•Agribusinesses are still facing high operation costs driven by fuel prices and low profit margins driven by currency devaluations.'
•A further 24 percent reduced on operational costs, 32 percent reduced on staff to cut costs, 35 and 47 percent of businesses Injected more capital in the business and Adopted a new strategy respectively.
Image: JOHN KAMAU
The lack of agriculture-friendly financial systems saw agri-businesses reject costly finance options in the market, with only 15 per cent taking on commercial capital in 2023, a report indicates.
The rest are sourcing finances from friends, family and dipping into their business savings, the report by Alliance for Green Revolution in Africa (AGRA) has revealed.
This comes as the incentives by the government channeled towards agriculture failed to adequately cushion agri-businesses from economic shocks.
The report titled 'Africa Agri-business Outlook' comes from a survey conducted annually, to gain insights into the sector’s top priorities, how they are addressing challenges and what SMEs see as opportunities.
A reflection from the agri-businesses' performance demonstrated that the most effective actions taken by governments in sub-Saharan Africa were to reduce the cost of doing business, through tax reductions and tax incentives.
However, agri-businesses are still facing high operating costs, driven by fuel prices and low profit margins as a result of currency devaluations.
For instance in the review period, six per cent of the agri-business SMEs re-negotiated supplier contracts and payment terms while 10 per cent moved premises to a cheaper option.
A further 24 per cent reduced operational costs, 32 per cent reduced staff to cut costs, while 35 and 47 per cent of businesses injected more capital and adopted a new strategy, respectively.
Industry players now say the sector would benefit from improvements in the areas of the less formal non-tariff barriers, that increased the cost of business and in strengthening cross-border regulation and facilitation to allow for export trade.
“So far there has been progress made in improving access to finance through several blended facilities and capacity building of businesses to improve the bankability of agri-businesses,” said AGRA head of partnerships, Jennifer Baarn.
The strongest call from agri-business across the polled markets continues to be finance, in particular the cost of the finance.
Businesses opted not to access credit facilities from lenders due to high costs and only got attracted where incentives and discounts were involved.
Capital injection was seen as a major strategy that agri-businesses used to survive and it continues to be core to business operations, with less than 15 per cent taking on commercial credit finance over the last three years due to the costs.
“CEOs adopted pivotal strategies to remain resilient. These included injecting additional capital into their businesses, reorganisation and redeployment of human capital, and in some cases relocation of their businesses,"the report reads in part.
AGRA says that as opportunities continue to emerge for expansion of trade markets through the Africa Continental Free Trade Area and Export Processing Zones, agri-businesses require stronger market visibility systems.
Some of the CEO’s suggestions include the establishment of more digital marketplaces for market expansion, end-to-end supply chain digital platforms for visibility, e-finance as a way to reduce the cost of transactions, and digital extension to improve farmer productivity amongst others.
Agri-business CEOs prioritised an enabling business environment with better policies, reduced regulatory costs and bureaucracies, and government support or protection against globally driven constraints– fuel costs and currency devaluations.