Food security in West and Central Africa and the need to reinforce value chain finance

25 May 2022. Food security in West and Central Africa and the need to reinforce value chain finance.

The EIB West and Central Africa SME Banking and Microfinance Academy 2022 Webinar series

Within the context of the European Investment Bank (EIB) Technical Assistance Financial Sector Programme for West and Central Africa, Making Finance Work for Africa (MFW4A) and the IPC, Horus and IECD Consortium hosted the eighth webinar of their series, which explored “Food security in West and Central Africa and the need to reinforce value chains finance”.

This webinar shed light on:

• Agricultural value chains and their development;
• How to better evaluate and manage agricultural risks;
• The agricultural value chain financing mechanism; 
• How to de-risk agricultural lending and expand financing opportunities for agriculture

Background

The food situation in West and Central Africa (WCA) remains precarious, as illustrated by a high percentage of underfed population (over 29% in countries as Niger and in Central Africa) and worrying levels in the Sahel with regional prevalence rate of acute malnutrition at 14.5% (FAO, 2019, 2020).

With the fast-increasing population of these regions, food demand will increase by 60 to 80% for the more than 420 million people in West Africa and over 190 million people in Central Africa (FAO 2022). Given that agriculture accounts for a large share of GDP and employment throughout the continent, increasing agricultural productivity is critical for the sustainable economic development of these regions. Moreover, raising agricultural productivity will positively impact not just the agricultural sector but the economy as a whole. It would first, help addressing the growing food demands and enhance food security and second, improve incomes of poor smallholder and agricultural exports.

However, a critical issue impacting the development of agricultural values is access to finance. There is a considerable financing gap, which prevents the development of the agriculture sector, particularly regarding agricultural value chains. According to the IMF (2017), bank lending to the agricultural sector is on average found to be below 1% of GDP in Africa. Although many farmers often rely on other financing sources including microfinance institutions, relatives and other informal sources, it is often at a high price.

At the core of the problem are the perceived risks in the agriculture sector. This is a source of major concern as farmers have to cope with numerous hazards. More financial institutions in West and Central Africa must better understand agricultural value chains and improve their capacity to evaluate and manage agricultural risk more efficiently. Moreover, the lack of collaterals from small farmers and businesses, combined with difficulties for financial intermediaries to price the risk of agriculture loans prevent them from servicing the sector.

What possible mitigation measures can lessen the impacts of agricultural risks today? Agricultural value chain financing (AVCF) offers an opportunity to de-risk agricultural lending and expand the financing opportunities for agriculture, improve efficiency and repayments in financing, and consolidate value chain linkages among participants in the chain. AVCF can be defined as “financial services and products flowing to and/or through value chain participants to address and alleviate constraints to growth”, setting it apart from conventional agricultural financing that does not have a direct link with the value chain (IFAD, 2012). It is an effective risk-mitigation mechanism but how can African financial institutions successfully implement it and what type of instruments are available? 

• Introductory remarks: Nikos Milianitis, Head of European Investment Bank (EIB) Regional Representation of Central Africa
• Moderator: Lydie Johnson, MSME Finance Specialist, Horus Finance
• Francis Osei, agribusiness finance specialist, IESO Agribusiness Consult
• Solène Prince-Agbodjan, agricultural finance specialist, ABC Fund
• Djedje Kungula Makoso, agronomist, agricultural finance specialist, Equity Bank BCDC