Digital Ecosystems will transform African economies under the AfCFTA

Digital Ecosystems will transform African economies under the AfCFTA

The Global Food System

The US$8 trillion global supply chain is adapting to a post Covid-19 world becoming the new norm. Covid-19’s global dislocation has further stressed the need for more robust supply chains that can react to vulnerabilities and bottlenecks. The pandemic has stressed the importance of increased connectivity through smart digital transformation technologies that result in access to real time insights and thus better decision making.

According to The Economist, the global food system, from field to fork, accounts for 10% of the worlds GDP and employs around 1.5 billion people. Global supply of food has tripled since 1970 as population has doubled in the same time. Food exports have grown so much that four fifths of people now live in part on calories produced in another country.

Dr. Akinwumi A. Adesina, President of the African Development Bank, Former Nigerian Agriculture Minister and World Food Prize Laureate 2017, states that the challenge of feeding our world is immense, with a need for rapid increases in food production. We will need to feed a global population that the UN estimates to grow to 9.8 billion people by 2050. Dr Adesina goes on to say that Africa holds the key to feeding Earth by 2050. Africa sits on more than 60% of the uncultivated arable land left in the world, so what it does with agriculture will determine the future of food in the world.

Belief in Africa’s potential

Despite Africa’s vast tracts of underutilised land and other natural resources, it remains a net importer of food. Africa’s apparent reliance on cheap food imports indicates a distressing missed economic opportunity on the continents biggest growth lever, its agricultural sector.

Africa will need to modernize its agriculture and increase investment across the agricultural value chain, including into the expansion of port facilities and transport infrastructure. Special economic zones with tax incentives need to be created that are geared to food-processing, facilitating efficient movement of produce from production zones and promoting exports. This will unlock agro-industrialisation and agro-exports from these African hubs, increasing the international competitiveness of African exports. This is a crucial element in creating a wealthy African continent. Rich nations are wealthy because they process all production before participating in the global value chain.

Crucial for an African agricultural framework is support for its rural farmers. According to the Food and Agriculture Organisation (FAO) of the United Nations, rural farmers produce three-quarters of the world’s food yet constitute 80% of the world’s poor.

Small holder farmers face daunting and often unpredictable challenges. Issues such as water scarcity, climate change, land tenure which is linked to an inability to access capital, lack of access to extension services, storage and packaging. Equally, lack of transport logistics to prevent food losses and wastage, access to markets and even basic inputs such as improved high-yield seeds and fertilizers. The use of middlemen who pay in cash before on-selling to producers or formal markets leaves rural farmers without a formal transaction record and much of the profits due to their poor negotiating position. Without this transaction history, rural farming communities also cannot access financial services that can help to uplift their economic situation. Cheap food imports also hurt the income of rural farmers. As Dr Adesina states, Africa needs to develop a new agragrian system, one that combines smallholder farmers with a new dynamic generation of medium and large commercial farmers.

Africa can learn from Brazil’s emergence as an agro-export powerhouse over the past few decades. A strong government-backed investment strategy to develop ports and transportation infrastructure has resulted in lowering transport times, reducing food losses and wastage along the supply chain and export costs. Changes in the country’s regulatory framework such as trade liberalisation and agri-policy support favouring public-private partnerships has helped develop capacities and facilitated the country’s increased interaction with external markets. Adaptation of new technologies, research and development, modernisation of agriculture and mechanization have all contributed to establish Brazil success as a food export powerhouse.

The African Continental Free Trade Area

Africa has launched the African Continental Free Trade Area (AfCFTA), the objective of which is to create a continental market for goods and services, with free movement of people and capital, and pave the way for creating a Continental Customs Union. The AfCFTA will grow intra-African trade through better harmonization and coordination of trade across the continent.

The AfCFTA will provide the framework for trade liberalisation across 55 African countries once fully implemented. The member countries have an estimated combined GDP of US$2.5 trillion and a population of over 1.2 billion, making it the largest free trade area by population in the world and since the formation of the World Trade Organisation.

The AfCFTA has eight strategic objectives:

(1) creating a single market for goods and services, facilitated by the movement of people; (2) contributing to the movement of capital and people and facilitating investment; (3) creating a continental customs union; (4) expanding intra-African trade; (5) resolving the challenges of overlapping memberships in Regional Economic Arrangements; (6) promoting sustainable and inclusive economic development; (7) boosting industrial development; and (8) enhancing competitiveness.

Key opinions from an IMF staff discussion paper earlier this year highlight that the framework of the AfCFTA represents an opportunity to support post-pandemic recovery and to foster economic growth. AfCFTA will create a larger and more integrated African market that promotes intra-continental trading and a reduction in trade barriers and tariffs. Importantly, successful implementation of the AfCFTA will reduce uncertainty on trading relations within the continent. This has the potential to encourage both domestic and foreign investment and help to boost economic activity. Abrego and others (2019) estimate intra-African trade growth of more than 80 percent due to the AfCFTA, which represents an increase of US$60 billion to African exports.

According to Landry Signé, Senior Fellow Global Economy and Development Africa Growth Initiative, Africa’s manufacturing sector is projected to double in size under AfCFTA, with annual output increasing to US$1 trillion by 2025 and create over 14 million jobs. Increased business-to-business spending will also improve African business’ ability to specialize—an essential determinant of growth in manufacturing—as necessary inputs can be sourced from other businesses or neighbouring markets, rather than produced in-house. The projected increase in Africa’s business-to-business spending in manufacturing is around US$200 billion, bringing the total to US$666.3 billion by 2030.

African intra-regional trade is dominated by food and manufactured goods. African nations are mostly integrated as upstream suppliers to global value chains. The AfCFTA’s framework must support the development of supply chains that create value add from within the larger integrated African market. This will generate more downstream integration into global value chains, reaping more gains from African participation in global trading.

