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

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

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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

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BOTSWANA IN MACRO CONTEXT 4

Investment Grade

IMF Forecasts for Growth of Sub-Saharan Countries 2013-2018

Democratic Republic of the Congo 8.1 Mozambique 8.0 Côte d'Ivoire 7.7 Ethiopia 7.2 Rwanda 7.1 Tanzania 6.9 Nigeria 6.8 Uganda 6.7 Ghana 6.3 Malawi 6.2 Kenya 6.2 Angola 5.8 Zambia 5.8 Morocco 5.0 Senegal 4.7 Lesotho 4.7 Mauritius 4.3 Namibia 4.3 Botswana 4.1 Zimbabwe 4.1 Algeria 3.6 Egypt 3.5 South Africa 3.1 Swaziland 0.3 Source: IMF WEO, Oct13

Current account balance (% of GDP) 2012 Angola 12.1 Nigeria 7.8 Zambia 0.0 Egypt, Arab Rep. -2.7 Botswana -5.5 South Africa -6.3 Uganda -11.2 Mauritius -11.2 Rwanda -11.6 Tanzania -12.9 Mozambique -35.4 Source: The World Bank in Econometrix

2012 DIRECT INVESTMENT TRENDS

Source: World Bank

 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%

AGRICULTURE IN AFRICA & SADC 9

Resources In Africa Key resource % of world reserves Platinum 89 Diamond 66 Cobalt 56 Chromium 37 Manganese 34 Gold 16 Gas 8 Crude Oil 9 Coal 5 Copper 5 Agriculture 60 Source: Where to Invest in Africa Report, RMB & Econometrix

Data as at September 2012

SACU TOP 10 TRADED AGRI PRODUCTS

Is there any product Botswana can identify with?

In food security complex you either produce or consume.

Export Import

Citrus Wheat

Maize Rice

Wine Palm oil

Grape Meat & offal poultry

Wool Soyabean oil cake

Apples, pear, quince Sunflower & cotton seed oil

Juices Cotton

Sugar Tobacco

Reserved fruit & nut Preparation in animal feed

Food preparation Coffee

51 ml 45 ml 11

SACU TOP 10 TRADING PARTNERS

Very few countries in SADC region (even Africa) trade with SACU

Where is Botswana in the list?

Export Import

UK Argentina Netherlands Brazil Zimbabwe United States Mozambique Thailand Germany UK Angola China Korea Malysia US Indonesia Hong Kong India Italy Australia

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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?

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STATE OF AGRICULTURAL DEVELOPMENT AND INVESTMENT APPROACH

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AGRO INVESTMENT DEPENDS ON PHASE OF AGRICULTURAL TRANSFORMATION: 5 PHASES

  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

Getting agriculture moving Making agriculture contribute to the economy Integrating agriculture into the macro-economy Agriculture in industrial economies

CONTRIBUTION OF AGRICULTURE GENERALLY UNDER-ESTIMATED. NEED TO RESTATE

Quant (2011) Qual

GDP 2,4% - 3 % (R140 billion GV)

GY (R131bn) & GDP (R63bn) increasing

Employment 9 % (800000 w)

Primary sector job decline

Forward Linkages: Output supply for manufacturing

+68% All value is linked forward (R140 bn)

Backward Linkages: Agric demand for intm inputs

R79 bn Fuel, Fert, Feed, material etc.

Foreign exchange: Agric trade (x+m)

(+R51 – R45)bn Net exporter of food

Value of trade R96 bn

Food security state Self reliance (From income to price insecurity) 16

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Agriculture position in food security driven by mainly the nature of the input and output markets

Output market

s

Input market

s

  Food production stability and profit era:

  Agric output markets value increasing

  Use of cheaper and accessible input

  Focus on production

  Cost price squeeze:

  Inputs becoming more expensive than output price

  Support & incentives sustained agriculture contribution

  Focus on production

  Output market deregulation:

  Output markets becoming volatile

  Output market intelligence guiding decision making

  Focus on profit

  Agric in market economy

  Output /input markets becoming volatile & cyclical

  Forward decision making

  Vulnerability to food availability due to focus on profit

1990 2000 1948?

