Business Angels: giving the African agri-food sector wings to take off?

Africa, agri-food, agriculture, Finance

- le 17 Jan 2018

Even if agriculture is a priority for Africa’s development, access to financing remains a key constraint for the sector

Access to finance in the agricultural sector is a sensitive subject, since it gets less than 3% of the total bank loans of the continent, while involving 70% of the labor force in Sub-Saharan Africa.

Producing and processing agricultural raw materials is now a priority for Africa to achieve two mains challenges: ensuring food supply to its growing population and decreasing its dependency toward external markets. Therefore, every initiative aiming at developing local economic systems and structuring the African agri-food sector should be encouraged : development of mechanization and irrigation systems, rationalization of production processes, enhancement of road infrastructures and storage… Agritech are also central to the development of agriculture and require financing as reaffirmed during the African Angel Investor Summit (15-16.11.2017).

Nevertheless, insufficient access to finance is a huge concern, especially for agricultural entrepreneurs and medium-size business, that are too large to be offered small business loans and too small to qualify for loans from formal financial institutions.

The need for equipments, storage, irrigation systems...

Business angels : alternative sources of finance in the agricultural sector

Private investment may become the solution. This funding option is more effective in English speaking countries (South Africa, Kenya) than in French speaking countries. “Angel investors” or “business angels” are a group of individuals or companies that invest their resources in companies with a significant growth potential. In addition to this capital contribution, they share their technical expertise and network, helping founders to access targeted markets.

In order to attract investors, many initiatives such as ABAN (African Business Angels Network), Cairo Angels, Cameroon Angels Network, Ivoire Business Angels… are emerging. Those organizations raise awareness and actively involve potential investors, select companies and entrepreneurs, bring them together, support negotiation over terms and conditions of the contract…

Previously attracted by oil and mining industries, private investors tend to favor investments with high social impact, especially in sustainable agriculture, green energy and health.

However, pioneer countries, such as the United States, proved that the expected outcome of private equity funds is almost always a tax benefits. Legal and financial measures are yet rather unclear in many African countries and creating a business requires heavy administrative procedures.

Let’s hope that the urge for an efficient African agri-food sector will encourage governments to quickly simplify their bureaucracy and set up attractive financial measures. Such policies would attract more “business angels” in Africa and strengthen its entire economy.