Financing Agricultural Projects In Africa:

New Financing Approaches and Instruments

3rd German-African Agribusiness Forum
Frankfurt, 22nd May, 2017
Benedict Kanu
Partnerships Coordinator
African Development Bank
Outline
 What is the landscape like for Africa/Context?

 What are the current needs/financing sources and financing

gap?

 What is the rationale for new ways of financing African

agriculture?

 What should new ways of financing agriculture focus on?

 What is the response of AfDB?

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What is the landscape like
for Africa/Context?

3
Agriculture remains a major source of income for Africa; but untapped potential
has resulted in persistent poverty/limited wealth creation and food insecurity

4
 Urbanization is driving increased demand for food products that are
not mostly supplied by African producers
Increasing urbanization across Africa Shifting consumption preferences to ‘premium’ rice
African urbanization rates; millions of people, 2000-2025 Per capita rice consumption by grade – Nigeria Example
Kg per capita per year
635
35.0

532
30.5 10.9
+4% 446 (31%)
372 21.4
311 Standard (70%)

263
9.1 24.1
(30%) (69%)

Premium

200 200 201 201 202 202 Rural Urban

0 5 0 5 0 5
% of pop.: 34% 35% 37% 39% 41% 44%

Source: IFPRI, Policy options for accelerated growth and competitiveness of the domestic rice economy in Nigeria; World Bank; CGIAR, Technologies for African Agricultural Transformation; Africa Rice Center,
The New Rice for Africa – a Compendium; World Bank Data; Dalberg analysis 5
 Agriculture in Africa
Yet… While…

• Less than 5% of Lending • Africa’s population is

from Financial Institutions expected to reach 2.5
Billion by 2050

5% POP (BILLIONS)
3
• Employs 60% of its
60% 2.5
population
2

1.5

0.5
30% • Contributes 25-
40% of GDP 0

2010 2050

Significant Investment needed to

FEED Africa! 6
Country-level Transformation is already underway
across Africa
Becoming a major exporting Becoming a major exporting Improving yields through
player within 10 years player within 10 years modernized input distribution

Kenya Ethiopia Nigeria

Exporting horticulture out of Exporting floriculture out of Scale farmer registration and
Africa Africa input distribution

Total horticulture exports, billion KSH Total floriculture exports, million USD Total farmers registered, million users

10.3
GESS was
97 introduced to
+11% +41% 550 farmers in April
346 2012
4.2
21 178
0.66 13

2000 2005 2010 2014 2001 2005 2010 2013 2016 2012 2013 2014
p
• Strong political will and
• Strong foreign investor and partner • Ethiopian Horticulture Producers
government support to transform
support developing and driving the and Exporters actively managing the
the input supply system.
industry. sector.
• Use of public funds to leverage
• Contract farming model used to • Strong Government support in i)
private-sector investment (i.e.
assure consistent supply. infrastructure and logistics, ii)
agro-dealers networks).
• Political will to support smallholder access to land, iii) provision of long-
• Leverage mobile technology to
farmer development. term credit, and iv) attracting
achieve scale and provide
domestic and foreign investors.
nationwide access.

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 What are the current
needs/financing sources
and financing gap?

8
Achieving Feed Africa’s Goals requires substantial investment and results in massive
revenues
Investment required to transform Africa agriculture; USD billion, 2016-2025 Indicative Estimate
Enablers

