EC501 International Economic Development Case Study 3 Sample

EC501 International Economic Development Case Study 3

Assignment Details

Purpose

The purpose of this assessment item is for each student to apply knowledge and understanding from this unit in a specific current real‐world situation.

The task (This is a sample case study. The actual case study will be chosen to reflect the current real‐world situation when this unit is offered. It will be based on published material which will be supplemented by the content of this unit. The case study will be finalised by the end of the first week of semester and will be a point of reference whenever relevant material is covered in the content of the unit. Guidance in addition to these guidelines will be provided throughout the semester.)

Become familiar with the case study of the effects of the COVID‐19 pandemic on food systems in Africa at https://www.mckinsey.com/featured‐insights/middle‐east‐and‐africa/safeguarding‐africas‐food‐systems‐ through‐and‐beyond‐the‐crisis. Supplement this article by accessing relevant data and commentary from the multilateral agencies and commentary such as that by The Brookings Institution at https://www.brookings.edu/blog/africa‐in‐focus/2020/06/19/economic‐impact‐of‐covid‐19‐protecting‐ africas‐food‐systems‐from‐farm‐to‐fork/ .

Using information gathered about the effects of the COVID‐19 pandemic on food systems in Africa and relevant content from this unit, assess how agribusiness is affected by the COVID‐19 pandemic and how it might contribute to economic growth post‐COVID. Assess any constraints that might arise owing to changes in trade, aid and investment. Such assessment will require consideration of relevant content of this unit.

Format

The format required for the case study is set out here. This format contains eight sections.

Cover Page (not included in word count)

Title of the case study

List of contents (not included in word count)

Executive Summary (this is the last section to be written)

Introduction

Analysis

Conclusion

References

• Make sure all references are cited correctly

Appendices (if any) (not included in word count)

• Attach any appendix material such as web pages, spreadsheets or detailed algebraic results.

Solution

Introduction

The COVID-19 pandemic has been a seismic shock to global economies, with particular emphasis on developing regions like Africa, where food systems are especially vulnerable. Agribusiness, a crucial sector of African economies, has felt the brunt of these disruptions through broken supply chains, reduced market access, and increased food insecurity. According to a McKinsey study on Africa's food systems, the continent was already facing challenges related to food security (Pais et al., 2020). Rather the pandemic exacerbated these vulnerabilities, pushing more people into poverty and threatening agricultural productivity and supply chain stability . In parallel, The Brookings Institution highlights that food security in Africa was affected at multiple stages, from farm production to end consumers, leading to decreased production, labour shortages, and loss of incomes for farmers (Blanke, 2020).

However, these constraints have not stopped agribusiness being a key pillar of the African economic architecture. The pandemic has prompted powerful arguments in favour of agribusiness as a key pillar of post-pandemic recovery, promoting economic growth, employment and poverty reduction. This paper assesses the relative effects of the COVID-19 pandemic on African agribusiness, examines its potential to support recovery and assesses constraints of trade, aid and investment that might impede post-COVID growth.

1. Immediate Impacts of COVID-19 on Agribusiness in Africa

1.1. Disruptions to Food Production and Supply Chains

One of the single most tangible impacts of COVID-19 on Africa’s agribusiness community was the devastation of food production and distribution. Closures, curfews and border blocks in attempts to contain the virus prevented the flow of agricultural products across the border and throughout the world. In West Africa, where most countries put rigid constraints on agriculture, food prices rocketed as it became increasingly hard to transfer crops from the countryside to cities. McKinsey reported that retail sales in South Africa dropped by nearly two-thirds during the initial days of the lockdown(Pais et al., 2020) . Similarly, in Nigeria, food price inflation reached double digits, further straining the purchasing power of low-income households.

Agricultural inputs such as seeds, fertilisers, and pesticides became more expensive and harder to access due to global supply chain disruptions. The FAO estimated that disruptions to agricultural input markets could result in a 10–25% reduction in farm yields, particularly among smallholder farmers, who are more reliant on external inputs (Pais et al., 2020) . This general decline in food production in many African countries, with horticulture, poultry and dairy especially affected by the perishability of their products and the reliance of many small businesses on export markets.

