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September 19, 2010

Food aid imports, rains hurt agricultural investment in East Africa

by David Muwanga

High risky rains, unfair competition from food donations and lack of affordable finance have been identified as the major causes of failure by investors to inject money into the sector, according to a study carried out on the private sector agricultural investment in Eastern Africa.

The study funded by the United Nations Food and Agricultural Organisation (FAO) and supported by Uganda Investment Authority (UIA) is on the theme "What can make it happen?".

The report says investors are not interested in the agricultural sector due to the unstable markets mainly caused by government's interventions, political risks, poor roads and lack of skilled labour.

Other reasons given include tax benefits being easier in other sectors, the high cost of utilities especially electricity and corruption that were identified at the most most causes of low investment in agriculture in East Africa.

Moderate causes included poor implementation of policies, government intervention in markets especially for cereals, limited irrigation and poor infrastructure of roads and markets.

It says that on going FAO review work on Africa reveals alarming results showing that 218m people who constitute 30% of the continent's population experience chronic hunger and malnutrition.

Africa's total annual imports of agricultural products, of which 80?90% are food products, have grown in recent years from about $25billion to $33billion(b) while exports have remained at around $14 to15b annually.

The report says Africa consumes between 25-30% of global food aid in any normal given year. The Eastern Africa subregion alone which account's for less than 4% of the world's population consumes some 20% of the international food aid. The report reveals that in the year 2006, Eastern African countries of Burundi, Djibouti,

Ethiopia, Kenya, Rwanda, Somalia, Sudan, Tanzania and Uganda required another 1.5m tonnes of food while their commercial imports totaled 4.9m tonnes.

An analysis by FAO reveals that the region has suffered a decline in self sufficiency ratio at 14% with Kenya the hardest hit at 27% decline and Tanzania at three percent decline.

The import dependency ratio increased three-fold, with Kenya again the hardest hit at 11-fold increase and Tanzania the least affected.

UIA executive director Prof. Maggie Kigozi said although the government has allocated budgetary funds to the agriculture sector that increased from 3.8% in 2006/7 to 4.5% in 2009/10 this is less than the at least 10% set by African governments.

"However Uganda's incentive package provides for capital recovery for those whose projects incorporate investments in plant and machinery," she noted.

She said the government has also signed double taxation agreements with several countries, adopted liberal foreign exchange policies and macro-economic discipline all that have created a conducive business climate.

"The sector however did not seem to be responding to government initiatives as its growth rate is less than 1% compared to the services sector which is at 15%," she said.

The report recommends investment opportunities exist in horticultural sub?sector production, with phenomenal export growth particularly in Kenya.

Investment opportunities exist in cereals and maize is a dominant staple food crop within all study countries.

Other mass commodities include oilseeds which have very high potential for development and much of Africa's significant production is exported as raw seed.

Others are diary products, and the ranching sub sector has been given least priority in the region.

There are few if established abattoirs and meat processing plants in study countries to make the subsector dynamic.

Africa offers room for substitution of unsustainable and unaffordable imports and to achieve displacement by local producers will require that they be competitive in price but also reliable on quality and quantity.

Other opportunities include the under?exploited land resources in Tanzania with expanses of under-utilized land.

Governments in the Eastern African Region are progressively adopting policies that would see greatly enhanced crop production.

A Land Act has just been adopted in Uganda though it remains controversial as it dowes not adequately address problems of land, while a Land Act draft has been tabled to the Parliament in Kenya and Tanzania has reformed socialist land policies of the past.

Businessweek

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