A determined and aggressive initiative to deal with Southern Africa Development Community (SADC) challenges, including access to rural and agriculture financing, as specified in the Regional Agricultural Policy (RAP), is required to harness the potential that agriculture has to contribute to the general economic and socioeconomic growth of the region. 

In his opening address at the SADC Regional Conference in Johannesburg recently, SADC deputy executive secretary Dr Thembinkosi Mhlongo, highlighted that agriculture was perceived to be risky by most financing institutions and considered less attractive by general investors who looked for maximum returns on investment in the shortest possible time. 

“Yet, as the World Development Report 2008 [states], agricultural growth has special powers in reducing poverty across all types of countries. The report estimated that gross domestic product (GDP) growth originating in agriculture is at least twice as effective in reducing poverty as GDP growth originating outside agriculture,” he noted.

However, Mhlongo conceded that the SADC agriculture sector was facing “major challenges”, namely access to land, inputs and human and financial capital in the form of working capital and medium- to long-term investment in agriculture. 

“I therefore request the private sector, working closely with the public sector, to make special efforts in making financial investments in the agriculture sector.  You can do this directly between commercial farming enterprises and smallholder farmers or through participation in this proposed programme.  Indeed governments have a role to play in providing public goods but the real key is in the hands of the private sector who can help improve productivity and, therefore, economic growth of our nations,” he said.

Johannesburg-based independent trust FinMark Trust head of regional financial inclusion and integration Geoff Orpen noted supply-side constraints and demand-side barriers to financial access, adding that the role of government and development policy was another challenge.

CHALLENGES FACED
Speaking at the conference on January 28, he outlined that that common issues resulting from inadequate administration in the region were unstable macroeconomic performance, some financial policies causing market distortions, some governments being directly involved in financial services, agricultural policies that did not facilitate private-sector participation and inadequate financial infrastructure.

With regard to supply-side constraints, there were limited incentives for financial institutions to offer and/or increase agricultural and/or rural finance, poorly developed risk-mitigation mechanisms and limited finance for small-scale farming compared with commercial agriculture. The availability of suitable products for emerging farmers moving from small-scale to more commercial farming was also noted, along with weak value-chain finance owing to the lack of linkages and a poor level of trust among stakeholders.

Further, Orpen listed the lack of capacity, both in management information systems and human terms, in financial institutions, especially among non-banks and informal providers.

With regard to demand-side barriers to financial access, causes entailed low population density, the high level of poverty in rural areas and the lack of access to markets by many smallholders. Orpen also named exposure to risks such as highly erratic income flow, high nominal interest rates, the difficulty of using land for collateral and the lack of financial capacity and/or literacy.

The RAP was seen as a means to accelerate the realisation of inclusive rural and agricultural financing in the SADC region to increase sustainable agricultural production, productivity and competitiveness, as well as improve regional and international trade and access to markets for agricultural products.

Its objectives also comprised increasing private- and public-sector engagement and investment in agricultural value-chains, and reducing the social and economic vulnerability of the SADC region’s population in terms of food and nutrition security and the changing economic and climatic environment.

But there was still much that needed to be developed before the RAP could become operational.

SOLUTIONS SOUGHT
Speaking to stakeholders at the SADC Regional Conference, SADC RAP coordinator Martin Muchero highlighted the need to conclude the costing of the RAP Investment Plan, the signing of the SADC Regional Comprehensive Africa Agriculture Development Programme Compact (based on the approved RAP) and the development of the RAP Agricultural Development Fund, which was linked to the overall SADC Regional Development Fund.

In terms of completing the costing of the investment plan, a RAP Results Framework – which outlined targets and related indicators – had been completed, he advised. However, the identification of strategic programmes for implementation in the first five years of the RAP was still needed. These included the SADC Food and Nutrition Security Strategy, which had already been approved by Council 2014, and aquaculture, rural and agricultural financing, livestock and crop programmes.

The costing of these programmes was necessary and required the levels of funding to be defined, as well as the types of resources needed to implement the RAP Investment Plan.

Muchero outlined that the RAP was expected to “create a framework to harmonise and integrate policy objectives, strategies and programmes of the SADC member countries towards improved agriculture production and industrialisation”.

The policy was further expected to, among others, provide opportunities to capitalise on value addition, such as agroprocessing, and trade benefits through improved resource allocation and reduced barriers to trade; provide improved market access to other countries, particularly other SADC countries, to improve on intraregional trade of agricultural products and value-added agriculture-based products; and strengthen the multilateral bargaining power of SADC countries internationally.

The RAP would also aim to facilitate the preparation of requests and be a catalyst for urgently needed additional external assistance and investment for agriculture, delivered in a prioritised and coherent manner.

FinMark had undertaken support initiatives towards implementing the RAP, noted Orpen, stating that with regard to future interventions undertaken by the trust to accelerate the implementation of the policy, two strategic focus areas had been identified.

FINMARK SUPPORTS RAP
The first included the support of the development of critical credit market infrastructure in SADC countries.

FinMark expected this to give credit providers access to reliable credit information to broaden their lending and reduce their cost of lending to small and medium-sized enterprises (SMEs) and smallholder farmers, as well as provide access to finance for the poor.

This outcome was expected to result in the establishment of national credit provider associations that would increase sharing of credit information in SADC countries, especially for SMEs, smallholder farmers and poor consumers wanting access to housing finance.

Orpen also pointed to the adoption of regional credit-information-sharing regulatory principles, the development of and piloting of alternative sources of credit information and approaches to assessing creditworthiness.

Another outcome dealt with the facilitation of increased access to finance though agricultural value chains to aid regional case studies andor research projects on prioritised agricultural value chains being supported, regional capacity development programmes on value chain development and support, and the development of a solution for the production of data that would enable smallholder farmers to access value chains.

The second strategic focus was on ensuring that financial service providers and regulators were able to use demand-side data and analysis to develop new policy and products to better serve these constituencies. 

FinMark expected this to lead to the collection of demand and/or client data to better inform and/or influence credit providers and/or regulators on SMEs and smallholders.

This was expected to yield demand-side surveys conducted to better understand the needs and behaviours of SMEs and smallholder farmers, and ensure the engagement of financial service providers and regulators to better understand and deliver financial services to SMEs and smallholder farmers.

BUILDING ON WHAT’S COME BEFORE

Independent consulting economist Mike de Klerk told delegates at the SADC Regional Conference that the RAP and FinMark Trust processes needed the input of key stakeholders’ knowledge, experience, networks and action to move forward.

He suggested a stakeholder-driven mechanism to assist the RAP Iinvestment plan implementation, using the Agricultural Development Finance Forum of South Africa (ADeFFSA), which was set up by mandate of stakeholders of FinMark South Africa.

There was a need for similar stakeholder-driven initiatives across SADC, while ADeFFSA needed to be seen as contributing to developing regional agricultural/rural stakeholder cohesion.

“If stakeholders at this workshop support the principle of establishing a regional forum, it is important to agree on a driving entity to perform a coordinating role… [and] take account of – but not necessarily follow – the approach adopted by and the experience, to date, of ADeFFSA in deciding how best to organise the forum [and] activities,” De Klerk noted.