1.2. Reduction in Agricultural Exports

The crash in global demand, especially for high-value agricultural exports such as flowers, fruits, coffee and cocoa, ravaged many African economies. Exports in Kenya’s horticulture sector, one of the country’s biggest sources of foreign earnings, crashed as European markets, its main market for fruit and flowers, shrank during the pandemic. According to the Brookings Institution, the reduction in air freight capacity exacerbated the challenges facing exporters, as international passenger flights, which typically carry agricultural exports, were grounded (Blanke, 2020) . Côte d'Ivoire and Ghana, which together account for nearly two-thirds of global cocoa production, saw their export markets severely disrupted as people began consuming far less chocolate or other luxuries. Fewer export proceeds translated into lower national revenues, which tightened government budgets and made excusing external debt more likely (Pais et al., 2020).

1.3. Food Security Challenges

The combination of declining food production, rising food prices, and disruptions to international trade severely impacted food security in Africa. The World Food Programme (WFP) warned that an additional 309 million people worldwide could be pushed into acute hunger due to the economic fallout from the pandemic, with Africa being particularly vulnerable (World Food Programme, 2023). Smallholder farmers tend to work on plots of land smaller than two hectares (about four or five acres) that make up a significant proportion of the agricultural workforce in many African countries for MBA assignment expert.  They also did much of the food processing, including shelling seeds and making meals. However, since these farmers couldn’t easily access markets, food was wasted on farms even as cities lacked supplies and paid elevated prices. Indeed, the McKinsey report estimated that 150 million Africans were going to lose part or all of their income during the pandemic, leading to both greater poverty and reduced access to nutritious food (Pais et al., 2020).

2. Potential Role of Agribusiness in Post-Pandemic Economic Recovery

Despite the severe impacts of the pandemic, agribusiness has the potential to drive economic recovery across Africa. Agriculture remains the backbone of many African economies, accounting for over 30% of the continent's GDP and employing about 60% of the workforce (Pais et al., 2020). As countries begin to emerge from the immediate crisis, agribusiness offers several pathways to foster inclusive and sustainable growth, including increased productivity through digitalization, market diversification, and sustainable farming practices.

2.1. Technological Innovation and Digitalization

The widescale adoption of digital technologies in African agribusiness will be a powerful tool for resurgence in the post-pandemic era. Under the pressure of the pandemic, digital platforms for connecting farmers to markets and to agricultural inputs and get timely weather and price information have become more important than ever. Mobile-based market information and input-sale platforms that connect rural producers directly with urban consumers have surged in popularity in Kenya and Nigeria. According to the McKinsey report, the increased adoption of digital solutions can lead to higher productivity, improved access to markets, and more efficient use of resources, such as water and fertilisers (Pais et al., 2020).

Equally important, digital finance will provide credit to smallholder farmers, who often find it difficult to secure loans from commercial banks. Through mobile banking and other fintech solutions, they can access affordable credit, buy the necessary inputs, and scale up their production. The World Bank calls access to finance a pivotal part of the rebound story for agribusiness’ in the coming year or so, and the pandemic has hurt it most deeply for small and medium-sized enterprises.

2.2. Diversification and Value Addition

Another key strategy for post-pandemic growth is the diversification of agricultural production and the development of more downstream, higher-value activities. The COVID-19 pandemic has once again demonstrated the pitfalls of specialising in a few commodity crops for which global demand is highly volatile, and the importance of diversifying into more value-added activities. Not only does this diversification help in combating volatility in production but having the capability of processing more agricultural products locally also enables African countries to derive greater value from their raw commodity exports.

This includes countries such as Ethiopia, which strongly promoted local coffee processing over time, creating jobs and adding value to its exports (Gizaw et al., 2022). Or for investments in the agro-processing sector, such as juicing or transforming cassava into flour, which could provide a buffer to future shocks in the global economy. In short, supporting local value chains can provide room for manoeuvre making countries less dependent on imported goods, while creating new jobs in rural areas. African agribusinesses can therefore contribute to strengthening food security and resilience against future shocks.

2.3. Sustainability and Climate-Resilient Agriculture

Additionally, the food and labour supply shocks of the COVID-19 pandemic made the case for developing resilience even stronger for the region, ahead of the food security disaster we’re expecting from the climate change impacts in many parts of Africa in the coming years. Companies willing to embrace circular, climate-resilient techniques including conservation agriculture, agroforestry, and integrated pest management will be better able to absorb future shocks triggered by climate disruptions. Not only do such sustainable farming approaches enhance resilience, but in themselves they bring clear environmental benefits, including soil health and water conservation (Diop et al., 2022). These are both crucial to the medium and longer-term sustainability of agribusiness sectors across Africa wherever chronic drought and erratic rain hamper production. This shift also signals growing global demand for food that is produced in an environmentally and ethically sustainable manner, and which opens up new markets for African producers.

