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| toubab1020 |
Posted - 22 Jun 2024 : 12:09:26
#Editorial
Shifting legislation and policies to support wider range of Africa’s agricultural projects
From The Point Newspaper
Jun 19, 2024, 10:31 AM | Article By: EDITORIAL
An African agricultural renaissance will require a shift in national development policies from supporting a small number of mostly export-focused crops—cotton, cocoa beans and coffee—to prioritizing a wider range of agricultural products for consumption on the continent. Agricultural exports are crucial, as they generate valuable foreign currency.
A significant portion of Africa's cross-border trade is between African countries, which is also vital in fostering pan-African food security. In 2018, intra-African trade accounted for 15 percent of exports and, in turn, 15 percent of that was in agricultural products. The African Continental Free Trade Area (AfCFTA), established in that same year, will—in time—no doubt significantly enhance this flow of agricultural products across African borders. Improved customs processes at border crossings will help minimize the volume of produce spoiling in transit. Moreover, processing such exported goods locally rather than exporting raw products would increase revenues and create new job opportunities.
The COVID-19 pandemic wreaked havoc upon Africa's fiscal health, but it has not diminished the needs of the continent's agricultural sector or the urgency for them to be effectively met. Through the Comprehensive African Agricultural Development Programme (CAADP), African Union member states committed to a minimum of 10 percent of their government expenditure toward agriculture. In 2021, however, the average government expenditure on agriculture in Africa stood at a mere 4.1 percent.
Access to credit is a major impediment to private sector investment in African agriculture. According to the African Development Bank, the estimated current financing shortfall ranges between US$27 billion and US$65 billion annually. Even more direly, the Commercial Agriculture for Smallholders and Agribusiness (CASA) program—a flagship initiative of the UK Foreign, Commonwealth & Development Office—estimates the financing gap to be in excess of US$1 billion, based on the demand of US$160 billion, minus the current provision of US$54 billion by banks, impact investors and other financial intermediaries.
Impact investors also play important roles. According to Philippa Viljoen of the impact investment firm InfraCo Africa, "Impact investors being involved not only encourages new investors to come in, but they have capacity to support developers to bring about design improvements that commercial financial institutions cannot. This can make the difference between a project being bankable, or not."
The CASA report proposes four long-term strategies to bridge the funding gap: (i) grow more small agribusinesses into commercially viable projects to anchor local bank financing; (ii) develop capacity, incentives and infrastructure for local banks and funds to profitably support smaller, less commercial agribusinesses; (iii) enhance the effectiveness of blended finance instruments; and (iv) build infrastructure around climate finance. These strategies are enormous both in scope and in scale. Transforming them into tangible reality will depend heavily on coordinated action from stakeholders within the agricultural finance ecosystem.
Small-scale agricultural operations have very direct links to community upliftment. With the appropriate institutional and advisory support and compelling business cases, such projects offer viable opportunities for sustainable finance instruments such as social bonds and loans, blended finance and impact investing, and can become attractive investment options for institutional investors.
Within Africa's agriculture and food & beverage sectors, there are currently 56 companies with annual revenues above US$500 million, of which 14 companies have turnovers in excess of US$1 billion. Such larger-scale agro-industrial enterprises are better placed to attract their own capital, and their future seems bright. Some of the world's largest agriculture companies—including the three biggest players, Cargill, ADM and Bayer—also have significant operations in Africa
A Guest Editorial |
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