5 new investment funds supporting African agriculture

KIGALI, Rwanda — Across sub-Saharan Africa, food markets are expanding, driven largely by income growth and rapid urbanization. At the same time, limited access to finance for smallholder farmers remains a barrier for many producers seeking to expand output beyond subsistence levels. During last week’s African Green Revolution Forum, experts focused on how opportunities in innovative and blended finance could bridge the gap toward the estimated $11 billion in investments that, according to the United Nations, is needed each year to help the continent establish self-sufficiency and feed itself by 2050. While private equity, venture capital, and impact investment are increasingly important sources of financing for agriculture and agribusiness in sub-Saharan Africa, experts argued that public and private stakeholders must team up to develop products that provide impact at the local level. “In addition to focusing on reaching many people, it is important to ensure that developed products improve the financial well-being of affected farmers,” Acumen’s Global Head of Agriculture Investments Noor Ullah said during a session on financing African agriculture. Some argue that blended finance, which combines public and private investments, presents the largest opportunities to fund the sector, provided that investors are aligned with national objectives from the beginning. But the extent to which private investors will come on board depends in large part on the transparency of a country’s regulatory environment concerning inputs, taxes, and interest rates, Leonard Mizzi, head of the European Union’s Rural Development, Food Security, and Nutrition Division told Devex on the sidelines of the meetings. “Agriculture remains among the most risky business in terms of investments because you have a number of complex players in the value chain,” he said. “You can’t disintegrate the production side from the processing side, from storage, logistics, retail, and final consumer.” This highly integrated value chain requires complex financial instruments, Mizzi explained. Nonetheless, in recent years, agriculture investment funds have been on the rise, providing capital to agribusiness through diverse instruments, such as equity, debt, and guarantees. Devex rounds up five that are supporting the African continent. 1. Acumen Resilient Agriculture Fund Launched: 2018 This fund provides long term agriculture investments averaging seven -10 years in three target countries: Ghana, Nigeria, and Uganda. Unlike other funds with shorter term limits, ARAF supports early-stage agribusinesses that enhance the climate resilience of smallholder farmers. Launched in March, it claims to build on lessons learned following 10 years of Acumen investment in the agriculture sector and has a sharp focus on impact, attempting to shift the pattern of investment in climate change adaptation activities in Africa from grants to a long-term capital approach. With average investments ranging from $200,000 to $3 million, it supports innovative social enterprises at the micro-, small-, and medium-level by providing a digital support platform and innovative financial services. “We felt that our strategy needs to have climate resilience as a core element because if you’re not focused on making farmers climate resilient, you can invest in livelihoods and lose all of the investment within years,” Acumen’s Ullah explained. 2. Agribusiness Capital Fund Launched: 2018 This new fund announced last week at the 2018 African Green Revolution Forum will launch later this year through a partnership between the International Fund for Agricultural Development, the government of Luxembourg, the EU, and the Alliance for a Green Revolution in Africa as a mix of grant funds and technical assistance funding. According to Donal Brown, associate vice president of program management at IFAD, the fund will focus on lending to young entrepreneurs trying to “break into the sector,” with investments ranging from $80,000 to $1 million. 3. African Agriculture Fund Launched: 2011 AAF is part of a coordinated response from a pool of European and African development finance institutions, managed by Phatisa Group — an agriculture-focused development equity fund manager in Africa. This roughly $250 million private equity fund launched in 2011. with its first investments in Sierra Leone. Phatisa invests in transactions such as management buy-outs and buy-ins, expansions, early-stage equity and acquisitions. Companies must be seeking $5 million-$24 million in financial support and must demonstrate a proven financial and operational track record, and a commitment to transparency. AAF targets primary agriculture and arable land development for cereals and staples, livestock, fruits and vegetables, and edible oils. It also supports secondary agriculture, such as production of animal feeds, processing, milling and packaging, as well as services and infrares including logistics, storage, and input financing for crop protection. 4. Nigeria Incentive-Based Risk Sharing System for Agricultural Lending Launched: 2011 NIRSAL was launched in 2011 as a $500 million public-private entity to define, measure, price and share agribusiness-related credit risk. Today, the Nigerian lender provides affordable financing and reduces the risk to financial institutions through one of its five pillars: A risk-sharing facility, an insurance facility, a technical assistance facility, a holistic bank rating mechanism, and a bank incentives mechanism. NIRSAL seeks to address the causes of low funding in the agriculture sector by de-risking investments, increasing understanding of the sector, reducing transaction costs, and simplifying traditionally complex credit assessment processes. The group prides itself on its support to the entire agricultural value chain, including its encouragement of banks to lend by offering strong incentives and technical assistance. 5. Injaro Agricultural Capital Holdings Ltd. Launched: 2009 Injaro is an impact investment fund focused on revitalizing distressed agricultural zones in West Africa by making debt and equity investments in small- and medium-sized enterprises along the entire value chain. “Most countries depend on SMEs to drive economic growth, so our starting point was providing access to capital for SMEs ... Being ambitious in our objectives, we [then] looked at how we can turbocharge this investment to benefit as many people as possible,” Jerry Parkes, managing principal, told Devex. “The fund has a stated intent to improve the lives of smallholder farmers, so this gives us a very sharp focus on targeting companies that can demonstrate that they can effectively do this,” he added. To date, this $50 million fund has deployed $30 million and impacted around 830,000 people. Investments range from $300,000 to $5 million and have benefitted over a dozen companies across West Africa, from seeds and animal feed companies to cashew exporters and shea-based skin care producers. Injaro also provides technical assistance to build managerial and financial capacity within investee companies.