WHAT PERSPECTIVES FOR FUNDING ACP AGRICULTURE? Pressing challenges, Innovative Financing Mechanisms: the perspective of the African Development Bank

One consensus for financing Agriculture private sector in Africa Beyond Aid: Financing Agriculture in ACP countries-CTA Brussels -September 15th 2010  Emerging consensus in Africa that Agriculture can only become a stimulating growth if investments go beyond improvements of farm productivity.  Investments must stretch over the value chain and cover agribusiness and agro-industrial development  The African Development Bank views his role in financing the private sector active in Agriculture and Agribusiness, as double:  enhance finance viability of projects AND the creation and reinforcement strict corporate social responsibility standards and measures.  Financing the Agriculture and Agribusiness private sector in Africa is at the forefront of Socially Responsible Investing.

Pillars of intervention at the AfDB for Beyond Aid: Financing Agriculture in ACP countries-CTA Brussels -September 15th 2010  Our overall objective:  Increase agricultural productivity,  Enhance food security  Conserve natural resources  By increasing focus, selectivity and innovation both on public and private sector sides  Public sector focus on agricultural infrastructure and natural resource management  Private Sector focus on innovative mechanisms that supporting Impact investing across the value chain

Tough challenges for Investors in Agriculture and Agribusiness in Africa Beyond Aid: Financing Agriculture in ACP countries-CTA Brussels -September 15th 2010 High Risk/Low Returns Perception: weakened access to finance Low productivity/ Low margin Broken Value Chain Market inefficiencies/ Barriers to trade

AfDB Private Sector in Agriculture and Agribusiness Beyond Aid: Financing Agriculture in ACP countries-CTA Brussels -September 15th 2010  AfDB provides capital (debt, equity, guarantees) and finance trade in two ways:  General Financial intermediaries: Lines of credit, partial credit guarantees schemes and generalist private equity funds. This represents around 50 million USD to indirect finance of agriculture in the last 3 years.  Agriculture and Agribusiness focused projects and funds such as trade finance, debt finance, private equity funds. This represents a total of USD 160 million in its active portfolio for the same period.

AfDB Private Sector Selectivity Beyond Aid: Financing Agriculture in ACP countries-CTA Brussels -September 15th 2010  Selectivity criteria:  Right balance between projected financial returns (12%-15% net) and development outcomes (measured through a set of indicators that are imposed ex ante and monitored through the life of the fund or the project)  Mechanisms that effectively lower the investor’s risk perception, through a tighter cooperation between public and private sector  Portfolio diversification across sub sectors, achieved through exposure limit by sub sector and regions

Investing Capital in Agriculture : The case of African Agriculture Fund Beyond Aid: Financing Agriculture in ACP countries-CTA Brussels -September 15th 2010  An Equity Fund focused on agriculture and agribusiness which provides equity across the full agricultural value chain;  Size at first closing: USD 150 million in investments, with projected return at 12%, and USD 14 million in Technical Assistance to guarantee high development impact;  Innovative mechanism: first-loss taking mechanism achieved through a PPP.

AAF Structure Beyond Aid: Financing Agriculture in ACP countries-CTA Brussels -September 15th 2010

Changing dynamics Beyond Aid: Financing Agriculture in ACP countries-CTA Brussels -September 15th 2010  In the past year, despite sector specific challenges, but encouraged by effective reforms, we have seen an increased number of request for financing from Agriculture and Agribusiness focused equity and guarantee funds that :  Are professionally managed;  Aim at investing in the whole value chain  Attract institutional investors with acceptable although lower projected returns but sizeable social returns.

The case of the Equity and Guarantee Fund of Funds Beyond Aid: Financing Agriculture in ACP countries-CTA Brussels -September 15th 2010  A Fund of Funds which aims at providing equity and debt financing to investment funds focused on Agriculture and Agribusiness  The target size is between 750 million USD to 1 billion USD aiming to provide financing or guarantee scheme to sub-funds.  The geographical area comprises the 5 African Sub regions

The case of the Equity and Guarantee Fund of Funds (EGFAA) Beyond Aid: Financing Agriculture in ACP countries-CTA Brussels -September 15th 2010  Preference will be given to funds investing in agricultural infrastructure, or with a pipeline that covers the whole food value chain  The Fund of Funds will be managed by professional fund managers who will be selected based on their investment skills AND their proven track records in managing Technical Assistance program and SRI initiatives.  The Bank will provide 25% of the target commitments of the Fund of Funds.

EGFAA Structure Beyond Aid: Financing Agriculture in ACP countries-CTA Brussels -September 15th 2010

In summary Beyond Aid: Financing Agriculture in ACP countries-CTA Brussels -September 15th 2010  Structural challenges (low productivity/low margin, dislocated value chain, market inefficiencies) have contribute to the high risk perception of potential investors in agriculture and agribusiness;  Despite these challenges, and in favor of effective private sector reforms, there is an increasing number of funds and projects focused in Agribusiness and Agriculture that are eligible for financing across the continent

In summary Beyond Aid: Financing Agriculture in ACP countries-CTA Brussels -September 15th 2010  AfDB is taking a selective approach based on the provision of financial instruments that lower the investor’s risk perception, social responsibility monitoring and sub sector complementarities across the value chain.  We believe that the Fund of Funds for Agriculture and Agribusiness will ease access to investors and donors funding and help transform the challenges of financing agriculture in Africa into sustainable opportunities. /