I've seen a fair bit of talk of late on the need for increased microfinancing tools to support Africa's agricultural growth but I'm not convinced that this is a sustainable way forward. The default mechanism of microfinancing is somewhat challenged not to mention very costly. While it does act as an important tool in the overall mix of tools to support poverty eradication efforts, it has proven difficult to measure the actual impact of microfinance on poverty.
I believe this model of financing opens doors in that it allows poorer communities in Africa to enter into some form of micro-business, but it does not do much to sustain them once they grow beyond the threshold of microfinance. There is a large gap in mid-tier credit financing to help them take their businesses further. Many do not survive. This is a heavy cost on governments and funding institutions because they have inadvertently depleted scarce resources into unproductive micro-enterprises that have little to no impact on a nation's overall economic productivity and transformation.
I'm not saying that micro-financing should be ruled out entirely. On a community level, and with proper control measures, microfinancing schemes that bundle other services such as insurance, savings and interest-earning facilities can make a difference to whether a family eats or not. But the buck cannot stop there. We as Africans need to look at the bigger picture and consider how we can support micro and small enterprises in Africa throughout the entire African agribusiness value chain.
In its 2010-2014 Agricultural Sector Strategy report, the African Development Bank noted that agriculture supports the livelihoods of 80 percent of the African population, provides employment for about 60 percent of the economically active population, and for about 70 percent of the poorest people on the continent. It also estimated that the agricultural sector in Africa would require an additional financing of US$4.9 billion annually. Just take a moment to consider the potential here.
Young Africans are shying away from agribusiness, choosing to focus on the urban markets, which are bursting in the seams and becoming increasingly saturated in terms of job prospects. There are tremendous opportunities to create thriving, sustainable businesses in the agribusiness sector, ranging from agri-technologies, transportation, and retail marketing.
African investors should consider how they can support these financing requirements to enable young farmers and rural communities to take advantage of the opportunities arising along the African agribusiness value chain. This goes beyond the realm and reach of microfinancing.
Young Africans with technical and vocational know-how must aggressively focus on building the entrepreneurial skills of young farmers by providing training and support. I often receive requests from innovative Africans wanting to support my endeavors to create an innovation ecosystem in Africa by lending their technical expertise. We need more of these forward thinking Africans to fuel the system.
Africa's farming communities are not yet entrepreneurs, but with focused investment and support, they are our biggest untapped asset. My gut feel is that 2015 will be another year of great transformation for the African continent, with our agricultural sector making great headway.