THE ROLE OF AGRO INDUSTRIAL CLUSTERS IN INCLUSIVE

THE ROLE OF AGRO INDUSTRIALCLUSTERS IN INCLUSIVE ANDSUSTAINABLE DEVELOPMENTbyChuma EZEDINMAOfficer in ChargeUNIDO Regional Office, NigeriaMarch 2016

In Africa, government resources and capacities are limited and need to be used strategically.Developing agro industrial clusters in Africa is astrategic approach to inclusive and sustainabledevelopmentTo deliver effectively and efficiently in the globalinterest of inclusive employment and sustainabledevelopment requires significant coordination ofefforts, resources and knowledge; and leveraging thecore competences of key stakeholders namely: government, development partners, private sector entrepreneurs and businesses

SubSaharanAfrica (allincomelevels)3.5E 133E 132.5E 13MiddleEast &NorthAfrica (allincomelevels)2E 131.5E 131E 13LatinAmerica&Caribbean (allincomelevels)5E 120Figure 1: Trends in Gross National Income by Region - 2014Computed from worldbank.org/indicator/Figure 2: Global Population trend(Source: UN’s World Population Prospects, 2014)Figure 3: Changing urban population in some African CountriesFigure 4: Africa’s urban and rural Population, 1950 - 2050

Low agricultural productivityAgriculture value added per worker (2013)World average: 1,201Lowincome countries 336Middleincome countriesHighincome countries 1,060 18,497

Low level value addition

High Post Harvest Losses

Industry clusters: geographic concentrations of competing, complementary, orinterdependent firms and industries that do business with each other and/or havecommon needs for talent, technology, and infrastructure. Agro SEZ focus on agro processingBusiness/Industry clusters is framed around four groups:1. Geographical clusters that are identified by location2. Sectoral clusters of businesses operating together from within the samecommercial sector3. Horizontal clusters between businesses at the level of shared resources (e.g.knowledge management)4. Vertical clusters of businesses along a supply chain.Agro Industrial Cluster is a concentration of producers, agro-industries, tradersand other private and public actors engaged in the same industry and interconnecting and building value networks, either formally or informally, addressingcommon challenges and pursuing common opportunities (Galvez-Nogales 2010).an extension of industrial clusters popularized by Michael Porter in ‘Thecompetitive advantage of nations’ (1990).

The concept is based on therelationships between raw materialsuppliers and end users and thedifferences in design are defined bythe degree of explicit coordination andpower asymmetryAlso known as:- Agroclusters- Agropoles- Agro-industrial park- Agro food parks- Agribusiness parks- Mega Food Parks Special Economic Zones and Industrial Parks– 15000 across the world (UNIDO 2015)

Centralized processing infrastructure in a farmproduction zone: Agro pole, Agro Industrial zone,SCPZ/ABIR, etcAgro Industrial Corridors

Fish processing clusters around lakeVictoria, Kenya – Regional

72%56%55%53%45%39%28%24%19%5%Infrastructure Financing SecuringSuppliesPolicy &RegulatoryEnvironmentHuman Governance Information & Land Government CompetitiveCommunicationCapitalCoordination EnvironmentSupply side constraints in Agro industrial developmentAddresses challenges to Agro-Industrialization simultaneously

Stakeholders and BeneficiariesThere are, basically, five sets ofstakeholders to be involved from thebeginning of the project:(1) local investors and industryassociations;(2) international investors;(3) state (or province) and localgovernments;(4) selected (most relevant for theproject) federal ministries; and(5) development partners.Several Beneficiaries(1) Local Farmers/Farmer Coops(2) Local & International agroindustry investors(3) Service Providers(4) State (or province) and localgovernments;(5) Government Ministries;Departments and Agencies(6) Site/Estate/InfrastructureInvestors(7) .etc

