Africa's Most Under-Utilised Investment Resource
The world is currently in the grip of Soccer World Cup 2010 fever. As the first African country to host the event, with an expected following in excess of a billion people; South Africa has been thrust firmly into the global spotlight. In addition to vuvuzelas and good fun, this is also a golden opportunity to showcase the investment opportunities available in our country.
In addition to the obvious world cup associated investment avenues like tourism, the global financial crisis has prompted many countries to look for foreign direct investment in order to revamp their flagging economies. With an estimated population of 257million generating a GDP of (US) $471 billion, the Southern African Development Community (SADC) presents potential backers with an attractive investment partner.
As a traditional cornerstone of many developing country economies, agriculture plays a crucial role in contribution to GDP, employment and income levels. However, agriculture alone is struggling under the burden of African socio-economic development. There is growing consensus that the Agroprocessing sub - sectors, in particular cereal milling, are the new engines of development set to nudge Africa further down the development path.
Traditionally Agriculture was presumed a hallmark of the first stage of development in a country. This was followed by industrialisation levels as indicators of general development. It was assumed that successful agricultural activities such as maize farming would naturally generate mechanisation and value-adding activities such as maize milling. Or, within the baking industries that the presence of wheat milling operations would naturally encourage primary baking enterprises such as bread which would graduate into specialised niche market baking facilities. Traditionally cereal milling was thus restricted to a highly regulated and centralised environment in which large scale milling operations were favoured over smaller, localised operations. This view however, no longer holds water.
The establishment of localised agroprocessing facilities provides a stimulus for agricultural production through its necessitation of market expansion. In fact, the placement of localised agroprocessing operations encourages consumer demand for finished products such as super maize meal by lowering prices. Similarly, the demand within a community for freshly baked goods can only be nurtured through placement of a local bakery. It is thus natural to assume that the original demand for basic baked goods would expand to include more sophisticated baked product varieties. This simultaneously provides a medium to long-term route-to-market for locally produced community grains. Another supplementary market that may be encouraged within local communities is animal farming. The waste product of maize and wheat milling (known as offal) is the primary component of animal feed.
The provision of electricity and other basic infrastructure required for localised agroprocessing can also assist in accelerating the technological advances used within the supporting farming sectors. Development of the agroprocessing industry assists in the processes of food nutrition and fortification by making food safe to eat and increasing the food security of over half the population who survive on less than $1 per day.
Agroprocessing can act as a catalyst in the growth of related sub-sectors such as raw materials, access to market, knowledge/skills transfer as well as other secondary production areas such as baking or tertiary processing.
Abundant Resources
Since the mid-nineties, the food industries of Southern Africa have enjoyed a deregulated and free environment. Changes achieved through the pursuit of a genuinely competitive market place have begun to open the gateways for new entrepreneurial players within the agricultural production environments. Africa has an extensive labour pool and its geographical ability to connect with major markets provides substantial international trade prospects. A current local example is the gap that presently exists in the market for processed organic wheat products for export to Europe.
Contrary to the impression that the extensive coverage of a global food crisis may have created; the Southern African Development Communities (SADC) experienced a cereal surplus of 476 000 tonnes for the 2009/10 marketing year - 6% higher than the previous year. According to the September 2009 SADC Food Security Update, 11 of the 15 member states indicated an increase in cereal production, experiencing a 40% 5 year average growth percentage. Maize surpluses of 4.37 million tonnes were assessed for the SADC region.
In order to capitalise on the window of opportunity that Southern Africa currently presents, the normally gated access to the appropriate machinery, markets and technology needs to be unlocked. The new-found access needs to be vigilantly developed and upheld to ensure that existing players have continued participation and expansion opportunities and those new entrants succeed.
What has blocked investors in the past?
Perceptions of high start-up costs, high-volume low-margin manufacturing, lack of skills and competition from well-established companies have prevented new entrants from succeeding in this double digit growth industry. However, the support and knowledge crucial to market entry and continued success in the milling and related food industries is now accessible through companies such as African Micro Mills and African Mill Mentors.
Contributing environmental factors such as exorbitant transport costs, burgeoning population growth, the urgency for rural development and increased market demand for basic foods across Southern Africa attaches further credence to the readiness of the milling industry for entry and development.
The Solution
Using global technology, superior design milling plants is actually more cost effective and easily managed on remote sites than cheaper plant and equipment in terms of operational efficiency, extraction rates and finished product quality. It also assists in working with the predominantly low skills levels of the labour pool. Locally situated small-medium scale milling operations simultaneously provide solutions to rural food cost imbalances and rising logistics costs. High returns are ensured through dealing with companies who are experienced with operating and setting up new projects within the sector.
A wide range of localised milling solutions, ongoing support, HR solutions, mentorship programmes, feasibility studies and other advice will help you capitalize on cereal milling investments and related basic food industries in Southern Africa.
As always, we look forward to hearing from you. If you have any comments or queries then please do get in touch with us.
