The Power of Local
In March, Standard Bank, Africa’s largest bank, and the Alliance for a Green Revolution in Africa (AGRA) set up what they call an “innovative fund” to provide loans to small farmers and small agribusinesses in Ghana, Mozambique, Tanzania and Uganda. AGRA and other partners agreed to provide $10 million in loan guarantees, while South Africa-based Standard, which has operations in 17 African countries and 19 others in the rest of the world (including in Brazil and China), said it would make $100 million available for lending over the next three years.
It was the biggest funding for agriculture by a single bank and one of several moves by local institutions to keep the global credit crunch from derailing the continent’s relatively high economic growth. That growth averaged 5.8 percent annually over the past five years, with some countries — Botswana, for example — registering growth in the double digits. As a result, foreign direct investment in Africa rose by 16.8 percent to a record $61.9 billion in 2008 from 2007, and net portfolio inflows reached an all-time high of $15 billion.
“As the world’s leaders respond to the global financial crisis with bailout measures, we should recognize the power of local financial innovations to create change on the ground,” Jacko Maree, Standard Bank Group’s chief executive, said in Accra, Ghana, where the memorandum of understanding between Standard and AGRA was signed.
For all the hand-wringing about food security, lack of access to financing plagues Africa’s small farmers and agribusinesses even when credit is not in crisis. Only a meager 1 percent of total commercial lending goes to agriculture in sub-Saharan Africa in the first place, and the bulk of that goes to large-scale operations even though small-scale farms account for 90 percent of agricultural production. No matter how viable their operations, small farmers and small agribusinesses typically are deemed “too risky,” ignoring the fact that microloans to small farmers — most of whom are women — show a near-zero default rate. Lack of financing to small farmers keeps their investment in the sector low, resulting in inadequate food production for a continent fast approaching a population of 1 billion.
The African Development Bank has stepped into high gear on another key economic front, as commercial lenders clamp down on exposure to risk and keep credit tight. In April, the bank trotted out a $1 billion trade finance initiative to help meet the financing needs — particularly short-term financing — of exporters and importers. One half of those funds is now being disbursed to African banks to shore up existing lines of credit for trade and to open new trade-credit facilities. The initiative comes on the heels of the bank’s $1.5 billion Emergency Liquidity Facility, created, in part, to underpin local economic stimulus efforts; to keep alive critical development projects facing delay, postponement and financing risks; and to bolster central-bank lending to domestic financial institutions.
As the global recession reinforces the fickle nature of overseas markets, local efforts to increase intra-Africa trade have become more urgent. The African Development Bank recently pledged $600 million toward improvements in the busy north-south transit corridor linking east, south central and southern Africa. Just about the same time, members of the Common Market for Eastern and Southern Africa, the East African Community and the Southern African Development Community caucused in Lusaka, the Zambian capital, and raised $1.2 billion for what’s been dubbed an “Aid for Trade” program. The money will finance upgrades to the corridor’s road, rail, ports and energy infrastructures and support other trade facilitation activities, such as harmonizing policies and regulations and putting in place a mechanism to access and disburse committed funds.
Poor road and rail infrastructure along the north-south corridor and long waiting times at borders and ports create significant costs and hamper regional producers’ ability to access regional and international markets.
The African Press Organization says the Aid for Trade program represents “a new and innovative approach” to supporting and developing regional infrastructure projects. “For the first time at a regional level, investments in infrastructure are being made alongside measures to address trade facilitation and regulation,” the organization says. Equally innovative, it adds, “is the holistic and regional approach the program takes to transport-system planning and maintenance, the aim of which is to give producers in the region access to a greater choice of road and rail networks.”
More counter-crisis efforts are under way, all locally powered. Waiting for solutions from outside is not an option. Africa must act now in its own interest, says former United Nations Secretary General Kofi Annan, who chairs AGRA’s board of directors. “While credit is frozen worldwide, Africa cannot wait for a thaw,” he says.