ST INTERN 1 ST INTERNATIO TIONAL AL WORK ORKSHO SHOP P ON ON - - PowerPoint PPT Presentation

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INTERNATIO TIONAL AL WORK ORKSHO SHOP P ON ON AL ALTERN TERNATIVE TIVE PO POTASH ASH

MA MASSA SACH CHUSETT USETTS S INSTITUT TITUTE E OF TECHN HNOLOGY OLOGY CAMBR MBRIDG IDGE, E, MA MASSA SACHUSE CHUSETTS TTS

10 10-12 12 November 2015

Benedict S. Kanu Lead Agriculture Expert Officer-in in-Charge, AFFM African Development Bank

STRUCTURE OF THE PRESENTATION

African Development Bank - mandate/work African Development Bank and Agriculture Africa Fertilizer Context/Constra ints Africa Fertilizer Financing Mechanism

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AFRICAN DEVELOPMENT BANK: WORK/MANDATE ETC

Founded 1964, the AfDB is a multilateral development bank. Shareholders: 54 African countries (regional member countries) and 26 non-African countries (non-regional member countries). Mission – promote sustainable economic growth and reduce poverty. Overarching objective - contribute to the economic development and social progress of African countries. AfDB achieves this objective by: mobilizing and allocating resources for investment in RMCs; and providing policy advice and technical assistance to support development efforts. Total Loan and Grant approvals from 1967–2014 are 4,185 totaling more than US$103.11 billion. AfDB’s authorized capital at December 31, 2014 is US$ 97 billion.

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‘One Bank’

African Development Bank (“AfDB”) Established in 1964 54 African and 26 non-African countries African Development Fund (“ADF”) Established in 1972 Primarily financed by donors (26 countries) Subscription: US$ 35 billion US$7.3 billion (2014-16) Concessional Financing Terms Nigeria Trust Fund (‘’NTF’’) Established in 1976 by Nigeria Total resources: US$ 242 million Concessional Financing Terms

AfDB Group: three constituent institutions

NTF

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Financial Instruments

• ADB loans (25 years tenor - competitive interest rates)
• ADF loans (50 years tenor - zero interest rate)
• ADF Grants
• Middle Income Countries Fund (for studies and

capacity building)

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AfDB: Two Lending Windows

Public window

Governments or state

• wned enterprises

Sovereign Concessionary

Private window

Privately owned enterprises or state owned enterprises autonomous & financially strong

Non-Sovereign Commercial

Recipient Guarantee Financial terms 6

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AfDB Ten-Year Strategy (2013–22)

Two objectives to support transformation Inclusive growth Five core operational priorities Three areas of special emphasis Gradual transition to Green growth

Age Gender Geography

Building resilience Managing natural resources Sustainable infrastructure

Fragile States

Agriculture & Food Security

Infrastructure development Regional integration Private sector development Governance Skills & technology

Gender

A continuum & regional approach Supporting value chains Economic empowerment, legal & property rights

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AFDB & AGRICULTURE/AGRO-INDUSTRY; STRATEGY (2015-19)

Transforming African Agriculture through Value Chains

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AfDB’s Agricultural Transformation Agenda (1/2)

Scale up nutrition programmes across Africa to end malnutrition and hunger. Raise agricultural productivity (increase fertilizer production capacity; technology). Establish an African Agricultural Risk Sharing Facility. Launch an Affirmative Finance Action for Women. Leverage $3 billion in financing for women farmers, agribusinesses and other women-owned enterprises. Africa Renewable Energy Initiative. AfDB to triple climate financing to US $5 billion annually by 2020. Central Banks: Special funds to allow farmers to access credit at reduced interest rates and long term agricultural loans with longer term maturity. Agribusiness Diaspora Bonds to securitize remittance flows.

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AfDB’s Agricultural Transformation Agenda (2/2)

Finance agriculture/agribusiness through private equity funds, and leveraging of sovereign wealth and pension funds for long-term agricultural financing, especially critical infrastructure. Support more functional Agricultural Development Banks, where appropriate. Establish an African Youth in Agriculture Financing Facility to support young commercial farmers and youths in agriculture. Scale up the establishment of Warehouse Receipt Financing and Agricultural Commodity Exchanges, especially regional agricultural commodity exchanges. Value chain development of key commodities via existing technologies, mechanization, post-harvest processing, small scale irrigation and supply chain management.

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Current Agricultural Initiatives /Trust Funds (1/3)

AGRICULTURE FAST TRACK FUND Launched in May 2013 with funding from USAID, DANIDA and SIDA. Objective is to provide grant funding for the initial project development costs. Current endowment of about US$21.68 million. Beneficiary countries: Burkina Faso, Cote d’Ivoire, Ethiopia, Ghana, Mozambique and Tanzania. Next call for proposals in October 2015.

