The need for innovative financing mechanisms for Africa’s farmers is becoming increasingly urgent as the continent faces challenges such as climate change, low productivity, and conflict, according to African Risk Capacity (ARC).
At the 10th African Regional Forum on Sustainable Development (ARFSD), experts urged policymakers to assess farmers’ needs and improve access to funding to meet the Malabo Commitment to end hunger by 2025 and achieve the Sustainable Development Goals (SDGs) by 2030. Key strategies include collaborative efforts, private sector engagement, and strategic partnerships.
The ARC highlights the significance of Africa’s agricultural sector, which provides 70% of the continent’s food supply. However, it is under threat from increasing extreme weather events caused by climate change, leading to soil degradation. This degradation costs farmers up to $1,400 annually and has affected 65% of Africa’s soil, upon which 83% of sub-Saharan Africans rely for their livelihoods.
Addressing these challenges requires significant investment, yet investor caution and funding obstacles persist. Overcoming these hurdles is crucial for achieving agricultural transformation and food security outlined in the African Union Agenda 2063.
The Russia-Ukraine conflict, increasing global food insecurity by disrupting Ukraine’s agricultural exports, presents an opportunity for Africa, according to ARC: “By improving yields and insuring them against climate risks, African farmers could help close the gap, unlocking immense economic growth and development potential. Tapping into finance would also help farmers expand into the 60% of arable land that is still uncultivated on the continent.”
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Under the Comprehensive African Agricultural Development Programme (CAADP), African governments aim to allocate 10% of national budgets to agriculture and rural development, but more may be needed.
Governments could also help by subsidising climate insurance to encourage investment, with private sector involvement crucial for driving innovation and addressing industry challenges.
ARC Ltd., the financial arm of the ARC Group, demonstrates the impact of addressing farmers’ needs and forming strategic partnerships. The company offers micro and meso insurance products to small and medium-scale farmers, protecting assets and income from droughts and other risks. By insuring banks against defaults during severe weather events, ARC Ltd. enables more lending to farmers for productivity and income growth.
Lesley Ndlovu, CEO of ARC Ltd., states, “There is no story that can be told about African development without taking into account agriculture and the need to protect investments in the sector.”
Moreover, ARC Ltd. has been involved in various projects across Africa to expand climate insurance and benefit African farmers.
ARC Ltd. has also partnered with the US Government (USG) on an $11.7 million project to protect vulnerable smallholder farmers and African governments against climate risks. Ange Chitate, Project Head and ARC Ltd. Chief Operating Officer, explains, “Our priority with this grant is to provide coverage to 19 states.”
Chitate adds, “With the support of the USG, we will be refining and developing innovative products to meet the evolving needs of these countries.”
Future plans involve developing tailored micro and meso insurance for diverse beneficiaries, including pastoralists and humanitarian organisations.
ARC concludes, “With escalating climate risks, innovative financing solutions like parametric insurance have significant potential to safeguard farmers’ livelihoods and drive development across the continent. Increased awareness and understanding are essential to encourage uptake. More investment in this space and policy reforms are also imperative to scale up climate risk management strategies and to empower Africa’s farmers.”