3. Constraints: Trade, Aid, and Investment

3.1. Trade Disruptions

Global trade disruptions caused by the pandemic have had a lasting impact on African agricultural exports. The decline in demand for non-essential goods in major markets, such as the European Union and the United States, has reduced export revenues for many African countries. For instance, Kenya’s flower industry, which exports primarily to Europe, experienced a sharp decline in orders during the pandemic. According to the Brookings Institution, given that demand for such luxury agricultural produce will probably not reach pre-pandemic levels in the short to medium term (Blanke, 2020). Hereby African exporters will likely have to find new markets and products even as logistical capacity, such as higher transportation costs and reduced cargo availability, continue to negatively affect export activities. With the perpetuation of these bottlenecks, and the prospect of supply chain disruptions and trade restrictions lasting for a while, African agribusinesses that rely on global markets are likely to continue grappling with uncertainties over the coming period.

3.2. Decline in Development Aid

The pandemic has led to a global reallocation of resources, with many donor countries focusing on domestic recovery efforts. This has resulted in a decline in development aid for agricultural projects in Africa, limiting the capacity of governments and NGOs to support smallholder farmers and rural communities. In the worst-case scenario, warned the FAO, less aid may push back the completion of key infrastructure projects (irrigation systems, rural roads, et cetera) that improve agricultural productivity, and cuts to aid could also mean less money for programmes that promote food security, climate resilience and gender equity in agriculture. Without adequate outside help, many African countries might not be able to carry out the reforms needed to revitalise their agribusiness sectors for the long haul.

3.3. Investment Constraints

Foreign direct investment (FDI) in African agribusiness has also been impacted by the globaldirect investment (FDI) in African agribusiness has also been impacted by the global economic slowdown triggered by the COVID-19 pandemic (Lina, 2023). Many international investors have adopted a cautious approach, postponing or canceling planned investments in African agriculture. This reduction in FDI has constrained the ability of agribusinesses to modernize their operations, adopt new technologies, and scale their production capacities.

Furthermore, the financing landscape for agribusinesses, including SMEs, was further hindered by the pandemic. SMEs are particularly at risk for evolving economic shocks, and the additional financial restraints put in place by the pandemic likely continue to suppress access to credit. Credit needs for much of the agribusiness sphere, particularly in sub-Saharan Africa, are heavily capitalised. After the pandemic, African governments would have to establish enabling policy frameworks to draw in new investment in the agribusiness sector, such as incentives to attract foreign investors and support for undertakings by local small entrepreneurs in the sector through access to easy credit and technical assistance. Improving the capacity of the states to facilitate public-private partnerships could be an essential step towards tapping the investment needed for structural growth in the agribusiness sector.

4. Policy and Institutional Support

4.1. Strengthening Agricultural Value Chains

The high fragmentation of agricultural value chains is another key challenge for African agribusiness. Covid-19 pandemic exposed the fragility of parts of these value chains, when millions of smallholder farmers could not sell their produce and perishable commodities rotted by the roadside. Here, governments have a critical role to play through investments in rural infrastructure, including roads, storage facilities and irrigation projects. This would help small farmers avoid post-harvest losses and facilitate better access to markets, particularly those located in remote regions. Cross-border cooperation will also be important to guarantee the functioning of cross-border supply chains. The African Continental Free Trade Area presents an opportunity to enhance intra-African trade in agricultural products by reducing tariffs and non-tariff barriers. By promoting regional trade, African countries can diversify their markets and reduce their dependence on global supply chains, making their food systems more resilient to future shocks .

4.2. Supporting Smallholder Farmers

Smallholder farmers are the backbone of Africa’s agricultural sector, but they are also among the most vulnerable to economic shocks (Asare-Nuamah et al., 2021). Governments and development partners must also support smallholders by strengthening approaches to access credit, technical assistance and digital tools. It is now crucial to accelerate the adoption of digital platforms that emerged during the pandemic to connect farmers with buyers, input suppliers and other value chain actors and financial services. Moreover, policies that promote sustainable and climate-resilient agriculture are likely to be an important part of the future business landscape, from investments in research and development to identify crop varieties best suited for drought resistance, to investments in conservation agriculture that help to reduce the use of chemical inputs by building up the natural structure of the soil.

