By Simon Buchler, Senior Associate, Bryan Cave Leighton Paisner LLP London office
COVID-19 has impacted nations all across the globe, but it is across Africa where experts believe the effects may be felt the hardest. Labour shortages and price fluctuations, combined with stringent government measures restricting movement and trade, are likely to have significant impacts on food security across the continent.
According to the World Bank, the COVID-19 pandemic is likely to cause:
→ The first recession for sub-Saharan Africa in 25 years → 7% decline in agricultural production → 25% decline in food imports
Many African governments may struggle to implement the financial interventions and benefit packages introduced by more developed economies. However, solutions such as opening up borders to trade of key food products, encouraging DFI support and stimulating the development of, and investment in, new Agritech businesses may help countries alleviate food shortages.
It is hopeful that these interventions will not just tackle the negative effects of COVID-19 but also help to drive sustainable development in Africa. The strategic partnerships that can be created between investors and local stakeholders will hopefully provide a solid foundation to promote Africa’s role in the global supply chain, creating food security for all.
WHAT IMPACT WILL COVID-19 HAVE ON FOOD SECURITY IN AFRICA?
As of 14 April, over 15,000 cases of COVID-19 have been confirmed in 52 of the 54 countries in Africa. However, the actual figure is potentially much greater as many infections go undetected and untested.
Due to the fragile health systems of many African countries, a pandemic could have a disproportionately worse outcome. As a result, a number of African governments have effectively shut down large portions of their economies and closed borders to travel and trade.
According to The World Bank’s recent report on the impact of COVID-19 in Sub-Saharan Africa (April 2020) (the “World Bank Report”), it is projected that economic growth in Sub-Saharan Africa will decline between -2.1% to -5.1% in 2020, in part due to a sharp decline in trade with China and Europe; the first recession in the region in 25 years.
One sector that will may suffer the most from this reduction in trade is agriculture. According to the World Food Programme, one of the biggest impacts will be on food security, seen through limited access to food, restrictions on labour and imports and price fluctuations.
Africa contains 25% of the global landscape suitable for crop cultivation which is more than sufficient to drive the continent’s economic development and adequately feed its own population. Yet since the 1980s, Africa has been a net importer of agricultural goods. Last year, according to the African Development Bank, approximately $35 billion worth of agricultural products were imported into Africa. This over-reliance on imports is driven by increasing urban demand and compounded by weak infrastructure and inefficient farming methods. Critically, it places much of Africa at significant risk of exposure to global economic shocks such as COVID-19.
Climate change has also threatened Africa’s crop yields. In Southern Africa recent droughts have caused crop yields to fail and an estimated 2.3 million people face severe acute food insecurity in Zambia alone. Across East Africa an infestation of desert locusts has fed on hundreds of thousands of hectares of crops and pastureland, consuming the same amount of food in one day as approximately 35,000 people.
Effects of COVID-19
Fears about the impact on food security in Africa are growing. According to the World Bank Report, agricultural production is likely to contract between 2.6% – 7% with food imports declining substantially by up to 25%. We have highlighted four key effects of this pandemic on Africa’s agricultural industry and how this will likely impact food security:
1. Labour and supply shortages. The majority of Sub Saharan Africa’s food production and processing is labour intensive with informal and smallholder farmers making up more than 60% of the population. Therefore, government restrictions on travel and movement, as well as the health impacts of the virus, will likely lead to a shortage of labour, raw materials and infrastructure. This, in turn, may significantly disrupt the harvesting and processing of raw food, impacting the supply chain across Africa.
The World Food Programme argues that:
restrictions on internal and cross borders movement limit markets access…If the above-mentioned restrictions continue, farmers won’t have access to market to buy good quality seeds and fertilizers.
This disruption may also be exacerbated as women are often the primary crop producers, but are also more likely to shoulder the burden of looking after the elderly and sick and caring for children not able to go to school.
2. Restrictions on imports and exports. With local food supply chains disrupted, many would naturally rely on imports but many governments around the world have closed their borders to trade and travel. This has prevented farmers from being able to distribute their raw or processed foods both nationally and internationally, making it harder for farmers to be able to support their operations.
3. Last mile disruptions. Local food markets are the backbone of the informal economy of many African countries; supplying the majority of food to Africans. For instance, it has been reported than in Nigeria, 95% of the population buys food in these informal markets. City and nationwide lockdowns, and government policies closing markets and restricting public gatherings, could prove disastrous not just for the traders but for the public who will likely struggle to buy food for their families.
