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Absa Insights 2021

Farmers, Ferraris and Forward-thinking investors makes for a fruitful future

31 May 2021 9:40 AM

Why farmers (and not bankers) could be the next group driving Ferraris and Lamborghinis, thanks to Africa's rich Agri sector

The world is ever-changing and so is the sector your business operates in. You don’t just need data to keep track of trends that are shaping the economy – you need the expertise to turn that data into valuable insights and sustainable growth opportunities that will unlock your business’ potential.

In the Absa Insights podcast series, The Money Show’s Bruce Whitfield engages in conversation with the bank's sector experts about investment possibilities in Agriculture, Consumer Goods and Services, Corporate Fund Management and Telecommunications, Public Sector and, Natural Resources and Energy.

Listen to the audio below:

While agriculture might be booming – a lot of the infrastructure around agriculture is not.

Yes, the road infrastructure in the African continent might not be paved for agricultural success but the outbreak of COVID-19 has re-emphasised the importance of the sector, agricultural value chains to populations and, the financial prospects that it presents to investors, says Roux Wildenboer, Head of Agriculture at Absa Corporate and Investment Banking.

Agriculture, for the most part, has been a shining light for the continent. Forward-thinking investors and African governments have recognised that agriculture is a driver of economic growth, job creation and food security. But, to fully reap the benefits of the abundant agricultural opportunities in Africa, investment in road infrastructure is critical.

And, since most of South Africa’s agricultural commodities are transported via the road networks, costs, delays, and inefficiencies in the agricultural value chain have a direct impact on our competitiveness in the global market.

We would like to emphasise the fact that infrastructure development and investment needs to take place across the continent, and it needs to be targeted from our perspective, of course, to benefit agriculture as far as possible.

Roux Wildenboer, Head of Secondary Agriculture at Absa Corporate and Investment Banking.

South Africa – still a world leader in citrus exports

"South African fresh produce is held in very high regard across the world,” says Wildenboer.

As the second-largest exporter of citrus produce, port and road infrastructure is essential for the country to be able to compete with producers like Spain, Argentina, and America.

And, while the outbreak of COVID-19 and consequent restrictive trade policies on international agricultural supply chains have offered our country some respite on the export front – the rate at which the country’s citrus industry is growing means that soon, our port infrastructure will likely buckle under the immense pressure headed its way.

In a recent meeting with Citrus Growers Association (CGA), Western Cape Government’s MEC for Agriculture, Ivan Meyer raised concerns around Port Authority's inability to maintain infrastructure and replace obsolete equipment at the Port of Cape Town, and the risk that it currently poses for agricultural exports – with over 5000 equipment breakdowns, equating to 14 breakdowns per day.

The solution, according to Wildenboer, is the realisation that governments across Africa need to play their part to attract investment in order to get production and exports going.

There is an enormous amount of investor interest and funding interest from development finance institutions into agriculture as a sector but of course, these guys can’t do it in a vacuum – you need good regulation, stable infrastructure, stable certification rules for exports and I think, the frustration is that Africa has been lagging on that.

Roux Wildenboer, Head of Agriculture at Absa Corporate and Investment Banking.

The fiscal impact of COVID-19 has put Africa’s food security under pressure.

Africa’s food insecurity is on the rise despite the continent sitting on one of the greatest resources that the planet has to offer – remarkably good, attractive, arable land at enormous scale says The Money Show’s Bruce Whitfield.

It’s ironic because if we look at some countries, there are really very good production potential and that's been recognised for decades but African governments have generally been slow to get on-board and get ahead of the curve and, let's be honest, fiscal constraints are part of that dynamic.

Roux Wildenboer, Head of Agriculture at Absa Corporate and Investment Banking.

The challenge is really to the African economies and the African governments to allow that investment and development to benefit their local populations because if we don’t do that, we’ll find that agricultural assets will be internationalised, says Wildenboer.

So, when will farmers start driving their Ferraris?

Nine years ago, renowned international investor and market commentator, Jim Rogers made a bold statement in Forbes magazine proclaiming that farmers, not bankers would be the next group driving Ferraris and Lamborghinis. And, while there may not be many farmers on the African continent driving expensive sports cars, Roger’s investment case for the agricultural sector remains relevant today.

Wildenboer agrees, “there is no question that this is one of the economic bright spots on the radar and there are some very exciting projects that can be funded in the coming years.”

“Africa needs to capitalise on the increasing demand for agricultural exports and to do that, it must start with addressing the underfunding of the continent’s farming sector – training young farmers, improving agricultural productivity and access to infrastructure, and the rising cost of agriculture and “soft” commodities are all likely to be catalysts for the sector over the next decade,” he says.

If we can be sure that the African agricultural assets are owned by Africans, perhaps then we will certainly see more farmers driving Ferraris!

For data-driven insights that match foresight with sustainable possibilities, re-visit our Absa Insights page for more insights from Absa Corporate and Investment Banking sector experts.

31 May 2021 9:40 AM

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