There’s no need to reinvent the wheel to boost growth in South Africa’s agriculture

There’s no need to reinvent the wheel to boost growth in South Africa’s agriculture

This essay first appeared on Fin24, June 15, 2020

The South African agriculture sector has the potential to be amongst the sectors that will drive economic growth and job creation during the post-COVID-19 recovery phrase. The path to realise this growth does not need new policies.

The South African government should rather, recast its vision of agricultural development using chapter six of the National Development Plan (NDP) as a point of departure. The NDP proposed a three-tier approach for agriculture and agro-processing to reach its fullest potential of creating one million jobs by 2030, namely the development of underutilized land especially in former homeland areas and failed land reform farms (approximately 400 thousand jobs), the expansion of export-led high growth areas (approx. 250 thousand jobs) and the investment on agro-processing with integrated up-and downstream linkages (approx. 350 thousand jobs). But what will need to be done differently post the pandemic is the realization that the broad vision should be followed up with detailed operational plans to guide the officials and various stakeholders at the local level.

The Department of Agriculture, Land Reform and Rural Development is currently drafting the sector Master Plan, along with private sector players. Such a plan should prioritize high-value job-creating sub-sectors, and not only focus on areas where agriculture sector is established at the commercial level, rather in new areas that still have untapped potential. Such areas involve the former homeland regions of South Africa, government land and also underperforming land reform farms. The Master Plan should map these areas, along with potential agricultural activities which could be promoted. Another crucial step will be to understand why agricultural development has lagged over the past two decades in such regions while in the commercial agriculture areas the output has more than doubled since 1994.

There are several reasons which explain this disparity in fortunes, the major ones being lower levels of investment in agriculture and lack of infrastructure. With respect to investment, poor land governance, both in the former homelands and some underutilized land reform farms, have been the key impediments. With regard to the lack of infrastructure, the problem has been compounded by poor service delivery in various local municipalities, especially those in former homelands towns of South Africa.

Given these structural challenges, the Master Plan will have to lucidly articulate ways and means to increase investment, as well as the improvement or capacitation of local governance. In the case of investment, agriculture is a long-term economic activity with relatively modest returns. Given this reality, the South African government will have to clarify its long-term view on land reform policy, not only for areas that are already farming commercially but also for the former homelands, where investment and commercial agriculture is set to make the most impact.

A renewed drive on the prioritization of joint venture models between the private sector and the government is now critical in bringing about development. The private sector will not only bring a “know-how” to the state but also a capital investment. South Africa already has examples of such development programme from which to build on. These include, but not limited to, Sernick Group in the beef sector in the Free State and the Humansdorp Co-op in the Eastern Cape, which focuses on field crops and horticulture. Both companies have partnered with government and communities for the developed black farming businesses.

The Master Plans should reflect on such examples of successful programmes and further innovate and develop institutions which effectively drive and sustain development. Moreover, this post-COVID-19 agriculture development plan should also encompass the agro-processing side as that will add to job creation and development in various rural towns.  On this particular point, private sector investment should also be encouraged. Therefore, the agriculture and agro-processing Mast Plan should also reflect on strategic incentives for firms to expand agro-processing in various towns which were not predominantly agricultural. This might be in the form of tax incentives for various agricultural hubs which will be determined by the type of agricultural activity. In areas where weather conditions permit, the government should encourage the expansion of horticulture production as this subsector has higher labour absorption multipliers than other subsectors of agriculture, in addition to also having a higher value.

All these ideas aren’t new. There is no need to re-invent the wheel.  Rather, the focus should be on understanding why there have been low levels of policy implementation over the past two decades.  Addressing the stumbling blocks to development (i.e. investment and infrastructure) and focusing on effective implementation are the key ingredients of a successful post-COVID19 agricultural sector.

Given that the private sector’s role might have been less pronounced in the past, the tight fiscal position that the South African government is currently in demands a need for external funding to drive development and agriculture. This means for the better part, agricultural development in a post-COVID19 will require deeper and greater participation of the private sector. However, effective private sector participation demands that government provides greater levels of policy certainty, especially land reform. The government will have to take an investment friendlier approach, which is still anchored in development. The private-public-partnership approach is one such model, and there are a number of case studies that can be used to draw lessons.

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South Africa cannot afford to ignore economic benefits of cannabis legalization

South Africa cannot afford to ignore economic benefits of cannabis legalization

Essay by Professor Mzukisi Qobo[1] and Wandile Sihlobo[2]

Marijuana, cannabis, dagga, weed, pot, Durban poison, ganja, mbanje, insangu, umya — call it what you may, cannabis is set to become a booming industry in the foreseeable future. Cannabis has now been decriminalised in over 50 countries in the world, with others joining the bandwagon.

Canada has been one of the leading countries in developing the sector, with stocks such as Canopy Growth, Aurora Cannabis, and Aphria attracting attention. Many Canadian entrepreneurs and investors have been streaming into Lesotho and some are waiting for the floodgates of this new wealth to open across the continent. Green Fund estimates that the global cannabis market is worth $150bn and the forecast by Barclays places the value of the sector at $272bn by 2028.

Apart from Lesotho, which is Africa’s first mover in decriminalising cannabis, African countries such as Botswana, Swaziland, Zimbabwe and Uganda are at varying stages of rolling out their licensing regime to attract investment to the sector. SA has been a laggard.