Partnership for
Infrastructure6

Sustainability,
Environment8
Ag. Finance7

opportunity
Hard & Soft

Inclusivity,
Value Chain Development

by 2025
Nutrition
Enabling

revenue
Annual
Africa

Total
ATA
Value
Production4 Total
Addition5

Rice ~18-22 ~3-4 ~21-26 ~5

Commodities / Agro-Ecological Zones

Cassava ~2-2 ~2-3 ~4-5 ~1

Wheat ~22-27 ~16-20 ~38-47 ~13

Cotton ~0.4-0.5 ~1-1.2 ~1-2 ~0.3

Horticulture ~5-6 ~4-5 ~9-11 ~65-80 ~265-330 ~20-30 ~30-40 <5 ~315-400 ~16

Aquaculture ~1-1 ~19-23 ~20-24 ~8

Tree crops1 ~14-17 ~9-11 ~23-28 ~11

Sahel Region2 ~6-7 ~9-11 ~15-18 ~6

G. Savannah3 ~42-52 ~26-32 ~68-84 ~23

Total ~110-135 ~90-110 ~200-250 ~65-80 ~265-330 ~20-30 ~30-40 <5 ~315-400 ~85

■ USD 315-400 billion over the next decade, or an average of $32-40bn annually
■ Could unlock USD 85 billion in revenues annually from 2025
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 Mobilizing Funding to Address the Financing Gap
Current Funding for Agriculture Development in Africa
vs. Requirements for Transformation, $bn / year

~$25-33bn~$32-40bn AfDB and public sector partners will crowd in

Total govt spending is ~$12bn,
70-80% is on recurrent private and institutional funding by:
expenditure, leaving only $2-3bn • Establishing enabling environments for
for investments.
private investment.
<$1bn $7bn • Employing innovative de-risking tools and
$2-3bn
blended financing.
$3bn
• Proving the potential for risk-adjusted
returns in agriculture projects and
<$1bn
agribusinesses.
AfDB Other Govt Commercia Total Gap Total
ODA and Spendin l Lending Investmen Require
Donors g t d

Currently, total investment finance is ~$7bn annually

Leaving a funding gap of ~$25-33bn 10
 Role of the Private Sector
Leverage commercial banking and private sector investment
in agriculture

• Commercial Bank lending to USD 14

agriculture in Africa: ONLY USD 600 billion
million out of USD 14 billion 0,6
bn

• Net Banking Assets: USD 800 Billion in SSA alone

Key • Including:
Facts… • Sovereign Wealth Funds: USD 160 Billion
• Pension Funds: USD 380 Billion
• Private Equity Funds: USD 25-35 Billion, with 900 million
per year to agriculture

New Sources of investment for New Markets 11

What is the rationale for
new ways of financing
African Agriculture?

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Rationale for new ways of financing African Agriculture

Financial
Low level of
Demographics institutions
commercial bank
and shifting diet challenged when
lending to
habits. offering products
agriculture.
to agriculture.

By 2030, urban Agriculture

food markets will funding –
be valued at informal, short-
USD 1 trillion. term, high
↑ Private sector interest rate.
role.

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When offering financial products to agriculture, financial
institutions face:

High transaction costs in reaching remote rural

populations.

Higher perceptions of non-repayment due to sector-

specific risks (production, price and market risks).

Financial institutions’ limited knowledge in managing

transaction costs, agriculture-specific risks and
marketing financial services to agricultural clients.

Government policies (concessional lending practices,

interest rate caps, and loan forgiveness programs)
often create impediments to extending private financial
services to agriculture. 14
What should new ways
of financing agriculture
focus on?
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 What should New Ways of Financing Agriculture Focus
on? (1/2)
• MFIs and
cooperatives can
serve sub-segments
Segment Identify appropriate of smallholders.
smallholder institutions and • Commercial banks
farmers and delivery channels can provide solutions
identify their that would reduce for better organized
diverse financial the costs of serving groups of
needs. agricultural clients. smallholders.
• New technologies and
Address issues in advancements in
Find ways to de-risk the enabling mobile banking
agricultural finance environment and solutions.
by addressing both government
individual risks and policies that limit
important systemic the flow of financial
risks. services to
smallholders.

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 What should New Ways of Financing Agriculture
Focus on? (2/2)

Invest in and use

Longer-term Invest in irrigation,
information and
agricultural financing drought-resistant
communication
for better storage technologies,
technologies (ICT)
facilities, controlling floods,
solutions to help
food/commodity and use insurance
reduce the costs of
processing facilities and other
frequent/small
and mechanisms to
transactions by
equipment/mechaniz mitigate loss due to
disperse populations in
ation. climate events.
rural areas.
Finance agriculture-
related Make agriculture
infrastructure, such more attractive to Channelling FDI into
as rural roads, port young people and the private sector
facilities, loading empower women so investment is more
terminals, etc., to they can contribute growth oriented than
reduce more. into the public sector.
transportation costs.

