CDC Group, the UK government’s development investment arm, is taking a step to help bridge what it estimates is a funding gap of as much as $31bn that Africa’s agriculture and food industry faces each year.
The 73-year-old institution is channelling $100 million to smallholder African farmers through export and trading company ETG, and is seeking other partners to help it deploy more capital to the sector.
As banks withdraw funding from agriculture because of regulatory challenges, and with some larger players defaulting, institutions such as CDC have a significant role to play in plugging the shortfall, says spokesperson and investment director Brad Smith. ‘This is the biggest deal we have done in the corporate debt space,’ he said in a video call.
The agreement enables CDC to reach more than 500,000 farmers across 29 sub-Saharan African nations, from Mozambique and Tanzania to Kenya. The funding will target the least developed markets where ETG operates and will be deployed to provide farmers with financing, data analysis and training to boost the production of staple crops such as grains, rice and cocoa.
The investment is part of a larger pledge by the UK institution to commit about $1bn to the continent in 2021. Many African governments are under strain from the costs of managing the Covid-19 pandemic against a backdrop of poor investment and political instability.
Appropriate interventions to tackle the funding shortfall — estimated annually at $23bn-$31bn — could increase the value of Africa’s agricultural output to $880bn a year by 2030, or more than triple the $280bn recorded in 2010, according to research compiled by CDC.
The deal allows the lender to use ETG’s network to extend a large facility into a fragmented industry. ETG offers various services to small-scale farmers, including assistance with soil preparation, warehousing and distribution, and has operated in Africa for more than half a century.
‘We are looking at other players similar to ETG that focus on other parts of our markets and starting to identify large corporates that can deliver scale but also meet the CDC’s standards around environmental, social and governance goals,’ Smith said.