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Absa Insights 2021

Could Kenya’s fresh outlook on agriculture serve as a blueprint for SA?

7 June 2021 5:35 PM

Is Public-Private Partnerships the key to unlocking South Africa’s agricultural potential?

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 andServices, Corporate FundManagement and Telecommunications, Public Sector and, Natural Resources and Energy.

Listen to the audio below:

The COVID-19 pandemic has had a devastating impact on the agricultural sector in Africa, with disruptions in the global agricultural supply chains and export restrictions to Europe making it harder for farmers to get their produce to market.

Kenya is a leading producer and exporter of tea, coffee, fresh fruit and vegetables, and flowers.

For a country like Kenya whose agriculture sector dominates the economy – agriculture contributing 26% to the Gross Domestic Product (GDP) and by extension, another 27% from the entire agriculture value chain – its remarkable recovery and growth amidst the pandemic is something to be celebrated.

There’s something interesting within the agriculture space because in Kenya, for instance, the agriculture space grew 6.3%.

Steve Biko, Director of Corporate Banking for Large, Local Corporates and Public Sector at Absa Group.

COVID-19’s disruption on Kenya’s fresh produce exports

Like most East African countries, Kenya’s agricultural productivity was stagnated for a period but despite the dampening of COVID-19 on the country’s agriculture projections, the country key crops performed well as a result of the measures taken by the government to ensure that the food supply chain was not interrupted.

_“In Kenya, for instance, there was a lot of disruption at the onset of COVID as people were actually waiting for directions to see how markets will behave but of course, after a couple of _months, I think, the key markets were opened up,” says Biko.

_“If you look at the largest sectors and the value chains of crops that Kenya produces – tea, for instance – that lost just under a month because that is traded through an auction based out of _Mumbasa,” he continues.

As a global producer of flowers, the sudden halt on exports certainly caused disruptions in the fresh produce supply chain but the collaboration between the Fresh Produce Exporters Association of Kenya and Kenya Airways to open cargo flights – albeit more expensive – managed to bolster the export of the country’s fresh produce to local and international markets.

“Cargo flights and freight costs were slightly expensive than usual but because of other markets who were not sending produce across the world, suppliers were able to cut off those costs and actually grow their returns,” says Biko.

Kenya is proof that Public-Private Partnerships is the way to get things done!

In many countries, governments are reluctant to implement Public-Private Partnerships, South Africa included.

Kenya seems to be lightyears ahead in terms of its acceptance that central governments can’t do everything and shouldn’t have to fund everything says The Money Show’s BruceWhitfield.

This acceptance has largely been driven by the Public-Private Partnerships Act of 2013. As one of the first African countries to enact a Public-Private Partnerships Act, Kenya has seen significant participation from the private sector in the country’s public sector projects. Its new Public-Private Partnerships Bill of 2021, proposed to replace the current act seeks to streamline regulations and address inefficiencies that exist in the current PPP process.

_“The PPP concept as it works in Kenya, you would look at it in the context of, how do you bring in the general_ _populace into that particular ideology of investment because government would tax the local citizenry and actually on the basis of tax, use those allocations _to fund government projects,” says Biko.

The country recognises that its general populace is resistant to additional taxes and levies and, the government has realised that the idea of taxing citizens who are already paying tax, decreases the level of acceptance for new development projects.

For this reason, the Kenyan government has looked for alternative tax avenues that deliver the same kind of metric of collecting revenue.

_“When you’re doing a public-private _partnership, the government can confidently give you a letter of support on the back of a flow of funds that are actually guaranteed."

“So, you’re actually not depending on the exchequer for the purposes of allocating funds through a budgetary process and you’re not depending on the populace through a tolling levy, which people can actually resist – so that has worked well, and many projects have been delivered through that route,” Biko concludes.

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.

7 June 2021 5:35 PM

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