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INNOVATIVE FINANCING AND INVESTMENT IN AGRICULTURE: AFRICA’S
EXPERIENCE
Introduction
Agriculture is a major factor in determining the state of development in most Africa’s
economies. This because it contributes in no small measure to the continent’s GDP (between
30% and 40%), makes up about 60% total export earnings, employs over 65% the population and
has been growing at about 3.3% each year since 2000 (Hazell and Diano, 2005, IFPRI, 2009).
Nonetheless, the sector remains largely under-developed; with most farming operations still at
subsistence level and small scale (less than 2ha of land), low level of technology, weather-
dependent production, low farmers’ incomes, poor market access, weak infrastructure and
limited ability to influence government policy (Quartey et al, 2012). Over 60% of Africa's
agricultural population live in rural areas and over 600 million are youths under the age of 30
years who work in subsistence agriculture. Rural agricultural workers are among the poorest in
Africa with poverty rate of about 50% in the continent (UN/ECA, 2010).
Agriculture has the potential to serve as a strong driver of growth and poverty reduction in the
continent (Nin-Pratt et al, 2011). Investing in agriculture is therefore the most important and
effective strategy for reducing poverty and hunger in both rural and urban areas through multiple
pathways (World Bank, 2008). Farmers’ productivity and incomes are enhanced, food
availability is enhanced, demand for other rural goods and services are stimulated, employment
is created and incomes for the landless rural poor enhanced (Alston et al., 2000). However,
inadequate access to finance has been a key impediment to improving the efficiency of African
farmers and adopting better technologies. The seasonal nature of agriculture which causes price
fluctuations of inputs and products lowers farmers’ incomes and risk bearing ability, resulting in
under-investment and inability to break out of poverty (Guirkinger and Boucher, 2008; Ackello-
Ogutu et. al. 2013). The vulnerable groups i.e. women and youths, who make up the larger
proportion of the agricultural labour force, are more disadvantaged by insufficient finance due to
access to fewer assets and younger age respectively (Okpupara, 2010). This has implications for
agricultural development and strategies for increased agricultural finance are pertinent for
eradication of hunger and poverty.

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Allocation to agriculture by African governments is only about 5% (FAO, 2013) despite the
2003 Maputo declaration of 10% government allocation to the sector. Public funding is generally
restricted and unpredictable even in times of crisis, indicating that new ways of financing (i.e.
innovative financing) which are specifically tailored to suit agriculture’s peculiarities are
required for agricultural development (Quartey et al, 2012). This keynote address therefore sets
out to discuss the rational for innovative financing and investment in agriculture, share
experiences of where these have occurred around the world, especially in Africa and lessons that
can be learnt, while finally suggesting way by which innovative financing could be achieved in
Africa.
Innovative Financing in Agriculture: A Global Perspective
Innovative financing in agriculture, refers to new ways of raising funds, often from extra-official
sources, to foster development in the sector. Innovative financing can be a catalyst for private
sources, which have been far below their potential in developing countries, to contribute to
development through public, public-private and private innovations. It could be said to rely on
new partnerships between a wide ranges of stakeholders (i.e. countries of diverse levels of
development, local authorities and private sectors). However, it must be sustainable and based on
a supportive policy environment. Innovative financing in agriculture must not only be innovative
in source i.e., raising capital from new funders or existing funders in new ways, or leveraging
private capital, and mobilizing public resources, but also innovative in use, i.e., changing the way
in which existing capital is deployed or spent, and introducing financial solutions to increase
efficiency, effectiveness and overall impact within both the public and private sector (IFM,
2012).
Rational for Innovative Financing and Investment in Agriculture
Figures from International Expert Report (2012) reveals global food supply is expected to
increase dramatically in order to meet the world demand. By 2050 the world’s population will
reach 9.1 billion, 34 percent higher than today, in particular in developing countries. This
population growth, combined with increasing per capita meat consumption, will require a 60
percent increase in global food and feed production. Among developing countries of the world,
Africa is said to the region where the challenge will require most efforts. This is because Africa

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lags behind in terms of productivity gains on major crops and food dependency. The region is
facing severe threats in the maintenance of soil fertility, (already low to start with, because of the
nature of the soil) because of a fragile environment, increasing land pressure and very low
adoption of effective soil conservation practices. Fertilizer consumption is only 9 kg/ha/year (in
nutrient content), against 140 kg in average in developed countries. Meanwhile, Sub-Saharan
Africa is the region where population growth will be highest, where hunger index is alarming
and which will be most likely the most affected by climate change. In addition, challenges from
climate change represent major risks for long-term food security and nutrition especially for the
continent where agricultural output up to 2080-2100 could be between 15 and 30 percent if
required efforts to adapt agriculture to climate change are not made in due time.
Meeting these challenges will require a considerable scaling-up of investment in Africa’s
agriculture. Estimates emanating from the FAO’s report (How to feed the world by 2050)
suggests developing countries will need to invest USD 83 billion per year (net of the renewal
cost of existing equipment) or USD 209 billion including this cost, as compared to a current level
of investment of USD 142 billion in order to cope with the challenge. Considering the
enormousity of the challenge and the existing budget constraints, it is of necessity to find
innovative ways of sourcing funds to help meet the challenge confronting the continent.
Private investment is key to agricultural development, but severely constrained. Though public
investment is necessary to build up a favorable environment and required infrastructure, a large
proportion of the required total investment should be made by private actors. Traditional Official
Development Assistance (ODA) through public driven projects have however, shown their limits
in their capacity to foster private investments, because their implementation is often too rigid,
and because they are insufficiently market-driven and result-based. In order to enhance private
investment in agriculture, it is widely recognized that building up an environment favorable to
private investment and developing catalytic tools providing incentives and alleviating the
constraints to private investment is essential.
Recent innovations taking place around the world in the field of agricultural finance and
investments have been in the areas of rural leasing a form of credit that provides farmers with a
means to acquire productive assets (Mexico and Pakistan); providing financial education for

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farmers on loan products and debt capacity has led to positive changes in savings behaviors
(China, Brazil, Paraguay); non-financial services such as soil testing and health monitoring of
livestock, along with credit, to farmers in a way that maximizes returns to credit services (India),
and market linkages, innovations in marketing, technology adoption and risk management such
as index base issuance (scaled up in India and Mexico) which is an innovative measure to share
climate risk among members of an issued population (Kloeppinger-Todd and Sharma, 2010;
Ackello-Ogutu et. al. 2013).
Experiences of Success of Innovative Financing and Investment in Africa
Despite the myriad of problems facing agricultural financing in the continent concerted efforts
are being put in place not only by the governments but also the private individuals in agriculture,
local and foreign investors. The contribution of some governments in the provision of basic
infrastructure and ensuring security of life and property is highly commendable but more still
needs to be done in the area of electricity, security in the sub region so that more foreign and
local investors can be encouraged. Many of the regional governments are also adopting market-
friendly policies and committing more resources to the sector. Government’s role in the
innovative financing and investment in the continent has however, been dual. For example, there
has been direct government financing with examples in Nigeria, Kenya, Ghana and Uganda,
Ethiopia etc and government partnership with private investor. In either case (public or public-
private partnership), the aim of the governments remain the same: creation of employment
opportunity, enhance revenue (which sustains economy of most countries in the continent) and
ensuring food security. A strong indication that the rest of the world is appreciating current
efforts and achievement is investors’ wake up to Africa’s potential. Figures from Info agra and
McKinsey (2010) indicate forty-five private equity firms plan to invest $2 billion in the region’s
agriculture in the next three to five years. Consequently the continent’s agricultural output could
treble from the current $280 billion a year to $880 billion by 2030.
On the farmers’ part, resources are also being pulled together through cooperatives to assist one
another and great achievements have been recorded in terms of number of beneficiaries and loan
repayment. Kenya, Ghana, Tanzania and Uganda are examples of countries where this is well
established. Local and foreign investors in the continent are involved in production, processing,

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marketing and provision of improved farm inputs to farms. Examples are found in Ghana,
Nigeria, Ethiopia, Uganda and Tanzania. Case studies of some successes as well as challenges of
innovative financing and investment in Africa are briefly highlighted under the public, public-
private and private innovative financing and investment in agriculture:
Public Financing and Investment
Nigeria: The YouWin! is a new youth empowerment government initiative in Nigeria. It
involves equipping young aspiring entrepreneurs with necessary managerial skills and funds
upon the completion of training for establishment of small scale enterprises with potential for
growth and job creation. The programme is projected to generate 80,000 – 110,000 new jobs for
currently unemployed Nigerian youths in the first three years of its existence.
Ghana: Aside from being the monopolist marketer of cocoa in Ghana, Cocobod extends seasonal
credit and provide a significant degree of organisation to the value chain. Cocobod also heavily
subsidises long-term investment such as replantation and also has strategic arrangements with
processors which has resulted in a significant local processing capacity.
Kenya: The Kenya Tea Development Authority (KTDA) through institutional support and the
government’s land redistribution policy bought land from large-scale settler farmers, subdivided
it and re-allocated it to smallholders to grow tea. The farmers are provided with extension
services and inputs and also receive assistance in collection, processing and marketing of the
green leaf tea.
Ethiopia: The Ethiopian Commodity Exchange (ECX) regulates trade of major agricultural
commodities. Their networks of warehouses throughout the country stores, measures and grades
farm produce which are bought off the farmers.
Public-Private Financing and Investment
The common ICT applications are the mobile phone short messages (SMS), web/internet-based
resources and tele-centers. Examples of projects applying these innovations include, among
others: MPESA (literal meaning: mobile money), Kenya Agricultural Commodity Exchange
(KACE) and Drum-Net in Kenya; Busoga Rural Open Source and Development Initiative and

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FoodNet in Uganda; Malawi Agricultural Commodity Exchange (MACE) in Malawi; Manobi in
Senegal; TradeNet/E-Soko in Ghana; Kilosa Rural Services and Electronic Communication in
Tanzania and the most recent e-Wallet under the Growth Enhancement Scheme (GES) of the
Nigerian government. In the last ten years, the ICT-based applications have gained a lot of
popularity in SSA, thanks to donor support from, multilateral institutions, non-government
organizations, telecom service providers among others and government which played their part;
absorbing initial risks and funding the lumpy infrastructure (such as satellites) and legislations
attracting international investors and service providers and, where necessary, allocating land for
businesses.
The resuscitation of Nigeria Fertilizer Industry through government partnership with Mitsubishi-
Notore is another example of a public-private partnership investment which has not only
conserved the foreign exchange expended on importation of fertilizer but also the input is made
available to farmers at reasonable price. Private sector sells fertilizer to farmers at market price
less the fertilizer voucher discount provided by government while the States and Federal
Governments ensure the distribution of fertilizer vouchers to targeted farmers.
Private Financing and Investment
Maendeleo Agricultural Enterprise Fund (MAEF)
Farm Africa's Maendeleo Agricultural Enterprise Fund (MAEF) is a grant-making fund that aims
to sustainably improve the livelihoods of smallholder farmers in East Africa by investing in
innovative agri-business enterprises that seek to either create or adapt technologies for improving
agricultural productivity, increasing profitability and linking smallholder farmers to viable,
profitable and sustainable markets. The fund has particularly been helpful to women farmers in
eastern Africa trying new ways of working, setting up businesses and finding profitable new
markets. Since 2002 more than 150,000 households across Kenya, Uganda (e.g. sorghum for and
Tanzania
ESOP
The programme is promoted by two NGO’s (CICR and ETD) in Togo, Burkina Faso and Benin
with the aim of linking processing agribusiness for urban supply (mainly for rice, and at time
soya beans) to farmers’ organizations. The enterprises are run as joint ventures between private

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individual operators and farmers groups through a contract, which provides them with improved
seeds and other inputs on credit financed by local banks under specific credit lines. Farmers are
paid upon delivery of the produce to the agribusiness warehouse through a system of warehouse
receipts at a selling price set in advance. Repayment of the input supply loan takes place upon
delivery of the produce to the warehouse.
Savannah Integrated Export Processing Farms (SIEPF) and OLAM
SIEPF, a tomato processing plant, and OLAM, a rice processing mill, provides inputs such as
seeds, fertilizers, extension services and even land to farmers in northern Nigeria on loan in
return for procurement of high quality produce from the farmers. It provides a guarantee to
farmers to buy the products of a certain quality at a fixed price thereby increasing output for the
companies.
Weinco Maize Project and Blue Skies
‘Weinco’ an input supply company, and ‘Blue Skies’, a major processor and exporter of fresh cut
fruit supply small farmer-groups in Ghana with quality seeds which guarantee increased yield,
fertilizer and technical support. After harvest, the companies buy the products from the farmers
at a minimum price set in the contract, thus reducing postharvest loss of farmers due to lack of
storage facilities. The repayment of the input credit is done by reduction on the proceeds of the
sales paid on the farmers’ bank account.
Gatsby
Gatsby (African Agricultural Capital) provides access to markets for smallholder farmers by
stimulating new value chains, adding value to agricultural products and connecting smallholders
with buyers and customers. About 1.4m smallholder farmers have benefitted across Kenya,
Tanzania and Uganda. The major challenge of Gatsby is low return to capital invested.
Conclusion
The Way forward for Africa
The continent still has a lot to do in order to make agriculture play its statutory roles effectively.
We should not be carried away by the moderate successes recorded by few countries in the
continent through innovative financing and investment in agriculture. Many farmers are still poor

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and agriculture is still regarded as harbinger of poverty in the continent. The gravest risks to
sustainable agricultural financing often come not from inherent business risks or the inability of
financial institutions to design profitable financial products for the rural population, but rather
from misguided government interventions such as lack of or non-enforcement of appropriate
rules and regulations. Innovative financing, whatever the form it takes, must be sustainable and
based on a supportive policy environment. The success of innovative financing and investment in
agriculture rests on private investment, public-private partnership ventures and free market
economy where the forces of demand and supply dictate the prices of tradable commodities.
Using these successful countries as models, the following are suggested for the African countries
in order to surpass the present achievement from innovative financing and investment in
agriculture:
 Promote and encourage voluntary contribution from consumers, firms and employees and/or
by food and nutrition correlated industries. Lotteries can also be considered
 Promote the use of migrant remittance which can be considered both as new and renewable
sources of financing as well as existing private capital that may be channeled into agriculture.
 Seek ways of accessing funds generated by carbon emission allowances auctions in the
European Union Emission Trading Systems (EU ETS)
 Enhance private investment in agriculture, by building up a favorable environment and
developing catalytic tools providing incentives and alleviating the constraints to investment.
 Encourage private participation on insurance programmes which are specifically tailored to
suit the peculiarities of African farmers particularly the vagaries of weather.
ACKNOWLEDGEMENT - I wish to acknowledge my PhD students, Fatai A. Sowunmi, Cecilia
Nwigwe and Ogheneruemu Obi-Egbedi; in the Department of Agricultural Economics,
University of Ibadan for their contributions to this paper.