- April 10, 2023
- Posted by: AITRC 2
- Categories: News, Blog, Report
WEEKLY TRADE POLL FOR AFRICAN COUNTRIES
APRIL 2023
Africa is the second-largest continent, with an extensive land area of 30.3 million[1] km². It possesses fertile soils, favourable weather, and abundant water bodies, making it an ideal location for agricultural production. Despite these resources, the agricultural sector in Africa has various challenges, including inadequate capital, poor infrastructure, and limited credit facility access. Loan support has been a critical solution to aid African agricultural production and businesses. International donors and governments have given significant attention to the agricultural sector in Africa, with loan support being a major intervention. Concessional loans, grants, and credit guarantees have been provided to support agricultural production, agribusinesses, and rural development. According to the African Development Bank (AfDB), the agricultural sector in Africa contributes approximately 15% to the continent’s GDP and employs about 65% of the continent’s labour force[2].
Small-scale farmers in Africa have several challenges, including a lack of access to loan support, which limits their ability to access farm inputs, farm equipment, improved technology, processing, storage, market access, and reduced post-harvest losses. However, some institutions and organisations have set out programmes to address the loan support challenge. For example, the Agricultural Transformation Agency in Ethiopia provided loans to farmers to purchase high-quality inputs like seeds, fertilizers, and pesticides, as well as improved storage facilities[3]. As a result, productivity has increased, post-harvest losses have reduced, and farmers’ income has risen. Likewise, Ghana EXIM Bank has provided loans to agribusinesses in Ghana to facilitate the processing and marketing of agricultural products[4]. This has led to a significant boost in productivity, enhanced market access, and increased income for these businesses. Another example is the Nigerian Central Bank implemented the Anchor Borrowers’ Program to assist over 3.1 million farmers, leading to a boost in domestic food production and a decrease in food imports[5]. Additionally, Kenya’s Agricultural Finance Corporation aided over 35,000 farmers, resulting in a rise in the production of cash crops like tea and coffee[6].
Despite these notable achievements, the agricultural industry in Africa still falls short of its complete potential, with some areas facing challenges in meeting domestic and export demands or competing effectively on the global market. Africa needs substantial, continuous investment and easier market access to overcome these hurdles[7].
WEEKLY AFRICA TRADE POLLS (FIRST WEEK APRIL, 2023)
Against this backdrop, Africa International Trade and Commerce Research (AITCR) conducted a weekly trade poll for African countries in order to examine public opinion on the extent to which loan support has aided agricultural production and businesses in Africa over the past ten years. Finding from the poll reveal that 33 percent of the respondents assert that loan support has aided agricultural production and businesses in Africa over the past ten years “To a large extent”, 50 percent opined that loan support had aided agricultural production and businesses in Africa over the past ten years “To an extent”, 17 percent said that loan support had aided agricultural production and businesses in Africa over the past ten years “To no extent” while no respondent (0%) averred that loan support had aided agricultural production and businesses in Africa over the past ten years “To a little extent”. Thus, the poll finding reiterated the argument that there has not been substantial evidence that African economies have adequately benefited from loan support from the agricultural sector to boost their value chains[8]. However, ample evidence shows that most African countries lack adequate loan support for sustainable agriculture and agribusiness value chains. Currently, the agricultural loans and investment portfolios are disproportionately small compared to the sector’s GDP share.[9] Furthermore, loan support has primarily focused on large-scale commercial agriculture, leaving most small-scale farmers with limited access to credit facilities. These small-scale farmers encounter challenges such as a lack of collateral, insufficient financial literacy, and restricted access to information.
A key barrier to the Agricultural sector’s development is the absence of collateral from small-scale farmers and enterprises, which is compounded by a lack of suitable rural infrastructure, access to the variety of inputs needed by farmers, knowledge gaps, including financial literacy, and the lack of trustworthy data are additional major obstacles. It is crucial to prioritize loan assistance for small-scale farmers, as this will help them access credit facilities, enhance productivity, and alleviate poverty. A prime example is the Kenya Women Microfinance Bank, which granted female farmers loans to aid their agricultural pursuits. This initiative has allowed women farmers to access credit facilities, boost productivity, and augment their income.
Another solution could be agricultural insurance, which is frequently employed in the established economy to reduce risk in agricultural value chains, promote agricultural lending, and safeguard farmers[10]. Some countries, including Ghana, Nigeria, and Uganda, have established farm loan guarantee programs based on their central banks, but the effectiveness of these programs has been inconsistent.
Loan support can be an important tool to address the challenge of limited access to credit facilities for small-scale farmers, increase productivity and support value addition and agribusiness development. We recommend a wholescale collaborative commitment of all stakeholders, including governments, financial institutions, agribusinesses, credit rating agencies, business membership organizations and development partners. Governments should develop policies, and programs and sometimes commit to financing the prioritised agriculture loan support while providing an enabling environment for loan support. Financial institutions should develop innovative loan products that meet the needs of small-scale farmers and agribusinesses. Credit rating agencies should offer flexible and adaptable rating scores that meet the unique nature of small-scale farmers without compromising the integrity of the system. Agribusinesses and business membership organisations should provide farmers’ market linkages, capacity building and technical support. Development partners should support governments and financial institutions in implementing loan support programs and building the capacity of small-scale farmers and agribusinesses.
Therefore, the viability of a financing arrangement depends on understanding how value chain governance, interactions, and linkages are set up to take advantage of market opportunities[11]. Enhance, we make the following recommendations:
1. Increase credit access for small-scale farmers: The majority of farmers in Africa are small-scale and face difficulties in accessing credit facilities. We recommend providing collateral-free loans, improving financial literacy, and offering information access to address these unique challenges.
2. Encourage public-private partnerships: A collaboration among government finance, private financial institutions, agribusinesses, and other stakeholders can effectively increase credit access for small-scale farmers.
3. Promote agribusiness development and value addition: Loan support should not only focus on primary production but also support value addition and agribusiness development. This will boost the value of agricultural products, improve market access, and increase income for farmers and agribusinesses.
4. Strengthen rural infrastructure: Rural infrastructure, such as roads, storage facilities, and processing facilities, is vital for small-scale farmers and businesses, including improved market access, reducing post-harvest losses, and increased income for farmers and agribusinesses.
5. Address climate change and environmental sustainability: Climate change and environmental sustainability pose significant challenges to the agriculture sector in Africa. The package should include promoting climate-smart agriculture and environmental sustainability for small-scale farmers.
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[1] Africa, https://artsandculture.google.com/entity/africa/m0dg3n1?hl=en
[2] Agricultural Transformation, https://www.afdb.org/en/the-high-5/feed-africa
[3] The Ethiopian Agricultural Transformation Institute (ATI) https://unctad.org/system/files/non-official-document/aldc_2022_pdsd_eth_pdw_3-4_mar_ppt_yifru_tafesse_eng.pdf
[4] The Ethiopian Agricultural Transformation Institute (ATI) https://www.eximbankghana.com/
[5] Anchor Borrowers Programme: Over 3.1 million farmers, https://www.premiumtimesng.com/business/462947-anchor-borrowers-programme-over-3-1-million-farmers-financed-cbn.html
[6] Kenya: Agricultural Sector Risk Assessment, https://documents1.worldbank.org/curated/en/294711467992513646/pdf/97887-REVISED-WP-P148139-PUBLIC-Box393257B-Kenya-Agricultural-Sector-Risk-Assessment.pdf
[8] Agriculture Finance & Agriculture Insurance (worldbank.org)
[10] Agricultural Finance | MFW4A – Making Finance Work for Africa
[11] Agricultural Finance | MFW4A – Making Finance Work for Africa
