Beyond the immediate toll on African economies, Covid-19 has triggered critical innovations and breakthroughs whose benefits will outlive the pandemic. In a conversation hosted by AZA between leading experts on the continent, we explore a year of rapid development from finance to farming.
How serious is the post-pandemic crisis in farming and what do solutions look like?
Dimieari Von Kemedi
Co-Founder and Managing Director, Alluvial Agriculture
Alluvial is engaged in a program to tackle root causes of hunger and poverty through a $20.4 million commitment by the Mastercard Foundation that will support more than 3 million people in sub-Saharan Africa over the next two years and directly benefit 65,000 farmers through quality land, seeds, fertilizers, mechanization, and storage.
“When you look at the price of various grains right now in the market, it is really, really scary. You wonder how people are managing. Paddy rice, for instance, right now is over 200,000 naira per ton, up from about 120,000 last year. That’s a very significant increase in price, which will be passed on to consumers at the end of the day.
There has not been as much farming as last year because of supply line challenges, particularly around the inter-states blockades in March and April, which was in fact the most critical period for transporting equipment and inputs to farmers. Even though special dispensation was given for agricultural inputs, challenges were unfortunately still experienced in places like Kebbi, that are very central to rice production in Nigeria.
Fertilizer is one critical category of inputs. Not all the components of fertilizer are made in Nigeria and there was a fear that there might not be enough fertilizer. I think the government did a great job in coordinating with fertilizer blenders to make sure that fertilizer was available, however it was not available for the advertised price, so that impacted on farmers.
Seeds are the other category of inputs that needed to move to farmers and were impacted. What that means is that some farmers will simply plant the grains from the previous year, which they normally do anyway, but this year they will have had to do more of that, and this will impact on yields.
While Covid-19 impacted farmers, this has been a very difficult year for farmers for other reasons too. Let’s not forget that this year serious floods also impacted in some places as well as drought. In some parts of the south west of Nigeria there were almost 50 days of no rain and this happened shortly after people had planted. Now, we are in November, and the rains are still not coming as they did last year.
One of the things that we found out recently, when I was in Niger state, in one of the communities, is that the farmers used to lease their land in the dry season to people who come from other parts of the country. But now they want to go back to planting in the dry season, and the reason is that the rainy season is no longer predictable: it either comes with drought or it comes with floods, so they want to gain more certainty by using tube wells to provide water for their crops.
I really salute the farmers who are using these relatively inexpensive tube wells as a method to prepare for the dry season. If Nigeria is to survive the coming food crisis, we really need to plant massively during this dry season and, unfortunately, dry season farming requires a little bit of infrastructure, which is expensive. It takes time to put in place as well.
The involvement of digital payment systems is another critical innovation. A farmer who plants only one hectare of rice is looking at revenue of about 600,000 naira, maybe 700,000. That’s well over US $1,000. But she is very eager for the payment to come immediately, so she takes the rice paddy to the market. Typically when you are transacting in volumes, you can’t use cash. At the same time, even if the farmer has a regular bank account, you can’t pay into a bank account that quickly. That’s where the digital channel comes in, even for farmers that have bank accounts. You are able to pay farmers very quickly without needing to issue checks to them or instructing the banks to manually pay the farmers, which can keep the farmers waiting for as much as a week, not because the money is not there but because there is a long line of farmers that need to be paid.
As part of our partnership with Mastercard Foundation, we are developing jointly with Mastercard Farmers Network a payment system that can take care of those who only have phone numbers, without a bank account, and also those who have accounts in various banks. Hopefully before the end of December we will have that system ready.
Food waste is another very critical issue. Sometimes people describe it as the post-harvest problem but actually it is a supply chain issue. It is critical that smallholder farmers, who are responsible for more than 90% of food production in the continent, are fully linked with the processors and the market. This can be enhanced by digital solutions. Sometimes people say, because of the low rate of numeracy and literacy in Africa, that it’s very difficult for digital solutions to be as successful as in other parts of the world. Yes, it is a challenge, but it can be addressed.
