Catching up on fish

Overfishing is rapidly depleting global fish stocks and threatening food security in many places. The impact on developing countries is devastating. According to the FAO, developing countries account for 70 % of the world’s total fish catch, with small-scale fishers’ contributing more than half. Dwindling fish stocks spell poverty for millions of people in fishing communities. Since 90 % to 95 % of developing countries’ yield serves their domestic markets, collapsing fish supplies hurt consumers there too – and in par­ticular economically weak people. For many poor people, fish provides important nutrients, including protein. The FAO estimates that fish accounts for 22 % of the sub-Saharan people’s protein diet. For the poorest African countries, the share is more than 50 %.

Last year, global fish consumption hit a record high at an average of 17 kilogrammes per capita. Africa’s per capita consumption was only half as much (8.5 kilogrammes per capita). Africa, moreover, is the only world region where fish consumption is decreasing. Sadly, this trend set in years ago, even though demand for seafood should be growing fuelled by population growth, urbanisation and economic growth. Aquaculture is a reasonable response to this trend. This industry is still underdeveloped in Africa, and only beginning to improve matters.

Aquaculture would seem an obvious investment opportunity. So far, however, not much is happening. Apparently, private investors consider the sector difficult and risky. Aquaculture’s recent growth is concentrated in a handful of countries, including Ghana and Nigeria. In most other African countries, however, people tend to associate the industry with failure.

Inaccurate perceptions

That perception is inaccurate, however. The key issues that are stifling this industry are the same that other industries face too. Infrastructure and governance matter very much. Aquaculture is currently dominated by individual smallholder operations, lacking critical size and integration into value chains. Typically, owners struggle to get affordable loans from the financial sector. Many businesses are not officially registered.
There has been little success in developing large aquaculture schemes in Africa so far. Only a handful of African companies produce more than 3,000 tons of fish per year. Per person employed in the primary sector, the average annual production is only two tons. By comparison, the respective figure for Norway is 172 tons. Chinese fisheries produce an annual six tons per primary sector worker.

Scale and integration are essential. In developed industries, specialisation makes economic sense because companies can rely on other market participants for products or services. The lack of an appro­priate business environment with a suitable infra­structure means that sub-Saharan aqua-farms have to take care of the entire value chain – form brood stock husbandry to feed supply and logistics.

Smallholders who lack appropriate funding are, in effect, forced to set up isolated supply models. In many cases, failure of such individual operations is inevitable. Since there are only few large-scale aqua-farms, it is difficult for financiers to identify good ­investment opportunities. Harlekin Blue, an aqua­culture investment firm that is active in emerging markets, has been considering opportunities in sub-Saharan Africa since 2009. According to Aaleem Jiva, its managing partner, however, the business environment is much better in countries like Vietnam or Thailand. Harlekin Blue is investing in Southeast Asia, but has not committed sizeable sums in Africa yet.

The good news is that things are starting to change. In some regions, attractive projects are emerging. Ian Derry, director of BusinessMinds, a Netherlands-based firm that promotes sustainable development, believes the sector is on the brink of significant growth in Africa. Thanks to support from governments and development agencies, commercial fingerling and feed industries are budding.

According to Derry, market access is now the main challenge. Unless there is a well-designed distribution and retail chain, up to 30 % of fish is lost on the way to the consumers. Such losses make distribution expensive and are another reason why investors shy from aquaculture.

Things need not stay this way, however. In cooperation with the Scottish University of Stirling, BusinessMinds, has started africaFISH. This company is meant to develop a sustainable commercial aquaculture model for Africa. In the past 18 months, africa­FISH has been working with a small-scale Ugandan aquaculture business. Financing to expand its production to 3000 tons per year is being finalised.

Integrating outgrowers

The continent’s largest tilapia farmer, African Century, moreover, is a great success. Its operations span countries as diverse as Uganda and Zimbabwe. African Century is successfully integrating smallholders into its expanding operations. John Owers, the company’s investments director, says that smallholders need to be integrated into larger-scale operations with robust business models in order to thrive commercially. Pursuing a strategy of white protein production, African Century combines fish and chicken production. Smallholders that are integrated into schemes like those of African Century are called “outgrowers”.

It is not hard to find successful role models for aquaculture in Africa. Kenya’s tea companies, for instance, have been engaged in sound cooperation with outgrowers for a long time. This is a proven, effective model applied all over the continent.

DEG – Deutsche Investitions- und Entwicklungsgesellschaft mbH, the member of Germany’s KfW Bankengruppe that promotes the private sector in developing countries – has already invested over € 10 million in the sector. Its focus is on supporting integrated business models. DEG provides loans and even equity capital, promoting environmental and social standards at the same time. The long-term goal is to help companies run sustainable operations and adhere to the necessary standards of food quality.

Other investors should reconsider their attitude to aquaculture. They should strive to create integrated, environmentally sound and socially sustainable farming operations.

With the continued increasing strain on resources and humans’ environmental impact, more efficient methods of food production will form an integral part of sustainable development strategies.