Five trends in Agricultural Finance in Africa

The following are the key five trends in the agricultural finance sector in Africa.

Money, money, money!
At the recent African Green Revolution Forum in Nairobi, Kenya, world leaders and other deep pocketed people pledged $30 Billion to the Agricultural sector in Africa. The pledges believed to represent the largest package of financial commitment to agricultural sector in Africa to date, will be directed to increase production, income and employment for small scale farmers and local African agricultural businesses over the next ten years.

According to Harvard’s Prof. Calestous Juma, Africa imports 83% of its food every year. In 2014, Africa spent over $35 billion (Sh3.5 trillion) on importing food, in addition to being the largest recipient of food aid globally.

Africa holds almost 50 percent of the world’s uncultivated land which is suited for growing food crops, comprising as many as 450 million hectares that are not forested, protected, or densely populated, yet, countries like Brazil, Indonesia, and Thailand currently export more food products than all of Sub-Saharan Africa combined. Africa uses less than 2 percent of its renewable water sources, compared to a world average of five percent. And just to add icing to the cake, as much as 37% of the little food we produce is lost through post-harvest losses.

Technology is taking centre stage
A warehouse receipt system that can provide a solution to the lack of assetsthat limits small and rural farmers from accessing traditional capital, Digital payments platforms for de-risk lending,  a classification system where any form of information that has to do with agriculture can be mapped so users can match to comparable sets of data for decision making and market linkages, Crowdfunding for farmers, a system that will track the origin of export produce to specific farmers, in a bid to ensure they meet set standards, Post-harvest technologies helping Kenyan farmers reduce yields loss, an improved seed multiplication and distribution business that’s bringing improved maize seeds to rural Kenya, the list goes on and on.
Mechanisation is trickling down to the people
In July 2016, the Kenyan government made news when it announced a deal with Brazil for the purchase of 11,000 tractors and combine harvesters that would be sent down to the Counties for leasing to farmers at subsidized fees. Under Kenya’s new constitution, the function of Agriculture & Fisheries has been devolved to the counties, opening up opportunities for small scale farmers to easily access services and facilities at a local level.
Climate Change is no longer a “Chinese Conspiracy Theory”
Donald Trump’s twitter rants aside, Climate change is a real threat to Agriculture. The United States and China, the world’s biggest emitters of greenhouse gases, have announced they will formally ratify the Paris climate change agreement in a move campaigners immediately hailed as a significant advance in the battle against global warming. Having these two big gas emission culprits ratify the agreement brings us closer to enforcement of the Paris agreement that brought pledges from almost 200 different Governments last December. The deal coming into force would also commit the countries to aspire to keep temperatures below 1.5C above pre-industrial levels – a tall ask and one that will require those country pledges to be ramped up – and for rich countries to continue giving climate aid to poorer countries beyond 2020.

African Countries are among the most vulnerable to Climate change events, as this year’s powerful El Niño has shown. As estimated 14 million people across southern Africa are at risk of hunger this year because of severe drought. Emerging research indicates that climate change could drive down yields of African staples such as rice, wheat, and maize roughly 20 percent by 2050. Worsening and widespread drought could shorten the growing season in some places by up to 40 percent.

So far, 61 countries representing some 48% of global emissions, have formally adopted the deal. To enter into force, at least 55 countries representing at least 55% of emissions have to ratify. Fingers crossed that we hit this target before end of 2016.
Solar Energy improves rural access to Power
According to Energypedia, the energy sector in Kenya is largely dominated by petroleum and electricity, with wood fuel providing the basic energy needs of the rural communities, urban poor, and the informal sector. An analysis of the national energy shows heavy dependency on wood fuel and other biomass that account for 68% of the total energy consumption. Electricity access in Kenya is low despite the government’s ambitious target to increase electricity connectivity from the current 15% to at least 65% by the year 2022.

Solar power has come in to plug a power gap that has left majority of rural housel holds out of the power grid. Companies such as M-Kopa Solar have been on the forefront of this solution, with an estimated 200,000 rural households in Kenya having solar home systems and annual PV sales in Kenya at between 25,000-30,000 PV modules. Competition is building up in this sector, with the entry of German based MobiSol and Indian based orb Energy, all angling for the 4 Million or so rural households in Kenya.

Kenya introduced a VAT on solar products totaling 16% in Q3 2013, but this was later scrapped in 2014 thanks to lobbying by World bank backed SolarAid among others, making Solar power more affordable.

Muriu Alex
Partner, Farm Capital Africa Ltd