June 5, 2018
Jozimo Santos Rocha, Regional Agro-Industry Officer, FAO
Sustainable industrialization is well recognized to play an essential role to accelerate economic growth and social development. It reallocates labor and other resources from labor-intensive and less productive activities towards more capital- and technology-intensive ones, and offers great opportunities for developing countries to add more value locally by entering the downstream end of global value chains (GVC). Differences in living standards between countries are often attributed to the fact that developing countries employ a larger share of their labor force in agriculture, but also to the fact that agriculture in the developing world is much less productive than in developed countries. In 2015, agriculture employed about 20% of labor in the Near East and North Africa (NENA) region but its average contribution to the GDP was just about 5.4%.
The total industry value added (IVA), which provides a measure of the industry’s contribution to the overall economy, has exhibited high growth rates for the last few decades in countries at all income levels and, the global IVA per capita have grown from about US$ 2,000 in 1990 to about US$ 2,900 in 2016. Yet, the level varies substantially between low- and high-income economies. In 2015, high-income countries had an average IVA per capita of about US$ 10,000 while that of low- and middle-income countries was just about US$ 3,000. The growth rates of IVA per capita also differed across regions. While East Asia and the Pacific grew its IVA per capita more than seven times since the early nineties, the Near East and North Africa (NENA) and Sub-Saharan African (SSA) regions remained virtually stagnant.
A major reason why SSA and most NENA countries remained stagnant in terms of IVA per capita while experiencing high levels of total IVA growth, has to do with the way that production factors drive industry and economic growth. As shown in the graph below, output growth in poor countries is primarily generated through higher investment and the use of natural resources and energy; whereas high-income countries have grown through increased productivity, achieved through resource-saving technologies.
Figure 1. Factors contributing to manufacturing growth (1995-2007)
Key differences are also appreciated in the way that countries participate in GVCs. A significant number of countries in SSA and NENA are heavily connected to GVCs, more than any other developing regions and even some rich countries. However, most of this engagement involves upstream activities. More than 65% of SSA and 56% of NENA’s participation in GVCs consist in the provision of primary inputs and low-tech services and manufactures, and the figure climbs to over 70% in countries like Mauritania.
Expansion of agribusiness, particularly agro-industries, can greatly contribute to the modernization of agriculture and intensify its impact on development in the NENA region. Because of its strong backward and forward linkages, agro-industries can increase demand for and add value to locally produced agricultural commodities. In addition, agro-industires can reduce trade deficits, increase incomes for small-scale farmers, generate more agriculture-related employment (especially for women), , maximize social and economic returns to the use of limited natural resources, reduce food waste and improve food security.
It has been shown that as incomes grow, the relative importance of agriculture in GDP declines and the share of agribusiness in gross domestic product (GDP) increases. Thus, as incomes rise agribusiness becomes more important to the national economies than agriculture, and the expansion of agro-industries and related services (agribusiness) is probably the best scenario for agriculture to better contribute to the development of the countries in the region and reduce food insecurity.
Efforts to raise the profile of agro-industries as an important driver of agricultural and economic development in NENA, are coupled with increasingly important pulling forces, including more conducive business environment; increasing demand for processed food locally and in global markets; more prominent role of the private sector investing in agro-processing and other ventures; and technological improvements. Traditionally however, agribusiness opportunities have often been harnessed by medium- and large-scale entrepreneurs, highlighting the importance of policies that address issues of sustainability and inclusiveness. Limited capacity to sustain competitiveness, for example, is a major challenge that affect with a greater extent small- and medium-scale agro-industries.
Policy efforts should foster much needed skill building for small-scale farmers and entrepreneurs; investments in productivity improvement along the value chain; firm level value chain upgrading; strengthening of horizontal and vertical value chain linkages; access to productive assets and markets; and infrastructure and institutional development, including capacity for food quality and safety monitoring and certification.
