Agribusiness Value Chain
Development
African Opportunities, Challenges and Strategies
Daan Louw
Director: Optimal Agricultural Business Systems (OABS)
14 June 2012
Contents
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World markets context
Value chain concept
Opportunities in Africa
Value chain challenges in Africa
Strategies to overcome challenges
and to unlock oppertunities
World Economy has a hangover
3
East Africa
Country
%
Growth
Date of
information
World Rank
Region Rank
Eritrea
8.2%
2012
10
1
Ethiopia
7.5%
2012
14
2
Rwanda
7%
2012
23
3
North Africa
Country
% Growth
Date of information
World Rank
Region Rank
Morocco
4.6%
2012
83
1
Algeria
2.9%
2012
114
2
Egypt
1.2%
2012
161
3
Southern Africa
Country
% Growth
Date of information
World Rank
Region Rank
Mozambique
7.2%
2012
17
1
Zambia
6.7%
2012
27
2
Botswana
6.2%
2012
39
3
West Africa
Country
% Growth
Date of information
World Rank
Region Rank
Nigeria
15.5%
2012
2
1
Ghana
9.9%
2012
24
2
Liberia
6.9%
2012
25
3
GDP growth
Source: CIA World Factbook (2011)
About 60 percent of the world’s uncultivated arable land is on the African
continent – huge potential for growth – secondary industries
The Value Chain Concept
Supply Chain Management
Opportunities
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With low projected growth in the US and EU
Renewed interested in Africa. It is a
continent with enormous potential with some
of the fastest growing economies on the
planet.
However, for any company new to the African
continent, there are a number of challenges
to consider.
Challenges
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Infrastructure
Distances – African commercial centers far apart,
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Fragmented markets – Modern trade (e.g. Shoprite
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increasing cost and making economies of scale difficult to
achieve.
supermarkets) in African countries (with the exception of
South Africa, Zambia and Kenya) is still in the very early
stages of development and the contribution is in the low
single digits. Reaching large numbers of traditional
outlets (e.g. Mom & Pop, Dukas, Sooks) is difficult and
costly business.

Distributors – Finding the right distributors to reach
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Access to capital – Finding a good distributor is just a
the vast numbers of traditional outlets is difficult (if not
impossible) and it requires enormous development and
training. As with many emerging markets, the outlet base
keeps evolving as outlets open and close. Keeping the
outlet list up to date can be a difficult undertaking.
start as sources of capital are limited. Many organizations
need to support their distributors and partners during
the start up phase and in many cases also provide loans
or bridge capital to support their cash flows.
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Risks – As recent events in Nigeria have demonstrated,
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Technology – When navigating the business landscape in
there is still significant political risk in a number of African
countries. Some of these countries, including Nigeria, hold
significant potential in a number of sectors. However,
companies need to have a good understanding of the political
risk and potential impact on their business.
Africa, you realize that most companies operate on a
combination of software (e.g. EPP), Excel, pen and paper.
Mobile technology holds great potential, but few companies
have viable commercial models. Finding the right solution
for your company will take time, money and innovation.
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Electricity challenges – In many countries
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Lack of visibility – Poor information technology also
electricity is in short supply and power cuts are
common during peak periods. Even more advance
economies such as South Africa are experiencing major
challenges. In some countries (e.g. Guinea) the
generator remains a major source of energy and energy
cost can be a major consideration.
leads to a lack of visibility in the supply chain with
increased out of stocks (OOS). Increasing visibility can
take time and might include a combination of
technology and manual processes.
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Lack of an organized Third party logistics (3PLs)
and skills gaps – In many countries organized 3PLs
revolve around independent transporters with limited
number of vehicles. Many 3PLs might also lack the
required skills and professionalism. Normally, ongoing
training and support are required. Due to poor
remuneration, staff turnover is high, and this will also have
a negative impact on cost.
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Incentives – Many distributors and 3PLs also lack the
required incentives schemes to motivate workers.
Companies sometimes need to play an active part in setting
incentives and rewarding partners.
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Warehouse / Cold storage – Many warehouses for rent
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Cold Chain Management – Huge challenges
Counterfeit and parallel imports – For many
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are also poorly designed, with poor yard management,
ventilation and equipment. Finding a professional
warehouse operator can be a daunting experience.
organizations, counterfeit and parallel imports remain a
major concern. African markets remain a dumping ground
for many importers and exporters that buy expired (or close
to expired products) from European retailers. Large trading
groups, operating out of the Middle East (e.g. Dubai), are
normally a great source for importers. Pharmaceutical
companies are also fighting an uphill battle against
counterfeit products on the continent.
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Corruption - bribery
Cross border bureaucracy and customs
procedures (and bribery)
However, even with all these challenges, Africa
holds great potential and companies ignore the
continent at their own (and shareholders) peril. A
number of multinationals and large numbers of
SMEs have overcome or mitigated these
challenges. And as the saying goes, if it is easy to
do business, it is probably too late for entry..
Tielman Nieuwoudt – Supply
Chain Lab
Conceptual presentation
of agric. value chain
Agricultural product
supplies
Transaction costs
Demand: markets
Market
requirements
•Population
•Income
•Preferences
Time
Quality
Food safety and
traceability
Appearance
Packaging
Price
•Etc
Conceptual presentation
of agric value chain
Agricultural product
supplies
Sustainable
supply
•Security of land tenure
•Security of water entitlements
•Sound institutional arrangement
•Market information - – ability
to understand market forces
•Recordkeeping – training
•Technical knowhow – training
•Basic economic principles
•Financial knowhow – training
•Availability of finances
•Bankable business plan – and
use it
•Etc
Transaction costs
Demand: markets
Market
requirements
•Population
•Income
•Preferences
Time
Quality
Food safety and
traceability
Appearance
Packaging
Price
•Etc
Conceptual presentation
of agric. value chain
Agricultural product
supplies
Mentorship
•Security of land tenure
•Security of water entitlements
•Sound institutional arrangement
•Market information - – ability
to understand market forces
•Recordkeeping – training
•Technical knowhow - training
•Financial knowhow – training
•Availability of finances
•Bankable business plan – and
use it
•Etc
Transaction costs
Market barriers
•Compliance cost
•Transport
•Availability of
information
•Legal aspects
•Levies
•Tariffs
•Customs – cross
boundary challenges
•Etc
Demand: markets
Market
requirements
•Time
•Quality
•Food safety and
traceability
•Appearance
•Packaging
•Price
•Etc
Know your
consumer/customer
Sales rep in Middle East trying to sell Coke.
Was he successful??
Remember he did not speak the language
so he decided to use graphics to make the sale.
24
Know your
consumer/customer
Sales rep in Middle East trying to sell Coke.
Was he successful??
NO!!!
The Arabs read from right to left!!!
25
What Sort of Value Chain?
Ideal:
Short
Fast
Transparent
Seamless
Collaborative
Too Often:
Complex
Price-driven
Confrontational
Disjointed
Developing regional value chains for strategic agricultural
commodities, is essential for African countries to enhance
their agricultural transformation and global
competitiveness (AU, 2006).
This can be done in the context of the AU/NEPAD
Comprehensive Africa Agriculture Development
Programme (CAADP), which offers a platform for joint
action by African governments, regional organizations,
farmers, private agribusiness and development partners
(UNECA, 2007).
Start to work!!!
Thanks