1. Economic Report on Africa 2009 Economic Commission for Africa and African Union Commission Cairo, 7 June 2009 ECONOMIC REPORT ON AFRICA 2009 (ERA) WWW.UNECA.ORG Presented by UNECA & AUC Conference of Ministers of Finance, Planning and Economic Development, 6-7 June 2009, Cairo, Egypt Developing African Agriculture Through Regional Value Chains

2. Economic Report on Africa 2009 Economic Commission for Africa and African Union Commission Cairo, 7 June 2009 2 1.Global crisis hits hard on African economies 2.Strong growth prior to crisis because of policy and institutional reforms, less conflict, and favourable external conditions 3.Yet, not much more diversification. Agriculture remains key sector, but low productivity. Food crisis is still there 4.Strengthening agricultural development should be central, but using potential of integrated regional value chains: not just a green, but a rainbow revolution is needed! Main Messages Developing African Agriculture Through Regional Value Chains

3. Economic Report on Africa 2009 Economic Commission for Africa and African Union Commission Cairo, 7 June 2009 3 Global Economic Crisis and Africa’s medium-term Outlook The medium term outlook for the world economy remains bleak –World economy will shrink in 2009 (ERA, WESP 2009: update) –Sharply declining world trade –Commodity prices have come down –Increased cost of borrowing and falling private capital flows (FDI) –Weakening aid flows Implications for Africa: –Severe economic deceleration –Lower export revenues –Falling government revenue –Setbacks in poverty reduction and MDG achievement –Differences across countries Developing African Agriculture Through Regional Value Chains

4. Economic Report on Africa 2009 Economic Commission for Africa and African Union Commission Cairo, 7 June 2009 4 Africa’s GDP growth, 2007-2009 Developing African Agriculture Through Regional Value Chains

5. Economic Report on Africa 2009 Economic Commission for Africa and African Union Commission Cairo, 7 June 2009 5 Factors Influencing Strong African Growth Performance before Crisis (1) Strong demand for African commodities, resulting in high export prices up to mid 2008 Improved macroeconomic management –Improved macroeconomic stability despite pressure from oil and food prices in the first half of 2008 –Lower levels of official external debt through debt relief (though larger private external debt) –Greater fiscal and debt sustainability especially for oil exporters; this is still a challenge for most oil importers in the region. Increased capital inflows (especially ODA and FDI) Institutional reforms and improved opportunities for private sector development Post-conflict recovery (Sierra Leone, Liberia, and others) and in a number of countries where peace was consolidated (Kenya). General decline of countries in conflict Developing African Agriculture Through Regional Value Chains

6. Economic Report on Africa 2009 Economic Commission for Africa and African Union Commission Cairo, 7 June 2009 6 Factors Influencing Strong African Growth Performance before Crisis (2) Strong performance in key sectors –Agriculture: main driver of growth in many countries, especially export agriculture. Yet food shortages remain due to weak supply capacity and poor resilience against weather shocks –Mining and primary exports: strong growth supported by high commodity prices (till mid 2008) –Niche-sectors: some manufacturing (textiles), services (tourism), agriculture (cut flowers, vegetables). Yet all very fragile to swings in global markets No real diversification: production structure of African economies even more unbalanced than 45 years ago. Developing African Agriculture Through Regional Value Chains

7. Economic Report on Africa 2009 Economic Commission for Africa and African Union Commission Cairo, 7 June 2009 7 Regional growth in 2008 mainly driven by oil economies and varied substantially across sub-regions Oil-exporters contributed 53.3% and 61.4% to the continent’s total GDP and GDP growth rate in 2008 respectively. East Africa, a non-oil sub-region with limited mineral exports, continued to lead economic performance in Africa for the fourth consecutive year. Central Africa lagged behind all other regions over the same period despite resource abundance. Developing African Agriculture Through Regional Value Chains

8. Economic Report on Africa 2009 Economic Commission for Africa and African Union Commission Cairo, 7 June 2009 8 Globally coordinated actions towards recovery Improved macroeconomic management; when applicable use commodity reserves to boost investment in infrastructure, human capital development, public services delivery and enhance reforms. Coordinated action by donors and development partners, to sustain ODA flows, additional debt relief, and provide adequate concessional financing. Strengthen regional coordination for successful conclusion of trade negotiations, resist protectionist measures; fulfilment of Aid for Trade commitments Policies for Recovery and Growth Developing African Agriculture Through Regional Value Chains

