South Africa’s agro-processing ripe for FDI
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South Africa’s agro-processing ripe for FDI

North West tourism sector ripe for investment

By Lebo Madiba

South Africa’s presence at the Expo 2020 Dubai has brought a bit of vibrancy and colour to the Middle Eastern city, as local artists and innovators showcased their talents to a global audience. But while they were great ambassadors at the Expo, it is the country’s trade and industry that has been garnering attention – especially the agro-processing sector.

From the gigantean Karsten Farms on the banks of the Orange River to the one-man Spinach King in Khayelitsha, South Africa has a storied agriculture sector. Numerous innovations have sprouted over the centuries as a result of having to survive in an arid landscape and austere economic conditions. Such innovations have brought to life wine, fruit and dairy industries for which South Africa is world famous.

Currently, the country’s diverse primary agriculture is attractive to investors who are interested in improving the globe’s food security in the future. Food security is one of the United Nations’ 17 Sustainable Development Goals for the year 2030. Studies have shown that by 2050, we would need to feed two-billion more people than there are today. Demand for food will be 56% greater than it was in 2010.

The agro-processing sector – tied heavily to primary agriculture – has experienced a surge in growth despite the advent of the Coronavirus last year. The sector accounts for 3.8% of South Africa’s GDP and 5.7% of total merchandise export earnings in 2020. Collectively they employ approximately 245,000 people.

According to the Department of Trade and Industry, over 7 000 businesses are involved in food processing, most of which are large enterprises. “The agro-processing industry has been the backbone of agriculture as it provides for beneficiation of raw products into niche goods that are ready for market.”

Currently, Food processing exports are valued at R60.7-billion. Sugar (cane and beets) and unfermented fruit and vegetable juices are some of South Africa’s major exports in this niche market, making up 9.9% and 6.7% respectively.

South Africa’s biggest beverage exports amount to over R18-billion. Most of the revenue comes from the wine industry, which accounts for just over 55% of exports, and is valued at over R10-billion. It is the seventh biggest wine industry in the world with 529 wineries that produce up to 898-million litres of the beverage.

Growth potential exists

 

Agro-processing has the space to grow, but high capital investment and the scale needed to compete with the world market have stunted growth potential. This is in particular reference to staff development. “Agro-processing presents the country with a great avenue to curb its 34.4% unemployment rate. But finding good skilled and semi-skilled workers, training and retaining them are very costly to an industry scraping for resources.”

The South African economy experienced a depression during the Coronavirus lockdown. Agriculture trudged along and has experienced renewed growth in 2021. Government’s Economic Reconstruction and Recovery Plan (ERRP) places agro-processing high on its list of priorities and it understands the important role it plays in strengthening the country’s food security.

Government speculates that its Comprehensive Land and Agrarian Strategy will create some 317,000 jobs and over R80 billion in gross production.

Making agro-processing attractive

 

Agro-processing will receive a major boost thanks to adjusted industrial policy incentives that will reduce the risks that come with project development and funding. The intention is to increase agro-processing competitiveness and make the industry more attractive to investors. Government strategies are in place to enhance agro-processing and primary agriculture. These include:

  • Allocation of around 700,000 hectares of under-utilised land for both commercial and subsistence farming
  • Creation of buying and market linkages to reduce market risks for producers
  • Research and development of smart technologies in agriculture. This includes support for sustainable agriculture technology in hydroponics, agri-related renewable energy technologies, drones and mobile communications applications.
  • Development of district level Commodity Corridors and Commodity Production Schemes through the Comprehensive Land and Agrarian Strategy.
  • Assistance to farmers in extracting value from their assets through Agri-parks and Farmer Production Support Centres.

Investors looking at South Africa’s agro-processing will be surprised to find that numerous unique agricultural products are ripe for beneficiation. Meat processing, particularly of ostrich, and the production of aromatics, flavourants, biofuels and medicinal extracts, particularly cannabinoids, have room to grow. South Africa’s agro-processing presents the investor with highly diversified, market-oriented and globally competitive exporting capabilities. It has the ability to evolve with changing times.