4. Price fluctuations. Prices of food (especially staples such as wheat and rice) are likely to rise due to disruptions to the agriculture supply chain, reduced imports and closures of many informal markets. Ghana has already seen a 7.9% increase on the average cost of food. On the other end of the spectrum, the cashew nut, a major export crop for countries such as Ghana, has dropped in price by 63% between January and March this year as China and India have slashed imports. This has severely reduced the income of farmers and their ability to feed their families, which in turn increases the risk of many farms going out of business.
Although Africa has a relatively young workforce compared to other continents, which may hold some advantages when it comes to countering the effects of COVID-19, it undoubtedly faces many challenges that require significant action from multiple stakeholders if the risk of food shortages is to be mitigated.
In the absence of substantial state-backed financial interventions and economic packages akin to some European countries, some important measures can be taken. Although each country has differing infrastructure, government policies and trade links, we are focusing on three general possible solutions:
1. Legal and Political Frameworks
According to the World Bank Report, it is critical that governments across Sub-Saharan Africa take action to minimise disruptions in food supply chains, keep logistics open and reduce trade barriers.
Rather than closing all food markets, governments may consider:
→ allowing them to operate but with reduced capacities;
→ staggered entries; and
→ better hygiene practices (such as clean water supplies and hand-sanitising facilities).
Not only would this support the informal economy of many African nations but people would have better access to food and farmers would continue to have access to their usual supply chains.
Additionally, countries that have closed their borders may need to consider opening the country up to imports of certain food products that cannot be supplied through local systems, and to exports of domestic products to ensure that their national agricultural industry doesn’t collapse.
A consortium of food and beverage corporates, along with farmers’ organisations and the UN Foundation have written to world leaders, calling on them to keep borders open to trade in order to help the most vulnerable classes of society.
With sufficient controls and security measures, these countries could protect themselves from food shortages while still limiting the spread of COVID-19. Some early examples of this come from South Africa which has pledged to set aside 1.2 billion rand ($64 million) to help small-scale farmers in a bid to support food production, from Namibia which is offering an emergency income grant to workers (including in the agricultural industry) who have lost jobs, and from Kenya where various tax relief measures have been proposed.
2. Global Coordination
It is vital that the efforts and strategies put in place to tackle COVID-19 are implemented on a global rather than national scale; where action from developed countries and DFIs can help protect the most vulnerable countries and prevent the economic and social kick-back from the pandemic being the real disaster.
The World Bank is deploying up to $160 billion in financial support for developing countries over the next 15 months to help protect the poor and support businesses. In addition, the African Development Bank just announced that it will provide up to $10 billion to African governments and the private sector under a new COVID-19 Response Facility and a $3 billion COVID-19 bond to help alleviate the impact of the pandemic on Africa’s economies.
However, some aid organisations have sadly had to go the other way, with the UK Prosperity Fund temporarily pausing all tenders including those where funds were due to be invested into Africa. Such freezes will likely disrupt the ability of these aid programmes to operate at the time when they may be needed most.
Further funds are needed from other development financial institutions, donors and institutional impact investors to provide liquidity to struggling businesses and cash transfers to those individuals with no work or social security net. Injecting cash into the African food economies is likely to be the most effective short term solution to alleviate food shortages whilst stemming the pandemic.
3. Foodtech & Agritech
Crop yields in Sub-Saharan Africa are around a quarter of the global average and many believe that technology has a vital role to play in improving efficiencies in the supply chain.
The best manufacturers have used data and AI to increase production by 50% and cut waste by 20% – agriculture can do the same. It is possible to sustainably feed everyone on our planet for many years to come, but not without AI and not without data-sharing.
→ Richard Tiffin, the chief scientific officer and founder of agricultural data firm Agrimetrics
Investments in Agritech can enable farmers to use water, pesticides and fertilizers much more efficiently, significantly reducing operating costs whilst also being more environmentally sustainable. For instance, Apollo Agriculture, a Kenya-based Agritech business, supports farmers by providing agronomic machine learning, remote sensing and data analytics. Online platforms like WeFarm have taken advantage of the rapid spread of mobile phones across Africa to create a network of small-scale farmers who can help each other with questions and suggestions to increase productivity.
It is not just farmers who are benefitting from tech start-ups. Namibian start-up E-bikes4africa, which specialises in the manufacture, rental and sale of electric bikes, has entirely shifted focus towards the home distribution sector to take advantage of the surge in demand for home deliveries since the containment measures adopted by the government.
According to Agfunder, agricultural technology start-ups have grown more than 80% per year since 2012. However, more than 90% of Africa’s Agritech market remains untapped and could be worth over $2.2 billion.
There is a clear opportunity here for both technology companies and investors to not just help revolutionise Africa’s agricultural industry and food supply systems but tap into a potentially lucrative market. At BCLP we are very well placed to aide this push, with our top tier global Agribusiness and Food ranking and our long history of advising investors and start-ups across the world.