Sunday, 27 October 2013

Africa - Running Upwards on a Downward Escalator


Africa -  Running Upwards on a Downward Escalator

Address to the Economic Development Convention


     Stes de Necker

1.  Protocol

2.  Introduction

The well known Dr. Clem Sunter, once said:  “We live in a world that is constantly evolving, and yet within this evolution, history seems intent on repeating itself. This paradox has been driven by our continued use of history as a source of experience to improve ourselves, but also by our remarkable refusal at times to learn from it.” (“The World and South Africa in the 2010’s”)

Away from the resources and energy of the main agricultural producing areas in Africa, polite political expressions of loyalty, poor service delivery and sheer incompetence seems to be the order of the day.

Already in 2004 it was evident in South Africa that poorly developed agricultural development policies could not achieve their socio- economic objectives.

Uncoordinated and sometimes haphazard funding of agricultural development projects sadly failed to achieve the economic growth so desperately needed in this sector of the economy.
These unsuccessful policies, coupled with the increased economic demands on the agricultural sector, resulted in failed land reform and agriculture related development projects throughout South Africa.

Numerous once productive and vibrant farming enterprises are currently little more than unproductive wasteland.

The biggest threat to food security in South Africa, and the rest of Africa, is the current exodus of farmers from the agricultural sector due to economic pressures.

During the period 2000 to 2009, 175,000 farm workers in South Africa lost their jobs as a result of farming enterprises closing down.

South Africa is strewn with examples of failed land reform projects for agricultural development.

Nowhere in modern history have governments been able to conduct farming operations economically and sustainably within the confines of rigid governmental policies and statutory regulations.

Communist Russia, Cuba and recently Zimbabwe, are prime examples of this incapacity of Governments to intervene in Agricultural production. So also have numerous regimes in the rest of Africa, failed to effectively produce food for their citizens.

With the best intentions in the world, present policies of Governments throughout Africa , mentorships, NGO’s and numerous commodity organizations, have at best only succeeded in the establishment of a few subsistence farming operations.

These efforts are doomed to failure unless a long term remedy can be found to stop the continuous decline in economically viable agricultural production throughout Africa.

3.  The Agricultural Sector in the Free State Province of South Africa

Let’s look at the Agricultural Sector in general, as measured in terms of key economic indicators – Starting in our own Province.

In the Free State, the Agricultural Sector’s contribution to the Gross National Product {measured in terms of GGP} has declined steadily between 1981 and 1994 and again between 2000 to 2004; in 1991 and again in 1994, the sector actually showed negative growth.

In 2002, approximately R 600 million direct investment in agriculture was needed simply to stabilize the declining agricultural contribution, while a further R110 million would have been needed to effect a 2% growth in the sector annually.

Nothing was done about this problem, even up to today.

4.  The Agricultural Sector in South Africa

What is the situation in South Africa?

As a result of fairly stable government and disciplined macro-economic policies, South Africa has managed, in general, to remain part of the international mainstream economy from 1994 to around 2007.

After 2007, efficiency in terms of government service delivery, increased productivity and economically productive investment, declined rapidly.  New innovative policies and drastic intervention became critically necessary if South Africa wish to remain part of the international mainstream.  

By the year 2025, South Africa will have a total population of approximately 83.4 million people. This means that South African commercial agriculture will have to produce 57.05% more food to feed this additional population.

At the same time the South African Government will require an additional 1,8 Mil. hectares of land within the next fourteen years to provide only housing for its natural population growth.

At an urbanization rate of 7.5% per annum, on average, 1, 7 Mill. people will migrate to South Africa's cities.

This means that a further 500, 000 hectares of land will be required for urbanisation-migration purposes.

To wipe out the current housing backlog in South Africa, an additional 604, 000 hectares are required.

These requirements amount to a staggering 2, 8 Mill. hectares of currently  agricultural productive land, which will no longer be available for agricultural production.

By 2025, South African farmers will accordingly have to produce 57.05% more food, on almost 3 mill. hectares less arable soil !

Making the situation even worse, is the fact that since 1994, more than 25, 000 farmers left the agricultural industry due to economic pressures in this industry. 

5.  The Agricultural Sector in the rest of Africa

In the rest of Africa, the situation is even worse.

