Opportunities for agribusiness in Africa

Agribusiness is important to all economies in Africa because of the various contributions it makes to them.The term “agribusiness” denotes the collective business activities that are performed from farm to fork. Agribusiness therefore includes the supply of agricultural inputs, production and transformation of agricultural products, as well as their distribution to final consumers.
According to the Food and Agriculture Organisation of the United Nations (FAO), agribusiness is one of the main generators of employment and income worldwide.
Gauteng opportunities
Brand South Africa, the research organization that markets and promotes South Africa, says the most important economic sectors in Gauteng are financial and business services, logistics and communications. “Agriculture is a relatively small sector that contributes about 1% to the provincial Gross Development Profit (GDP),” says Brand South Africa.
Research by KPMG titled “Performance of the Agricultural Sector” states that the Gauteng province’s agricultural sector targets the local urban population.
“It tends to be direct supplies to local produce markets and retailers,” says KPMG’s research.
The Gauteng Department of Agriculture and Rural development (GDARD) has a R600m ($45,6m) budget for the 2014/15 year. The department has recently drafted an agribusiness support programme which identifies areas of high potential agribusiness in the province.
Potential agribusinesses that Small Medium Enterprises (SMEs) should consider venturing in are:
• Maize – this is a widely cultivated crop in Gauteng. According to KPMG, the crop covers over 105 000 hectares in the province because a large part of the province falls within SA’s maize triangle – namely, Sedibeng, Metsweding and West Rand District Municipalities.
• Livestock farming – one of the agricultural cornerstones of Gauteng.It comprises 40% of the country’s agricultural output.
• Food processing – Brand South Africa says this makes up a significant part of the country’s economy.
• Veterinary services – defined as primary animal health and clinical services to small holder livestock farmers.
According to GDARD, there are existing opportunities to offer mobile veterinary services, particularly, more so in previously under-serviced areas.
• Biotechnology – a major industry of the future. It will apparently help with the creation of new sources of biodiesel and improve demand for oil seeds. KPMG says it has the potential to lower farmers’ input costs by using the biodiesel produced to meet energy requirements.
An emerging farmer requires a number of support structures for a farming business to become a success
– Including access to land and related resources, access to information and extension services, access to markets,and access to finance. Below are various institutions that provide financing in South Africa:
• The Land Bank– has loans for agriculture which are long, medium and short term – ranging from 18 months to 15 years. These are meant to finance land purchases
• National Empowerment Fund (NEF) – this rural and community development fund is designed to promote sustainable change in social and economic relations, and to support the goals of growth and development in rural communities through the financing of sustainable enterprises.
The fund has four product categories:project finance, business acquisition,expansion capital, and start-up. The funding threshold is from a minimum of R1m ($76,020.00) to R50m ($3,8m).
• Independent development Trust (IDC) – the IDC’s Agro Industries Strategic Business Unit provides support for a wide range of food and non-food production activities in the agricultural value chain. Requirements are that the project must create jobs. The minimum amount of funding is R1m ($76,020.00).
Only agro-processing is considered for finance.
• The Department of Rural Development and Land Reform – it’s Recapitalization and Development Progamme is aimed at land reform beneficiaries and land reform farms with mortgages. It is thus for emerging farmers who purchased farms privately, and irrigation schemes,and farms in communal areas. In order to receive funding, a comprehensive business plan for a five-year period must be presented.
• Micro Agricultural Financial Institutions of SA (MAFISA) – was established to facilitate the provision of equitable and large-scale access to financial services for poor communities. Its main aim is to provide capital to support economic activities in the sector. Accordingly, MAFISA provides short to medium term production loans to enhance agriculture, forestry and fisheries activities. It may lend up to R500 000 ($37 283) over a repayment period ranging from 12 to 60 months.• The Department of Trade and Industries (DTI) – provides financial support to companies that qualify in various sectors for manufacturing, business competitiveness, export development, market access industries, and foreign direct investments.
Private sector financial institutions that offer financing are inter-alia,Standard Bank, ABSA, Nedbank and First National Bank. Shaheen Hoosen, MD of Europe, Middle East, Africa Islamic Finance and Competence (EMEA IFC), provides the following advice on what should be noted when seeking funding or finance:
• There is no one-size-fits-all solution when it comes to finance and funding for projects.
• A lot depends on what kind of investment is required/requested and what stage the project is at.
• When applying for funding/financing it is important to use the correct terminology and demonstrate a
thorough understanding of the project.
• A concept note (like an executive summary) is an excellent tool to gain investor interest or curiosity.
• New technology introduced into the African context gains more favour if it has been proven – that is, tried and tested in African environment and circumstances
• Economic feasibility, based on fair projections and forecasting, is necessary to demonstrate the viability of the project.
• Offtake agreements and Letters Of Intent (LOIs) also indicate the viability of the project and project assessment for funding
• Islamic Finance and Competence is the sister company to Finance and Competence. In addition to offering conventional funding opportunities,it was created to cater to the growing need for businesses in Africa that require access to Shariah-compliant funding models.
Generally Shariah compliance is determined by a committee of Islamic financial and legal experts (Shariah
board) to ensure that a financial institution’s practices and products are in compliance with Islamic law.
EMEA IFC: Tel + 27 11 656 0466 or 082 786 1659; www.emeaifc.org ; www.smesouthafrica.co.za
The Land Bank: Tel +27 12 686 0500;www.landbank.co.zaw
National Empowerment Fund: Tel +27 11 305 8000; www.netcorp.co.za
Independent Development Trust (IDC): Tel +27 12 845 2000; www.idt.org.za
The Department of Rural Development and Land Reform: www.ruraldevelopment.gov.za
Micro Agricultural Finance Institutions of SA (MAFISA): Tel +27 12 319 7295;www.daff.gov.za
Department of Trade and Industry: Tel +27 12 394 5792; www.thedti.gov.za