According to the African Development Bank (AfDB), Africa’s agricultural sector is brimming with investment potential but unfortunately many agricultural projects do make it past the funding hurdle because of unbankable propositions.
As the premier development finance institution on the continent, the AfDB invests about$1.2 billion into the agricultural sector annually. While the bank has given many agri projects a leg up through their funding model, many projects do not make the funding cut.
In an interview with Food For Mzansi, Atsuko Toda, director of agriculture finance and rural development at the bank, unpacks why agricultural projects often fail at securing funding from development finance institutions.
She also talks funding monitoring mechanisms and what’s needed to carry agriculture in Africa forward.
Tiisetso Manoko: How much AfDB money goes towards agricultural projects on the continent?
Atsuko Toda: We have public and private funding for agricultural projects so if we add them all together, we have funded about $1.2 billion investment in agriculture on an annual basis. And right now, our public sector which supports value chain like rice, maize, poultry and soya beans, have been doing a lot to support agriculture.
What’s the main reason why some agri projects are declined funding?
So, for us, one of the main challenges is not getting bankable propositions. It becomes extremely difficult to invest in something that might not make money.
Sometimes you will have a great company or project, but they do not have documentation. They have weak governance structures or they don’t have capacity building on management level.
Another challenge is that the project’s risk appetite doesn’t meet the risk exposure that we would require when financing some of these projects. In agriculture, you have price fluctuations, currency and climate risks which are real.
When development finance institutions present the deal internally, we have a credit risk committee that looks at [the transaction and in its entirety]. We should be [therefore] able to answer to questions coming from that structure.
So, in this context, we want financially viable projects that we can fund. It is a very difficult market in general. What we recommend is that they come early (before they need money urgently).
Does the bank woo farmers into new tech trends in farming?
Absolutely. There is a programme to woo farmers and projects that need funding from us to look into the aspect of technology and how it will feature in their business.
Africa’s farming activities mostly occur in rural communities, and there’s a lot of education around technology that should happen.
Technology is a critical component of the agricultural sector to accelerate production. Through our technology for African agricultural transformation programme – where there’s several countries with great success stories – the idea is to build on these success stories and scale them to a higher level so that we can do a better job in feeding Africa.
Is there any monitoring mechanism in place to ensure funding is spent responsibly?
In the public and private sector, that is very important.
We do set up monitoring and evaluation systems, and if there are delays in terms of dispatchment and procurement, we can pick it up. Before any transaction is completed, such systems need to be in place
What are your thoughts on public-private partnerships and their impact on Africa’s agricultural landscape?
One of the things that we have been promoting is the special agro-processing zone which places infrastructure as the backbone of this initiative. This means both the private and public sector need to come together and invest in such projects that will enable a conducive environment for agriculture role players to flourish.
That kind of partnership is extremely important to carry agriculture forward and I think more African governments are aware of that.
However, it is important to say this that government should be the enabler for the private sector to come through. There is potential in Africa when it comes to agriculture, it just need us to come together.
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