14 December 2023

Decarbonising and increasing the resilience of agri-food value chains requires investment. A recent report by the Shamba Centre for Food & Climate and the Global Donor Platform for Rural Development (GDPRD) shows that, in the agri-food sector, US$1 of concessional finance from donors has the potential to bring in a further US$4 of commercial finance. This leverage ratio could present a substantial opportunity, in particular in Africa.

Domestic investors are at the core of the economy and enable countries to build their financial and economic productivity. They have a long-term and entrenched interest in the domestic economy, allowing them to assume political, legal and currency risks that frighten foreign investors.  

But how can countries in Sub-Saharan Africa crowd in their domestic investors? This was the key question during an event co-organized by the Shamba Centre for Food & Climate and the Africa Food Systems Parliamentary Network (AFSPaN) during COP 28.  

The event weaved together philanthropy, blended finance, and social entrepreneurs to better understand the issues that need to be addressed by policy-makers at the national level.  

Supporting positive subsidies 

Chizuru Aoki from the Global Environment Facility (GEF) noted the increased number of requests for funding in agricultural projects. The GEF has provided more than US$ 23 billion and mobilized US$ 129 billion in co-financing for more than 5,000 national and regional projects. Countries are now prioritizing agriculture and climate change. 

However, as Chizuru noted, it is important to align resources more effectively. “What has come to us very vividly is the notion of positive and negative subsidies. We need to realign policy measures and reward countries that get rid of negative subsidies.” 

Negative subsidies account for US$ 2 trillion in financing and run counter to sustainable development goals. Instead, Chizuru noted, subsidies should be aligned to make agriculture more sustainable. “We need to look at this issue at the domestic level and help countries move in this direction. What we mobilize is modest and we need domestic investment.” 

Ammad Bahalim from the Bill and Melinda Gates Foundation agreed. He recognized the difficulty to change the trajectory of domestic subsidies, noting that “domestic politics are complicated. We need to understand political incentives and this is not being done.” Among its many areas of philanthropy, the Bill and Melinda Gates Foundation works to help smallholder farmers in Africa adapt to climate change.  

Financing insurance 

During COP 28, the One Acre Fund announced its ‘One Acre Re’, a reinsurance facility for smallholder farmers affected by extreme weather. It will initially provide coverage for 1 million farmers with plans to cover 4 million farmers by 2030. John Mundy from the One Acre Fund highlighted the difficulty in selling insurance coverage to African farmers, making subsidies necessary.  

As he remarked, “Insurance is an incredibly effective way to de-risk agriculture. However, it needs to be affordable and accessible.” He cited a study from the Cambridge Institute for Sustainability Leadership which showed that subsidized insurance offers countries valuable protection against climate risk. 

Bringing in ESG 

Rachel A. Aron, from  Tugo Cwiny Management Consulting, highlighted the importance of adopting Environment, Social and Governance (ESG) frameworks. ESG offers a prism for companies to better understand their impact on the environment, social issues such as gender, and governance and how their performance can be improved. It also provides a framework for risk management. 

According to Rachel, policy-makers can make use of this framework in order to leverage new opportunities for domestic investment. She asked, “How do you want your society to look? How do you protect your resources? ESG allows you to use information to drive impact investment.”

Working with partners 

According to Ammad, philanthropic organizations, such as his, intervene where governments and companies fall short. For this reason, his organization places great value on partnerships. “We have to work with public, private and multilateral organizations. Partners cannot achieve their big-picture goals if we do not scale with national partners. We need many and diverse partners to achieve our goals,” he remarks. 

Chizuru agreed. She noted, as an example, that countries need to develop financial plans at the national level to meet the targets of the Kunming-Montreal Global Biodiversity Framework. The GEF recognizes that doing so will require working more closely with policy-makers and regulators. 

Adopting evidence-based solutions 

Determining the best solutions to implement requires data and evidence. Ammad is cognizant that resources are limited in comparison to the size of the need. “For this reason, we look to see where we can have the greatest impact based on evidence and what we have already learned,” he noted.  

The Bill and Melinda Gates Foundation aligns the community around common outcomes. “We are goal-oriented and time-bound. Is there good evidence? What have we already learned? We use data to monitor progress towards goals,” remarked Ammad. He gave several examples of how research from the Ceres2030 project helped identify interventions with the greatest cost-impact ratio such as rural advisory and extension services.  

However, as John noted, data has a cost. While data can lead investment opportunities and help investors appropriately measure risk, it can result in onerous demands.  

Finding success through sustainability 

Muhammad El Demerdash is a social entrepreneur, co-founder and CEO of the renewable energy and water company Engazaat. His company finances, builds, and owns renewable power and water utilities based on a decentralized architecture. Services are delivered to smallholder farmers on a pay-as-you go basis. 

For Muhammad, “The sustainability narrative is also an economic narrative. We face many problems including water scarcity and food insecurity. We need to decarbonize agriculture and have a sustainable water footprint.” The success of his company is based on de-risking through offtake contracts as collateral and integrating technology to ensure efficiencies. 

He provided two recommendations for success. First, to embrace the situation. “We think we know better than smallholder farmers but we need to reverse this logic,” he noted. Second, the endeavour needs to be commercially viable in order to convince farmers to adopt the new solution.  

L’espoir est permis 

The event ended with closing words from the Hon. Jeremy Lissouba, member of Parliament in the Republic of Congo and a member of the Africa Food Systems Parliamentary Network (AFSPaN).

He remarked that two areas needed to be addressed further. First, not everyone has the same level of understanding of what is possible. “This is aligned with partnerships and learning from data. We need to develop a common understanding from which to move forward,” he said. Second, politics is often overlooked in favour of technical and compliance issues. However, he noted, “this is an area where we need to have dialogue and understand what is at stake. We need to have more conversations and understand the complementary role that we play.” 

“Opportunites for impact exist. L’espoir est permis,” he concluded. 

The event, Making Domestic Financing Work Harder: The Enabling Environment for Food and Agriculture, was co-organized by the African Development Bank, Africa Food Systems Parliamentary Network (AFSPaN), Congo Basin Climate Commission, Government of Congo, and Shamba Centre for Food & Climate. It is available online on the Facebook and Youtube channels of the Congo Basin Climate Commission.