Innovative public-private financing structures to improve food security in Africa: The Africa Agriculture and Trade Investment Fund (AATIF)
Agriculture holds the key to broad-based economic growth, poverty reduction and food security in Sub-Saharan Africa (SSA). This is due to the importance of the sector for SSA economies, the extent of rural poverty and the dependence of 50 million small farms on agricultural incomes.
Deutsche Bank research has found that growth generated by agriculture in Sub-Saharan Africa is several times more effective in reducing poverty than GDP growth in other sectors.
Agriculture has huge potential
Globally, Sub-Saharan Africa is the only region which faces ongoing challenges to improve agricultural productivity, due to under-investment, poor infrastructure, insecure land tenure, unfavorable price policies and weak institutions. However, agriculture has huge potential in making unused land arable, using untapped water resources, improving yields, expanding local value chains and contributing to meeting Africa’s and the world’s increasing demand for food.
Objectives of the fund
The Africa Agriculture and Trade Investment Fund (AATIF) aims to sustainably support incomes of people working in agriculture, ensure food security and increase the competitiveness of local businesses. AATIF's mission is to unlock the potential of the African agricultural sector at all levels – production, processing, services and trade – for the benefit of the poor. The fund aims to provide additional employment and income for farmers, entrepreneurs and laborers alike. Its focus is on increasing productivity, production and local value creation through knowledge transfer and investment in efficient structures.
Deutsche Asset & Wealth Management serves as the fund's Investment Manager and also invests in the fund. The Investment Manager works closely with the International Labour Organization (ILO) and the United Nations Environment Programme (UNEP), which advises the fund on social and environmental issues.
Direct as well as indirect investments
AATIF has disbursed about USD 110 million through direct as well as indirect investments. Direct investments include financing of small and medium scale agricultural businesses along the entire agricultural value chain. Indirect investments include funding to local financial institutions which on-lend to the agricultural sector as well as other intermediaries working with smaller farmers.
A landmark transaction is the USD 21 million senior loan provided to the company Wienco Ghana which provides farm inputs and buys production from about 35,000 smallholder farmers in the cocoa, cotton and maize sector across Ghana. AATIF is reviewing the impact of this investment on smallholder farmers to learn valuable lessons and ensure success.
Effective regional solutions for food security
AATIF has also provided USD 10 million funding to Chase Bank in Kenya, in order to assist the bank in expanding its local agricultural lending. The bank on-lends the funds into the agricultural sector with average loan amounts of USD 50,000, thus supporting small and medium sized agricultural companies that had previously had insufficient access to banking services.
Innovative public-private financing structures, combined with strong social and environmental governance
Astrid Manroth, Managing Director and Fund Manager, said “Our experience in managing Sustainable Investment funds demonstrates that innovative public-private financing structures such as AATIF, combined with strong social and environmental governance, can yield market-based returns and increase household incomes in rural Africa. These innovative financing structures can be scaled up as governments consider how to meet the post-2015 Sustainable Development Goals. There is strong investor appetite and many profitable market opportunities across agriculture, renewable energy, energy efficiency, water, waste management and other areas that would benefit from blending public and private capital. We intend to expand our activities in this area.”
Structured as a public-private partnership with KfW and the German Federal Ministry for Economic Cooperation and Development
The fund is structured as a public-private partnership. Through KfW, the German Federal Ministry for Economic Cooperation and Development (BMZ) has invested in a type of shares known as C-shares. This provides public ‘first loss’ capital, which serves as a risk buffer to encourage private investment of capital by institutional and private investors through more senior share classes. KfW and Deutsche Bank are investors in the mezzanine B-shares and several private investors have invested in the A-shares.
Background of the fund
Low-income countries are largely still exporters of raw materials rather than creating value at a local level. In the African agricultural sector, there are numerous obstacles to overcome, but the sector has huge potential for reducing poverty and contributing towards improved food security. Therefore, the AATIF emphasizes generating alternative investments along the entire agricultural value chain.
“Our experience in managing Sustainable Investment funds demonstrates that innovative public-private financing structures such as AATIF, combined with strong social and environmental governance, can yield market-based returns and increase household incomes in rural Africa.”
“We were the first financial institution to draw on financing from the Africa Agriculture and Trade Investment Fund (AATIF), a development fund dedicated to promoting agriculture and trade in Africa. As the AATIF’s manager and PTA Bank’s long-term business partner, Deutsche Bank initiated contacts for us, provided us with funding on good terms and helped us to establish successful business relationships.”
Facts and figures
USD 141 million of fund assets
When the fund was launched, the Federal Ministry for Economic Cooperation and Development invested EUR 45 million, while KfW and Deutsche Bank each invested EUR 20 million. Under the administration of Deutsche Bank, this capital grew steadily. As of April 2015, the AATIF had fund assets of USD 141 million, including participation of private investors.