2. FINANCING AGRICULTURE IN SOUTHERN AFRICA: SETTING THE SCENE Ishmael D. Sunga ( CEO- SACAU) CTA/SACAU Regional Development Briefing on “Financing Agriculture in Southern Africa” 25-26 October 2010, Crossroads Hotel, Lilongwe, Malawi

3. Structure Introduction Operational environment Infrastructure Private sector financing – issues Development sector financing – issues Conclusions 3

4. Introduction Importance of the agricultural sector The negative image of the sector Poor performance of sector (low productivity of land & labour, low share of global exports, food imports and food aid per year etc) Low investment (irrigation, inputs, farm hardware etcetc) Large numbers of farmers, limited size of holdings, and fragmentation of production Weak farmer institutions at all levels Limited integration of smallholder farmers in the value chains- value chain issues Large proportion of farmers subsistence Limited ability to cope with external shocks/risks 4

5. Operational environment Restrictive macro-economic policies Social and economic instability Politicization of the sector Low incentives – commercial viability of farming Price volatility and rising input costs Limited participation of key stakeholders in the governance of the sector Low public sector investment in agriculture The crowding out effect of the public sector investment Paucity of reliable and up-to-date agric related statistics at all levels Financial crisis, climate change etc Trade arrangements-complicated 5

6. Infrastructure Inadequate & unreliable production, marketing, post- harvest & trade infrastructure High transportation costs for inputs and outputs Uncoordinated/disjointed infrastructural development initiatives – limited impact Infrastructure development not linked to agricultural value chains External assistance is substituting for rather than supplementing domestic spending in infrastructure Investment climate & business environment not conducive for private investment in infrastructure, including on-farm investment 6

7. Private sector financing – issues Farming is a long term occupation and viability cannot be achieved in a few seasons Too much focus on seasonal financing Focus tends to be on a particular aspect of the enterprise and not on the whole enterprise Cost of finance to expensive High risk perception of the sector by financial instituions Undue reliance on land as collateral in enterprise funding Disjointed/uncoordinated approach in funding various aspects of the value join Lack of coordination and cooperation arrangements between different funding agencies who are financing different aspects 7

8. Development finance - issues Need for increased global funding support to the sector Global funding commitments – disbursement and governance issues Donor funding - financing and reporting procedures cumbersome and difficult Complicated financing arrangements (e.g carbon trading) which are out of the reach of smallholder farmers Repackaging of funding commitments Funding often recycled back to the original source Is development funding crowding out private sector financing 8

9. Conclusions (1/2) Importance of the sector- good opportunities for financing The sector needs a make up! Increase investment in public infrastructure & create opportunities for PPPs Adopt an enterprise and value chain approach to financing agricultural development Funding is scarce- need for a coordinated approach and greater cooperation in order to increase impact Need for a wider basket of risk management tools 9

10. Conclusions (2/2) Public sector/development funding should be focused more on strategic areas e.g development of FOs, R&D and training institutions, infrastructure etc Investment in ICT infrastructure will be critical Use development/public sector finance to leverage more private sector financing Market expansion- intra-regional and continental trade Transparency and accountability needed in the governance and administration of global funding commitments Farming is a long term occupation - viability not achieved in a few seasons- fund medium to long term Improved incentive framework and better positioning of farmers in the value chain Good policies, good policies, good policies – exactly what the doctor ordered! 10

11. Thank You