18 July 2014

Tanzania: Access to Credit Could Bring Agricultural Revolution

AFRICA stands at crossroads. Economic growth has taken root across much of the region. Exports are booming, foreign investment is on the rise and dependence on aid is declining.

Governance reforms are transforming the political landscape. Democracy, transparency and accountability have given Africa's citizens a greater voice in decisions that affect their lives.

These are encouraging developments. Yet the progress in reducing poverty, improving people's lives and putting in place the foundations for more inclusive and sustainable growth has been less impressive.

Governments have failed to convert the wealth created by economic growth into the opportunities that all Africans can exploit to build a better future.

The time has come to set a course towards more inclusive growth and fairer societies. This year's Africa Progress Report addresses some of the central challenges facing Africa's governments. It shares the view that there is much cause for optimism.

Demography, globalisation, new technologies and changes in the environment for business are combining to create opportunities for development that were absent before the economic recovery. However, optimism should not give way to the exuberance now on display in some quarters.

Governments urgently need to make sure that economic growth doesn't just create wealth for some, but improves well-being for the majority. Above all, that means strengthening the focus on Africa's greatest and most productive assets, the region's farms and fisheries.

The achievements of the past decade and a half should not be understated. Economic growth has increased average incomes by around one-third.

On the current growth trajectory, incomes will double over the next 22 years. Once synonymous with macroeconomic mismanagement and economic stagnation, Africa now hosts some of the world's fastest-growing economies. When it comes to growth, Ethiopia rivals China, and Zambia outpaces India.

If Africa is to develop a more dynamic and inclusive pattern of growth, there is no alternative to a strengthened focus on agriculture. Sub-Saharan Africa is a region of smallholder farmers. Some people mistakenly see that as a source of weakness and inefficiency.

Africa's farmers have an unrivalled capacity for resilience and innovation. Operating with no fertiliser, pesticide or irrigation on fragile soils in rain-fed areas, usually with little more than a hoe, they have suffered from a combination of neglect and disastrously misplaced development strategies.

Agriculture remains the Achilles' heel of Africa's development success story. Low levels of productivity trap millions of farmers in poverty, act as a brake on growth and weaken links between the farm and nonfarm economy - links that were crucial to development breakthroughs in Bangladesh, India and Vietnam. African countries spent US$35 billion on food imports (excluding fish) in 2011.

The share accounted for by intra-African trade: less than 5 per cent. If Africa's farmers increased their productivity and substituted these imports with their own produce, this would provide a powerful impetus to reducing poverty, enhancing food and nutrition security and supporting a more inclusive pattern of growth.

At the ongoing revolutionising finance for agri value chains conference in Nairobi, Kenya, the Nigerian Minister of Agriculture and Rural Development, Akinwumi Ayodeli Adesina, said that unlocking finance for agriculture is one of his great passions.

He advocated that instead of being a net importer of food, Africa should be a net exporter, but limited irrigation, poor infrastructure, limited value-adding, high post-harvest losses and - most importantly - lack of access to credit mean that farmers are failing to fulfil their potential. However, he cited a number of success stories. One of the most compelling concerned his own country.

During the past few years, the Nigerian Incentive-based Risk Sharing System for Agricultural Lending (NIRSAL) has spent some US$350 million and leveraging US$3.5 billion from banks to support agricultural value chains.

When Mr Adesina became Minister of Agriculture in 2011, the proportion of bank lending to agriculture amounted to just 0.7 per cent of total lending. By the end of this year, 2014, the figure will have risen to 7.5 per cent - a real revolution in agri-value chain finance.

The minister also described a range of other measures which are helping small farmers to become more business-oriented. For example, his government has recently ended 40 years of corruption in the fertiliser sector by providing over 8 million farmers with fertiliser vouchers which can be redeemed by mobile phone.

He also urged donors to use their investing power to leverage resources to fund the modernisation of the agricultural industry. "We should make Africa the place of our dreams, with shared prosperity for all," he cited. "This must be the focus of innovative finance."

The Kenya Deputy President, Mr William Ruto, went out to give his skepticism about the current agriculture model on dealing with smallholder farmers, urging policy makers and strategic planners to devise an agricultural model that will ensure that more food lands on the tables of the people.

"This is what I am thinking. A smallholder gets between 15 and 18 ninety-kilo bags of maize per acre while a person using irrigation obtains between 80 and 90 bags with the same acreage. We as policy makers this year have decided to progressively put more land under irrigation," he explained.

Mr Ruto said that his government intends to set aside one million acres that will target the private sector and entrepreneurs such that they produce and expand food production. He said that it was only through this way of putting on board the private sector that economies of scale will be tapped, where modern technology will be used and mechanization such that agriculture can take Africa out of poverty.

Mr Ruto said that he was aware that such issues were very political adding that it was high time that people bit the bullet and start doing what is right. "I am often left puzzled knowing that Africa has abundance of people with invaluable knowledge and top class scientists yet there is a lot of mystery, myths and superstitions surrounding the use of technology especially biotechnology.

Unless we speak about making hard decisions, we will only end up speaking good English in here," he said. Several other speakers focused on the issue of risk. Banks will not be inclined to lend to farmers if they believe that the risks are too high.

However, taking risks is part of innovation, suggested Mamadou Biteye of the Rockefeller Foundation Africa Regional Office. "Risk is the calling card of philanthropic organisations like ours," he said. There is no innovation without risk and no risk without the possibility of failure.

"Financing agriculture is a risk," he said, "but it is a risk that is well worth taking if we want Africa to develop." Millison Narh, chairman of the African Rural and Agricultural Credit Association (AFRACA) and Deputy Governor of the Bank of Ghana pointed out that there are some 700 million hectares of arable land in Africa, much of which remains uncultivated.

This is hardly surprising, as so few farmers are in the position to gain the finance they need to expand their activities. "Banks simply ignore most of Africa's population - and that means most smallholder farmers," he said. Indeed, 90 per cent of the funds that go into African agriculture come from the farmers themselves.

The Ugandan Minister for Finance and Economic, Ms Maria Kiwanuka, deplored the fact that although over two-thirds of people in East Africa are employed in the agricultural sector, which contributes up to 30 per cent of GDP, in countries like Uganda agriculture provides less than 1 per cent of tax revenues.

Agriculture had been allowed to stay as part of the informal sector, as a sort of 'charity case,' she argued, with all manner of tax exemptions. "We need to examine how to encourage the informal sector to become part of the formal sector and that will involve supporting value chains," she said.

Farmers need to be seen as producers, as business people, rather than subsistence operators and as a source of tax growth. It is essential, she added, that governments take a holistic approach, with different ministries working closely together.

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