Agriculture in Africa presents a unique investment opportunity. The African Center for Economic Transformation estimates that the continent holds around 600 million hectares of uncultivated arable land, representing almost 65 per cent of the global total.
Of the land already cultivated, close to 95 per cent is still rainfed, limiting the current annual yield compared with irrigated farmland, according to the International Water Management Institute. Given the forecast that the global population will increase by about 2.3 billion people by 2050, investments that lead to improvements in the yield of arable land throughout Africa will not only enable African agribusinesses to tap into a booming global food market, but could also generate steady market competitive returns for investors. The World Bank estimates that provided adequate transformation of the agricultural sector is ensured, agribusinesses in Africa will become a US$1 trillion industry by 2030, more than tripling the current total market size.
Within this agricultural transformation, digitalisation for agriculture provides a particularly promising investment case. Emerging technological ventures such as Blockchain, Artificial Intelligence, and the Internet of Things are creating innovative and impactful ways to improve farming practices and supply chain management. More familiar technologies like drones, mobile phones and satellites are also being used to provide farmers with the information they need to increase their productivity, income and climate resilience. Start-ups such as Ensibuuko Technologies and Farmerline have shown that they can build a sustainable business case around these new technologies, in order to digitalise smallholder farmers throughout Africa.
Yet the prospering ICT sector in Africa is still mainly supported by donations from charitable organisations and technical assistance from international development organisations. This philanthropic support is certainly critical, offering many of the new ICT companies in Africa focusing on smallholder farmers a chance to get a foothold and prove that their products and services lead to improved farming practices. However, philanthropic aid cannot support widespread adoption of these new technologies. For the digitalisation of agriculture in Africa to contribute to the industrial transformation of the sector effectively, there is an urgent need to attract large amounts of private sector capital.
To channel private sector capital to African companies working on the cutting edge of digitalisation, investors need to see attractive risk/return profiles with market competitive earnings and quantifiable risk profiles, as well as viable exit opportunities. Shorter-term financiers such as private equity investors need to see a liquid market before they are comfortable mobilising capital to new sectors. It is crucial for the international development community to support an enabling investor environment, so as to increase the chances of attracting private sector capital to agricultural ICT companies.
In particular, development organisations such as CTA – who are working closely with smallholder farmers as well as supporting some of the most innovative and successful ICT companies in Africa – could play a pivotal role in lowering the perceived risk for likely investors. According to the Global Impact Investing Network’s Impact Investor Survey 2018, 54 per cent of impact investors believe that uncertainty over market demand for the products or services of their investees poses a significant risk to their portfolios. Investors simply need more solid evidence that a sufficiently large segment of the target market demands a given product or service outside the local pilot market. CTA is already playing a role in delivering this evidence, as shown by recent engagements in East Africa.
One of the reasons that investors find it difficult to assess market demand of digital businesses targeting smallholder farmers in Africa is lack of data on these farmers and their agribusinesses. CTA-led initiatives in East Africa have sought to supply this information to investors. By creating a comprehensive database with detailed profiles of farmers, farming cooperatives and larger agribusinesses, including detailed mapping of their farmland, level of digital connectivity and credit history, CTA has been able to refine estimates of the likely adoption of remote sensing technologies and mobile tools by smallholder farmers in larger rural and peri-urban areas of East Africa.
Examples of such initiatives include a smallholder database in Uganda through the Market-led, User-owned ICT4Ag-enabled Information Service (MUIIS) project, the support of agribusinesses in Uganda Igara Tea Factory (IGTF), analysis of women-led agribusinesses in East and Southern Africa (VALUE4HER), and support of livestock climate information in Kenya (CLI-MARK). By making this information accessible to interested investors, CTA could significantly reduce the uncertainties that these face when estimating the potential market appetite for new ICT products or services. Investors, in turn, should accept that their investments will serve a higher purpose than making simple short-term gains.
This article was created through a CTA-led process to document and share actionable knowledge on 'what works' for ACP agriculture. It capitalises on the insights, lessons and experiences of practitioners to inform and guide the implementation of agriculture for development projects.