Many African countries have become increasingly important destinations for global trade and foreign investment. The economic transformation of the continent combined with changes in demographics and consumer preferences are projected to help the region to become an economic powerhouse for global trade and investments.
The African Continental Free Trade Area (AfCFTA), which launched January 1, 2021, is expected to help expand these opportunities through economic integration, intraregional trade, and investment among member countries. The AfCFTA offers the opportunity for African countries to diversify their exports, attract foreign direct investments, accelerate income growth and development, and ultimately trade more with the world.
Several factors contribute to the growing importance of African markets:
- The continent has more than 1.4 billion people, and the population is expected to continue growing at some of the fastest rates in the world.
- The United Nations projected Africa could become the most populous geographic region in the world by the end of this century, reaching up to 3.4 billion people.
- Compounding the effects of population growth on the future demand for agricultural imports is the even faster rate of urbanization on the continent.
- By 2050, the share of the total population living in urban areas is projected to be a majority as the number of urban dwellers more than triples from what it is today.
With rising urbanization comes shifts in consumer preferences. Urban consumers typically buy foods more convenient for their lifestyles such as prepared foods or meals at restaurants. As incomes also rise in urban settings, consumers seek a greater diversity of food in their diet, especially animal-based protein, prepared cereals, fats and sugars, and fruits and vegetables.
Agricultural Trade and Investment Trends
Projected changes in demographic, income, and food demand patterns in Africa offer potential opportunities for trade and investments in African agriculture and agri-food value chains-the processes connecting food production, delivery, and the consumer.
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Agricultural trade in Africa has been consistently growing over time and import demand has been particularly strong. Between 1999 and 2019, the value of agricultural imports in Africa grew at an average annual rate of 7.4 percent compared with a 6.0 percent growth rate for agricultural exports.
Over the same period, intraregional trade (trade with other African countries) also has been growing, a trend that is expected to continue to accelerate with AfCFTA’s implementation. Africa traditionally has been a leading importer of bulk agricultural commodities such as wheat, corn, rice, and soybeans.
Imports of cereals and oilseeds play a significant role in food security in the region and form a staple part of many diets, including feed for livestock. Because of the dependency on imports for food security in some countries, sudden and substantial price changes in these bulk commodities can increase food insecurity in a country.
The United States has typically exported bulk commodities to Africa. However, with Africa’s rising incomes and growing populations, combined with increasing urbanization, demand has increased for consumer-oriented agricultural products such as beverages, prepared cereals, poultry meat, and dairy products, and for intermediate goods such as soy meal, vegetable oils, and other feeds. The import share of these products in Africa has risen faster than bulk commodities.
Agricultural export growth to Africa has been in poultry meat. Demand for poultry meat, especially chicken, in urban areas has grown almost in tandem with urban population growth. At this rate, ERS projects sub-Saharan Africa to remain the top global importer of poultry over the next 9 years, with import volumes reaching more than 2.5 million metric tons per year by 2031.
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Intraregional Trade and Investment
A principal goal of the AfCFTA is to increase intraregional trade on the continent, which has the potential to shape the future of agricultural trade with the rest of the world if trade with external partners is also liberalized. So far, trade in agricultural consumer-oriented goods within the region has been increasing. These goods explain about half of intra-Africa agricultural trade and much of its growth over the last two decades.
Although AfCFTA’s framework for guiding investment protocols is not finalized, the agreement is expected to promote private investment that spans economic sectors and national borders. Through more open markets, investors in one AfCFTA member country are likely to have better access to consumers in other African member countries.
The free trade agreement is expected to harmonize regulatory requirements across borders, which could make it less expensive for African countries to do business across the region. Africa has lagged other regions as a global destination for foreign direct investment (FDI), and European investors have accounted for most of the foreign direct investment in the region.
However, investment from Asia and Latin America has increased in the past two decades, with investments from China increasing rapidly. Comparing across 5-year averages, ERS estimates that Asia’s share of FDI to Africa increased from 18 percent in 2004-08 to more than 30 percent in 2014-18. In the past, much of the investment (80 percent) flowed into northern and southern Africa. However, FDI has started to increase to other subregions.
One subset of total FDI is greenfield FDI, which is when firms make investments to start a new venture or subsidiary in another country. Because greenfield FDI is a new investment, these flows can provide insight into investor sentiment and how private investors view opportunities in Africa. Drawing on data provided by fDi Markets, Financial Times Limited, ERS researchers determined that about $75 billion to $80 billion a year in greenfield foreign direct investment entered Africa before the COVID-19 pandemic.
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With the onset of the pandemic, these flows declined to under $30 billion in 2020. Many African countries rely heavily on agriculture for their economic development and food security strategies, so investment in the food and beverage sector would benefit Africa’s economies. Although investment flows in the food and beverage sector are a small part of total greenfield FDI (3-5 percent), they are one mechanism to build and extend agricultural value chains in Africa.