One of the factors that account for slow adaptation in the cannabis industry in SA has been the stigma associated with the plant. The emphasis has been on its recreational use and as one of the fuels for the drug economy, overlooking its medicinal benefits. Globally, the existence of “weed” stigma is a relatively new phenomenon that spread in the 19th century. Very few appreciate that this plant has been in existence for 12,000 years, traced in Asia in the main, and later spreading to other parts of the world.

Countries that have decriminalised cannabis and mainstreamed it in the economy and the health sector are contending successfully with negative perceptions associated with “weed”. There is a need to separate extremities of recreational use from the medical and economic benefits of cannabis, which can help a great number of people.

In countries that have decriminalised cannabis, it comes in handy for ameliorating the pain associated with rheumatism, Parkinson’s disease, Alzheimer and cancer within a sound regulatory health regime.

On the economic front, there are beneficial industrial uses of cannabis that are associated with hemp, fuel and textile. In the state of California, the value of the cannabis industry was estimated at $3bn in 2017. Colorado and Florida were valued at more than $1bn. In the same year, Canada spent over $5bn on cannabis for medical and non-medical purposes. In China, the sales of textile fibre made from hemp totalled $1.2bn.

At home, the City of Cape Town is freeing up land for medical cannabis, hopefully, opening up untapped economic opportunities. This is after parliament promulgated a legislative framework as required by the 2018 Zondo judgment.

It is worth highlighting that the judgment does not make it legal to commercialise cannabis, it merely decriminalises its use in the private space. However, this opens up a window of opportunity that politicians will need to cast wide open.

Oscar Mabuyane, premier of the Eastern Cape, has in recent times been the most prominent politician to take a courageous step in extolling the virtues of cannabis, and signalling that he wants to position his province in this direction. That province has been afflicted by economic ills and is lagging behind in both agriculture and industrial development. Citizens in this part of the country are at the bottom rung of the socioeconomic ladder.

There is anecdotal evidence in places such as Lusikisiki, Flagstaff and Libode in the Eastern Cape, and parts of Kwa-Zulu Natal and Limpopo provinces where this crop has been cultivated in the shadows of the law. Illegality has hindered economic prosperity.

SA has been slow in taking advantage of the Zondo judgment to spawn a clear policy framework that could catalyse the economic uses of cannabis. In the interim, there are a set of guidelines in place that have been issued by the Medicines Control Council. These are interim regulations until parliament comes up with a permanent framework. The guidelines anticipate legislative measures that not only decriminalise cannabis but pave the path to commercialisation.

Cannabis could very well be a catalyst for revitalising rural communities that are economically marginalised and excluded from the agriculture value chains, as well as create opportunities for canna-tourism especially in the Eastern Cape, KwaZulu-Natal and Limpopo. If SA tarries longer, it could suffer a latecomer competitive disadvantage in the future.

SA still has an opportunity to build a competitive edge in the sector despite the fact that countries such as Lesotho are first movers. Lesotho is building its cannabis economy on the back of cheap labour, water abundance, relatively affordable electricity and high altitude which reduces costs associated with pest management, thereby positioning the country as a supplier of an organic variety of cannabis.

SA’s competitive advantage could be built on the back of a clear and predictable regulatory framework; an open investment regime; strong research and development support; knowledge networks that bring together university researchers, centres of excellence, and other industry players; product quality and standards authority; and low-cost licensing regime. Yet still, there could be ample opportunities to build regional value chains of hemp products among Southern African Customs Union countries, as well as develop harmonised standards on medical research and clinical trials.

The immediate task should be to reclassify cannabis as an agricultural crop, not “weed” which reinforces its stigma. More research and data will be needed to reveal additional benefits of cannabis as well as getting a better sense of regions that can grow cannabis more efficiently.

All music comes to an end, and so will the cannabis boom. The CEO of Green Fund, Mark Bernberg, has projected that by 2023 cannabis will become a commodity with everyone racing to produce it, and with oversupply depressing prices and flattening margins.

For now, there are ample opportunities for new entrepreneurs to ride the wave of this emerging sector. These include cultivation and production; hydroponics; industrial hemp (fuels, chemicals, environmentally friendly plastics, biodegradable nappies, sanitary pads and textiles); compound isolation and new strand development; seed distribution; logistics and transportation; retail outlets or dispensaries and clinical trials and medical research, among others.

The thrust of policy should be a balance between equity and a liberal investment regime, a value-chain approach, a bias towards uplifting rural communities, and the provision of financial and nonfinancial support for new black entrepreneurs.

Globally, the industry has just taken off. SA can still compete, but it will need to move with speed. While it may not make our economy high, the cannabis sector could help ease the country’s economic pains that were outlined in finance minister Tito Mboweni budget vote.

Even though it is a late starter, SA can learn valuable lessons from the mistakes committed by first movers as well as best practices in countries such as Australia, Canada, Italy and Uruguay. The cannabis sector promises to be the new avenue for growth and job creation in SA, and the sooner a predictable policy and legislative framework is promulgated the better for the country’s economic fortunes.

*Written for and first published on Business Day on 16 July 2019.

[1] Mzukisi Qobo is Associate Professor: International Business & Strategy, Wits Business School.

[2] Wandile Sihlobo is Chief Economist at the Agricultural Business Chamber of SA (Agbiz).

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