Zimbabwe has suffered badly with approximately 2 million rural people now in urgent need of food assistance.

Poor rains, structural challenges and consecutive years of drought, have caused the country’s farmers to struggle for more than a decade.

In 2010 the drought was catastrophic.

Maize production was down 33 per cent and almost half of all that was planted had to be written off.

The outlook worsened in 2011 as incessant and unprecedented rain triggered devastating floods, and a plague of crop-eating caterpillars descended on the main farming provinces.

If we look at vegetable production in Tanzania, there is not a single business that is producing high-quality, reliable vegetables for the domestic economy.

You have a growing hospitality industry and a growing middle class that has no access to vegetables other than the low grade vegetables provided by smallholder farmers.

Looking at primary agriculture, most of Africa is still dominated by smallholder farmers.

So while there are many laudable initiatives to support such farmers, these initiatives could not generated sufficient capital inflow into the agricultural sector, because there simply is not enough economically viable farming operations, to support real economic growth.

In Africa some 900 million people, that’s 90 percent of the total population, work in the agricultural sector, while every year one in eight people of the world’s population doesn’t have enough to eat.

Most of those who are going hungry live in South Asia and Sub-Saharan Africa.
Conditions are lacking for farmers which would make it possible for them not only to fulfil their own needs but also to produce a surplus for exporting.

In Ethiopia for example, nearly 85 percent of the country’s 90 million people live from the land, but Ethiopia’s authoritarian government still bans private land ownership.
Industrialization in Africa is not possible without agriculture.

It is not about playing industrialization off against agriculture, but rather that the one cannot exist without the other.

Industrialization in Africa must be promoted to ensure that Ivorian cocoa beans are processed in Abidjan rather than Hamburg Germany;

That South African wool is processed in South Africa rather than Germany also; 

In Cameroon, tonnes of vegetables are exported and then canned in France.

Why can’t the vegetables be processed and canned in Africa?

To quote Dr. Clem Sunter again: “The question today is not to be or not to be, but rather to do or not to do”.

6.  The Macro Socio-Economic Environment

At the macro level (Internationally), there are a number of socio-economic variables and uncertainties that will play a vital role in the re-shaping of Africa’s Agricultural Development.

The main factors are the following:

1.     Whether or not the issue of land ownership can be resolved peacefully and productively. 
Productive land reform as compared to “political land reform” implies in the very first instance that land reform should primarily be focused on the retention of economically viable and sustainable agricultural production.

Establishing numerous isolated unproductive and economically non viable farming entities is a sure recipe for failure.

Agricultural competitiveness in the international market will increasingly be driven by economies of scale, which can hardly be obtained by individual operations.

2.     Closely following the aforementioned, is the question whether or not Africa will be in a position to timeously secure a competitive edge in the global economy, which itself is becoming increasingly competitive. Current inadequacies in Africa’s infrastructure, particularly related to the supply of electricity, road and rail transport and health facilities, must be solved in a way that does not limit economic growth.

3.     Whether or not crime and corruption can be reduced to an acceptable level. (That is, if there is something like an acceptable level for crime!)

4.     Whether or not South Africa can remain the generally peaceful society it has been since 1994, given the conflict situation in Africa which has resulted mainly, from political instability and personal interest.

2.     Whether the HIV/Aids pandemic, which is currently draining Africa of its much required recourses, can be stopped and ultimately eradicated.

3.     Whether or not the critical skills deficit, which is commonplace in most African economies, can be overcome and whether Africa can improve the quality of its education system, to suit the current skills requirements.

4.     Whether or not Zimbabwe, as one of the main role players in Africa, can rise from the current political abyss it finds itself in.

5.     Whether or not we can succeed in bringing the current unacceptable rate of inflation back to acceptable levels.

6.     When considering measures to curb rising inflation, one needs to distinguish between two types of inflation namely, “demand inflation” and “cost inflation”.

7.     SA is currently experiencing predominantly cost inflation caused by ever rising energy and fuel costs over which the consumer have little or no control. These increases in turn result in increases of other commodity prices, including food

8.     The oil price. It is estimated that should the oil price reaches $190 US per barrel, the domestic price of maize would increase to well over R 5000 per ton, compared to its current level of around R 2200 per ton.

       Such increases hold disastrous consequences for SA ... and this is no urban legend. These are hard facts.