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Some Indicative Products Needed
DEMAND-SIDE
 Smallholder farmers
 Emerging commercial farmers
 Producer groups
 Ag SMEs
 Produce Aggregators
TECHNOLOGY
INFRASTRUCTURE
SUPPLY-SIDE
 Commercial banks
 State-owned agriculture banks
 Private equity and SME funds
 Development Finance Inst.

Solutions
 Risk sharing facilities
 Loan portfolio guarantees
 Debt and equity products
 Catalytic SME funds
 Blended Financing
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AfDB’s Response

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A Focused Approach on Integrated Commodity Value
Chains

Initial focus on 6 commodities: Rice, cassava, cotton, cocoa, dairy

and horticulture.

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 Increased

Orchestrate, Architect, Scale and Replicate

Productivity
(TAAT, agro-
dealers,
innovative
extension
Partnership for models, Realized Value of
Agricultural mechanization) Increased
Transformation in
Production (PHL,
Africa (Coordination)
APZs, ACEs)

7 Increased
Increased
Inclusivity, ENABLERS Investment in
Hard and Soft
Sustainability, and Infrastructure
Nutrition (CSA, (market
AFAWA, nutrition, infrastructure,
blue economy, farmer e-
Transformation

ENABLE Youth) registration)

Improved
Agribusiness
Environment Expanded
(Policy reforms – Agricultural
inputs (land, Finance (AFAWA,
finance) RSFM)
integration and
trade)
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The Bank intends to increase agricultural lending to $2.4bn
annually (public and private)

■ Others:. GEF,
TSF, SRF,
AHAI already has a robust pipeline of requests for the upcoming years (US$8.0 Billion) GAFSP

■ Source: AHAI.

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 FLAGSHIPS TO SUPPORT STRATEGY
RISK SHARING FACILITY NUTRITION COORDINATION
MECHANISMS

CLIMATE
SMART POST
TAAT MECHANIZATION AGRICULTURE HARVEST LOSS AGROPOLES

BLUE ECONOMY
&
LIVESTOCK

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FEED AFRICA’S APPROACH TO CATALYZING
PRIVATE SECTOR INVESTMENT
Risk mitigation
RSFs;
Insurance
solutions;
funded DFIs
Dedicated
vehicle (PSCEF,
Support of
CIF) with
RECs initiatives
adapted
through TAs
processes and
risk assessment

Financing
agriculture
supporting
solutions
Corporate
transactions to Crowding: Use
large groups of Private Equity
and commodity funds as indirect
traders’ vehicles
networks

Blended
financing
solutions (ADF,
ADB, TA fund)
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Other financing structures/flagships of Feed Africa to address
the specific finance needs
• The Agricultural Project Finance Facility catalyzes
financing for the build-out of agricultural infrastructure in
Infrastructure Affirmative
support of the agricultural transformation agenda by
Finance
providing co-funding and project development assistance Financing • Will raise women’s incomes by increasing their
to value chain projects.
Action for access to credit to grow agriculture and other
Women in
businesses.
Africa
(AFAWA)
• The African Agriculture Trade Finance Facility facilitates
trade and improves global competitiveness of African
Trade Finance
agricultural exporters by providing access to finance for
banks and export aggregators.

