International Finance Corporation (IFC) and other stakeholders are leading efforts to address financial constraints and mobilise amenable financing solutions for the development of African economies.
At a media session yesterday in Lagos, ahead of the African Financial Industry Summit (AFIS) scheduled for November in Luanda, Angola, experts underlined the need for innovative financing solutions suited to peculiarities of the various African economies.
Experts who spoke included Division Director, Nigeria and Central Africa, International Finance Corporation (IFC), Olivier Buyoya; Director, Africa Financial Industry Summit (AFIS), Hicham Al Morabet; Principal Investment Officer, IFC Nigeria, Dafe Oraka and Group Head, Financial Markets and Funding, Access Bank, Elizabeth Oguegbu.
Buyoya said Nigeria must address bottlenecks across the agricultural value chain to unlock greater private-sector financing and improve productivity.
He said agricultural financing constraints went beyond the availability of funds, noting that commercial banks remained cautious because of the risks and structural weaknesses associated with lending to farmers and agribusinesses.
He said agriculture contributes more than 25 per cent of Nigeria’s Gross Domestic Product (GDP), while receiving less than five per cent of lending, describing the disparity as a major development gap.
According to him, the limited flow of credit was not necessarily due to banks’ unwillingness to lend, but reflected the risks inherent in the sector.
‘It’s not by lack of will; it’s because of the inherent risk that there is in those sectors,’ Buyoya said.
He said financing institutions needed to examine agriculture across the entire value chain, including production, storage, transportation, market access and farmers’ ability to secure viable prices.
He said: ‘The issue is not lack of land. As a matter of fact, there are 14 million hectares of arable land in Nigeria. The question is what is the yield and productivity of those producers?
‘Once you actually look at the value chain, you see bottlenecks at every step of the way,’ Buyoya added.
He said the World Bank Group and IFC were working with stakeholders to identify and remove such barriers through reforms, technical expertise, capital and digital instruments, while government remained responsible for policy.
Buyoya also cited a risk-sharing facility developed with Sterling Bank for agribusiness as an example of efforts to reduce lending risks and bring financial institutions and development partners together to address specific constraints.
He said better farm-level data could also improve lenders’ ability to assess agricultural risks.
‘If you lend to a group of farmers, you don’t know how many of them there are, you don’t know how much they produced in previous years, you don’t know what they are projecting,’ Buyoya said.
According to him, information showing the number of farmers in a community, their input requirements, expected production and projected sales would give lenders greater visibility in determining appropriate credit levels.
He said: ‘Once you start having that visibility, then it allows the commercial entity to assess that risk and determine the quantum of credit they can take’.
Al Morabet, said Africa’s financial industry had more than $2 trillion in institutional assets under management, yet businesses and infrastructure projects continued to face high financing costs.
He said this had prompted AFIS to focus increasingly on directing capital towards the real economy, including agriculture, manufacturing, infrastructure, education and energy.
‘The financial sector is doing well, it’s well performing, but the paradox is that the cost of capital and the cost of financing in general is high, and the real economy struggles to find the right financing to finance infrastructure projects, but also all corporate development projects,’ Al Morabet said.
The summit, themed ‘Making Capital Counts, Unlocking Growth through African Finance,’ is expected to examine how Africa can convert its large pool of savings into productive investment.
‘We need to provide them with the right risk-adjusted return to make them invest in the real economy and maybe in infrastructure and agriculture and manufacturing,’ Al Morabet said.
Oraka said Africa was developing the capacity to finance itself, but needed stronger mechanisms to connect available capital with productive projects.
‘There are significant pools of capital in Africa. Africa has a developing capacity to finance itself,’ Oraka said.
He said the IFC was supporting innovative financing models in supply-chain finance, local-currency financing and trade, while also working with financial institutions and digital platforms to expand access to capital.
Oraka cited IFC’s partnership with Access Bank on local-currency financing and collaborations to scale supply-chain finance across Africa.
Oguegbu, said commercial banks faced a mismatch between the long-term funding requirements of infrastructure projects and their traditional preference for shorter-term, moderate-risk lending.
Oguegbu, whose work schedules combine raising and deploying capital, noted that investors typically demanded returns commensurate with risk, while businesses sought cheaper financing.
She said: ‘The guys who provided the capital want a particular type of return for a given level of risk. And the guys who want the capital are also asking you for a price much lower than where the capital is being given’.
She explained that commercial banks were generally more comfortable with established projects generating positive cash flows than greenfield infrastructure ventures.
‘The only type of transactions that we typically want to finance are those that are typically brownfield, those who have cash flow projections that are positive,’ she said.
Oguegbu said the expansion of African banks across the continent was creating opportunities to bridge some financing gaps through deeper knowledge of local markets.
She said Access Bank had expanded into about 18 African markets, adding that stronger local understanding could help banks structure financing solutions around the specific circumstances of businesses.
‘All it requires is actually understanding the nuance of that particular client’s business, understanding the nuance of the market, and trying to see how you can attain a solution to it,’ she said.