At Alluvial, for instance, the method by which we have been able to work with large numbers of farmers is by creating what we call community blocks. Each block consists of a minimum of 500 farmers. That means that you are able to bring 500 farmers, even 1,000 farmers, as a block into a supply chain, and it will not be relevant whether every one of these farmers can operate a sophisticated app; you are able to then link them up to that supply chain.
As part of our collaboration with Mastercard Foundation, we are also building a digital extension service to reach 1 million farmers in Nigeria alone. It helps the farmers through USAID to access basic information. We are not trying to provide all the information in the world but the most essential information for the activities of the farmers.
Overall, our project will produce 260,000 tons of grains to add to food security in Nigeria. That is a very significant number. That is about 8,666 30-ton truckloads of food that this project will be producing directly. It will yield revenue of US $72 million to these 65,000 farmers collectively. It will also bring them financial inclusion because the project enables: we are registering them with banks so the banks can see that they are able to execute and that the farmers are able to make a tiny repayment, which builds a comprehensive credit history for them in readiness for the post-Mastercard phase. In fact, we will soon be announcing, actually much earlier than I expected, that the financing is already waiting for the farmers after this Mastercard Foundation catalytic stage.”
What do post-Covid food security and economic resilience programs look like?
Lois Sankey
Program Lead, Agriculture, Mastercard Foundation
The Mastercard Foundation works with visionary organizations to enable young people in Africa and in indigenous communities in Canada to access dignified and fulfilling work. It is one of the largest, private foundations in the world with a mission to advance learning and promote financial inclusion to create an inclusive and equitable world.
“Channeling our support through partners like Alluvial enables us to help provide very critical inputs to farmers. Our support is geared towards aggregating as many young people as possible, attracting them to agriculture, which provides a means of employment, engaging them, also preventing them from being distracted into insurgency and banditry, etc. It serves as a very, very good platform for us to support the overall drive towards security, towards job creation, for young people especially, and women in particular.
Our target for Africa is 30 million jobs, and Nigeria’s share is 10 million out of that over the next nine years. That gives us a target of about 1 million jobs per year for Nigeria, and agriculture is to contribute 70%.
Practically what happens is that Alluvial is going to be aggregating and working with 65,000 farmers across over eight states, and across three value chains: rice, corn and soy. Rice is a food security value chain, soybeans is a feed value chain, corn crosses both food and manufacturing, so these are very valuable value chains. If we are able to impact through Alluvial alone 65,000 farmers, pro-rate this, give them inputs—mechanization for their farms, pesticides, etc.– then the market is guaranteed. These farmers don’t need to go anywhere; Alluvial is going to organize everything as an end-to-end intervention from land preparation to inputs, to capacity building, to market.
This takes care of a lot of things. In addition to that, we are also infusing financial inclusion methods into this, so Alluvial is working with another partner to bring in wallets that will incorporate these farmers into the financial system. So, it is very practical, it is hands on and it is end-to-end. At the end of one season, any of the farmers that have been covered under that platform would have been properly structured to be able to stand on their own for next season. And then you move on to the next group, and this then creates a ripple effect in the value chain and in the ecosystem.”
What are the post-pandemic challenges to cross border payments and what do solutions look like?
Sukhi Srivatsan
Head of Inbound, AZA
AZA is Africa’s biggest non-bank currency broker, transacting more than $1 billion annually
“Our role is to help businesses with their cross border payment needs, especially at a time like this, with the global pandemic. The first thing has been to prioritize what payments are most important for our businesses. Medical supplies, emergencies, food security: all of these are extremely critical, so we’ve adapted and prioritized these payments for our businesses. The second thing is being flexible—working out our customers’ needs, so if there is a business that had a different type of purpose or type of payment in the past and now they’ve come with a new document or a new compliance requirement that they need in order to make a different kind of payment, we have to adapt our framework of compliance and treasury and liquidity and see how we can fit the customers’ needs. And the third thing is innovation, how do we innovate in this space after we’ve secured these first two very basic fundamental approaches? How do we get better at cross border payments?
An area that we’ve seen really being adopted and picking up in the last eight months since the pandemic officially started is digital payments. We’ve seen an uptake in a lot of businesses asking for digital methods of payment because they simply can’t go to a bank branch in person and get a payment done, so they are looking to more of the online methods versus the traditional methods that they were used to. What has really happened is that innovations have accelerated and it’s helped us all to think in a different paradigm.