In 2016-20, the United Arab Emirates, Ukraine, the United States, and Belgium were the largest investors in the food and beverage sector in Africa. Food and beverage greenfield FDI has been particularly consistent since 2006, ranging between $1.5 billion and $2 billion during each 5-year period since then. In 2016-20, investments into the grains and oilseed subsector were the highest among sectors, totaling more than $3 billion. Sugar and confectionery products followed at more than $2.4 billion, and food and beverage stores came in at just under $2 billion. Much of the greenfield FDI from 2016-20 was in the subsectors of soft drinks and ice as well as sugar and confectionery products.
Challenges and Constraints
Despite these opportunities, several challenges and constraints need to be addressed:
- First, intra-African trade faces higher costs compared with other regions. AfCFTA represents an opportunity to reduce trade costs by lowering different types of trade barriers among countries within the region.
- Second, some African countries are reliant on natural resources for export revenue and foreign exchange, and as a driver of economic growth. However, dependence on natural resource exports can leave countries vulnerable to macroeconomic shocks that affect commodity prices and, consequently, agricultural trade.
- Third, maintaining agricultural productivity growth is important to meet increasing food and fiber demand in Africa. It allows farmers to produce commodities with fewer resources, which can reduce unit costs and, subsequently, agricultural prices. A slowdown in the growth of agricultural productivity is likely to prolong Africa’s dependence on food imports.
The Role of Smallholder Farmers
Smallholder farmers are the backbone of African agriculture, producing over 80% of the food consumed on the continent. However, despite their crucial role in feeding the population, these farmers are facing numerous challenges that threaten their livelihoods and the food security of the region.
Challenges faced by smallholder farmers:
- Limited access to finance: Smallholder farmers in Africa face challenges in accessing finance to invest in their farms. Banks and financial institutions are often hesitant to lend to farmers due to the perceived high risk involved in agriculture.
- Climate change: Smallholder farmers are particularly vulnerable to the effects of climate change, including erratic rainfall patterns, prolonged droughts, and rising temperatures.
- Poor infrastructure: The lack of adequate infrastructure, including roads, storage facilities, and irrigation systems, makes it difficult for smallholder farmers to access markets and transport their produce to consumers.
- Limited access to markets: Smallholder farmers in Africa often face challenges in accessing markets due to limited market information, inadequate transportation, and poor market linkages.
- Lack of knowledge and skills: Many smallholder farmers in Africa lack the necessary knowledge and skills to improve their farming practices and increase their yields.
Opportunities to support smallholder farmers:
- Climate-smart agriculture: Investments in climate-smart agriculture can help smallholder farmers adapt to the effects of climate change and improve their resilience to environmental shocks.
- Improved infrastructure: Investments in infrastructure, such as roads, storage facilities, and irrigation systems, can help smallholder farmers access markets and improve their productivity.
- Capacity building: Training and capacity building initiatives can help smallholder farmers acquire the necessary knowledge and skills to improve their farming practices and increase their yields.
- Market linkages: Efforts to improve market linkages can help smallholder farmers access markets and increase their incomes.
Community Development and Agribusiness Incubation
Community development in Africa, especially rural Sub-Saharan Africa, is key to addressing the socio-economic challenges facing this region. These programs typically focus on increasing production, improving access to finance, developing infrastructure and fostering social cohesion and inclusivity.
The African agribusiness sector is slowly progressing into a more robust and dynamic industry, with the ambition and potential to triple its output by 2063, according to the CAADG. One of the main challenges hindering Africa’s agricultural value chain development is insufficient production output.
At the farm level this has mainly been attributed to limited access to arable land, insufficient farming skills and a lack of resources. Smallholders are greatly affected by these constraints, with issues compounded by the fact that they are often confined to selling their goods locally at uncompetitive prices.
The advent of agro industrial parks and agribusiness incubation programs are greatly contributing to breaking this cycle. Perhaps the most successful agribusiness incubation program is the Benin-based Songhai model, which has been widely adopted in West Africa, Gabon, Malawi, and Kenya.
This integrated production model aims to address the challenges faced by smallholder farmers by promoting sustainability and self-sufficiency. From its training centres farmers learn innovative techniques in crop cultivation, animal husbandry, and aquaculture, alongside other essential business skills.
Similarly, agro industrial parks (AIPs), have emerged as a strategic way to increase production quality, integrate smallholder farmers into value chains, and restructure markets. By creating specialised zones that bring agricultural producers, processors, and manufacturers together, AIPs help encourage the consolidation of agricultural activities and build more integrated value chains.
By pooling resources and knowledge, they can significantly enhance productivity and provide a platform for attracting external investments. As a result, they help bridge the gap between small-scale agriculture and global markets.
Access to Finance and Innovative Financial Products
African small and medium-scale farmers require approximately $90 billion in development funding. However, 83% of these farmers are unable to obtain loans from financial institutions, as banks and lenders typically prefer to issue larger loans to large commercial farming operations.
In Africa, poverty alleviation has a direct correlation with agricultural and community development, but with access to finance hindering smallholders and African agribusinesses, viable alternatives are required to bridge the investment gap.
Globally, microfinance institutions provide approximately $3 billion annually to smallholder farmers. However, African smallholders receive a smaller share of this funding compared to their South American counterparts. Risk-sharing facilities, such as the Kulima Access to Finance Project, have also proven effective in encouraging lending to smallholder farmers.