Development Strategy and Ownership Develop enablingenvironment &framework - (policies,finance, land,incentives) Provide connectivityto critical nationalpublic infrastructuresuch as land, roads,and energy Regulatory Framework Financing and servicesupport Develop marketlinkages to integratesmallholders, ruralpopulation, andwomen Capacity building“Private sector led, Government enabled” Invest in modernDevelop-mentPartnersLocal rocessing,associatedproduction &technology Invest in on-siteinfrastructure andservices Provide sustainablesite managementcommunities Build capacity andtechnical expertise

Agro Industrial Clusters: . a new agricultural investment frameworkShift agriculture fromgovernmentcontrolled to privatesector ledA key objective isto stimulate privatesector investmentsto drive a marketled agriculturaltransformationTransform theagricultural financiallandscapeChannel investmentsin infrastructure andservicesStrengthen the policyand investmentclimate

Grow anindustrial base& create WealthCreateemploymentPromote tradeandinvestment

supply

Developing Agro Industrial Clusters: Key DocumentsAIZ PolicyProvides the roadmap to guide the development,management and operation of the AIZ and will beused, alongside additional legal instruments –Memorandum of Understanding, Tripartite Agreements,Standard Offer Agreements to be executed, as necessary,between the Federal, State Governments and Zone InvestorsBillLegislative Bill for the establishment of the AIZ Law,the AIZ Institution/Authorityinstitutional arrangements, roles and responsibilities for thedevelopment and operation of the Agro Industrial ZoneMaster PlanLong-term planning document that establishes the framework andkey elements of a site reflecting a clear vision created and adopted inan open process, defines a realistic plan for implementation,including a business case and subsequent approvals by publicagencies

SCPZBunkure,KanoS.KanoRice, tomato, sorghum1 Focus cropBeans, Cassava, Cocoyam,Maize, Cotton, Rice,Groundnut, Guinea corn,Millet, Soya beans2 Additional crops3 SCPZ location75% out of 100%6 Growing area requiredusepatternhectaresTotal area 7861.51million US )agri 11440.22Specializedinfrastructure cost within million US )ABIRExternal connectivity and 52offsite infrastructure cost - million US )SCPZGrand total cost for 24184.23 million (151.15ABIRand million US )state governmentInvestment by SCPZ by 7861.51 million575320 MTPAPPPInvestment by SCPZ PPP 7322.72 millionfor the SCPZ7 LandSCPZ all phasesmillionInvestment by GoN and 9000 millionsite5 Raw materials required4462.72million US )integratedSCPZGafan4 Composite score of theI developmentLocationDescriptionNo.Project costPhase148465 hectaresor separate SPV or GoNand state government–257.24 hectaresPhase IPhase IIRevenue driversTotal revenue – during o 4550.39 millionyear of operationoo 2992.06 million 2321.23 millionMeans of financeo 2382.68 milliono 2432.15 millionThe project shall be funded1st,2nd,3rd,4thand5thI) Total processing area121.01115.241.1) Total industrial area1.2) Amenities1.3) Utilities1.4) Road1.5) Greenery and openspace81.064.307.277.3193.300.436.09through equity, term loan inthe initial phase and in the21.0715.43subsequent phases throughthe internal accrualEquity 1785.09million(11.157Term loanmillion US ) 2677.63million(16.735million US )

Steps in Developing Agro Industrial 2015 Retreatupgrading and expansion thruthird party national banksOperationsOperations and maintenancePerformance monitoring andcontrolData collection and analysisBank can financeTransactions Adviseror InvestmentPromotion/MarketingBank can finance MasterPlan/ Feasibility Study,Other Studies (Grants)Bank can financeprefeasibilityassessments, strategydevelopment (Grants)Demand / Supply AnalysisStrategy developmentPolicy and RegulationsPre feasibility Assessments Production Capacity Market Analysis Environment Infrastructure Institutional Aspects Socio economic aspects Land availability/access1 Preliminaries,CommissioningProcurement & MarketingPlanning and DesignProject Definition & Conceptual designMaser Plan and Feasibility studiesInstitutional framework /DevelopmentRelationship with local authoritiesEnvironmental Impact AssessmentInfrastructure gap analysisResource PlanningPlanning, Operation and maintenanceFunctional Program/implementation planProcurement planningFinancial, Organizational and LegalsupportAuthoritiesPre-qualificationsDesign specificationsRequests for biddingBidding EvaluationsContract AwardContract managementSubcontractingProject management & SupervisionInvestment marketing, facilitation ofZone/park2 Development,ConstructionTesting and samplingStart upStaff Training programmesOrganizational DevelopmentOperation and maintenance plansSupport Privatesector investmentsthrough third partynational Banks @single interest ratesand relevant tenure3 Implementation

