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African Development Bank Group
T
ACCELERATING AGRO-MANUFACURING TO FEED AFRICA
JOHN C. ANYANWU*
&
MAWUKO KPONNOU*
DEVELOPMENT RESEARCH DEPARTMENT
AFRICAN DEVELOPMENT BANK
ABIDJAN, COTE D’IVOIRE
PAPER PRESENTED AT THE AEC 2016, TRANSCORP HILTON, ABUJA, NIGERIA, 5-7
DECEMBER 2016
* The views expressed here are those of the authors and in no way reflect those of the AfDB and its
Executive Directors.
Outline of Presentation
I.
INTRODUCTION & MOTIVATION
II.
THE POSITION AND ROLE OF FOOD
MANUFACTURERS IN THE FOOD SUPPLY
CHAIN
III.
SOME STYLIZED FACTS
IV.
THE DATA AND MODEL
V.
EMPIRICAL RESULTS
VI.
POLICY IMPLICATIONS
2
INTRODUCTION & MOTIVATION
3
Introduction & Motivation
•
•
•
Agriculture can be a basis for manufacturing, particularly by increasing agromanufacturing and other agribusiness, to feed Africa, reduce poverty
(especially in the rural areas), create jobs (especially for women and the youth),
generate income for farmers & foreign exchange, achievement of selfsufficiency in food supply, enhance the competitiveness of processed export
products, and speed up long-term structural change, the technology and
innovation needed for productivity growth.
It is therefore important to explore the forces shaping value-added food,
beverage and tobacco industries (International Standard Industrial
Classification (ISIC) codes 15 and 16) and their implications for feeding Africa.
This study will also help point the way towards the attainment of Sustainable
Development Goal (SDG) 9, which is to “build resilient infrastructure, promote
inclusive and sustainable industrialization and foster innovation”. In
particular, Goal 9.2 aims at promoting inclusive and sustainable
industrialization and, by 2030, significantly raising industry’s share of
employment and gross domestic product, in line with national circumstances,
and doubling its share in least developed countries.
4
Objectives of the Paper
•
This paper extends and contributes to the literature on substantially increasing
agro-manufacturing value added development in Africa in four ways:
 Firstly, we show why agro-manufacturing development matters and hence
why policymakers need to put high and increased focus on it so as to scale
it up substantially.
 Secondly, we document stylized facts on recent agro-manufacturing
(especially the food, beverages and tobacco component - a downstream
agribusiness activity) development in Africa.
 Thirdly, the paper empirically assesses the proximate determinants of
food, beverages and tobacco (FBT) manufacturing value added in the
continent using a time series cross-sectional data set of 31 African
countries (1990 to 2011) with a view to drawing key lessons for African
countries.
 Fourthly, we offer policy suggestions in light of the evidence that would
help African countries to effectively tackle the problems hindering food,
beverages and tobacco (FBT) manufacturing development in the continent
with a view to scaling up and “breaking into” substantial agromanufacturing development across the continent.
5
THE POSITION AND ROLE OF
FOOD MANUFACTURERS IN THE
FOOD SUPPLY CHAIN
6
The Position and Role of Food Manufacturers
in the Food Supply Chain
 The food system represents one of the most significant components of the
African economy. African countries’ food system provides the population
with a variety and widely available supply of food. It does so through a
supply chain of producers, manufacturers (processors), and distributors
that provide food to consumers.
 Figure 1 (below) illustrates the position and role of food manufacturers in
the multilayered, dynamic, and multi-purposed food supply chain.
 The permeable borders of this dynamic food system connect it both to a
global food system and to a diverse, changing broader economy and
society.
 One of the major characteristics of the agro-manufacturing sector is its
strong up- and down-stream linkages.
 Upstream, the agro-manufacturing sector links to primary agriculture across a
variety of farming models and products.
 Downstream, its outputs are both intermediate products to which further value
is added and final goods, which are marketed for final consumption through
wholesale and retail chains as well as a diverse array of fast-food franchises,
restaurants, and pubs.
7
Figure 1: The Position and Role of Food
Manufacturers in the Food Supply Chain
Source: Adapted from Institute of Medicine (IOM) and National Research Council (NRC) ((2015).
