Financing African Agriculture: Perspective from the Private Sector Hans Balyamujura

1. Brussels Development Briefing n.33 Drivers of success for agricultural transformation in Africa 2nd October 2013http://brusselsbriefings.netFinancing African Agriculture: Perspective from the Private Sector.Hans Balyamujura, ZED (Pty) limited.

2. Financing African Agriculture: Perspective from the Private SectorHans Balyamujura Brussels Policy Briefing No. 33 October 2013

3. Table of Contents • Success and Challenges of African Agribusiness Finance • Value and Risk along the Value Chain • Disconnect between Businesses in a Value Chain • Solution to Missing Middle • Investments to Integrate Value Chain Operations

4. Success and Challenges of African Agribusiness Finance ... • Areas of Success • Some agribusiness clients are over banked • Larger local corporates • Multinational companies • Well organised small scale farmer businesses in stable value chains (Tea, Coffee, Sugar, etc.) • Short term finance (Working capital) • Increase in availability of value chain based finance • Challenges • Limited s00000mall scale/smallholder finance • Limited long term and development finance • Poor appetite for entrepreneurial risk irrespective of scale • Poor integration of value chains • Some policy environments not strong enough for value chain finance. Regulatory environment too flexible thus poor stability of value. • Value chain finance not compensating for the perceived primary agricultural risk

5. Value and Risk along the Value Chain … International/ Local market Store Plant Produce Harvest Store Process Financial Solutions Figure 1: Perception of Risk in a Non-Integrated Value Chain Flow of Money Input Supplies Growing Crop Harvested Produce Food & Energy Manufacture Transport Transport VALUE Banking Relationship RISK

6. Store Plant Produce Harvest Store Process Consumer Disconnect between Businesses within a Value Chain (Missing Middle) ... Figure 2: The Small Scale Farmers and the Agricultural Value Chains Commercial Banks Commercial Banks Input Supplies Food & Energy Growing Crop Harvested Produce Manufacture Agro Dealers Transport Transport • Characteristics (Left) • Less risk • Access to multiple financial institutions • Growth among actors is too slow • Limited repeat business (Most are new farmers) • Characteristics (Right) • Less risk • Access to multiple financial institutions • Limited local supply (size of operations) • Limited local demand (purchasing power) and scale is too small for profitable international export. • Characteristics of the Missing Middle • Activities led by the NGO sector • Individual scale very small • Poor profitability of the smallholder farmers • Lack of collateral Small Scale Farmers (Majority of the African Farmers)

7. Solution to Missing Middle … Figure 3: Small Scale Farmers and the Agricultural Value Chain Hardwood trees Softwood trees Shrubs Perennial plants and grasses Annual plants Lichens Farmers Inputs Market Farmer Group Logistics/Processor Farmers Farmers

8. Investments to Integrate Value Chain Operations … Plant Produce Harvest Store Figure 4: Aggregation of Activities within the Value Chain • Advisory Food processing Primary Farming Inputs Farmer Organisations Consumers Manufacture Transport Store Transport Farmer Organisation Investments

9. Thank You Email: hans@zedgroupza.com Phone: +27 83 346 1655