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Agri-Business Project Financing: Is Dawn About to Break?

production experience

It has been a long and bitter night for African agribusiness. But is dawn about to break?

Commercial banks in Ethiopia, for example, are still asleep when it comes to supporting the agriprocessing industry. There are surely many reasons, including customers’ lack of collateral.

In Ethiopia, the state owns all the land, which leases agricultural, industrial and residential land to farmers and entrepreneurs. A 99-year lease may be possible for a commercial farmer, 30-years is standard for industrial terrain. So a building is a collateral, but what’s the value of an empty brick building? Not a lot.

Another, more pernicious, reason is tax, a wolf-in-sheep’s-clothing kind of tax. Last year the government instructed banks to buy state bonds each time they make a loan, to the tune of 27% of the loan value. A neat way to transfer money from private accounts to state coffers.

None of this makes it easy for an Ethioipian entrepreneur to raise project finance. Last week, I sat down with the project team at a newly formed agri-processing company. And what a team! The general manager has had a long career in agri-processing, at both public and private companies. Together with a local investor, he has assembled a team of engineers, food scientists, a university researcher and an accountant. These people are educated to doctorate and master’s level, and they have industry experience. Now they need $2 million to get their project up and running.

So beings a long and disheartening search for financing. Dogged perseverance and Olympic stamina is necessary. It’s like standing in a hotel corridor, doors right and left stretching into the horizon, and you have to knock on each and every one of them.

One door to knock on is AAF SME Fund. AAF stands for African Agricultural Fund – a private equity fund with over $150 million in hand, run by Phatisa. This is Africa’s foremost fund for investing in food production and processing. In February this year, Phatisa announced a sub-fund of $30 million specifically for investments in SMEs (small and medium enterprises). At full speed, the Fund expects to have $100 million to invest. Check out the AAF SME Fund, and see if this is a possibility for you.

The Databank Group out of Accra, Ghana manages the AAF, which is being promoted by the great and the good of the development world: Agence Française de Dévéloppement (AFD), PROPARCO, the Spanish Government (AECID), African Development Bank (AfDB), Alliance for a Green Revolution in Africa (AGRA), International Fund for Agricultural Development (IFAD), Banque Ouest Africaine de Dévéloppement (BOAD), ECOWAS Bank for Investment and Development (EBID) and, of course, Phatisa, AAF’s Fund Manager.

Maybe the message is getting through: African agribusinesses are vital to the value chains they serve, but they cannot fund growth out of the cash register alone.

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