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SOME STYLIZED FACTS
9
The Structure of Total Manufacturing Value
Added in Africa, 1990-2011
Source: Authors, using data from World Bank’s Online Database.
10
FBT MVA (%GDP) in North Africa is about half of that in
Sub-Saharan Africa
downward trend
–
with
both
recently
Source: Authors, using data from World Bank’s Online Database.
on
the
11
Africa - Top Ten Countries By Food, Beverages &
Tobacco MVA, 1990-2011
Source: Authors, using data from World Bank’s Online Database.
12
FBT MVA and Economic Development (Inverted U-Shaped) –
and Significant Country Differences – And show that FBT MVA
is generally lower in Relatively Richer Countries
Figure 5: FBT MVA-Economic Development: A Kuznets’ Curve (Inverted-U-Shaped)
Relationship
Source: Authors, using data from World Bank’s Online Database.
13
THE DATA AND MODEL
14
Table 1: Descriptive Statistics of Main
Regression Variables
Variable
Food, beverages & tobacco (FBT)
MVA (% of Total MVA)
Log Real GDP per capita
Domestic investment (%GDP)
Government consumption
expenditure (%GDP)
Household consumption expenditure
(%GDP)
Trade openness
FDI inflows (%GDP)
Domestic credit to private sector
(%GDP)
Oil rent (%GDP)
Mining rent (%GDP)
Natural gas rent (%GDP)
Coal rent (%GDP)
Forest rent (%GDP)
Arable land (%of total land area)
Log of population
Age dependency ratio - Old
Age dependency ratio - Young
Mobile cellphone subscriptions (%)
Secondary school enrolment ratio
Social Globalization Index
Political Globalization Index
Institutional Democracy (Polity2)
Observations
349
Mean
37.64
Median
35.3
Standard Deviation
18.81
1106
1070
1043
7.82
21.52
16.05
7.65
19.5
14.7
1.02
17.17
7.67
1041
73.55
74.6
21.98
1091
1100
1077
76.55
4.02
19.57
64.1
1.7
13
49.18
10.14
21.46
1103
1134
1120
1124
1109
1163
1188
1188
1188
1160
6.12
1.19
0.54
0.04
6.71
12.21
15.63
6.38
80.16
14.24
0
0
0
0
0
9.2
15.95
5.9
83.1
0.8
14.74
3.45
2.10
0.34
8.46
12.08
1.56
1.58
15.45
26.34
683
1163
1163
1120
38.61
25.85
53.06
-0.001
32.8
23.4
51.91
-1.0
25.97
11.24
18.97
5.50
Source: Authors’ calculations, using data estimation data.
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The Empirical Model
where FBTMVAit is the measure of food, beverages and tobacco MVA as percentage of total
MVA in country i at time t; 0 is the constant term; 1 is the elasticity of FBT MVA with
respect to real per capita GDP (international PPP) in 2005, rgdppc; 2 is the FBT MVA
elasticity with respect to quadratic real per capita GDP;
X is the control variables,
including government consumption expenditure (as % of GDP), household consumption
expenditure (as % of GDP), trade openness, FDI inflows (as % of GDP), domestic credit to
the private sector (as % of GDP), natural resource rents as percentage of GDP (oil, mining,
natural gas, coal, and forest), and arable land (as % of total land area). Other control
variables are total population (in log), age dependency (old), age dependency (young),
information and communications technology (ICT) accessibility (proxied by mobile phone
subscriptions (percent)), secondary school enrolment (education), social globalization
index, political globalization index, and institutionalized democracy (polity2). In addition,
λi and δi denote sub-regional/country and year fixed effects, respectively, while εit is an
error term capturing all other omitted factors, with E(εit) = 0 for all i and t.
