Agribusiness GroFin Africa

Why African agribusinesses needs impact investments

Investment in agriculture is key to ending hunger and poverty in Africa. Statistics by the European Commission show that, in Africa, agriculture accounts for 65% of total employment and 32% of GDP.

Most importantly, agribusinesses tackle food insecurity on two fronts – stimulating increased food production on the one hand and creating wealth for smallholders and rural communities on the other.

Overall, agribusinesses are strategically placed to drive Africa’s future economic development by creating important linkages and encouraging investment in a way that promote strong multiplier effects on growth.

African agriculture: Excessive import reliance places poor at risk

An insightful research paper published in 2016 by the Mercator Research Institute on Global Commons and Climate Change (MCC) in Berlin speculates what the likely consequences on different regions would be if their imports of staple crops such as wheat, rice and maize were to be cut off suddenly, for example by drought or heat waves.

The results of the food import cut-off simulation study showed that countries with high levels of poverty, especially those in West Africa, would be hugely affected.

The study also finds that the Middle East and North Africa (MENA) region is most sensitive to supply shocks in wheat, and Western Africa to supply shocks in rice. Weighing with poverty levels, Sub-Saharan Africa (SSA) is most affected due to excessive reliance on food imports.

On the food security front, a simultaneous 10% reduction in exports of wheat, rice, and maize would reduce caloric intake of 55 million people living in poverty by about 5%. On the poverty front, export bans in major crop producing regions (such as the ban on Thailand’s rice supply to Nigeria) would put up to 200 million people below the poverty line at risk, 90% of which live in SSA.

Indeed, the linkage between poverty and agriculture is so strong that the World Economic Forum estimates that growth generated by agribusinesses in SSA is eleven times more effective in reducing poverty than GDP growth in other sectors for SSA.

Growth challenges to Africa’s agribusiness sector

Growth challenges to agribusiness in Africa

However, despite its importance, Sub-Saharan Africa’s agribusiness sector faces numerous challenges.

In most countries, crops are produced by small-sized farms with limited mechanisation and capacity, leading to poor yields, and the issue is further compounded by fragmented markets, price controls, and poor infrastructure.

Finally, many of the agricultural products produced in the region, such as maize, rice, and palm oil, are not competitive globally or have low profit margins.

All this translates into growing difficulty on the part of Sub-Saharan Africa’s agribusinesses to meet the continent’s food requirements, which are set to double in the next 30 years or even sooner.

Nurturing the growth of Africa’s agribusiness sector 

Then, a report by the World Economic Forum highlights that success in African agribusinesses requires:

  • Better functioning agricultural markets
  • Increased market access and trade
  • Increased availability and access to food and its utilisation
  • Improved management of natural resources and environment for sustainable agriculture
  • Increased private sector investment along agricultural value chains

Of course, a true measure of success will also be that investments are supporting smallholders, and that opportunities are reaching them and resulting in higher incomes with less vulnerability to risk.

Ultimately, responsible private investment is of the essence for agribusinesses to fulfil their vital functions of contributing to economic development, poverty reduction and food security.

Impact Investing key to unlocking African agribusiness growth

Global development finance institutions (DFIs) are aware of the critical role that agribusinesses play in Africa, and have shown their support for this sector through a steep rise in investments.

To illustrate, over the last four years, the World Bank Group has increased its annual agriculture investment from US$ 4.1 billion to US$ 6.1 billion. Moreover, the International Finance Corporation (IFC) is currently embarking on a five-year program to increase its investments in agribusiness in Africa to US$ 2 billion.

At the same time, such efforts by global DFIs must be supplemented by on-the-ground initiatives of local impact investors with their roots in the African continent. GroFin is one such impact investor which is providing priority funding to agri-processing businesses along the food value chain as a means to promote food security and inclusive growth in Africa.

Indeed, with 70+ agribusiness transactions of an average deal size of US$ 540,000, GroFin has contributed to a total agri-processing turnover of roughly US$ 36 million in its invested businesses while supporting 2,200 jobs and adding value to the lives of some 11,000 family beneficiaries.

If you are a small and growing business in the agri-processing sector that is seeking funding and business guidance, GroFin can bring its vast experience of over 16 years to help grow your business to a level of sustainable success.

If you are an investor in the vital sector of agribusiness funding, partner with us today and become a part of the growing movement to promote food security and reduce poverty in Africa.

Remember, as entrepreneur or investor, it is your efforts that will make all the difference to the African agribusiness growth story.