BRUSSELS — An expert group convened by the European Union to offer advice on how to create jobs in African agriculture will point to shortcomings in the EU’s flagship initiative for the African continent, the External Investment Plan, or EIP.
Tom Arnold, the Irish agricultural economist who chaired the group of 11 experts from Africa and Europe, explained that the “first attempt at using the EIP to get investment [in agriculture] hasn’t fully worked.” An EU official acknowledged the problem, telling Devex that agriculture is seen as too risky to attract investment, even with EIP incentives.
“We are not saying this is the grand plan for the transformation of African agriculture. We are trying to hone in specifically on areas.”— Tom Arnold, chair, Task Force on Rural Africa
Created in February 2018, the Task Force Rural Africa met five times last year, charged by the European Commission’s agriculture and development departments with accelerating “responsible EU private investment in support of African agriculture, agri-business and agroindustries.” They will publish their report on March 7.
Arnold told Devex last month that there was political interest in the group’s work, bolstered by European Commission President Jean-Claude Juncker’s new Africa-Europe Alliance for Sustainable Investment and Jobs. The alliance is portrayed by Brussels as an attempt to forge a “co-owned economic partnership” with Africa, and Juncker said in September that this is already underway through the EIP, which “will mobilize over €44 billion [$49.6 billion] in both the public and private investment.”
But Arnold said the task force will recommend improvements to the plan.
“We’ll be looking at the different elements of the EIP [technical assistance, an external investment guarantee, and dialogue with businesses] and seeing if they can work together more effectively than they have up until now,” he said.
EIP’s guarantee mechanism — the European Fund for Sustainable Development — is designed to use EU taxpayers’ money to de-risk investments in Africa as well as countries neighboring the EU. The commission asked development banks hoping to benefit from the guarantee to present proposals in strategic areas such as digitalization, sustainable energy, SMEs, and agriculture. But in July, proposals for the agriculture component were deemed insufficiently “mature.” For now, agriculture has largely been folded into support for SMEs and digitalization, with an EU spokesperson saying around 15-20 percent of the guarantees in these areas are expected to support agriculture-specific investments.
One agriculture investment program has been approved, the spokesperson said, referring to an €85 million guarantee for the French Development Agency’s AGREENFI initiative, designed to give affordable credit to underserved producers and small rural businesses. Money has been put aside to fund further programs, the spokesperson said, adding that these will be guided by the task force report.
A commission official, who requested anonymity, said: “It’s true, [EFSD] definitely didn’t turn out as successful in the first go for agriculture, because apparently, the risk is quite high. The banks are afraid to go there and the incentives being put by the External Investment Plan are not fully understood or not fully used in this sector of the economy.”
Despite concerns, including from the European Investment Bank, that the EFSD has yet to be properly evaluated and only makes sense as a niche product, the commission has proposed greatly expanding its external investment guarantee model under the EU’s 2021-2027 budget.
The official said the task force report is “an inspiration, let’s say, also to rethink with [development] colleagues how we can better make use of [the guarantee] in the future.” The guarantee is “worth having,” the official said, but in its current form it is “probably much better adapted to big-scale investments or bigger companies, or the energy sector.”
EU unveils first EFSD investment guarantees but agriculture projects lag
Last year, the European Commission revealed the first tranche of guarantees under the €4.1 billion ($4.77 billion) European Fund for Sustainable Development to boost private investment in Africa and Europe. However, officials said that proposals on agriculture projects were not sufficiently "mature."
“We are not saying this is the grand plan for the transformation of African agriculture. We are trying to hone in specifically on areas which are important for the transformation of African agriculture and the food industry, but areas where Europe has a particular legitimacy to say ‘we will partner with Africa to deliver.’”
Rodrigo de Lapuerta, director of the U.N. Food and Agriculture Organization liaison office in Brussels, said FAO agreed with the task force’s proposals, and “would like to be closely involved in the actions to be taken on the recommendations.”
In the medium to long term, the task force wants a “territorial development strategy” — defined by Arnold as “a broader spread of investment in a range of centers within a country, with some form of decentralization of decision-making”; sustainable land and natural resources management and climate action; transformation of African agriculture, including a “focus on family farming, building capacity in farmers’ organizations, sustainable agricultural intensification, appropriate mechanization and agri-food systems”; and the development of the African food industry and markets through “local and regional value chain development, better access to finance and by the creation of an enabling environment”.
In the short term, the task force wants an action plan to implement six key asks, including innovation hubs to provide practical knowledge to “agripreneurs.” And it called for “sufficient resources” for the EIP’s investment window on agriculture.
But Hanna Saarinen, investment in agriculture policy adviser at Oxfam EU, said funding for agriculture under the EIP is not the problem. “Rather, the Commission is struggling to identify projects in the agriculture sector which are viable to fund,” she said. “So the question is: Does the EIP model actually respond to the needs of farmers in Africa?”
Asked how to link the task force’s call for a local, territorial approach with the investment guarantees designed to spur billions in private investment from Europe, Arnold replied: “Good question.”
European development commissioner Neven Mimica partially acknowledged the problem on Friday as he launched the new Agri-Business Capital Fund, or ABC Fund, a partnership between the EU and others who have so far committed around €55 million to support direct investments via small-scale loans for small- and medium-sized businesses and farmers' organizations, plus indirect investment in local financial institutions for on-lending.
"Smallholders and rural businesses are not getting the investment they need from the private sector! ABC Fund will help us address this gap, improve their access to capital and consequently the lives of 700,000 rural households," he said in a press release.