Published
May 03, 2024
Africa is among the most resource-rich regions of the world, with 65 percent of the world’s uncultivated arable land and 30 percent of the world’s mineral resources ranking among the continent’s many endowments. Despite its considerable growth and even greater potential, investment in the continent remains low.
The financing gap for African economic development is estimated between $200 billion and $1.3 trillion, and that gap is rapidly widening as the continent’s population swells. The United Nations Economic Commission for Africa estimates that this gap could reach $19.5 trillion by 2030—the deadline for the African Union’s Agenda for Sustainable Development—if investment continues at current rates.
Agriculture Finance Is Climate Finance
While investment in Africa is needed broadly, unlocking climate finance is particularly paramount for combating the most severe effects of climate change while maintaining the viability of natural resources and the livelihoods of the communities dependent on them. While not all agriculture is formally classified as “sustainable,” the two elements are inextricably linked.
As climate change threatens arable land, the agriculture sector is immediately at risk while it also paradoxically offers solutions to the effects of climate change through greater resource efficiency, economic opportunity, and food security.
To realize this, “climate-smart agriculture” practices are being developed to both minimize climate pressures and maximize the yield and nutrition density of crops. U.S. and African governments, as well as global institutions, including the FAO and World Bank, are starting to harmonize sustainability and agriculture through this approach. However, four major principles, explored below, continue to threaten investment in smallholder farmers and sustainable agriculture in Africa:
The Danger of Risk Perception
In the U.S., African smallholder farms are rarely viewed as full-fledged businesses. Rather, they are considered objects of economic and social charity as opposed to investment opportunities rife with potential. This perception leads to limited loan availability and higher-interest loans, when they are even available, for Africa's smallholder farmers. Despite misguided perceptions, smallholder farms are businesses: sustainable businesses offering employment for entire communities, harnessing local skills and resources, and increasing regional food security.
Viewed through this lens, creating national industry standards and protections and formally integrating farmers into product supply chains can allow for increased financing, not only from development financing institutions (DFIs) but also from private investors. Financial literacy for these businessmen – and, increasingly, businesswomen – will also be needed to scale up investment, presenting another avenue for public and private sector support.
A Shortage of Bankable Projects
In Rwanda, as in many African nations, agriculture comprises 25% of the national GDP. Repeated calls have been made for irrigation, horticulture exports, and mechanization specifically to strengthen this critical sector. Similar calls have been made in other agriculturally rich nations across the continent, and DFIs have pledged support for these identified areas of need.
However, they face a lack of concrete projects, external governments, or private investors to invest in or partner with. The private sector can help address this by working with governments to bring in technical skills as well as de-risking partners to offset the high costs of investments once projects are identified.
Small Market, Small Project
Unfortunately, many small countries or agricultural regions lack the infrastructure or financing to support expensive development technology, including mechanization and irrigation, which can considerably scale up production. Even technologies like climate-resistant seeds and proper fertilizer are beyond reach for most regions of the continent.
As such, utilizing tools such as the African Continental Free Trade Area Agreement (AfCFTA) to expand market size will be increasingly important for regions experiencing development outpacing local demand. However, agriculture distribution within respective countries needs to be managed before looking beyond borders. Countries must have a coordinated development plan in place so that they are ready to deploy products once a wider network is created.
Looming Debt Pressures
Underscoring the poor focus on agriculture remains the looming debt crisis faced in many African nations, exacerbated by natural disasters emerging from climate change and demographic transitions— including an increasingly urbanizing, youthful population. Ironically, getting agriculture policy right can help reduce import reliance and increase domestic output, in addition to providing gainful employment for rural populations and decreasing pressures on cities. Creating a plan for debt restructuring and loan repayments that engages the agriculture sector can drastically improve food security, support climate objectives, and sustainably advance the economy.
Business Brings Solutions
According to World Bank estimates, the private sector will need to provide 90% of the capital required to bridge the financing gap in Africa. Companies have further been called upon to provide the innovative technologies and skills training outlined in the Nairobi Declaration and the African Union’s Agenda 2063 strategic framework to develop The Africa We Want.
The significance of the business community’s contributions to sustainable agriculture in Africa was the impetus for the U.S.-Africa Business Center’s Enabling Ecosystems white paper, which advanced suggestions on behalf of the global business community to better support Africa’s smallholder farmers. On the margins of the 2024 Spring Bank meetings, the U.S.-Africa Business Center convened a roundtable with finance and agricultural ministers and senior African Development Bank and U.S. Government officials to explore these solutions in greater depth.
While recent U.S. Chamber discussions have focused on farmers, agriculture is not an isolated industry: it is an ecosystem that can support Africa’s economic and environmental ecosystem— when it is properly supported. As the Nairobi Declaration emphasizes, “No country should ever have to choose between development aspirations and climate action.” Through investing in African agriculture, businesses can help achieve green growth for the continent— sustainably.
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About the authors
Ellasandra Walsh
Ellasandra Walsh is associate manager of the U.S.-Africa Business Center at the U.S. Chamber of Commerce. She leads the Chamber’s Sustainability policy portfolio for Africa, including work around climate finance, green energy, food security, and agriculture for the African continent.