Mar

ket v

alue

/ins

tabi

lity

  International vs domestic dev

  Intensify agri support

NATURE OF INPUT/OUTPUT MARKETS

Food Production Stability

Cost Price Squeeze

Output Market Deregulation

Agriculture in market economy

Output value increasing

Output value decelerating

Output market volatile

Output / inputs markets volatile

Inputs cheaper & accessible

Inputs costs accelerating

Input cost increase steadily

Performance cyclical

Invest in Production

Invest in subsidy Invest in information

Forward decision making

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CREATING RESPONSIVE INVESTMENT MECHANISMS

FR / RA * Intervention/Instr Prosperity level Source of Finance

Low-FR:Low-RA Zero interest (waver) / grants

Poverty alleviation / Subsistence farmers

Government / F&F

Low-Increasing FA: Low-Declining RA

Long/ medium-term finance / Subsidised i

Transition / Transforming farmer

Development Finance

High-Increasing FA: High-Volatile RA

Medium /Short term finance /Discounted i

Income generation / Commercial Farmer

Dev finance / Private finance

High-Volatile FA: High-Volatile RA

Short-term finance / Investment / Spec

Wealth Creation / Agribusinesses /

Private finance / Fund managers (training)

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* FR = Financial Requirements; RA = Repayment Ability

MARKET IMPERATIVES DRIVING AGRICULTURE IN 21ST CENTURY

 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 consumer queendom

Business focus: Market structure: Service sector: Market system: Driver of demand:

21 MARKET IMPERATIVES DRIVING AGRIBUSINESS

 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)

Purpose of farming: Financing : Approach of

participation:

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

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MITIGATING RISK FACTORS

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•  Drought •  Floods

•  Carbon emission •  Acid mine drainage

•  Animal diseases and export ban •  Plant diseases and quality

•  Human factors (crime/ theft) •  Animal factor (predation)

AGRO-INDUSTRY STRATEGIES

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• 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?).

INVESTMENTS IN AGRI- VALUE CHAIN

FINANCE

Balance Sheet

Cash flow

Input Supply Farm Business

Agri-business Food Retail

Land & Fixed Assets Value

Income & Sales potential

Knowledge

LAND BANK BUSINESS MODEL   Introduction of SAM

  Establishment of REM

  Refocusing of the approach to have

maximum impact

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RE

M

Str

ate

gic

P

rio

riti

es • Maturity to commercial

farmers

• Development impact a priority

• Less focus on profit

• Creation of new farmers

Government funding

Multilateral funding

Land Bank

Retail Emerging Markets

Retail Commercial Banking;

Business & Corporate Banking

Land Bank Insurance Company

% profit for development

% profit for development

Launch: Land Bank History Book (23 April 2013)

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. 27

KGOTSO! PULA! PULA! PULA E NE!

Thank you!

Africa: Judicial independence

Country 2005 2010 Change in rating

Botswana 7.2 7.3 0.1 Rwanda n/a 7.0 n/a South Africa 7.6 6.6 -1.0 Mauritius 6.1 6.4 0.3 Egypt 6.4 6.3 -0.1 Malawi 5.9 5.6 -0.3 Ghana n/a 5.1 n/a Tunisia 6.8 5.1 -1.7 Uganda 4.6 4.6 0.0 Nigeria 3.6 4.5 0.9 Tanzania 4.9 4.4 -0.5 Morocco 4.1 4.3 0.2 Zambia 2.9 4.1 1.2 Ethiopia 2.0 3.5 1.5 Kenya 3.3 3.2 -0.1 Cameroon 2.1 2.9 0.8 Senegal n/a 2.9 n/a Mozambique 2.5 2.8 0.3 Zimbabwe 1.1 2.7 1.6 Algeria 4.6 2.5 -2.1 Angola 3.1 2.4 -0.7 Cote d'Ivoire n/a 1.3 n/a Congo, Dem. R. n/a na n/a Source: Economic Freedom of the World:2012 Annual Report