• Africa Risk Insurance will improve country

Sovereign
resilience to agro-climactic shocks by building a
• The Bank’s Agricultural SME Finance Capacity-Building Insurance
continent-wide sovereign insurance solution.
Agricultural initiative builds long-term sector capacity and supports
SME Finance
Capacity- the development of innovative SME financing vehicles by
Building funding a variety of non-bank financial institutions and
ecosystem actors.
Commodity and Agricultural Financing Value Chains: Risk
sharing mechanism for increased agriculture finance
Public Goods support:
Roads, Irrigation, R&D, Storage, Price Stabilization, etc. • AfDB to support
RMCs to setup RSF

Improve the Agricultural Value Chain • RSF to leverage up

Commodity Products to 10x

Agro Seed Fertilizer Agro Industrial Trade

• Systemic change in
Farmers
Dealers companies companies processors manufacturers and exports bank financing for
agriculture

• Finance for growth

Appropriate Risk Sharing Instruments along the Agricultural Value Chain of agribusiness

Interest Technical • Financing

Guarantees Insurance
rebates Assistance agriculture as a
business: ENABLE
Seasonal • De-risk the financial value chain Term Youth
Financing • Unlock commercial financing for agriculture Financing

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Technical Assistance

Risk Sharing Women

Facilities Entrepreneurs

Commodity Blended
Exchanges Finance
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The degree to which RS instruments are broadly known and
utilized varies with most of Africa
ILLUSTRATIVE
Tunisia
Morocco
Liberia: Discussions Risk Sharing Legend
underway between
Algeria Libya Large scale Agri RSF
Government and AfDB Western
Egypt
Sahara Limited Agri RSK
Active Planning
Mauritania Desire Raised
Mali Sudan
Ghana: Bank of Ghana Niger
Chad No data
Senegal Eritrea
provides some measure of Gambia
support but has not Guinea Bissau
Guinea
Burkina Faso Djibouti
Uganda: $50M equity co-investment facility set-
Nigeria Southern Somalia
committed to independent

Benin
Ghana
Sierra Leone Cote
Central African
Sudan Ethiopia up by Ministry of Finance for Government of
organizations and fund; Liberia
d’Ivoire
Cameroon Rep. Uganda; co-invests alongside commercial banks
Togo
Ministry of Agriculture
Equatorial guinea
lobbying to shift view Sao tome & Principe Kenya
Gabon Democr. Rep.
Uganda Kenya: Currently conducting a strategy review
Rwanda
Congo Of the Congo sponsored by the Central Bank to design a
Nigeria: $500M guarantee Burundi
Tanzania
“KIRSAL”
facility set-up by Central
Rwanda: Discussions underway between
Bank, with support from
Government and AfDB
Ministry of Agriculture and Angola Malawi
Zambia
commercial banks
Mozambique Tanzania: Partnership with Standard Bank and
Zimbabwe
Namibia AGRA to lend to farmers and agribusinesses
Cameroon: $4.1M risk sharing Botswana

facility between IFC and BICEC

Mozambique: Partnership with Standard Bank
to support cooperatives active Swaziland
Madagascar and AGRA to lend to farmers and agribusinesses
in production of cassava, maize South Africa
Lesotho

and sorghum

Note: Additional RSFs exist outside of agriculture, including Celtel Uganda, Ghana School Financing Facility, Kenya School Risk Sharing Facility, and Kenya Student Loan Program; IFC =
International Finance Corporation; BICEC = Banque Internationale du Cameroun pour l’Épargne et le Crédit; AGRA = Alliance for a Green Revolution in Africa
Source: Central Bank of Nigeria, AGRA, Government of Ghana, Government of Uganda, Standard Bank, lit. search; author's analysis
 AgSMEFF – Transforming Agri-SME Financing
Agricultural SMEs: Investment ≈ USD 1–10 M
FACILITY LAYOUT: USD 215 M (initial)

Eligible Offering Syndication Risk Technical

Projects • Project Mitigation Assistance
Preparation • Online Platform
• Commodity
Value Chains Advisory • Built in Partial • Blended • Grants for
• Credit Guarantee Financing feasibility
• Processing Product for co-
Facilities with Assessment • First Loss studies
Toolkit financing local Tranche • Capacity
smallholder banks
outreach • Direct building
Investment – support
• Foreign or local
currency loans Up to 25% of • SME Linkages
Project programs
Investment • Advisory
• Mezzanine/ Services
Senior Debt

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Partnerships and Platforms
AFRICAN DEVELOPMENT BANK GROUP

CONTACT:
Benedict Kanu
Email: b.kanu@afdb.org

THANK YOU / MERCI

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