farming technologies and online environments.

Yara has embedded a social impact strategy into its business in Africa to address the challenges specific to smallholder farmers within the communities in which they operate. Thus far, it has launched MBA-style leadership academies in Kenya to strengthen the skills of micro, small- and medium-sized entrepreneurs, with plans to expand further in 2023. Central to Yara’s strategy is an “Africa for Africa” focus on building a comprehensive, continental, field-to-fork value chain by continuing to invest in current and aspiring farmers, retailers, distributors, technology developers and agro-entrepreneurs.

Looking to the future

These companies showcase the lucrative, and growing, opportunities that exist within agro-processing and agriculture across the newly connected African continent. Investment will play a critical role in helping to develop and strengthen these value chains for the benefit of global investors and African economies alike. The benefit, ultimately, will be felt by everyday African people.