Rising income and urbanisation are currently the driving forces behind investments in agriculture globally, with the agri-business projected to develop into an annual $1 trillion industry by 2030 (up from $313 billion in 2010).
In Africa, it is generally accepted that less than 25% of arable land is used and less than 20% of irrigation potential realised, therefore massive growth opportunities exist on the continent. However, a critical factor preventing agri-business from exploiting these opportunities is a financing gap estimated at $11 billion annually for agricultural output growth alone. Midstream and downstream agri-business also face a significant financing gap – an estimated $940 billion is needed for investment by 2050.
The majority of the region’s agri-businesses are SMEs engaged in activities such as farm operations, input supply, trade, and processing – activities that are considered too risky for financing by private sector banking systems.
Worryingly, domestic financing for agri-business from commercial banks accounts for less than 6% of total private sector lending, with foreign direct investment (FDI) from financing funds and multinational agri-business companies covering the remainder.
FDI is concentrated mainly on downstream activities (processing, manufacturing, trade and retail), which leaves primary agriculture to apply for public funding, which is scarce.
The agricultural industry is of critical importance to the region’s economy. We believe that the growing need for commercial agriculture and persistent funding gaps present significant opportunities for specialist lenders to provide bespoke funding solutions.