EU unleashes private investment in African agriculture with €200m ABC fund

Brussels will inject €45m as well as attract private and impact investors.

The EU is stepping up efforts to catalyze public-private investment in African agriculture with the launch of the Agri-Business Capital Fund that has a €200 million target.

The vehicle, which will receive €45 million via the European Development Fund (€40 million for risk capital and €5 million for the Technical Assistance Facility), was announced  by the EU and the International Fund for Agricultural Development in December. The Luxembourg government and the Africa Green Revolution Alliance, an international non-governmental organization, will also contribute €5 million and €4.5 million, respectively.

Formal targets are yet to be announced, but the European Commission estimates the vehicle will reach €200 million when funding from private and impact investors is included. The blended finance impact fund will be aimed at increasing agriculture smallholders’ access to finance through loans.

Funding from the anchor investors will be structured as first loss equity piece to de-risk investments and leverage additional funding allocated to mezzanine and senior tranches, Agri Investor has learned. Expected rates of return are estimated at 3 to 5 percent for mezzanine and 2 to 3 percent for senior debt, with first loss capital being preserved in the fund and absorbing any losses.

IFAD will contribute €3 million to the Technical Assistance Facility, which will offer business development or advisory services linked to investments from the fund, an EU official told Agri Investor. Agriterra, a private sector organization for international cooperation, will lead the Facility, working with Rabobank Partnerships.

Private equity firm Bamboo Capital Partners and investment advisor Injaro Investments have been selected to manage the vehicle, which was established as a private sector fund incorporated in Luxembourg in early February.

A first close is expected up to six months after the open-ended funds’ first close launching period on February 15 at IFAD’s annual meeting on rural innovation in Rome with Pope Francis, said to be a fan of impact investing.

The fund targets the lower end of ticket sizes and the “missing middle” – clients that require investments of less than $1 million and have the potential to be profitable but lack funding due to investor risks, the Commission said.

There will be a mix of direct debt financing and financial intermediation, as well as equity investments, IFAD added. Direct investments have a ceiling of up to €1 million, an official said. Both loans and direct equity investments will be possible.

Investors have welcomed the fund. Gautier Quéru, investment director at France’s Mirova, the sustainable investment affiliate of Natixis Investment Managers, said: “The ABC fund is good news and we welcome the initiative. Co-ordinated actions by public and private institutions are needed.”

The fund forms part of the Africa-Europe Alliance for Sustainable Investment and Jobs, launched last year, which aims to create 10 million jobs in Africa in five years. Farmers’ groups and small and medium-sized enterprises are being targeted in Africa, the Caribbean and Pacific regions. The emphasis will be on projects focusing on young people and which respect high social environmental, governance standards. Examples include cold storage refrigeration for fresh produce.

Task Force

The EU’s Rural Africa Task Force is part of this Alliance, which will give recommendations to the Commission on how best to develop Africa’s agriculture, food sector and rural economy by March this year.

The draft recommendations, presented at the High-Level Forum Africa Europe in December, also put a focus on increasing private investment in African agriculture. Sufficient resources to the agriculture window of the European Investment Plan must be allocated, they said.

The EIP is an EU initiative designed to attract more investment, especially from private investors, into Africa and countries near the EU. It includes a €1.5 billion guarantee, with the aim of having 20 percent of the guarantee used in agriculture, the Commission said.

Commenting on the recommendations, member of the Task Force and managing director of Agriterra, Kees Blokland said: “Investment is stepping up in Africa but there needs to be more opportunities for companies to invest, to promote more active engagement”. Jordan Broadbent, business manager at Shell Foundation, a charity aimed at helping low-income communities, added: “It will be interesting to see the report when it’s published later this year. The intention to improve access to private finance and to EU co-operation instruments for small and medium-size agriculture and food businesses is certainly welcomed.