17 TH CONFERENCE OF FINANCIAL INSTITUTIONS MEETING THE FINANCING NEEDS OF THE AGRICULTURAL SECTOR IN TANZANIA: THE SECOND PILLAR OF KILIMO KWANZA Salum Shamte (FM) Vice Chairman Tanzania Private Sector Foundation Arusha, 24 th November, 2014

OUTLINE OF PRESENTATION OPPORTUNITIES AND CHALLENGES IN THE AGRICULTURAL SECTOR. RAPID TRANSFORMATION OF THE SECTOR - KILIMO KWANZA AND ITS RESULTS. FINANCING OF THE SECTOR : - 2 ND PILLAR OF KILIMO KWANZA. TAKE HOME MESSAGES FOR FINANCIAL INSTITUTIONS.

OPPORTUNITIES IN THE AGRICULTURAL SECTOR UNITED NATIONS - INTERNATIONAL YEAR OF FAMILY FARMING AFRICAN UNION – AFRICAN YEAR OF AGRICULTURE AND FOOD SECURITY – BOT 17 TH CONFERENCE OF FINANCIAL INSTITUTIONS - FINANCING AGRICULTURE AND ABRIBUSINESS IN TANZANIA. AGRICULTURE CRITICAL FOR STRATEGIC GLOBAL SURVIVAL AND GLOBAL PEACE

OPPORTUNITIES ctd.... Global Market Opportunities for Farmers – Population Growth – 10Bn By 2050; Urbanisation; Disposable Income. FOOD - FIBRE - FUEL Africa’s Comparative Advantage - 46 % of Underutilised Arable Land; Water; Climate; 7 Fastest Growing Economies. Tanzania – Sleeping Agricultural Giant – Land; Water; Farmers; Robust Economy; Population; Geographical Location; Political Commitment and Goodwill. FARMERS MUST EXPLOIT OPPORTUNITIES

CHALLENGES FACING THE SECTOR Low Growth of 4%; Low Productivity; Poor Connectivity to Value Chains and Markets; Farm Sizes Too Small Average – 2 Acres: Leads to Low Production and Productivity; Lack Of Power Of Negotiation; Mechanisation; Technology; Processing And Marketing. Policies Not Yet Fully Attractive To Agricultural Investment. Taxation and Special Incentives. We Are Still Perpetuating Subsistence Agriculture Rather Than Commercialising.

CHALLENGES ctd.... Focus Should Shift from Food Self Sufficiency To Surplus/Profit Generation. Number Of Farmers Must Necessarily Go Down – Others Absorbed In The Value Chain [Not Everybody Who Lives In A Village Is Or Should Be A Farmer]. Youth Not Attracted to Agriculture If It Is Not A Business For Profit And If It Is Not Mechanised. Agriculture Is Too Important and Too Complex to be Left to the Least Educated.

CHALLENGES ctd... FINANCING FOR AGRICULTURE IS DISMAL – Average of Only 10.32% Of Total Domestic Lending By Commercial Banks To The Agricultural Sector in the Last 5 Years. –92% Went Into Trading – Only 9% Into Production [LESS THAN 1% of Total Domestic Lending Into Agricultural Production !!!] –Interest Rates, Repayment, Collateral and Other Terms Untenable and Inappropriate for the Sector. –The Farmer Carries the Total Risk Of The Chain. FARMERS NEED PATIENT CAPITAL LONG TERM AT AFFORDABLE INTEREST RATES

KILIMO KWANZA RESOLUTION KILIMO KWANZA - A Resolution to Rapidly Transform Our Agriculture to Take Advantage of the Opportunities and to Address the Challenges. Launched by H.E. President Kikwete in Culmination of Work Started in 2007 – Private - Public Working Group under TNBC. A TANZANIAN RESOLVE, DEVELOPED BY TANZANIANS, IMPLEMENTED BY TANZANIANS FOR THE PROSPERITY OF TANZANIANS. Holistic Approach with 10 Pillars Implemented Concurrently Across Various Other Sectors. TO MODERNISE AND COMMERCIALISE OUR AGRICULTURE

RESULTS OF KILIMO KWANZA IMPRESSIVE RESULTS AFTER JUST 5 YEARS –Agriculture High in Tanzania’s Economic Agenda and Big Results Now. –Tanzania Has Food Surplus – Most Crops Have Doubled Production in 5 years !!! –Government Budget to Agriculture increased from 2.2% in 2005 to 8% in –Inputs Subsidies Increased from 7.48 Bn/= in 2006 to 92 Bn/= in –Agricultural Window Established At TIB Development Bank.