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Current Agricultural Initiatives /Trust Funds (2/3)

CLIMDEV AFRICA FUND Objective is to strengthen the institutional capacities of national and sub-regional bodies to formulate and implement effective climate-sensitive policies. Objective is to provide grant funding for the initial project development costs. Current endowment of about €30 million. Operational in October 2014. Funding from SIDA, NDF and EU. 12 operations - Mali, Senegal, Kenya, Niger River Basin, ICPAC, AGRYHMET, ACMAD, SADC-DMC, ECCAS.

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Current Agricultural Initiatives /Trust Funds (3/3)

AFRICA FERTILIZER FINANCING MECHANISM Established in March 2007. Objective is to contribute to increasing fertilizer use in Africa from an average of 8-10 Kg/Ha to 50 Kg/Ha, so as to boost agricultural productivity. Operational in May 2015. Current endowment of about US$13. 47 million.

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Africa Fertilizer Context (1/5)

Agriculture has been underperforming. Growth ≈ cultivating more land and mobilizing a larger agricultural labour force, with very little improvement in yields and is unsustainable.

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Africa Fertilizer Context (2/5)

Low fertilizer use and very low soil fertility in some regions, plus lack of other agricultural inputs are key constraints to agricultural productivity and food security. Overall fertilizer demand in SSA projected (2014-18) to grow annually at 4.7% - fastest in the world, but Africa to remain a major nitrogen exporter. Africa’s soils are impoverished and soil nutrients of ≈ USD 4 billion lost annually. 75% of farmland plagued by severe soil degradation caused by erosion and loss of vital nutrients.

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Africa Fertilizer Context (3/5)

About 8-10kg/ha in SSA vs 231kg/ha in Asia and 126kg/ha world average. SSA > 10% of world population but < 1% of global fertilizer demand.

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Africa Fertilizer Context (4/5)

 High fertilizer prices in SSA. Non production costs = > 50% of farmgate price; on average SSA farmers pay 2-6 times more than average European farmer due to high transport/shipping/delivery costs.  Other costs (port duties, storage fees, fuel costs, the importer’s mark-up and the credit charges as the fertilizer is moved from port to farm) are crucial.  Approximately 40% of fertilizer consumed in SSA is subsidized to various degrees.  Limited regional private fertilizer manufacturing/blending capacity.

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Africa Fertilizer Context (5/5)

SSA extremely dependent on imported fertilizer ≈ 90% of

• needs. Disadvantage: variability in international prices and

price instability from local currency devaluation.

Africa has limited economies of scale in fertilizer imports. Agrodealers/credit guarantees = success in inputs supply to rural poor: Malawi, Mozambique, Ghana, Tanzania, Kenya, etc. But farmers in low potential areas must travel long distances to purchase inputs.

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Low Fertilizer Use: Demand Side Factors (1/2)

Low level and high variability of crop yields.

• For many small holders, the level of soil fertility is so low that mineral

fertilizers pay minimal economic dividends.

High level of fertilizer prices relative to crop prices. Prices of other inputs that substitute for or complement inorganic fertilizer. The demand-depressing effects of unfavorable price incentives are aggravated by other factors:

• General lack of market information about the availability and cost of

fertilizer.

• Inability of many farmers to raise the resources needed to purchase

fertilizer.

• Lack of knowledge by many farmers about the benefits and how to use

fertilizer efficiently.

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Low Fertilizer Use: Demand Side Factors (2/2)

Two questions that most farmers ask before making a fertilizer purchase:

• i) Will fertilizer use be profitable

(absolutely/relative to alternative expenditures)? and

• ii) Can I acquire the desired

amount of fertilizer and use it efficiently?

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Low Fertilizer Use: Supply Side Factors (1/1)

Fertilizer distribution is unprofitable in many parts of Africa.

Weak and dispersed nature of demand. Small market size High transportation costs from inadequate road /rail infrastructure. Limited availability and high cost of financing.

Private investment in fertilizer distribution discouraged by an unfavorable business climate. Untimely availability of affordable fertilizer in the market.

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Purpose of AFFM

.

• Provide innovative fertilizer value

chain financing to increase regional fertilizer manufacturing, distribution and trade.

• Enhance fertilizer use and

agricultural productivity, trade and incomes.

• Promote food security.

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How AFFM Can Assist (1/3)

• AFFM is a catalytic initiative that strives to help relax

supply and demand side constraints in the fertilizer value chain for agriculture-driven growth and livelihoods.

• AFFM is primarily designed to bring fertilizer value chain

financing to scale by leveraging private and public sector funding.

• Fertilizer advisory services plus LoCs, credit guarantees,

equity investments and trade facilities.

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How AFFM Can Assist (2/3)

Scalability of fertilizer pilot schemes. Increased business opportunities along the fertilizer value chain – manufacturing, blending and trade (warehousing, imports, intra- African, distribution. Increased farm productivity, production, income and profits for farmers and other fertilizer value chain actors.

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How AFFM Can Assist (3/3)

Promotion of fertilizer super distributors. SME linkage programmes to large scale fertilizer operations. Assistance with regulatory improvements and quality assurance. Engagement with RECs and member countries to address fertilizer cross-border trade bottlenecks.

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