Agriculture has a vital role to play in Africa, as enabling sustainable growth on the continent will require addressing the issue of food security. Because agriculture still remains a predominantly labour-intensive industry in many African countries, it can also provide much-needed employment opportunities for young people.

Absa Group, one of Africa’s largest diversified financial services groups with a presence in 14 countries, is the largest agricultural funder in South Africa, and has been working hard to grow its lending book in other African markets.

Roux Wildenboer, Sector Head: Agriculture at Absa Corporate and Investment Banking (CIB), says the continent currently relies heavily on food imports. This needs to change to improve food security and meet the needs of a fast-growing population. “There are countries with enormous production potential, such as Kenya, Tanzania, Zambia, and Mozambique,” he says.

While Kenya is famous for tea and horticultural products, Tanzania is a major producer of cashew nuts, Zambia’s largest crop is maize, and Mozambique produces a range of starch products (rice, maize, sorghum, and cassava). Ghana – the world’s top cocoa producer – is another country where Absa CIB is focusing its efforts, as Absa already has a presence there.

“The investment scenario in agriculture in these regions has traditionally been poor, but we’ve seen green shoots over the past 10 to 15 years,” says Wildenboer. “We've seen overall agricultural production in Africa increasing, but not nearly enough to become food secure. However, it is encouraging to see increasing investment from the private sector. What’s needed for further agricultural growth (beyond an enabling regulatory environment) is hard infrastructure, such as road and railway networks, and electricity.”

Roux says that financial institutions have a role to play in helping to fund agricultural and infrastructure projects (such as storage facilities or water and irrigation projects), but that technology is also an important consideration.

“Most of the production increases in Africa over the last 20 years have been obtained by increasing area under cultivation and not productivity. Technology is going to play an enormous role in boosting productivity,” he says. “For example, soil testing, data capturing and information analysis can assist small-scale farms with planting the right varieties for their conditions. Agricultural technology is also about what type of fertiliser you should use, and weather technology that helps to adapt planting schedules.”

Not all solutions are high-tech, however. Some smaller-scale farmers are making use of collective schemes where they share the cost and access to tools, such as tractors or harvesting equipment. Roux believes that partnerships that contribute to more inclusive agricultural development are key in establishing the agriculture economy of the future.

“Absa recognises a significant opportunity to finance the trade flows (import and export) of agricultural commodities regionally and internationally, and also to finance new and expanded food processing facilities in replacement of imported products and to enhance export earnings,” he says.

The drive towards localisation

Isana Cordier, Sector Head: Consumer Goods and Services at Absa CIB believes that localising food production is another priority for the continent. Covid-19 disrupted the sector and showed weaknesses in global supply chains, highlighting the need for countries to produce more of their own food. This also plays into trends like conscious consumerism, further driving localisation efforts.

“More and more, retailers are looking to source local and sustainably grown produce to meet consumer demands,” Cordier says. “Consumers are wanting products that are ethically sourced, locally produced, and organic, for example, which affects supply chains. There’s therefore a lot of pressure on retailers to really understand those supply chains. This is not only because people want to support conscious consumerism and job creation through localisation, but also because the pandemic has made countries aware of the need to be more self-sufficient. The shorter the supply chain, the less risk of products being stuck on the other side of a border. Given international geopolitical instabilities and rising fuel prices, localisation is likely to remain a priority.”

Another major trend affecting food supply chains is the surging demand for online shopping, buying directly from producers, and home deliveries. Changes in shopping patterns affect the retail environment, and in turn, the producers and suppliers in the food sector. On top of this, payments and cash management trends are shifting too.

While Cordier says this may not seem like it’s directly connected to agriculture, she believes that it’s important for financial institutions to take note of the ripple effect of consumer spending patterns and how they influence supply chain and investment decisions.

“We work hard to understand our data and our clients’ data to keep abreast with what is driving consumer behaviour, as this informs investment strategy,” she says. “Understanding our consumers and our clients influences everything we do from a banking perspective.”

Absa CIB’s understanding of the cyclical and seasonal nature of agriculture, coupled with its banking experience, enables it to sculpt custom solutions, tailored to individual projects and needs.

Source: BBC