16
EMPIRICAL RESULTS
17
EMPIRICAL RESULTS
Table 2: IV-2SLS Estimates of the Determinants of FBT Manufacturing Value Added (% of MVA)
Variable
Africa
Sub-Saharan Africa
North Africa
Log Real GDP per capita
164.467 (3.87***)
117.145 (1.87*)
803.872 (3.56***)
Log Real GDP per capita squared
-10.722 (-4.13***)
-7.690 (-2.01**)
-50.687 (-3.76***)
Domestic investment (%GDP)
0.677 (3.45***)
0.020 (0.06)
0.737 (2.72***)
Government consumption
1.083 (3.29***)
0.834 (2.09**)
-1.658 (-1.73*)
expenditure (%GDP)
Household consumption expenditure
0.863 (5.61***)
0.703 (3.48***)
2.763 (10.49***)
(%GDP)
Trade openness
-0.507 (-5.56***)
-0.232 (-1.78*)
-0.834 (-8.89***)
FDI inflows (%GDP)
0.140 (0.45)
0.271 (0.74)
0.107 (0.36)
Domestic credit to private sector
-0.153 (-2.30**)
0.155 (-1.31)
0.344 (4.43***)
(%GDP)
Oil rent (%GDP)
2.117 (10.62***)
1.842 (6.90***)
5.244 (6.21***)
Mining rent (%GDP)
0.815 (1.57)
-0.434 (-0.55)
2.114 (3.46***)
Natural gas rent (%GDP)
1.683 (3.12***)
-15.872 (-1.20)
-1.423 (-2.69***)
Coal rent (%GDP)
2.325 (2.10**)
2.276 (1.69*)
Forest rent (%GDP)
0.872 (2.61**)
0.662 (1.68*)
-21.135 (-2.82***)
Arable land (%of total land area)
0.920 (6.89***)
1.049 (6.45***)
4.273 (3.57***)
Log of population
-11.548 (-4.74***)
-7.211 (-1.61)
0.344 (4.43***)
Age dependency ratio - Old
-1.499 (-0.96)
-7.969 (-2.81***)
Age dependency ratio - Young
-0.002 (-0.01)
-0.036 (-0.13)
Mobile phone subscriptions (%)
0.159 (2.44**)
0.344 (2.79***)
-0.040 (-0.66)
Secondary school enrolment ratio
0.029 (0.34)
-0.325 (-1.85*)
0.525 (4.75***)
Social Globalization Index
0.665 (4.45***)
1.300 (4.31***)
-2.662 (-6.29***)
Political Globalization Index
0.179 (2.35**)
0.205 (1.97**)
Institutional Democracy (Polity2)
-0.081 (-0.31)
-0.410 (-1.33)
3.676 (2.44**)
Constant
-494.419 (-3.31***)
-339.149 (-1.65*)
-3492.69 (-1.97**)
Time Dummies
Yes
Yes
Yes
Sub-region dummies
Yes
Yes
No
Country Dummies
No
No
Yes
R-squared
0.8802
0.8959
0.9912
Wald chi2
1140.66
991.34
4835.15
Prob > F
0.0000
0.0000
0.0000
N
155
115
43
Sargan test
2.46029 (p=0.2923)
1.5062 (p=0.2197)
1.8794 (p=0.1704)
Basmann test
1.7903 (p=0.4085)
0.96880 (p=0.3250)
0.22852 (p=0.6326)
Durbin test
4.53387 (p=0.1036)
1.61331 (p=0.4463)
0.683974 (0.7104)
Wu-Hausman test
1.67233 (p=0.1925)
0.51222 (p=0.6013)
0.03233 (p=0.9684)
Note: t-values are in parentheses; ***= 1% significant level; **=5% significant level; *=10% significant level.
Source: Authors' Estimations.
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EMPIRICAL RESULTS
• Economic Development
 Inverted U-shaped relationship (Kuznet’s curve) with FBT MVA in both the
overall Africa sample and in the SSA and North African samples, inflection
point being at about US$4570 for the whole of Africa, given other factors.
• Natural Resource-dependence
 Not all resources are “born” equal as they relate to FBT MVA:
 Oil dependence has significant positive association with FBT MVA in both
all-Africa, SSA and North Africa estimations;
 Mineral resource dependence has significant positive association with North
Africa’s FBT MVA;
 Natural gas dependence has significant positive association in the All-Africa
case but has significant negative association with North Africa’s FBT MVA;
 Dependence on coal and forest resources have significant positive
association with FBT MVA in all-Africa and SSA results;
 Dependence on forest resources has significant negative association with
FBT MVA in North African countries; and
 The proportion of land that is arable is positively and significantly associated
19
with a higher FBT MVA in Africa as whole, in SSA and North Africa.
EMPIRICAL RESULTS (Contd.)