7.  Primary Prerequisites for Successful  Agricultural Development in Africa

Creative and effective participation in the global economy, by all farmers in the agricultural sector in Africa, requires an entirely different mindset – a mindset that dares to be less governmental, that challenges conventional development policies and foster competitive regional and global linkages.

There is little space left in Africa for mediocre economic activities and peace meal handouts to satisfy the needs of the masses. 

Constant rising input costs i.e. fuel, fertilizer, pesticides and labour, with the accompanying inability of most farmers to maximize revenue in the market place, have forced many farmers off their land.

Furthermore, the majority of farmers, especially emerging and small to medium range operations, seem to be unable to stay abreast of modern scientific methodology and technology, due mainly to financial constraints and inadequate support structures.

Countries like Brazil, the Ukraine and China have largely converted to new generation fuel efficient tractors and farming equipment.

Combined with modern production methods i.e. scientific minimum tillage, water harvesting techniques and precision farming techniques, this change-over not only made it possible for many established farmers to survive the international economic pressures, but also to increase their production and profitability.

In South Africa the only remaining successful farmers, are those who are applying modern scientific methodologies and technologies in order to ensure their eventual success and survival.

These modern practices have resulted in what is known as the seven rules for successful farming i.e.

1. Good productive land
2. Modern technology and equipment
3. Knowledge of scientific farming practices and methodology
4. Modern financing methods
5. Modern insurance methods to counter the impact of unforeseen disasters
6. Optimal reduction in input cost
7. Optimal marketing strategies to maximize revenue

Farmers in traditional rural communities, as well as newly established emergent farmers, throughout Africa, are commonly in command of only the first of these vital elements i.e. being in possession of, or have access to, good productive land.

Small to medium range operations {i.e. existing smaller farming enterprises} on the other hand, may at best be in command of three, at best four of the above mentioned elements, while only the few really successful commercial farmers will be in command of all seven.

Measured against the above mentioned vital elements for Agricultural success, it is not 
difficult to understand why most land reform projects in SA have not been successful.

All attempts to rectify the current ills in the industry, without attempting to re-invent the wheel, will not succeed unless recipients of land reform projects and small to medium range farming operations have, or have access to, the means to apply all seven of the aforementioned prerequisites. 

8.  The Agricultural Illness.

Agriculture, throughout Africa, is terminally ill!

It suffers from a condition which I call -  AGRICULTURE-ITES

The famous heart specialist, the late Prof. Chris Barnard, once said that the one thing he learned in medical science is that most diseases or ailments will progressively degenerate until it reaches a certain point where curative treatment is no longer possible. 

A certain "point of no return".

Once the degeneration has passed this limit, then all that remains is death of the patient or drastic intervention to operate and remove the affected body part.

For example, a hole in someone’s tooth can be filled, but once the rot became too much, then all that remains is to remove the tooth.

The current situation in Africa is certainly ideally comparable to Prof. Barnard's theory.

The question is: Can Africa still be cured?

Is the situation still treatable, or are we already past the point of no return?

Contrary to popular belief, the socio-economic outlook for Africa looks grim. 

If this continent was a human patient, it would have been admitted to an intensive care unit long ago!

How is it possible that thousands of foreign visitors, who visited South Africa a decade ago, are avoiding this country totally today?

How is it possible that so many foreign investors, who a decade ago, was still so excited to invest in South Africa, took their investments elsewhere.

How is it possible that peaceful marches and protest demonstrations can nowadays, within the space of minutes, degenerate into violence and mayhem.

Since 1994 the current government could not manage to grow South Africa's economy by more than 3.5% pa. At this rate of growth there exists no possibility to solve the unemployment problem, which lies at the root of most other socio-economic disorders.

Distribution of income between rich and poor is much more un-even than in 1994; the country's food supply has drastically decreased; real inflation has soared, and South Africa has one of the world's highest unemployment rates.

9.  Holistic Approach

Patchwork, whenever trouble arises, will not solve the problem.

On the contrary, it only gives those radicals who want to overthrow the existing order, more power in their quest for revolution. 

Forced economic adjustments, uncoordinated adjustments in the education system, opportunist changes to agricultural policy and a host of other “patch works” only aggravate the situation even more!

Changes in government policies throughout Africa are drastically needed to restore this situation.

