Despite the vast potential for agricultural production in Africa, the number of people considered to be undernourished on the continent is expected to grow from 240 million in 2015 to 320 million by 2025. Meanwhile, shifts in demographics, consumer tastes, and urbanization are resulting in a projected increase in food imports from a value of US$35 billion in 2015 to US$110 billion by 2025.
This growing volume of imports not only indicates a strong and growing demand, but is also indicative of the potential for agricultural and agribusiness investment to transform Africa’s supply chain into a business model offering value addition while also creating wealth and providing greater food security.
The African Development Bank estimates that the modernization and transformation of 18 selected value chains will cost between $315 and $400 billion over the next ten years – a need that public funding simply will not be able to meet, and is, therefore, calling for private investment capital to fill the void.
Toward this end, the bank has recently endorsed its “Feed Africa: Strategy for Agricultural Transformation in Africa 2016-2025 project” with the goal of establishing a globally competitive agri-food industry on the continent. If fully funded, the bank estimates that the project, which will directly invest $24 billion, and invest the balance “through equity, quasi equity, debt and risk instruments to catalyse [sic] investments from the private sector and with co-financing from traditional donors and new players,” will provide a yearly return on investment (ROI) of $85 billion by 2025.
If Africa can meet its agricultural and agribusiness potential and satisfy the goals of the project, according to the AfDB, it could result in new markets worth in excess of US$100 billion per year by 2025. And if this potential is met just within an initial set of selected promising value chains, it could mean new market opportunities totaling between US$70 billion and US$90 billion per year.
A key factor to achieving these goals is the leveraging of private capital and private sector operators. The bank says that “This will require a conducive policy, along with the necessary institutional and legal environments for private sector development to take place.”
Historically, the AfDB has made agricultural and agribusiness investments of US$612 million per year across Africa between 2011 and 2015. However, moving forward the bank is targeting average yearly investments in the sector of US$2.4 billion, making it the largest investor in African agriculture.
To reach this goal, the bank states within its Feed Africa outline, that it will finance its strategy through “a combination of the ADB and ADF windows, the Nigeria Trust Fund, other existing special funds at the Bank, and additional funds mobilized from the private sector, foundations, bilateral donors and development finance institutions for targeted funds for the Agricultural Transformation Agenda,” and has already established a new Department of Agricultural Finance dedicated to developing these critical investment vehicles.
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Lynda Kiernan