Small and medium agricultural enterprises are the key to transforming food systems and improving food security in Africa.
The African continent faces severe food insecurity. Prolonged drought and extreme weather events caused by the climate crisis mean around 23 million people are at risk of acute food insecurity in the eastern Horn of Africa, Ethiopia, Kenya, and Somalia.
Food production is an essential part of Africa’s economy. It makes up a third of the country’s GDP and employs around 50% of its people. Yet it still spends around $50 billion a year importing food and agricultural products. And it has around 65% of the world’s uncultivated agricultural land.
Small and medium agricultural enterprises (agri-SMEs) are the key to transforming food systems and improving food security for the continent, according to the United States Agency for International Development (USAID).
Agri-SMEs are Africa’s largest employer and economic engine, but three-quarters of them can’t access formal bank financing and are too large for microfinance. USAID estimates there’s a $100 billion gap in unmet demand for financing.
How agriculture financing varies across East African countries. Image: Dalberg
As part of the World Economic Forum’s Sustainable Development Impact Meetings, world leaders came together to discuss strengthening food value chains in Africa at the leadership panel Bridging the Gap: Financing Africa’s Agricultural Growth.
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They addressed how donor governments, development finance institutions, African governments and the private sector can catalyze action through innovative financing, and by better supporting agri-SMEs.
The speakers were: William Samoei Ruto, President of Kenya, Office of the President of Kenya; Scott Nathan, Chief Executive Officer, U.S. International Development Finance Corporation; Samantha Power, Administrator, U.S. Agency for International Development (USAID); Rebecca Enonchong, Founder and Chief Executive Officer, AppsTech; Janet L. Yellen, Secretary of the Treasury, US Department of the Treasury; Jacqueline Novogratz, Founder and Chief Executive Officer, Acumen; Anne Beathe Tvinnereim, Minister of International Development, Norway Government; Akinwumi Ayodeji Adesina, President, African Development Bank (AfDB).
Food security matters “both morally and for the global economy”, said Yellen. “The impacts of food insecurity on individuals and communities are acute. Hunger and poor nutrition undermine health and educational outcomes and well-being. Food insecurity also has economy-wide impacts, contributing to lower productivity that holds back economic growth,” she added.
“The numerous cases of hunger constitute a humanitarian crisis, highlighting the underutilization of our continent’s immense potential for high productivity and surplus food production,” President Ruto said.
“What Africa does with food will determine the direction of agriculture in the world,” said Adesina.
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Here’s what is needed now, according to the speakers:
1. Help for countries in debt distress
President Ruto, who led the inaugural Africa Climate Summit that resulted in the Nairobi Declaration earlier this month, said:
“The Nairobi Declaration proscribes the recalibration of global financial institutions to facilitate debt restructuring, make affordable finance available to low-income countries, and direct large-scale investment to climate-positive and competitive opportunities in Africa, putting millions of youth to work and producing sustainably for Africa and the world.
“Enhancing Africa’s overall agricultural productivity is a tremendous investment opportunity.”
How do we support countries in debt distress to have space to think about climate action, Ruto asked.
1. “We need to extend their tenure of sovereign debt and provide for a 10-year grace period.”
2. “We need to rethink about financial markets. Whether it’s sovereign debt analysis, risk analysis, these are instruments that have not evolved, they have remained static and they continue to assign high risk even where there is not high risk. A case in point is the financial crisis. We must rethink and reimagine that whole space around the financial markets.”
3. “We need to see how we can work with the MDBs to provide concessional financing … It’s time to think about SDRs to deal with climate change. We need to give those who need the money the most more money than those who need it the least.”
2. Tackle broader global challenges
Food security is inextricably linked to broader global challenges, Yellen said, so we must work to solve them in parallel.
“Pandemics lower income. Conflict disrupts supply chains. Climate change poses risks to entire agricultural systems. So, combatting food insecurity also depends on broader efforts to address these global challenges and this requires evolving the multilateral development banks, which are a central pillar of our international economic system.”
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3. Invest in and empower African farmers
The African Development Bank responded to the closing of the Black Sea ports during the Ukraine War by investing in African farmers.
“We very quickly launched a $1.5 billion initiative to make sure that Africa can feed itself,” Adesina said. “It’s not about begging for food, it’s about getting seeds in the ground in your bowl and actually growing your own food.”
The initiative has proved to be a success. “Today, we are supporting 24 million farmers to produce 38 million metric tons of food valued at $12 billion. That is 8 million metric tons of food more than what Africa will lose from importing from either Russia or Ukraine. It’s all about Africa having the pride and the dignity of producing the food itself.”
Power noted that the small and medium enterprises that comprise so much of Africa’s agricultural sector find themselves too big for microfinance and too small for bank loans.
She stressed the potential to transform subsistence farmers into entrepreneurs – a change that has the potential to lead to improved livelihoods and educational opportunities for children, thus breaking the cycle of subsistence farming for the next generation.
Initiatives like USAID’s Feed the Future aim to help with this transformation by connecting small-scale farmers with global agribusinesses.
“Feed the Future has brought down poverty and malnutrition 25% in the areas that it’s working for,” said Power.
4. De-risk agribusiness
At the UN General Assembly, Power and Tvinnereim launched a new multi-donor fund designed to unlock hundreds of millions in financing for agri-SMEs in Africa.
The Financing for Agricultural Small-and-Medium Enterprises in Africa (FASA) Fund will see USAID and Norway each provide an initial commitment of $35 million.
Norway and the US aim to reach $200 million through additional donor contributions to catalyze hundreds of millions more in commercial financing by reducing investment risk.
The FASA fund has the potential to support 500 agri-SMEs and 1.5 million smallholder farmers, benefiting almost 7.5 million people and supporting around 60,000 private sector jobs.
Speaking at the Forum’s leadership panel, Tvinnereim said small-scale farmers and the food value chain hold the key to greater food sovereignty for African countries.
“Too often, these businesses are considered too poor and too risky for investors, and the local market is held back not because of lack of capacity, but lack of capital.
“We want to reduce that risk. We want small-scale farmers to have increased access to inputs and markets. We want processors to be able to purchase new equipment, and distributors to reach the last mile. By de-risking private investments in the agro value chain, I believe African countries will be less dependent on expensive imports.”
Power agreed there’s a need to de-risk investments in agro-businesses so cheaper capital can be accessed by companies.
“This is a sector that needed more attention than it has been getting and this is the beginning of tailoring that attention … Scaling that turns a smallholder farmer into an entrepreneur.”