Crucially, creating a larger more integrated African market under the AfCFTA will require implementing a centralised digital trading ecosystem to facilitate increases in business-to-business interactions and trade. This marketplace must serve as a catalyst to enable a participative trading environment that can supply the AfCFTA market. In turn, this will promote industrialisation and productive capabilities across regional value chains. A continent-wide trade ecosystem will increase connectivity across African supply and value chains, with the additional benefit of increased exposure and accessibility to an interested global market.

OneAgrix is such an enabling trade ecosystem and is working towards positioning Africa as a better-connected global trading hub and a nexus for the development of African supply and value chains. Crucial to the success is collaboration at several levels of the supply and value chains and public private partnerships that connect multiple stakeholders. Investors and Financiers will be able to access and do business under a single set of AfCFTA trade and investment rules, benefiting from an integrated market, more trading, more robust African supply chains, economies of scale and a digital ecosystem facilitating the above.

The potential of e-commerce in Africa’s future

Arancha González, Executive Director International Trade Centre, says that the growth of e-commerce is a unique opportunity to open access to international markets for small and medium sized enterprises (SMEs) in developing and least developed countries (LDCs). E-commerce is estimated at US$15 trillion per annum for business to business transactions and over US$1 trillion for business to consumer trade. However, African enterprises share of this is only 2%, so it has enormous potential to grow.

A McKinsey & Company report (July 2014) indicated that e-commerce could account for 10% of retail sales in Africa’s largest economies by 2025, which would translate into US$75 billion in annual revenue. In part, this will be the result of a decade of expected rapid economic growth on the continent, with consumer spending projected to exceed US$1 trillion annually by 2020.

E-commerce has been included in the agenda of the AfCFTA by the African Union Heads of State. The incorporation of e-commerce into the agenda has the potential to lead to an expanded market space under the larger continental market envisioned. The International Trade Centre (ITC) mentions that just 1% of Africa’s e-commerce marketplaces are responsible for 60% of the marketplace traffic on the whole continent. Only 11% of the marketplaces’ websites enable financial transactions (the rest are classified sites with sales made offline) which limits the possibilities of selling internationally. Small businesses that want to make online sales need to use transactional marketplaces with safe payment solutions.

The world’s biggest marketplaces do not have a strong presence in Africa, which means there is more opportunity for local marketplaces. The ITC wanted to take advantage of this and find ways in which online marketplaces could support African businesses. As a result, OneAgrix has partnered with the ITC with the vision to support African businesses and farmers. OneAgrix aims to enable access and exposure into an integrated African market and outwards, address SME and farmers e-commerce barriers to trade and implement solutions on how to take its technologies to scale to reach tens of millions of participants.

E-commerce has the potential to contribute significantly to the economic activities of African countries. Increasing use and access to technology with a gravitation of shoppers and businesses towards e-commerce, increasing reach of internet connectivity and adoption of mobile money payment solutions all suggest that Africa is moving towards conducting business digitally.

Advance traceability technologies such as IoT and blockchain to reduce loss and waste in food systems

According to the FAO, roughly one-third of the food produced in the world for human consumption every year - approximately 1.3 billion tonnes - gets lost or wasted. Key findings from Think.Eat.Save of the Save Food Initiative, a partnership between UNEP and FAO, state that food losses and waste amount to roughly US$680 billion in industrialized countries and US$310 billion in developing countries.

The FAO states that an estimated 14 per cent of food, valued at an estimated US$400 billion, is lost between harvest and distribution. In Africa, inefficient processing and drying, poor storage, and insufficient infrastructure are instrumental factors in food waste. In Sub-Saharan Africa, post-harvest food losses are estimated to be worth US$4 billion per year - or enough to feed at least 48 million people. When food is lost or wasted, all the resources that were used to produce the food, including water, land, energy, labour and capital, are also wasted.

The Covid-19 pandemic has seen an increase in food wastage and losses as supply chains have been disrupted due to the lockdown measures implemented globally. Farmers are being forced to destroy their crops, dump milk and throw out perishable items that can’t be stored as they face issues in selling food. The usual market for farmers - hotels, restaurants and café’s - have all shut down and in supermarkets, many people have rushed to stock up on canned food and other non-perishable items in response to the global pandemic. Many fields are being ploughed under because of the expense of harvesting and the lack of profit. Farmers in America and Europe need over 1 million migrant workers from Mexico, north Africa and eastern Europe to bring in the harvest, but borders have been closed in many countries for the majority of this year.

In a post Covid-19 world, eliminating food waste can drastically improve the global food system, sustainability and food security. A marriage between IoT technology, blockchain and farm to fork supply-chain traceability solutions which are embedded in OneAgrix's ecosystem can bring order and transparency as food data moves seamlessly through the food chain. Enabling market access and improved logistics support are some of the ways that also help to prevent small holder farmers from post-harvest losses. As a response to a Nigerian poultry farmer having difficulty selling her eggs due to the pandemic, OneAgrix implemented an early geospatial tech solution on the platform that linked buyers in close proximity to the farmer. Ultimately, the geofencing tech was successful in assisting the agripreneur and eliminating an occurrence of food wastage. This is an example of one tech solution that can be scaled for many small holder farmers who are part of its ecosystem.

Interdependence, diversity, technology and increased connectivity are all contributors to a digital ecosystem that can address food safety and security and enable transparency and traceability in the global food chain. Notably, these are also in common with OneAgrix’s vision to address UN Sustainable Development Goals of no poverty, zero hunger and responsible consumption and production.


Author : Ziyaad Davids, Managing Director Southern & East Africa, OneAgrix