• Macroeconomic Variables
 Domestic investment rate has positive and highly statistical significant
effect on FBT MVA in all-Africa data and North Africa samples;
 Government expenditure as a percent of GDP, increases FBT MVA in allAfrica and SSA but reduces same in North Africa; and
 Household consumption expenditure as a percent of GDP is positively and
significantly associated with FBT MVA in both all-Africa, SSA and North
Africa samples.
• Credit to the Private Sector
 The credit variable has a negative and statistically significant effect on FBT
MVA in the all-Africa estimation but a positive and significant effect in the
North Africa estimation.
• Globalization
 Trade openness significantly reduces FBT MVA in all three sample groups;
 Social and political globalization are positively and significantly associated
with FBT MVA in the all-Africa and SSA estimates but social globalization is
negatively and significantly associated with FBT MVA in North African
20
countries.
EMPIRICAL RESULTS (Contd.)
• Demographic Variables
 Population is negatively and significantly related with FBT MVA in the allAfrica estimation but has a strong positive relationship with FBT MVA in
North African countries; and
 Age dependency ratio (old) is strongly negatively related with the FBT MVA
in Sub-Saharan Africa.
• ICT Infrastructure/Technology
 ICT infrastructure/technology variable is positive and highly statistically
significant in the all-Africa and SSA estimations.
• Human Capital
 Secondary education enrollment is positive and statistically significantly
correlated with FBT MVA in North Africa but the reverse is true for SSA.
• Institutionalized Democracy
 Institutionalized democracy is positive in sign and significant at the 5
percent level in North Africa only.
21
POLICY IMPLICATIONS
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POLICY IMPLICATIONS
•
•
•
To increase per capita income towards the necessary threshold,
African countries must deepen macroeconomic and structural reforms to
increase their competitiveness, dismantle existing structural bottlenecks to
private and public investment, scale-up productive investments in hard and soft
infrastructure, and increase productivity through creating incentives and
opportunities for the private sector and increasing government support to
SMES in terms of low-interest finance, among others.
To mobilize the needed funds, African countries need tax reforms for fair
and efficient tax systems, improved tax administration, deepened tax-base,
diversified tax mix and encouragement of investment by the public and
private sector, including foreign ones by creating an enabling environment.
Pursue government expenditure effectiveness through the adoption of
high level best practice principles: a nationally coordinated approach to the
development of significant strategic projects and programs; and the promotion
of competitive markets; decision-making based on rigorous cost-benefit
analysis; a commitment to transparency at all stages of the decision-making and
project implementation processes; and a public sector financial management
regime with clear accountabilities and responsibilities.
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POLICY IMPLICATIONS (Contd.)
•
•
•
To make globalization work for increased FBT MVA, local resources
need to be deployed in adequate quantities to produce goods for the external
market. In addition, domestic production capabilities have to be put into place
in order to exploit trade opportunities, increase response to international
competition, and improve technology.
For domestic credit to work for the FBT MVA and feed Africa, lending
rates reduction is imperative while developing the requisite lending expertise,
mechanisms for monitoring, and supervisory and regulatory skills of operators
of the African financial system.
African countries with abundant natural resources need prudent
institutions to manage revenues from resource exports so as to avoid
undue currency appreciation and underinvestment in physical and human
capital. Indeed, efficient management of natural resources in Africa requires
actions throughout the value chain. IFIs have a critical role to play in helping
African countries acquire the much-needed capacity not only to negotiate
beneficial contracts and earn higher natural resource rents but also for effective
management of those rents. A new natural resources management framework
is needed for better governance, sectoral linkages, human, capacity,
infrastructure and manufacturing development – with strong parliamentary
legislation, oversight, and representation throughout the resources value chain.
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POLICY IMPLICATIONS (Contd.)
•
•
Develop and implement policies that promote the up-skilling, better
training and education for the low-skilled workforce. Complement
formal education with technical and vocational education and training (TVET).
TVET builds on formal education to deliver specialized technical training and
calls for a skilled workforce capable of operating state-of-the-art technologies.
The promotion of effective democracy requires political will,
commitment, good governance (including the control of corruption,
transparency and accountability, the rule of law, government effectiveness, and
political stability), inclusive development, enhancing and maintaining effective
rule of law, and implementing greater economic and political inclusion,
especially in North Africa.
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Thank you
for
your kind attention
26