9. Economic Report on Africa 2009 Economic Commission for Africa and African Union Commission Cairo, 7 June 2009 Agriculture: a dominant but neglected sector in Africa Agriculture contributes 25-35% of GDP; 60% of employment; the main source of income in rural areas. Growth in African agriculture will strongly boost demand for non-agricultural goods and services (agriculture has a high multiplier effect of 1.5 to more than 3), Yet the sector is under-financed, isolated from other economic sectors, and poorly linked to regional and global markets. Meanwhile, Africa’s annual agricultural imports ($33bn) far exceed exports ($22.2bn) mainly due to imports of processed foods – Paradox of a continent with one the largest agricultural potential yet a net food importer. Developing African Agriculture Through Regional Value Chains

10. Economic Report on Africa 2009 Economic Commission for Africa and African Union Commission Cairo, 7 June 2009 Food crisis not over yet Although food prices are on the decline, they are likely to stay high by historical standards in the medium term. Food shortages and insecurity remain high in some countries due to drought, conflicts, and rigid supply conditions among other factors. Besides strengthening emergency responses, Africa needs a long-term, structural focus on agricultural development. Agricultural transformation is essential for economic diversification, job creation and poverty reduction. Developing African Agriculture Through Regional Value Chains

11. Economic Report on Africa 2009 Economic Commission for Africa and African Union Commission Cairo, 7 June 2009 Low agricultural productivity Developing African Agriculture Through Regional Value Chains

12. Economic Report on Africa 2009 Economic Commission for Africa and African Union Commission Cairo, 7 June 2009 Key constraints to agricultural transformation in Africa Low productivity as a result of: low investment; inadequate research; unsustainable land expansion and production systems; unskilled labour; inadequate adaptation/adoption of yield-enhancing practices and technology Inadequate market access and infrastructure and high energy and transportation cost - fragmented national and regional markets and low global competitiveness. Low value added: weak agro-industrial base and agro- business sector. Climate change and financing constraints (especially in the context of the global financial and economic crisis)  NEED TO STRENGTHEN REGIONAL AGRICULTURAL VALUE CHAINS Developing African Agriculture Through Regional Value Chains

13. Economic Report on Africa 2009 Economic Commission for Africa and African Union Commission Cairo, 7 June 2009 Regional Value Chain: Motivation Diverse agro-ecological systems and considerable intra-African trade potential within and among sub-regions Small national markets and populations Unfair competition from outside High vulnerability of African producers in global value chains due to weak bargaining power Developing African Agriculture Through Regional Value Chains

14. Economic Report on Africa 2009 Economic Commission for Africa and African Union Commission Cairo, 7 June 2009 Opportunities and challenges Opportunities: Increased market access and value addition through inter-industry linkages Increased scale economies and dynamic efficiency Improved access to information, capital and technology through dynamic interaction between firms Enhanced food security through increased production and supply of strategic agricultural commodities Challenges: Financing of infrastructure. Regional coordination and harmonization of standards and policies Burden and revenue sharing Political commitment to structural change and regional cooperation Developing African Agriculture Through Regional Value Chains

15. Economic Report on Africa 2009 Economic Commission for Africa and African Union Commission Cairo, 7 June 2009 Value chain development must be part of comprehensive plans for agricultural development in the context of the Comprehensive Africa Agriculture Development Programme (CAADP). Focus should be on filling regional gaps in the production and trade for strategic food and other agricultural commodities important for both African food basket and exports – Abuja Food Security Summit: Sub-regional strategic commodities ( cassava, sorghum, millet) Continental strategic commodities (rice, maize, legumes, cotton, oil palm, beef, dairy, poultry, fisheries)  NO GREEN, BUT A “RAINBOW” REVOLUTION IS NEEDED Policies for Promoting Regional Value Chains Developing African Agriculture Through Regional Value Chains

16. Economic Report on Africa 2009 Economic Commission for Africa and African Union Commission Cairo, 7 June 2009 Supporting domestic agriculture Increase public spending for agriculture (Maputo target of at least 10% of public expenditures) Promote sustainable agricultural production (irrigation, water conservation/management, land distribution/tenure, education) Funding for agricultural research and technology Increased use high-yield farming practices and technologies among small holders -- backward linkages Improve rural infrastructure and distribution networks -- forward linkages Developing African Agriculture Through Regional Value Chains

17. Economic Report on Africa 2009 Economic Commission for Africa and African Union Commission Cairo, 7 June 2009 Policies for Regional Value Chain Development Strengthen regional coordination (trade policies, standards and certification, infrastructure) – Towards a Common African Market Promoting regional value chains in the CAADP framework Comprehensive planning, linking CAADP pillars Build knowledge and public-private partnerships for technology transfers and joint financing Link with national policies improving agricultural productivity, agro-industrial/agribusiness capacity, education, infrastructure development Developing African Agriculture Through Regional Value Chains

18. Economic Report on Africa 2009 Economic Commission for Africa and African Union Commission Cairo, 7 June 2009 Thank you for your attention Developing African Agriculture Through Regional Value Chains