KPMG experts speak on role of BRICS in Africa

KPMG experts commented on issues surrounding the BRICS Summit 2013 with a particular focus on the potential role of BRICS in Africa’s development. Here follows their statements.

Lullu Krugel, Senior Economist for KPMG comments on financing investment and development:

 SMMEs are regarded globally as one of the major catalysts for economic growth and development. This is even more apparent in the aftermath of the global economic downturn.

SMMEs represent almost two thirds of total global employment opportunities. Research by the OECD also indicates that, during the high growth periods of developed economies, nearly all job creation came from organisations that were less than five years old. Smaller enterprises also lost fewer jobs during the recession. It is therefore clearly important that SMME development, opportunity creation and support should be a key component of the economic development strategies of the BRICS nations.

However, due to the structure of the economy, the reach of governments and their policies and the impact of individual SMME’s, it is quite often difficult to reach SMME’s. Unless there is a specific focus on SMME opportunities, or a dedicated unit to deal with these, in the BRICS Development Bank and BRICS Trade and Risk Development Pool, it would be difficult for these institutions to provide support and finance to SMMEs. The latter, in particular, is often one of the largest impediments for SMME growth.

A more direct, and potentially more effective, way of addressing SMME challenges and opportunities is through the BRICS Business Council. Direct business-to-business access could serve to increase the chances of SMMEs growing in their markets.

On a macro-level, however, the BRICS Development Bank and the BRICS Trade and Risk Development Pool, could improve market conditions and reduce trade barriers, in turn making the general trade environment easier for BRICS nations, providing access to foreign reserves and reducing the “third party” currency issues that could develop with cross border trade for BRICS nations. A general improvement in the trade environment could benefit SMMEs as well.

Lullu Krugel and John McIntosh, Head of KPMG Advisory for Africa, comment on Agriculture and Agro- Processing:

The focus of BRICS nations on agriculture and food security has a long history and from the very first BRIC summit in 2009, these countries have made pronouncements on their plans to enhance the agricultural sector. Separate meetings have taken place between BRICS leaders and Ministers in the Agricultural and Agrarian Development portfolios over the years.

  • In 2010, before South Africa joined, BRIC countries accepted the Moscow Declaration. It included a focus on “pragmatic cooperation” and “adopted tangible measures to boost domestic agricultural productivity, which has played a positive role in promoting food security and maintaining economic stability”.
  • In 2011, the same Ministers, under the theme of Making Joint Efforts for World Food Security, agreed to establish the BRICS Strategic Alliance for Agricultural Research and Technology Cooperation, which aims to pool the effort of BRICS countries to address major challenges faced by the world in agricultural technologies. The Alliance will receive guidance and support from the agricultural ministries of the countries. The countries also adopted the Action Plan 2012–2016 for Agricultural Cooperation of BRICS countries.

The Action Plan 2012–2016, has the following five priority areas:

  • Creation of a basic agricultural information exchange system in BRICS countries
  • Development of a general strategy for ensuring access to food for the most vulnerable section(s) of the population
  • Undertaking of measures to reduce the negative impact of climate change on food security
  • Adapting agriculture to climate change
  • Enhancement of agricultural technology co-operation and innovation, as well as promotion of trade and investment in agriculture.

These initiatives are undoubtedly very important. They have significant bearing on food security in the medium- to long-term, particularly considering how important the agricultural sector is in all of the BRICS countries. However, they do not lay out a clear plan to tackle the shorter-term challenges of rising input costs – the major contributing factor to current high levels of food inflation.

Initiatives focused on small-holder farmers, which are particularly vulnerable to high input costs, also seemed to be focused more on the medium- to long-term. However, there has been specific focus on increasing access to markets for small-holder farmers. In Africa alone, small-holder farmers contribute 80 percent of the food needs of the continent.

Despite some of these short-term shortcomings, it is important to notice that plans are put in place and that there is a clear understanding of the role that agriculture could play in economic development. According to the World Bank, GDP growth originating in agriculture has proven to be, on average, two to four times more effective in raising the incomes of the poor than growth generated in non-agricultural sectors.

Given the importance of the agricultural sector in all of the BRICS nations, and the potential market from these countries representing around 3 billion people and more than a quarter of the world’s GDP, it is clear that investing in the agricultural and agro-processing sectors makes sense. In fact, it makes sense for BRICS nations to invest in agriculture and agro-processing in Africa in particular. With 60 percent of the world’s arable land in Africa and 50 percent of the African population involved in agricultural production, we are already seeing a significant focus on agriculture in Africa.

However, the challenge for the BRICS nations would be how to manage seemingly competing interests, such as the developments between Brazil and South Africa around the import and export of poultry products. The way these types of challenges are handled in the future will play an extremely important role in the benefits (or lack of benefits) that each of the BRICS nations and the African continent experience from co-operation in the agricultural space. It will also play an important role in creating a long term sustainable agricultural sector. Sustainability, at the end of the day, is more important that the provision of cheap food over the short-term.

Furthermore, infrastructure to get products to market remains a challenge in Africa, although investments are being made to improve this. Air transport has grown significantly over the past decade, while improvements are constantly being made to rail and road infrastructure.

Quite a few of the investments that BRICS countries have made into African agriculture have been driven by private sector investments. As such, the scale of these investments have been in the medium ranges and have not, thus far, addressed the entire value chain but rather parts of it. Public Private Partnerships could increase the availability of funding and enable policy interventions that could create a vertically integrated agricultural sector. This could lead to the sector being less exposed to global market volatility.

Neil Morris, Director of Climate Change & Sustainability advisory services and Marijke Vermaak, Senior Manager in Climate Change and Sustainability advisory services comment on follow up from COP 17 on energy and the green economy:

 Clean energy options are set to experience a great deal of growth in the next two decades, however they often do involve trade-offs.  For example, the supply of bio-fuels is expected to increase by 3million barrels a day between 2010 and 2035 (Source: International Energy Agency, 2011).  However, the first generation bio-fuels made from corn or palm oil, which have lower greenhouse gas emissions than fossil fuels can cause competition for land for other uses such as food crops and may accelerate deforestation and compete for scarce resources such as water. There is now a movement toward second-generation bio-fuels, such as fuel from algae, which have less trade-offs however the technology is still evolving.  Additional alternatives exist: in the automotive sector, which is expected to be a large consumer of biofuels, a more substantial shift to electric vehicles is now considered more likely.

DeBuys Scott, Head of KPMG’s Global Infrastructure and Projects Group, addresses Investments in infrastructure:

  Population needs is the major driver of infrastructure development. Two major factors differentiate South Africa and Africa in this regard.

  • Population growth on the Continent is the fastest anywhere on the planet
  • The degree of urbanisation for Africa is the quickest in the world.

This all creates massive pressure on the available infrastructure on the continent and, in particular, in the major cities. We have to think differently about how we develop the infrastructure in the major centres, particularly as there is more emphasis on sustainable infrastructure development than ever before. Thinking about projects in isolation simply will not be good enough anymore.

Africa is largely a resources continent, and South Africa also relies heavily on its resources. More of the key natural resources required for all sorts of manufacturing, power generation and so forth are found in these locations than anywhere else in the world. From an infrastructure viewpoint that places all the emphasis on “pit to port ” development, namely mine operations, freight rail, port facilities and maritime activities.

Often these routes span over many countries, leading to the development of specific corridors. Regional development and cooperation is often critical to ensuring the success of these corridor developments.

Leave a Reply

Your email address will not be published. Required fields are marked *