Accelerating finance for robust and sustainable agricultural markets systems
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This project aims to facilitate private sector investment in Kenya's agricultural sector through two main approaches: 1) Developing agricultural markets and value chains to increase demand for agricultural products, and 2) Increasing smallholder farmer access to inputs, technologies, and financing to boost production. A $150 million project will be implemented using a challenge fund to provide matching grants and de-risk private investment in agricultural enterprises, markets, and infrastructure. The project aims to leverage the $120 million in funding to mobilize an additional $1.2 billion from private investors, impact funds, credit access, and government sources over 7 years to transform Kenya's economy by financing robust and sustainable agricultural markets.
Accelerating finance for robust and sustainable agricultural markets systems
- 1. Financing Robust and Sustainable Agricultural Markets systems in Kenya A digital artifact project by Joseph Kimotho Submitted for World Banks Unlocking Investment and Finance in Emerging Markets and Developing Economies (EMDEs) Course
- 2. Objective Facilitate investments in agricultural value chains- economic transformation through agriculture Expansion of capital sourcing base for the agriculture sector in Kenya- especially Catalyzing private sector finance A Private sector led Agri- production and processing facility
- 3. Kenya at a glance Kenya is a lower middle-income country with a GDP of $87.98B, according to World Bank reports in 2018 Kenya has previously heavily relied on external financing to fund its development. Overseas Development Assistance (ODA)tops the list of key sources of finance $2,942M(43%) followed closely by IDAs Kenya needs to increase finance flows to finance its SDGs objectives to the tune of(how much) Need to increase income per capita, now at $1,620 as at 2018(World Bank) Need to generate finances from its economy and reduce reliance on external flows Has a robust and stable financial systems: Banking,
- 4. Transforming Kenyas economic base Financing Africa transformation report (WB) identifies diversifying production and exports, boosting competitiveness and increasing share of manufacturing as effective . WB further identifies agribusiness as one of the agribusiness locomotives alongside mining, manufacturing and tourism Kenya agriculture contribution to the GDP is 30% according to various reports. Commercial financing(by far the largest) for the agricultural sector has stagnated at 4% of the overall lending in the economy By its significance and strategic positioning, agriculture could be a prime gamechanger and an agent to increase flows from internal trade and exports.
- 5. Private sector led Agri production and processing facility The project
- 6. Project Design Development Initiatives PLC will implement a $150M private sector led agricultural development project in Kenya with funding provided by the World Bank The project will be 2 pronged: Pull factor(Market aspects) and Push factor(farmer/producer aspects) Key implementation approaches include: Market systems Development- private sector led, through Enterprise Challenge Fund(ECF) and Technical Assistance(TA), Policy interventions: regulatory reforms to reduce risk and promote markets
- 7. Theory of Change By facilitating increased investments and finance flows at the market level, market actors increase their handling, processing, distribution and export capacities alongside innovation and efficiencies and therefore; Create a market pull for agricultural products Facilitate the production segment to produce for the market through increased access to quality inputs, technologies, water and information; this through increased access to financial resources and systems that support production therefore: creating a market push Production and Markets can function effectively in an environment that promotes them; policy interventions that reduce risk and promote markets will open the way for increased investments
- 8. Project Design- Challenge Fund A Challenge fund in the project is designed to provide grants and attract blended finance: a catalytic & investment de- risking fund- to buy down private sector risks and promote innovation Target groups: Direct and indirect Market actors who include; aggregators, processors, exporters, distributors, large-scale producers, financiers, Insurance providers, Equipment and technology companies, input suppliers, agricultural technical service providers Finance application model: Risk informed financing through matching grants
- 9. Project Design- Challenge Fund Pubic/Private Facilitation Model: Buy down market actors forward and backward integration risks including; Equipment and technology acquisition, market expansion, Smallholder farmer extension services scale, collection centers set-up, training etc. Technical assistance for capital raising, business strengthening, National and International marketing and promotion among others Infrastructure investments: PPPs in agriculture value chain infrastructure with a target of 50-80% private/public contribution Underwrite partial costs for Public and Private sector engagement including policy reforms Assistance to National and County governments to increase public funds mobilization and application
- 10. Leveraging Financing For significant achievement of SDGs and transformational change in the next 10 years, Kenya needs $4B. Banking sector is the current source of provides 80% of financing for the economy. However, only 4% of commercial funding goes to agriculture This project will seek to enhance access to international public and private finance flows- investment in emerging markets The primary source of funds for this project will be the IDA $120M Catalytic Fund under the enterprise challenge fund.
- 11. Leveraging Financing The project targets to mobilize further $1.2B in 7 years from the following sources; 1. $240M Cost share/parallel funding from private sector, 2. $60M Facilitate impact investments(private equity/debt), 3. $120M Equity investments- by de-risking potential deals 4. $600M Increased access to Credit; through de-risk matching grants and BDS, inclusive finance, Financial inclusion liquidity 5. $120M: Mobilize National and County governments investments of public funds from taxation in public investments 6. $60M Capital markets: Support issuance of at least 2 green bonds and listing of agricultural companies under the alternative market segments
- 12. Maximizing Finance To maximize procurement and application of finance, the project will; Tap into private aid- Private aid is estimated at between US$ 60-70 billion annually(UNDP) Crop or livestock insurance- intended at increasing micro-lending and securing the vulnerable from climate risks Enterprise Challenge fund will be a catalytic fund Work with governments on policies- influence investment in public infrastructure from tax proceeds and policy reforms including regulatory reforms to reduce risk and promote markets Guarantees and risk insurance: backstopping lines of credit for vulnerable segments and promoting finance