Leveraging investments in agriculture for prosperity

1. Leveraging investments in agriculture for prosperity Moraka N MAKHURA (Land Bank) Land & Agricultural Development Bank of South Africa Presented at the Botswana Investment & Trade Conference , Botswana Conference & Exhibition Centre; Gaborone, 20-21 Oct 2013

2. From IQ to EQ to AQ!

7. Key messages • The Friend(ship) of the Farmer & Agri Activism • Botswana, a sparkling spot to be made bright (ie positive macro fundamentals ready 4 sustenance) • Low agri-intra regional trade defies logic of agro-ecological diversity (comparative advantage) • Agri investments to be guided by phases of agric • Sustainable agro investments to respond to basic drivers of production and development • Mitigate inherent risk in agriculture

8. Introduction • Agriculture plays a multipurpose role: food, natural resource management, and wealth creation • Leveraging investments in agriculture requires broader understanding • This presentation covers: macroeconomic position of Botswana in the continent, agriculture, and enabling environment

9. Botswana in macro context

10. Investment Grade

13. 2012 Direct Investment Trends • Sub-Saharan Africa +5.5% • Other developing countries -6.6% • Share of Sub Saharan Africa in World direct investment: • 2007: 3.2% 2012: 5.6% Source: World Bank

14. Agriculture in Africa & SADC

16. Is there any product Botswana can identify with? In food security complex you either produce or consume. SACU top 10 Traded Agri Products

17. Very few countries in SADC region (even Africa) trade with SACU Where is Botswana in the list? SACU top 10 Trading Partners

18. Regional Agricultural policy (RAP) • STRATEGIC OUTCOMES • Production, productivity and competitiveness • Regional and International Trade of Agricultural products • Private and Public Sector Engagement and Investment in the Agricultural Value Chains • Reduced Social and Economic Vulnerability • VISION:From poverty focused policy to prosperity or wealth creating agriculture?

19. State of agricultural development and investment approach

20. AGRO INVESTMENT DEPENDS ON PHASE OF AGRICULTURAL TRANSFORMATION: 5 phases Getting agriculture moving Making agriculture contribute to the economy Integrating agriculture into the macro-economy Agriculture in industrial economies • through institutional change, technology, incentives and infrastructure (Mosher): • Food deficit: Quest for food self sufficiency • Invest in technology & institutions • linkages with industry, create healthy agric sector, mobilise resources (Johnston-Melor): • Realisation of food self-sufficiency • Invest in resources to make agric viable • responding to macro-economic instruments, efficiency, resources out, rural/urban disparities (Schultz-Ruttan): • Vulnerability due to less focus on production • Invest in information & insurance • small share of agric, unemployment & need for labour in agriculture, income disparities (DG Johnson) • Food self reliance • Invest in human capacity & WC

21. Contribution of agriculture generally under-estimated. Need to restate

22. Output markets Agriculture position in food security driven by mainly the nature of the input and output markets • Cost price squeeze: • Inputs becoming more expensive than output price • Support & incentives sustained agriculture contribution • Focus on production • Food production stability and profit era: • Agric output markets value increasing • Use of cheaper and accessible input • Focus on production Input markets Market value /instability • Agric in market economy • Output /input markets becoming volatile & cyclical • Forward decision making • Vulnerability to food availability due to focus on profit • Output market deregulation: • Output markets becoming volatile • Output market intelligence guiding decision making • Focus on profit • International vs domestic dev • Intensify agri support 1948? 1990 2000

23. Nature of input/output markets

24. Creating Responsive investment mechanisms * FR = Financial Requirements; RA = Repayment Ability

25. Market imperatives driving Agriculture in 21st Century Business focus: Market structure: Service sector: Market system: Driver of demand: • From business of farming to business of agriculture (value chain). • From single demand & supply to a series of more valuable demands and supplies linked with global markets • From cooperatives to corporations • ie from services to members to shareholder profit • From control boards to futures & food retail industry chains competing fresh produce & depots • From producer kingdom to consumerqueendom

26. Market imperatives driving Agribusiness Purpose of farming: Financing : Approach of participation: From food production to wealth creation From collateral (balance sheet) to value chain (income st) based financing. From creating business (agri entrepreneurs’ interest) to creating investment vehicles (investors’ interest)

27. Leveraging through factors of production • Land • Land investment; Land development; Agri entrepreneurs • Capital • Financial; institutional; human; • Labour • Human development; worker to entrepreneur! • Management • Infrastructure: green technology & water infrastructure

28. Mitigating Risk Factors • Drought • Floods • Carbon emission • Acid mine drainage • Animal diseases and export ban • Plant diseases and quality • Human factors (crime/ theft) • Animal factor (predation)

29. Agro-industry strategies • Continued support for strategic industries (maize, sugar). • Consider deficit industries (such as meat, wheat). • Counter-cyclical approach: target industries in distress (currently, sub-tropical fruit, sugar, milk). • Excluded/forgotten industries (cotton, sisal?).

30. investments in agri- value chain FINANCE Income & Sales potential Land & Fixed Assets Value Balance Sheet Cash flow Knowledge Farm Business Agri-business Input Supply Food Retail

31. Land Bank Business Model • Introduction of SAM • Establishment of REM • Refocusing of the approach to have maximum impact Government funding Multilateral funding % profit for development % profit for development Launch: Land Bank History Book (23 April 2013)

32. Considerations • Botswana has distinguished itself as a potential investment hub – need to continue a break the barriers of self-limitation to put foothold in agriculture. • Identify and communicate agro-ecological zones • Agri investments require strategic position and tactical response: identify strategic agro industries and develop agri-entrepreneurs, supporting institutions and water infrastructure. • Partnerships: agribusiness networks; agri-entrepreurs pairing; Vertical integration across the chain; Agri-coops for infant agro industries.

35. Kgotso! Pula! Pula! Pula e ne! Thank you!