In the financial arena particularly, innovation must go hand in hand with regulation. You have to really understand local regulations and work with what the central bank is bringing to light every day. For us, at AZA, it’s about always keeping an eye on what that local regulator is saying or doing and making sure that we respect those guidelines. What we are trying to do is offer some innovative solutions, digital solutions, but do it within a framework that’s acceptable. We have a dedicated treasury team and a risk team that looks at this every day and builds our model based on what the local regulators are saying and doing. We always have to keep that in mind, but I think there is still plenty of opportunity to innovate within an ever-changing regulatory framework, and it goes back to my point about flexibility. We have to adapt not only with what our customers are asking for, but we also have to adapt with the wider environment and with industry.
We have technology that can accommodate business-to-consumer payments or business-to-business payments. What we’ve done with this API is to evolve it over the years. We’ve taken feedback from our customers, we’ve taken feedback from partners, and we’ve developed features on the API that make it more usable and friendly. It accommodates different types of payment needs and flows.
One of the things fintechs could do a lot better and continue improving on is really understanding a business’s true problems and their needs, and listen very carefully to what the exact issues are. Sure, we can solve a problem at hand—how you make this cross border payment—but there are usually several layers in how we can solve a problem on a broader scale, and to really achieve that, fintechs I think need to listen, partner and interact. We need to work across the fragmented systems in each country but also work with the regulators and with the banks to grow the ecosystem.
One of our focuses for the next 12 to 18 months is to really figure out how much interoperability can take place, particularly in the francophone west Africa region. We are putting a lot of infrastructure and effort towards that.”
How serious is the post-pandemic crisis in Africa and what do solutions look like?
Ibrahim Sagna
Global Head, Advisory and Capital Markets, Africa Export-Import Bank (Afreximbank)
Afreximbank is a Pan-African multilateral financial institution with the mandate of financing and promoting intra-and extra-African trade. Afreximbank was established in October 1993 and owned by African governments, the African Development Bank and other African multilateral financial institutions as well as African and non-African public and private investors.
“What we need to realize collectively is that on the continent, we had been expecting a severe health crisis that would have triggered a mild financial crisis. We eventually witnessed a severe financial crisis despite a mild health crisis.
We have seen 41,000 deaths across Africa. Once divided across 54 countries, and if you compare this to any other country, then one realizes that the continent was a lot less impacted than others. The continent’s leadership has shown a great example. As a geography and as individual countries, the picture is much better than predicted. I do not think there is any other continent that has sustained this health crisis in the way we have, and we should all be proud of the actions which enabled such a result.
While the health crisis was mild, the downside of the story is the severe financial crisis. In terms of projections from the IMF, GDP numbers compared with January have divided by three in a few African countries. That is not a decrease; that is a collapse. In light of that, it is important to realize that working capital has been – and will continue to be – an issue across industries and across sovereigns in Africa.
What we need to remember is that the continent has effectively two types of countries: export oriented countries and non-export oriented countries. Many of the non-export oriented countries, fundamentally, are relatively poor and those that are not poor are reliant on the informal sector. The informal sector was observing locked down. When on lockdowns, there is no activity. When there is no activity, there is no revenue. When there is no revenue, there is scarcity. When there is scarcity, there is a working capital issue with individuals and with the sovereign. And that is what we’ve been assisting with, providing record levels of financing lines to many of these countries that are member shareholders of our bank. The other segment of the continent is the export oriented countries. For these countries, trade froze, commodity prices collapsed, revenue disappeared. So, the same issues that the other segment of the continent faced, these countries also face. We’ve seen their GDP collapse; they could not export, there was sudden crash of revenues. We had to provide similar assistance as well. DFIs like ourselves must be constantly ready with counter cyclical products to rise to these challenges.
