The European Bank for Reconstruction and Development’s (EBRD) head of agribusiness advisory, Victoria Zinchuk, said its agribusiness team is likely to increase its lending in Egypt as private investment in its agricultural sector increases.
“We see a lot of potential in Egypt, although we are yet to tap into this potential as the country is still a fairly new market for us. From the agribusiness perspective, […] Egypt could be a large market going forward,” said Zinchuk.
The bank made a $100 million equity investment in United Sugar Company of Egypt, a sugar refinery company owned by Saudi conglomerate Savola Group, earlier this month. Other clients include juice and milk processor and packager Juhayna, Nestlé Egypt and Medsofts, a grain importer and supply chain manager.
The focus on Egypt also has implications for the bank’s other services, such as policy advice. The bank’s food security programme, which it started in 2012, is intended to regulate the global food security and international financial investment landscape, which means taking an integrated regional approach.
“We have seen that food security can have a direct impact on the geopolitical situation in the region. For example, in countries such as Tunisia, food insecurity could trigger social, political and economic tensions. EBRD investments aim to increase food production and trade predictability in food-exporting countries and to improve import efficiency in food-importing countries, while also encouraging an enabling policy environment.
“Access to food is as an important factor in ensuring political stability, particularly after the food price crises of 2008 and 2011. A number of countries where we invest are large food exporters, while others, in particular Egypt, rely on grain imports for food security.”
The bank is also considering the export market from Egypt. The United Sugar Company investment includes $50 million of working capital to boost exports as well as local sales. The other $50 million coverts that part of its existing debt to equity, reducing the company’s foreign currency-denominated debt and shoring up its balance sheet.
Set up 25 years ago today, the EBRD channels much of its direct lending into large agribusinesses along the value chain, and its strategies vary depending on the country.
Zinchuk said the bank does not make specific allocations, either to the EBRD’s agribusiness division or within agribusiness, adding: “We invest across the entire EBRD region and provide financing to the private sector along the agribusiness value chain from farming, processing and trading to food distribution, packaging and retail.”
In some years, food processing can take up as much as 40 percent of all agribusiness lending because single investments tend to be so large, but Zinchuk also said the proportion of lending to primary agriculture has grown steadily over the years, even in countries where limited access to land titles make lending to farming businesses tricky.
“In some countries where we invest, land ownership is a challenge that impacts farmers’ ability to access financing. For various historical reasons, in many countries the process of land liberalisation and establishment of defined property rights over land has been ongoing for some time, with mixed results achieved to date.”
But for the most part, the EBRD is lending to agribusiness companies, including at the processing level, as it is already doing in Egypt.
In the 25 years since the EBRD was established, the agribusiness unit has gone from dealing only with foreign direct investment and sovereign lending, to providing policy and business advice to a roster of private lending clients. Its agribusiness lending peaked in 2011 at €940 million, during the European debt crisis, and is expected to total around €800 million this year, about 8 to 10 percent of its total lending. Zinchuk said the bank had tackled “the chronic lack of capital in the agribusiness sector”.