4.3. Enhancing Food Security through Social Safety Nets

The Covid-19 pandemic has made clear that an adequate social safety net is critical for keeping vulnerable people from experiencing food insecurity. Governments should increase cash transfer and food assistance programmes currently available to households to keep them from sliding into food insecurity. They should also focus on reaching the most vulnerable groups of people, women and youth who are worst affected by food insecurity.

International organisations such as the Food and Agriculture Organization (FAO) have provided critical assistance during the pandemic, but long-term solutions will require greater coordination between national governments and multilateral agencies (FAO, 2021). By aligning national food security strategies with global frameworks such as the United Nations’ Sustainable Development Goals (SDGs), African countries can ensure that their recovery efforts are both inclusive and sustainable .

Conclusion

The COVID-19 pandemic has triggered a decentralisation of food production, supply chains, and international trade, with Africa’s agribusiness sector suffering disruptions to trade and supply chains for agricultural raw materials and finished products, resulting in higher transportation costs and trade barriers. For decades, agribusiness has been a key sector of the African economy and has the potential to serve as a central pillar of post-pandemic recovery (Lugo-Morin, 2020). While overcoming these challenges, taking advantage of technological innovation, adding value to food, and promoting sustainable agriculture can reinforce African food systems while increasing climate resiliency. To fully realise the potential of agribusiness in the post-pandemic recovery, several challenges must be addressed, particularly those related to trade disruptions, declining aid, and investment constraints. With the right policy support, institutional backing, and investment in sustainable practices, agribusiness can contribute not only to economic growth but also to the broader goals of food security, poverty reduction, and climate resilience across the continent.

Reference

Asare-Nuamah, P., Dick-Sagoe, C. and Ayivor, R. (2021). Farmers’ maladaptation: Eroding sustainable development, rebounding and shifting vulnerability in smallholder agriculture system. Environmental Development, 40, p.100680. doi:https://doi.org/10.1016/j.envdev.2021.100680.

Blanke, J. (2020). Economic impact of COVID-19: Protecting Africa’s food systems from farm to fork. [online] Brookings. Available at: https://www.brookings.edu/articles/economic-impact-of-covid-19-protecting-africas-food-systems-from-farm-to-fork/.

Diop, M., Chirinda, N., Beniaich, A., El Gharous, M. and El Mejahed, K. (2022). Soil and Water Conservation in Africa: State of Play and Potential Role in Tackling Soil Degradation and Building Soil Health in Agricultural Lands. Sustainability, [online] 14(20), p.13425. doi:https://doi.org/10.3390/su142013425.

FAO (2021). Food and Agriculture Organization of the United Nations. [online] PRD-FAO Home. Available at: https://www.fao.org/home/en.

Gizaw, N., Abafita, J. and Merra, T.M. (2022). Impact of coffee exports on economic growth in Ethiopia; An empirical investigation. Cogent Economics & Finance, 10(1). doi:https://doi.org/10.1080/23322039.2022.2041260.

Lina, C., Tinotenda (2023). Foreign direct investment and economic growth in South Africa during the Covid-19 era. [online] Wits.ac.za. Available at: https://wiredspace.wits.ac.za/items/4f6e193b-ecc2-4a4c-9a48-41af27a0dad4 [Accessed 27 Sep. 2024].

Lugo-Morin, D.R. (2020). Global Food Security in a Pandemic: The Case of the New Coronavirus (COVID-19). World, 1(2), pp.171–190. doi:https://doi.org/10.3390/world1020013.

Pais, G., Jayaram, K. and Arend van Wamelen (2020). Safeguarding Africa’s food systems through and beyond the crisis. [online] McKinsey & Company. Available at: https://www.mckinsey.com/featured-insights/middle-east-and-africa/safeguarding-africas-food-systems-through-and-beyond-the-crisis#/ [Accessed 27 Sep. 2024].

World Food Programme (2023). A Global Food Crisis. [online] World Food Programme. Available at: https://www.wfp.org/global-hunger-crisis.