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Catalysing change in private sector investment

Finance

Agribusiness

The African Development Bank (AfDB) has recently launched its new ten-year Strategy for Agricultural Transformation in Africa.

A new ten-year initiative by AfDB aims to facilitate private sector investment in agriculture and related sectors across the continent through the promotion and scaling up of a risk sharing facility (RSF) model, according to Chiji Ojukwu, director of the AfDB’s Agriculture and Agro-Industry Department.

As part of AfDB’s Feed Africa initiative, the Strategy for Agricultural Transformation in Africa will aim to hit four goals by 2025. On top of helping lift 130 million Africans out of extreme poverty and ending hunger and malnutrition, it aims to transform Africa into a net food exporter and push African countries to the top of key agricultural value chains by increasing their market share of locally processed agricultural products, says Ojukwu.

In a bid to drive banks and other finance service providers to unlock capital flow into agriculture, the strategy will focus on initiatives that reduce risks of lending by commercial banks into agriculture, leverage excess liquidity within commercial banks into the sector, build banks’ understanding of agricultural lending through risk assessment and product development, and increase banks’ outreach by developing efficient financial delivery systems to reach rural areas.

The AfDB expects that, with an average leverage rate of 1:10, a total of €1.88 billion will be rolled out through the initiative, mostly though domestic budget allocation supported by AfDB borrowing, catalysing nearly €19 billion in private sector investments.

Risk sharing

The RSF mechanism will provide incentives and de-risk the financial and agricultural value chains so that financial service providers and private sector investors are able to fund agriculture at scale. It will follow a similar approach to the government-backed Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL), which aims to leverage €2.8 billion of new agricultural financing from €470 million of funding. NIRSAL takes a ‘dynamic and holistic approach’ that helps ‘fix’ value chains and provide technical assistance and incentives so that commercial banks can lend to them with confidence, emphasises Ojukwu.

Countries that have already started establishing in-country RSF initiatives include Ghana, Kenya, Liberia, Rwanda and Uganda. The Alliance for a Green Revolution in Africa have also evidenced how de-risking mechanisms can work, applying €16 million in loan guarantee funds to leverage €150.5 million from commercial banks in Ghana, Kenya, Mozambique, Tanzania and Uganda, states Ojukwu.

The AfDB will also support policies enabled to creating a positive business environment for the private sector to thrive including infrastructure, such as power, roads and irrigation, offtake and processing activities, and access to market, he adds.  

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