Agriculture and agribusiness are powerfully strong drivers of growth and job creation across Africa

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By Yusoke Kotsuji

IFC Principal Investment Officer for Agribusiness in Africa

Agriculture and agribusiness are powerfully strong drivers of growth and job creation across Africa.

The continent boasts an estimated 65 percent of the world's arable land and is home to abundant water resources and a variety of soils and climates that support the growth of the world’s most important and desirable crops.

The food production sectors contribute an estimated 25 percent of the continent’s GDP and a staggering 70 percent of its employment, providing a livelihood to hundreds of millions of people.

Despite its many successes, however, Africa’s agriculture and agribusiness sectors have hardly reached their full potential, with production struggling in some places to meet rising local and export demand or to compete efficiently in global markets.

The unexpected shock of COVID-19 highlighted the importance and strengths of agriculture in Africa – but its weaknesses were also exposed in the form of disrupted supply chains and the struggles farmers, processors, and others faced accessing vital inputs.

A more longstanding problem has been attracting sufficient investment.

Agribusiness is a strategic priority for IFC, which today has investments in about 50 partner clients in sub-Saharan Africa. We believe that opportunities exist for other investors too, including in climate-friendly projects and solutions, an increasingly important part of growing and processing foods.

There is certainly gathering interest from private equity funds in Africa’s agribusiness sector, especially in cash-generative and well-managed businesses. However, PE investments have tended to be smaller because the deals are smaller.

Infrastructure, for example, requires large, often multi-hundred-million-dollar investments supported by large sponsors, but this is not usually the case with farming. Infrastructure project finance can be tightly structured and risks can be shifted to various parties—again, this is generally not the case with farming.

The challenge, then, has been to identify bankable businesses with sustainable competitive advantages that will attract large and long-term investment, with investors generally seeking projects with cost advantages and unique selling points.

For example, a busines that produces bottled water in a land-locked country will have big advantages over imports. A dairy processing plant in East African where raw milk can be sourced cost efficiently might also be attractive to investors, as is a product like Kenyan tea, which has a unique flavor that can’t easily be matched by teas from elsewhere.

Upstream

Identifying these bankable—or potentially bankable—businesses is an increasingly important part of IFC’s strategy in agribusiness and in other sectors in Africa. We call this approach working “upstream”, which implies helping create, deepen, and expand markets through targeted sector and project-level interventions to attract private investment.

Upstream work requires a systematic approach to understand the regulatory bottlenecks preventing the flow of private capital into productive investment and addressing these constraints by engaging on policy reforms at the country and sector levels.

IFC has partnered with several private equity firms to support agribusiness ventures in Africa.

In Kenya, for example, IFC agreed to co-invest alongside private equity firms Amethis and MCB Equity Fund and the German sovereign wealth fund, DEG, in the Naivas supermarket chain to support its growth.

This is a larger project, but what about support for smallholder farmers?

Access to finance is often a major hurdle for small producers. To help, IFC invests in partner financial institutions so they can increase lending and tailor products for farmers and cooperatives.

Cash alone doesn’t guarantee results in the fields, however.

What is needed here is also technical assistance and a strong enabling environment that allows farmers access to markets, transport, storage, power, and irrigation infrastructure, and to other financial products, like weather insurance. When farmers increase their incomes, they can then build their equity and borrow and invest more.  

Looking ahead, the future can be bright for Africa’s agriculture and agribusiness sectors—but only with sustained investment, research and development, increased modernization and digitization, and improvements in infrastructure, such as power and transport.

The greatest challenge—even greater and more punishing than COVID-19—might, of course, be climate change. Here, investment and expertise will need to be directed into conservation agriculture, irrigation, better productivity, food loss reduction, and improved environmental, social and governance standards.

This article originally appeared in Kenya’s Business Daily newspaper on September 30, 2021