Money is All You Need…?
Finding the money to fund equipment and raw materials purchases is the biggest obstacle in the path of African agribusiness enterprises.
Yes, you have heard me say this before.
Not everyone agrees with me. Randall Kempner, who manages the Aspen Network of Development Entrepreneurs (ANDE), a global network of organizations that fund small businesses in emerging markets, told the BiD Network meeting in Kigali last month: “Two other issues are even more important. The first is access to talent. The second is access to markets, and then it is access to capital.”
African Development Bank (AfDB) has just published a report called Financial Inclusion in Africa.
It says that firms in Sub-Saharan Africa have less access to external funding. Only 22% of African enterprises have a loan or a line of credit compared to a 43% in other developing economies outside Africa.
“In sub-Saharan Africa, 45% of firms cite access to finance as a major constraint to growth. However, a higher percentage of small firms identify access to finance as a major constraint relative to medium and large enterprises.”
The “Unbanked” Mmasses
On average, 23% of adults in Africa have an account at a formal financial institution. This means more than 3 people out of 4 don’t have a bank account, although they may be part of an informal savings scheme. So perhaps it’s little wonder that commercial banks don’t have much money to lend, therefore they are very cautious.
Private Equity to the Rescue?
The African Private Equity and Venture Capital Index shows that African private equity funds achieved 11% annualized return over the last 10 years. That’s based on returns from 40 funds worth $7.3 billion that have investments in over 350 companies in 25 African countries.
“We expect the index to increase investor confidence, as it shows that returns from private equity in Africa are as attractive, if not more attractive, than other regions,” says David Wilton, Chief Investment Officer at the World Bank’s IFC.
But not everyone is optimistic. Exchange controls, national regulations, small deal sizes, fragmented markets, and lack of managerial talent, are all turn-offs for outside investors.
Bear in mind that 84% of investments in SMEs in Africa are financed through internal funds –company profits are the source of investment. Also remember that investors do have choices. For example, South Africa’s GDP ($384 bn) is still smaller than North Carolina’s ($399 bn).
Will 2014 bring more funding to Africa’s struggling agribusiness entrepreneurs? The outlook is hopeful, not least because there is a growing understanding of the funding difficulties SMEs face. Initiatives like the DCA Loan Guarantee Scheme, the Africa Guarantee Fund and the Insta-Pro-Innovare Leasing Program are seeking out ways to help entrepreneurs access capital.
So if you are an agribusiness in Africa, don’t worry about the U.S. Fed’s QE tapering or the missed generation of Europe, go out and look for funds now – they are probably looking for you too!