South Africa is the most modern economy on the African Continent, and we have already established ourselves as the gateway to the rest of Africa for most overseas businesses wishing to invest in Africa.

Retaining this position will however require the speedy development of major reliable and economically viable business ventures.

Reform must start in South Africa ... and it must start soon.

If South Africa is to lose further ground in competing in the international economic arena, it would most certainly join the likes of Zimbabwe, Myanmar, North Korea and Somalia as the failed states of the recent world order.

South Africa faces real and possible ejection from the first world economy to a position of a typical third world economy. And this can happen very quickly.

Kenya is a good example of how quickly such economic decline can happen. 

10.              Where to Start

You may very well ask me.... so what must we do?  Where must we start?

I believe that the answer lies in what I want to call, SPECIALISED CO-OPERATIVE FARMING

Cooperative farming must not be confused with communal farming systems being practised in certain parts of the world. The well known Kibbutz system practised in Israel is a form of communal farming, where a number of individuals share responsibilities in a single farming operation.

Cooperative Farming differs considerably from communal farming in the sense that separate farming operations, jointly, form a cooperative, each with its own responsibility within a chain of agricultural production.

The concept of cooperative farming, originated primarily in New Zealand in the late 1980’s, when the then Government of New Zealand virtually handed political power over to the opposition in the 1986 election.

At that stage, NZ was for all intense and purpose bankrupt, and the newly elected government inherited an economically devastated society. Many civil servants were retrenched and serious cutbacks in the country’s national budget had to be effected.

Not being in a the fiscal position to effectively support the New Zealand agricultural sector any more, organised agriculture approached the NZ Government with the proposal that should the government relinquish all unnecessary controls over the agricultural sector, the farming community of NZ will organise and regulate themselves in a system, which they believe, can restore the economic decline in the agricultural industry. The only government support they required, was for the NZ Government to protect the agricultural sector against foreign economic threads like dumping, subsidisation, restrictive exchange controls etc.

Up to 1986, New Zealand used to be a nett importer of basic agricultural produce, Millions of Rands of dairy products, meat, poultry and grain were imported from South Africa at the time.

The NZ farmers came to agreement to work together in a system of specialised cooperative farming, where each farming enterprise undertook to specialise in a particular faset of the agricultural process.

In dairy farming, the system of specialised cooperative farming required that a farmer whose farming operation is best suited for pasture development, will revert to the establishment of, exclusively, pasture grazing, while a second farmer who may be better equipped for animal husbandry, will concentrate on rearing the most productive cows for milk production.

A third entity, separate from both the above, will concentrate on the most scientific milking practices and systems as well as the distribution of fresh milk and value adding. This meant that all three operations could be shared by three distinct farming enterprises, each one with its own identity and responsibility.

This system made it possible that the cattle owner, scientifically breed and develop his cow stock, allow it to graze on the pasture owner’s lands, which in turn was scientifically developed by the pasture owner to render optimal growth and nutritional value, and have the cows milked at the milking facility, which specialises in best practice milking procedures and fresh milk distribution.

A fourth, value adding component, who specialises in secondary dairy manufacturing like for instance powdered milk, yoghurt, cheese, butter etc. is responsible for this function in the value adding chain.

The same principles were also applied in beef and poultry production, where the livestock owner, grazing pasture/ broiler facility owner, abattoir, and meat/egg processing facility, each operated as a separate profit centre.

Also in cash cropping and vegetable farming, the land owner from whom the fields are rented, the owner of the tractors and implements required for crop production, the crop owner, milling and distribution and secondary food production such as vegetable oils, margarine, cereals etc. all functioned as separate profit centres.

This system of specialised cooperative farming enabled the NZ agricultural industry to move, in a period of no less than fifteen years, from a position of nett importer to nett exporter of agricultural produce.  

Communal farming is nothing new to the African people and in most Africa regions, communal farming is the accepted rule rather than the exception.


All is not gloom and doom 

The good news is that there is hope!

If we do ‘WHAT IS RIGHT’ Africa can become the Kitchen of the World.

With the assistance of visionaries, Africa can be the Phoenix of the world. The bird that rose from the ashes.

With the necessary political will and with the knowledge and skills that we have at our disposal, we can lay the necessary foundation for Economic success in Africa.