1. Brussels Development Briefing n.33 Drivers of success for agricultural transformation in Africa 2 nd October 2013 http://brusselsbriefings.net Financing African Agriculture: Perspective from the Private Sector. Hans Balyamujura, ZED (Pty) limited. http://brusselsbriefings.net

2. Financing African Agriculture: Perspective from the Private Sector Hans Balyamujura Brussels Policy Briefing No. 33 October 2013

3. 2 Table of Contents 1.Success and Challenges of African Agribusiness Finance 2.Value and Risk along the Value Chain 3.Disconnect between Businesses in a Value Chain 4.Solution to Missing Middle 5.Investments to Integrate Value Chain Operations

4. 3 Areas of Success Some agribusiness clients are over banked Larger local corporates Multinational companies Well organised small scale farmer businesses in stable value chains (Tea, Coffee, Sugar, etc.) Short term finance (Working capital) Increase in availability of value chain based finance Challenges Limited s00000mall scale/smallholder finance Limited long term and development finance Poor appetite for entrepreneurial risk irrespective of scale Poor integration of value chains Some policy environments not strong enough for value chain finance. Regulatory environment too flexible thus poor stability of value. Value chain finance not compensating for the perceived primary agricultural risk Success and Challenges of African Agribusiness Finance...

5. 4 Input SuppliesGrowing CropHarvested Produce Food & Energy Store Produce Store Process Transport Plant Harvest International/ Local market Manufacture Transport Flow of Money V A L U E Financial Solutions Banking Relationship RISK Value and Risk along the Value Chain … Figure 1: Perception of Risk in a Non-Integrated Value Chain

6. 5 Disconnect between Businesses within a Value Chain (Missing Middle)... Small Scale Farmers (Majority of the African Farmers) Agro Dealers Input Supplies Growing CropHarvested Produce Food & Energy Store Produce Store Process Transport Plant Harvest Consumer Manufacture Transport Commercial Banks Figure 2: The Small Scale Farmers and the Agricultural Value Chains Characteristics (Right) Less risk Access to multiple financial institutions Limited local supply (size of operations) Limited local demand (purchasing power) and scale is too small for profitable international export. Characteristics (Left) Less risk Access to multiple financial institutions Growth among actors is too slow  Limited repeat business (Most are new farmers) Characteristics of the Missing Middle Activities led by the NGO sector Individual scale very small Poor profitability of the smallholder farmers Lack of collateral

7. 6 Commercial Banks Micro Finance Institutions Farmer/Peer Groups Social Services Annual plants Perennial plants and grasses Shrubs Softwood trees Hardwood trees Lichens Farmers Farmer Group Logistics/Processor Market Figure 3: Small Scale Farmers and the Agricultural Value Chain Inputs Solution to Missing Middle …

8. 7 Advisory Inputs Primary Farming Food processing Consumers Farmer Organisations Store Transport Manufacture Produce Store Plant Harvest Transport Farmer Organisation Investments Investments to Integrate Value Chain Operations … Figure 4: Aggregation of Activities within the Value Chain

9. 8 Thank You Email:hans@zedgroupza.com Phone:+27 83 346 1655