Infrastructure is Key# 1. ENERGYTwo turbines of 200 kW each in Kakara, Highland Tea factory

1. Internal InfrastructureChillerPower plantCPP/ IPPBasic infrastructurePowerRoadsSewerageWater supplyGasDrainageTelecomStreet lightingFire fightingETPSTPWaste managementLarge industrial unitsLargeunitsLargeunitsSmall unitsSector-1Large industrial unitsLargeunitsSmall unitsSector-4Water supply &distributionSteamLarge industrial unitsSocial infrastructureHousingRecreationHealth g andmarketingsupportSmall unitsSector-3Large industrial unitsPackaging& LabelingWatersourcesLarge industrial unitsSmall unitsLargeSmall unitsunitsSector-5Regional Office Nigeria 2015 RetreatLarge industrial gCold storagesQuarantineReefer vansGrading / sortingWarehousingPreservation /processinginfrastructureControlled atmosphericstorageModified atmosphericstorageSmall unitsSector-6Transportation& logisticsSupport infrastructureFPO labQuality controlTraining centreR&D centreCentre of excellenceProcurement centreAuction centreInformation centreTerminal marketsCargo complex

2 - Agri InfrastructureRegional Office Nigeria 2015 RetreatNetwork of collection centers, storage halls, pre cooling,cold storage, primary processing hubs, mobileprocessing units, high humidity cold storage, deepfreezers, controlled atmospheric storage, modifiedatmospheric storage, grading & packing halls, packhouses, refrigerated transport, warehouses etc.

3 - External Infrastructure to the AIZRegional Office Nigeria 2015 RetreatRoad connectivityHighway strengtheningExternal infrastructureconnects the AIZ with theoutside world providingforward and backwardlinkages necessary for theoperations.Responsibility ofGovernmentRail connectivityAir & Sea Port connectivityExternal water supply sourcelinkagesExternal power linkages

Funding Agro Industrial ZonesMain cropsSCPZ/ABIR NigeriaSCPZ costphase I (US million)SCPZ cost totalAgriinfrastructurecost (feederroads, ruralpower, etc)Connectivityinfrastructurecost (SCPZ road,power lines)Total cost (US million)Badeggi, NigerRice23.451.6115.114.7181.4Gafan, KanoRice, tomato,sorghum27.949.171.530.5151.1Omor, AnambraRice30.253.277.356.1186.6Okorolo, RiversFish1114.958.46.379.6Agbadu, Alape cluster, KogiCassava30.452.2137.9124.6314.7Adani, 1,063.1TotalPrivate Sector (Site Developer; Occupant Industry)PPP/Development Partners/Donors/Service ProvidersGovernment – Public Sector/Donor (Loans)

*Require different financial products and mechanisms

Risks: Coordination and ContinuityProviding infrastructure involves the services under the scope of severalMinistries (e.g., energy, transportation, communication, environment, scienceand technology etc.) and a very close inter ministerial coordination isrequired In project management coordination, there are, basically, twomain problems to be avoided: (1) inter-governmental agency rivalry, which is a result of lack ofcoordination and even opposition between government agencies;and (2) inefficient decision-making processes, which is due to the factthat multiple reporting structures and reporting layers are expectedto lead to inefficiencies and delays in the process of projectimplementation.(3). Support at the highest level of Government .& the Bank