Agribusiness is a broad concept which covers all actors and stakeholders involved in the agricultural value chain, from input suppliers to agro-processors but also traders, exporters and retailers. Hence, agribusiness encompasses both the farming and all other industries and services which constitute the supply chain from farm, through processing, wholesaling and retailing, to the consumer.

As disposable income, living standard, population, urbanization, foreign direct investment and food consumption are on the rise across the African continent, agriculture and agribusiness together are projected to be a US$ 1 trillion industry in Sub-Saharan Africa by 2030 – compared to US$ 313 billion in 2010.

Moreover, the political landscape is favorable to the development of agribusiness in Sub-Saharan Africa since most countries have made fighting hunger a priority in accordance with the 2003 Maputo Declaration. Although non-binding, this declaration fostered reform in the agricultural sector, setting broad targets of 6% annual growth in agricultural GDP and an allocation of at least 10% of public expenditures to the agricultural sector. As a result, on average, public agricultural expenditures have soared by more than 7% per year across Africa since 2003.

Investment opportunities also lie in the current untapped potential of African agribusiness, which has yet to know an agriculture revolution. Nearly 600 million hectares of uncultivated arable land can be found in Africa, which would allow tremendous development opportunities. Moreover, bringing African's agriculture to modern production standards represents a unique challenge. Mechanization, although an essential tool to improve productivity also remains very low, with West Africa featuring only 13 tractors/100km2 of arable land. This being said, in a global context where environment protection and climate change have become major issues, the development of Africa's agribusiness potential needs to be sustainably thought of to take into consideration today's imperatives of fighting climate change and preserving the environment.

The above figures highlight the paradox of investing in African agribusiness. On the one hand, the potential of agribusiness represents a multi-billion dollars market while, on the other hand, such figures provide an illustration of the structural complexities which could make it difficult for industry players to invest in Africa. Although appealing, these figures should not lead investors to follow an Africa-wide one-size-fits-all approach but rather a tailored country focused approach, taking into account regulatory, economic and infrastructure environments. Local markets greatly vary depending on geopolitics, infrastructures, supply-chain, land access and financial related matters.

This note summarizes the main legal challenges to agribusiness in Africa.

Developing key infrastructures through better PPPs and corporate PPAs

Between 2004 and 2018, more than 30 African countries have enacted laws governing PPPs. Such PPP frameworks are key to achieving infrastructure development which is paramount to unlocking Sub-Saharan Africa agriculture potential.

The lack of road, rail, port and airport infrastructures hinders the local and international marketing of agricultural products. The absence of a reliable electricity production and distribution network, and frequent electricity shortages, lessens the capacity to preserve fresh products, whether processed or not, and hence the ability of producers to meet the highest standards of hygiene and quality which are required to export such products.

Electricity generation and distribution capacities are key infrastructure to develop agribusiness in Africa and the lack of reliable access to affordable energy can be a significant impediment to investments in agribusiness. Such situation incentivizes stakeholders to explore alternative ways to secure access to power. In addition to PPPs and public utilities, other options can be explored to achieve reliable energy sources. Corporate PPAs are contracts under which a private entity purchases electricity directly from an energy producer. Hence, corporate PPAs differ from the traditional approach under which electricity is bought from licensed electricity suppliers. In Sub-Saharan Africa, corporate PPA are already used by large customers such as mines which have long been accustomed to generating their own power. Whether on grid or off grid, offsite or onsite corporate PPAs could be an innovative solution allowing agribusiness stakeholders to secure access to a reliable electricity source.

Towards a cooperative approach for developing agribusiness projects

Partnerships between the for-profit/non-for-profit private sector and public entities, although not technically PPPs, can be vectors of investment and opportunities in agribusiness. Such bipartite or multipartite agreements can offer useful mechanisms for risk sharing through which the barrier to market access for investors can be lowered. They can provide greater certainty for investors and can help overcoming the lack of an enabling regulatory environment, especially when a combination of market incentives and institutional mechanisms are merged into such agreements.

Such partnerships can be used to invest all along the agribusiness value chain and on a great variety of scales of investments in Africa. Recent examples ranged from US$200,000 to set up a laboratory for production of organic fertilizers in Kenya to US$156 million to increase domestic vegetable oil production in Uganda.

Securing access to land

Land registration in Africa is still at low levels which makes it cumbersome and expensive for investors to secure access to land. Only 10% of rural land are formally recorded which imply that the remaining 90% is held under customary law. Africa's land tenure instability results in high transaction costs and lack of transparency. Indeed, even for registered land, transferring it to investors is costly and slow. It takes twice as long and costs twice as much to transfer land in Sub-Saharan Africa than in OECD countries. Improving land policies is absolutely necessary to enable farmers to have access to land to for agribusinesses to acquire land for building purposed. Land can also be offered as collateral by landowners wishing to access financing.

Several examples across the continent highlight that some African countries are using their best endeavors to address land registration issues. Following the completion of their national land certification programs, Rwanda and Mauritius have computerized their land administration systems to improve efficiency in land transactions including land transfers and mortgages. As a result, in 2015 it took 32 days to transfer land in Rwanda and 14 days in Mauritius compared to 57 days for Sub-Saharan Africa and 22 days for OECD countries.