At the same time, innovative financial products like weather-index insurance and warehouse receipt financing provide farmers with new ways to access credit and manage risk. These financing mechanisms are particularly effective when implemented in combination, as they can create a supportive ecosystem for smallholder farmers.
Infrastructure and Technology
Sub-Saharan Africa is one of the most difficult regions to navigate, owing in large part to the absence of widespread transport infrastructure. This frequently inhibits local access to resources that are abundant in neighbouring regions. For instance, in Kenya approximately 32% of the population face high levels of acute food insecurity, while at the same time, approximately 40% of their food is wasted or spoiled from the farm gate to the family table due to inadequate infrastructure, poor storage facilities, and inefficient supply chain management.
Developing water and irrigation infrastructure can have a similarly transformative effect. By providing farmers with reliable water sources, communities can reduce their dependence on rainfall, extend growing seasons, and diversify crop production. Irrigated crops can produce double the yields than rain-fed crops.
Access to clean water significantly enhances food safety practices in rural African communities by preventing contamination, promoting more hygienic practices, and ensuring greater quality control during processing. Clean water access inherently improves sanitary and phytosanitary conditions and significantly decreases the incidence of waterborne diseases such as cholera, dysentery, and typhoid.
Moreover, access to clean water and irrigation allows for more predictable farming schedules and income streams, enabling farmers to plan and invest in their future with greater confidence. Access to reliable energy for agriculture is essential to the long-term well-being of African communities.
However, for most African farmers access to fuel and electricity is limited and costly. If these constraints are overcome, and energy needs for agriculture anticipated and met, then a significant roadblock to agricultural growth will be removed.
Access to energy enables the use of electric pumps for irrigation, and facilitates mechanised processes such as grinding, milling, and processing of agricultural products. Milling can add anything from 30% to 100% to the value of raw grains, adding significant value to raw agricultural products and improving farmers’ incomes.
No industry today can ignore the role that technology can play. There are all sorts of equipment and systems that can be used to drive efficiency, production and greater yields. The key here is to make sure that the chosen technology is suitable (ideally, proven to work on the ground) for the local environment. Issues like access to spare parts and support locally become critical the more remote the location of use is.
The benefits from AfCFTA for Africa and for global agricultural trade are expected to grow as the agreement is implemented even as challenges remain to be addressed.
Community Involvement and Empowerment
Lastly, the success of community development programs heavily depends on their ability to gain community support and involvement. In the same way that food sovereignty advocates local control over agricultural policies and resources, community development initiatives must promote participatory approaches that engage the local community.
The success of community development programs is also heavily dependent on their ability to include and empower marginalised groups, particularly women and young people. These two groups form a significant portion of Africa’s agricultural workforce with women accounting for nearly 50% of the agricultural labour force in Sub-Saharan Africa.
Community development in Africa stands at a critical juncture. Despite facing significant hurdles, the integration of AIPs and grassroots incubation centres coupled with better access to finance, improved infrastructure, and social inclusivity can significantly contribute to poverty reduction, improved livelihoods, and enhanced regional food security.
The continent, rich in natural resources and boasting a young, growing population, offers immense potential.
Empowering Africa's Youth in Agriculture
At the recent Africa Food Systems Forum in Senegal, more than six thousand stakeholders gathered under the theme “Africa’s Youth Leading Collaboration, Innovation, and Implementation of Agri-Food Systems Transformation.” Behind the optimistic headline lie two pressing challenges: the continent’s persistent struggle with low agricultural productivity and the world’s fastest-growing youth population. Together, these realities represent both a formidable challenge and a historic opportunity.
If empowered, Africa’s young people could transform the continent through agriculture. Despite abundant arable land, agriculture in Africa is often marked by low yields. More than 80% of farmland is cultivated by smallholders who face obstacles at every stage: low use of productivity enhancing inputs, weak extension systems, poor access to markets and finance, and high postharvest losses.
Climate change adds further pressure through erratic rainfall and rising temperatures. As a result, Africa’s average cereal yields remain a fraction of what smallholder farmers achieve in Asia or Latin America. The cost of this productivity gap is immense. Food imports drain more than $50 billion from African economies each year, while unemployment, hunger, and malnutrition persist across the continent.
By 2050, one in four people on the planet will be African, most under 25. Already, over half the continent is under 20. Unlike Europe and Asia, where aging populations strain economies, Africa’s youthful energy could drive innovation, productivity, and prosperity. But this will not happen automatically.
Too often, agriculture is seen by youth as a last resort with low social status, low income, and hard labor. But the sector is changing. Opportunities abound not only in farming but across the entire food value chain: farm inputs, mechanization services, agro-processing, finance, logistics, and digital agriculture.
Across the continent, young people are already showing what is possible. They are developing mobile platforms that connect farmers to markets, using drones for crop monitoring, launching food brands that meet urban demand, and experimenting with climate-smart crop varieties.
Unlocking youth potential in agri-food systems requires bold, coordinated action in four key areas:
