Agricultural Transformation and Finance

Abstract of a session on CAADP conducted at the recent PPARD working group meeting

Transformation and finance go hand in hand

All modernising economic sectors need functional financing systems to stand a chance to reach their full potentials. Lending to agriculture however, traditionally suffers from the perception of banking institutions that risks associated with farming are hard to calculate due to the great uncertainties of weather and recently increasingly that of climate change — especially obviously in countries that are strongly affected by it.

In the eyes of lenders, default risks of agriculture are even higher when it comes to loans for smallholder farmers because most of them lack collateral.

For a substantial agricultural transformation in Africa the fundamental inclusion of smallholder farmers is absolutely critical. They produce up to 80 percent of the food supply in sub-Saharan Africa. Therefore it is the main concern of the continental policy framework called the Comprehensive Africa Agricultural Development Programme (CAADP).

A continental approach remains important

The Malabo Declaration reemphasized the need for heightened public investment into agriculture and still there is an urgent call to find ways to increase funding for agriculture from the private sector. Private sector funding will not only leverage existing public investments, it will also fill the critical financing gap to boost agribusinesses.

Delivering on the Malabo Declaration goes beyond planning and investment. It’s also about reforming economic policies and institutional capabilities through creating an enabling environment for overall innovation and economic transformation. To support an increasingly strong private sector in Africa, all economic policy actions should put greater emphasis on farmers and entrepreneurs along agricultural value chains who are at the centre of all these reforms.

A continent-wide approach to agriculture issues in Africa has led to proposals around intra-African trade and regional and continental value chain issues. A continental approach may also enhance policy coherence at the country level, facilitate peer learning, and promote national reform processes.

The Country Agribusiness Partnership Framework 

To address issues around private sector coordination and involvement in agriculture, the Country Agribusiness Partnership Framework (CAP-F) has been developed as a country-level instrument aimed at: 

  • Capturing the key policy reform
  • Mobilising and coordinating investment flows
  • Providing mutual accountability among all parties involved

As an integral part of the National Agricultural Investment Plans (NAIP), CAP-F is a tool which facilitates private sector investments into agriculture.

In the context of CAP-F, policy change and the creation of the creation of the right conducive environment are achieved through identification of policy actions/reforms, gathering and development of policy reform commitments. Identification of priority value chains as per Malabo Declaration and development of strong business cases as part of the CAP-F process should boost investment mobilization at the country level. Coordination mechanisms at country and regional levels, as well as well as stakeholder dialogue and mutual accountability mechanisms are key ingredients for a successful private sector involvement which leverages public sector’s interventions in agriculture.

With its Policy Advice, Climate Change, ATVET (Agricultural Technical and Vocational Education Training) modules GIZ supports mainstreaming of key themes into the NAIP process, supports CAADP country missions, implementation of the CAP-F to ensure inclusive agricultural transformation.

Uganda — An example of increased private sector participation

By the means of the CAADP Support Programme, GIZ provides support to Uganda towards developing an agricultural finance policy, which is currently making its way through the legislative approval process. Even though agriculture issues are mainly discussed at the Ministry of Agriculture, agricultural finance has found a home and a champion at the Ministry of Finance, as a result of better public sector coordination and harmonization of agricultural finance issues. Moreover, increased coordination in the agricultural sector through GIZ support has heightened private sector interest in agricultural investments in Uganda.

About CAADP and the declarations of Maputo and Malabo

To ensure an inclusive agriculture sector, Africa’s Heads of State adopted a continental policy framework deemed as the Comprehensive Africa Agricultural Development Programme (CAADP) in Maputo in 2003, hence called the Maputo declaration. In terms of agriculture development, the Heads of State committed to public investment of at least 10% of their respective national budgets to agriculture or at least a minimum of 6% of their GDP — at the country level.

In 2013 in Malabo, the Heads of State reconfirmed their commitments to the CAADP principles.