A growing population coupled with increased incomes places more pressure on available land for agricultural production. Land conversion can result in significant environmental damage, and it also raises human rights issues. Agribusiness investments might involve expropriation of local communities and resettlement of such populations. In addition to applicable legal frameworks in each jurisdiction, investors may also abide by expropriation and resettlement guidelines issued by the World Bank.

Enhancing added value through the value chain

Agriculture amounts to nearly 16% of Sub-Saharan Africa's GDP, with 51 million farms of which 80% are smaller than 2 hectares. Nonetheless, far from fully exploiting this potential, Africa continues to be highly dependent on food imports. Such imports amount in aggregate to around US$35 billion and this figure is expected to increase to US$110 billion by 2025. Similarly to what can be observed in the oil and gas or the mining industry, it is striking to notice that Africa exports raw agricultural material on the one hand but, on the other hand, imports transformed or refined food products. Hence, the entire agricultural value chain needs to be transformed for the sector to reach its full potential in Africa.

At the end of the value chain, exporting mainly raw products instead of more valuable processed products is refraining the development of a prosperous and inclusive agriculture sector although several local impediments can explain this situation such as the lack of transformation equipment, infrastructures and financial resources.

For Sub-Saharan African countries to be able to derive more added value from their agribusiness industry, the development a chain of stakeholders able to transform and process raw products locally is required. Several key industry players have already pledge to take their parts in this process. For instance, in 2014 Sodexo committed US$1 billion in spending to bring more micro-, small-, medium-sized enterprises, into its global supply chain, and in 2011 Heineken committed to locally sources 60% of the raw materials used in its African beer brands by 2020.

Local transformation of raw products would strengthen the network of stakeholders involved all along the agribusiness value chain and would benefit the greater African economy, through job and businesses creation and greater tax, wider economic impact and tax benefits for host States.

Access to inputs and fertilizers

The lack of productivity-enhancing inputs severely impedes African's agriculture from reaching its full potential. Increasing access to and use of efficient inputs, either seeds or fertilizer, by local farmers requires initiatives at several levels. Once more, this needs to be balanced with today's global imperatives of environment protection and human health. Enhancing productivity should hence be done as sustainably as possible.

Access to financing is also key as small farmers may not have access to the financial resources needed to buy such inputs. For instance, the IFC and the FAO proposed innovative financing solutions. Crop receipts are pre-harvest financing instruments issued by farmers and which are collateralized against the crops under production. The IFC and FAO have launched feasibility studies for the using of such crop receipt financing in Zambia and Uganda.

Regulating input markets is also important to ensure minimum quality and safety standards, especially given that compliance with American or European standards will impacts producer's ability to export their products to foreign markets. Additionally, to preserve the environment, certain types of inputs need to be used wisely and require a clear regulatory environment.

Agribusiness and Human Rights

Human rights are often at risks along the agriculture supply chain. In an environment where the way how companies and investors are dealing with human rights is subject to high scrutiny, the impact of an investment on human rights should be thoroughly assessed.

The agriculture supply chain is labor-intensive and often occurs in seasonal cycles, during which temporary and migrant workers are required. Temporary workers are often employed with short-term contracts which do not always include protections or benefits provided to full-time workers. Moreover, according to estimates from the International Labor Organization, 70% of child labor (around 108 million children) is concentrated in the agricultural sector.

Women's formal and informal work plays a crucial role in the economic development of Sub-Saharan African countries. With more than 64% of women working in the agricultural sector women are the backbone of African rural agriculture. It is estimated that they produce 80% of food resources. This high level of participation by African women in the labor market comes with challenging working conditions. In 2008, only 15.5% of women of active working age were employed. Not only are they discriminated against in the labor market, but their access to land is limited.

Whether it is about gender equality or child labor, investors should be cautious and run a human right due diligence over the development phase of the project and work with their counterparts to mitigate the risks, for instance in partnering with local partners or non for profit to create programs ensuring that children attend school instead of working in the fields.

Agribusiness' environmental impact

Agribusiness value chain is a significant producer of greenhouse gases and an important consumer of chemical inputs and of natural resources. For instance, accounting for approximately 70% of the world's water use, agriculture's impact on the availability of clean water is significant. Agriculture-based economies are completely dependent on water resources for economic production. Hence, in such context, the social, economic, financial, regulatory and reputational risks associated with a deteriorating environment are significant and should be taken into account by investors prior to any investment decision.

When considering where to invest, stakeholders should consider carefully the environmental impact of their contemplated investment, whether on water resources or on other aspects such as the use of primary forests or natural areas. Additionally, many lenders will require compliance with their environmental requirements. For instance, a number of commercial banks require compliance with the Equator Principles.

Finally, taking into account the fact that agriculture and land-use change are today's major emitter of greenhouse gases and hence significant contributors to global warming, the development of agribusiness needs to be balanced with the imperative of reducing the agriculture's sector carbon footprint.

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