Africa: Legal System & Property Rights

Rank Country 2005 2010 Change in rating

35 Botswana 6.5 6.8 0.3 37 Rwanda 3.0 6.7 3.7 44 Tunisia 7.0 6.5 -0.5 50 Mauritius 5.7 6.2 0.5 56 Morocco 6.2 6.0 -0.2 64 Tanzania 5.7 5.7 0.0 67 South Africa 5.9 5.7 -0.2 68 Zambia 5.2 5.7 0.5 71 Ghana 4.9 5.6 0.7 76 Malawi 5.0 5.5 0.5 77 Ethiopia 4.7 5.4 0.7 83 Egypt 5.5 5.2 -0.3 89 Uganda 4.7 5.1 0.4 100 Kenya 4.5 4.6 0.1 107 Algeria 5.3 4.4 -0.9 109 Senegal 3.8 4.4 0.6 118 Mozambique 3.2 4.2 1.0 121 Cameroon 3.5 4.0 0.5 124 Nigeria 3.6 4.0 0.4 127 Zimbabwe 3.5 3.9 0.4 130 Angola 3.2 3.7 0.6 138 Cote d'Ivoire 3.1 3.0 -0.1 142 Congo, Dem. R. 2.1 2.4 0.4

Source: Economic Freedom of the World:2012 Annual Report

Efficacy of corporate boards (corporates governance)

2013/14 Rank Country Score 1 South Africa 6.0 26 Mauritius 5.0 40 Morocco 4.9 39 Rwanda 4.9 41 Zambia 4.9 50 Botswana 4.8 55 Cameroon 4.8 46 Cote d'Ivoire 4.8 45 Senegal 4.8 60 Zimbabwe 4.7 67 Uganda 4.6 74 Kenya 4.5 79 Malawi 4.5 91 Ghana 4.4 102 Tanzania 4.2 113 Mozambique 4.1 108 Nigeria 4.1 139 Ethiopia 3.7 141 Egypt 3.6 143 Algeria 3.5 Source: World Competitiveness Report

RMB's Ranking of the most attractive countries for investment in Africa( the higher the score, the

better) Rank Country

1 South Africa 2 Egypt 3 Nigeria 4 Ghana 6 Morocco 8 Ethiopia 9 Kenya

10 Tanzania 12 Botswana 13 Zambia 14 Rwanda 15 Mauritius 16 Uganda 17 Angola 18 Mozambique 19 Cote d'Ivoire 20 Namibia 24 Madagascar 28 Malawi 31 DRC 41 Zimbabwe 42 Lesotho 45 Swaziland 47 CAR 52 Somalia

Note: As the score is dependent on the size and the growth rate of the economy, there is no minimum or maximum scoring Source: Where to Invest in Africa Report, RMB Data as at September 2012

Top 10 Countries providing a favourable macroeconomic backdrop for consumption growth

Rank Country

1 Nigeria

2 Ethiopia

3 DRC

4 Kenya

5 Tanzania

6 Egypt

7 Sudan

8 Uganda

9 Burkina Faso

10 Mozambique

Source: Where to Invest in Africa Report, RMB

Africa: Integrity of the legal system

2010 Tanzania 8.3 Morocco 8.3 Tunisia 8.3 Ethiopia 7.5 Zambia 6.7 Botswana 5.8 Egypt 5.8 Uganda 5.8 Algeria 5.0 Angola 5.0 Malawi 5.0 Mozambique 5.0 Senegal 5.0 Zimbabwe 5.0 Cote d'Ivoire 4.2 Ghana 4.2 South Africa 4.2 Cameroon 3.3 Kenya 3.3 Nigeria 3.3 Congo, Dem. R. 1.7 Mauritius na Rwanda na

Source: Economic Freedom of the World:2012 Annual Report

Africa: Legal enforcement of contracts

2010

Tanzania 6.1 Ghana 5.4 Morocco 5.1 Nigeria 5.1 Ethiopia 4.9 Tunisia 4.9 Zambia 4.6 Mauritius 4.5 Algeria 4.4 Kenya 4.1 Botswana 4.0 Uganda 4.0 Rwanda 3.9 South Africa 3.9 Egypt 3.4 Senegal 3.4 Malawi 3.1 Cote d'Ivoire 2.5 Zimbabwe 2.4 Angola 2.3 Cameroon 2.2 Congo, Dem. R. 0.9 Mozambique 0.0

Source: Economic Freedom of the World:2012 Annual Report