RESULTS OF KILIMO KWANZA ctd.. Tanzania Agricultural Development Bank Being Established. Board and MD In Place. Importation Of Tractors Increased From 356 In 2005 To 13,037 In Revival Of Agricultural Research and Training Centres – Employment Of 9,200 Extension Officers. ASDP 2 Being Implemented And CAADP Compact Signed Targeting 6% Growth Rate And Investment Of US $ 5.3 Billion.

RESULTS OF KILIMO KWANZA ctd.. Implementing SAGCOT Concept To Attract US $ 3.2bn/= In Investment; Create 100,000 Commercial Smallholder Farmers And 2,400,000 Lifted Out Of Poverty By Reduction In Agricultural Taxation. Educated Youth And Other Emerging Farmers Becoming More Attracted And Involved In The Sector. Many Other Initiatives Being Planned And Implemented To Improve The Sector.

2 ND PILLAR OF KILIMO KWANZA – FINANCING THE RESOLUTION CRITICAL TO IMPLEMENT FULLY IF THE TRANSFORMATION PROCESS IS TO SUCCEED. IT HAS THE FOLLOWING RECOMMENDATIONS:- Increase Government Budgetary Allocation To KILIMO KWANZA. Maputo Resolution – 10%. Establish and Mobilise Resources for a Tanzania Agricultural Development Bank (TADB). Start with Capitalisation of US $ 500 Million. Tanzania Investment Bank (TIB) To Have A Special Window For Concessionary Lending To The Sector. Establish A Special Fund To Address Land Survey Costs, Investment, Capacity Building And Guarantees To Complement The Requirements Of KILIMO KWANZA.

2 ND PILLAR OF KILIMO KWANZA – FINANCING THE RESOLUTION ctd... Enhance Agriculture Sector Development Programme (ASDP) Governmental And Development Partners’ Basket Funding To Implement KILIMO KWANZA. Mobilize And Attract Enhanced Agricultural Investment By Private Sector – Small, Medium And Large. Local and Foreign. Empower Farmers’ Cooperatives And SACCOS To Mobilize, Manage And Channel Funds For Agricultural Production To Their Members.

2 ND PILLAR OF KILIMO KWANZA – FINANCING THE RESOLUTION ctd... Negotiate And Legislate For Commercial Banks To Lend A Percentage Of Their Deposits On Concessionary Terms To Agricultural Production. [Moral Suasion Not Working]. Extend The Establishment Of Community Banks In Every Region Of Tanzania. Establish Special Units In Financial Institutions For Mobilizing And Disbursing Agricultural Credit.

2 ND PILLAR OF KILIMO KWANZA – FINANCING THE RESOLUTION ctd... Establish Commodity Exchange to Market Efficiently and Effectively. Facilitate The Easier Floatation of Agribusiness Companies On The Dar es Salaam Stock Exchange. Pension, Empowerment And Other Funds To Agree On Mechanism To Invest In Agricultural Production At Concessionary Terms. Establish Social Security Arrangements For Farmers. Institute Policy Instruments To Facilitate Insurance Companies To Extend Cover And Lending To Agriculture.

OTHER FINANCING INITIATIVES WHICH NEED TO BE SUPPORTED Value Chain Financing To Share and Reduce Risk For The Farmer. Contract Farming/Outgrower Schemes. ‘’Hub And Spoke’’ Schemes. Catalytic Funds And ‘’Last Mile Investment to Leverage More Private Sector Investment Capital. Advance Equity Financing And Venture Capital. Agricultural Machinery Rings to Accelerate Mechanisation.

TAKE HOME MESSAGES FOR FI’s Financial Institutions Should Realise The Great Potential And Opportunities In The Agricultural Sector – Mutually Beneficial. Change Attitude And Mind Set In Order To Invest In The Agricultural Value Chains. FI’s Take Deliberate Innovative [Business Unusual] Actions To Finance Agricultural Value Chains. Share Part of The Risk. Interact Closely With Farmers and Farmer Organisations To Understand Their Needs. Support Emerging Commercial Farmers – Especially Youth. SUPPORT KILIMO KWANZA Initiatives In All Sectors

AGRICULTURE WILL RAPIDLY TRANSFORM OUR ECONOMY IT CAN AND SHOULD BE DONE PLAY YOUR PART AHSANTE THANKS