Across the continent we have witnessed disproportionate levels of dislocation— individuals, companies and sovereigns were all affected —and what needs to happen is really innovative ways to solve the upcoming challenges. As you have seen with the health crisis, the continent is resilient, and more and more, with free trade, the continent is realizing that it is crucial to have solutions from the continent—stop trying to find health solutions by going overseas, stop getting manufacturing products from overseas: the resolution for sustainability is intra-African trade. Our path forward is to be less reliant on import from a soil that is not yours, our path forward is to find the solution at home; it is having home born solutions, and this is exactly what is going to occur. This will be a critical part of building a truly African millennial. What you observed in Asia in the past 60 to 70 years is about to happen on our continent, and a crisis like this serves ultimately as the foundation cement to get that result.
A crisis is always an opportunity for innovation irrespective of the industry. It is in times of constraints that human creativity rises to the occasion. At our own level, we innovated both to prevent the financial crisis and to improve the health situation.
To fight the financial crisis, our bank loan disbursements in 2020 are 50 percent higher than in 2019, with PATIMFA disbursements, including refinancing, amounting to US$4.38 billion. Under the leadership of President Oramah, our balance sheet has now crossed the US$19 billion mark. We have made partnerships with the International Islamic Trade Finance Corporation (ITFC), the trade finance arm of the Islamic Development Bank Group, and the Arab Bank for Economic Development in Africa (BADEA) to launch a USD 1.5 billion collaborative Covid-19 Pandemic Response Facility (“COPREFA”) to support African economies with rapid financial assistance to reduce the impact of Covid-19. Combined efforts between ourselves and other DFIs across the continent have eased and smoothed the downturn of the pandemic. We have collaboratively stopped investors’ confidence from falling apart. Apart from Zambia, there have not been any countries that have defaulted. Today, the trend has stirred away from markets collapse, and shifted towards markets recovery.
To further prepare the continent for future financial crisis and to transform the continent’s financial architecture, we launched the anticipated Pan-African Payment and Settlement System (PAPSS). It is sponsored by Afreximbank in collaboration with the African Union and some African central banks. PAPSS enables payments for intra-African trade to be made in African currencies. It brings two critical changes to Africa’s trade finance: minimizing the use of hard currencies in trade payments; and domesticating payments and settlements within Africa. PAPSS will help traders and their financiers manage currency risks better.
To improve the health situation, we launched the African Medical Centre of Excellence Project (“AMCE”). A project aiming to establish a world-class medical and healthcare facility in Africa, to promote development of healthcare facilities, enhance service exports and conserve Africa’s foreign exchange. The (“AMCE”) is expected to have a major impact in Africa by reducing the foreign exchange cost incurred by Africans through traveling outside to seek medical care by keeping medical tourism within the continent. Moreover, the Africa Quality Assurance Project, the (“AQAC”) initiative, was developed by Afreximbank to facilitate the establishment of internationally accredited centres that offers testing, inspection and certification services to enable African producers to meet international standards and technical regulations required at export markets and to ensure the safety of the products for domestic and international consumption
We also teamed up with UNECA and the Africa CDC and our consortium launched emergency interventions to provide a rapid response to create the needed capacities within Africa to produce critical medical supplies to combat Covid-19. Through this initiative, the bank identifies and supports African manufacturers, suppliers, and importers that can produce and supply foodstuff and priority healthcare needs, including pharmaceuticals and medical supplies. The bank has committed US$200 million in support of this initiative, to ensure that the products manufactured by African suppliers are competitive. To qualify for support under the initiative, companies must be registered in Africa, and production must meet a minimum of 35 percent African content. Companies owned by women were actively encouraged to participate. As at the end of May 2020, the bank received 600 applications and offers were made to 48 entities. Several governments have highlighted limited access to critical medical supplies and heightened logistical hindrances as prime challenges in battling the pandemic as increased demand drove global prices upwards.
Our consortium joined forces with another one led by Econet Group to develop and deploy an electronic platform operated under the auspices of the Africa CDC. The platform uses the principle of pooled procurement to ensure that all African countries, irrespective of size, pay reasonable prices for the supplies. To support the African suppliers, some products on the platform can only be listed by suppliers based in Africa. The bank also provides a platform for payment through the platform.
Besides our own interventions as a bank, we were pleased with some great developments arising on the crucial cross borders, transport, and logistics side of the equation. The overseas investments into a company in Nigeria called Kobo360, which is serving as an Uber for trucks was a welcome development. There is another company operating the same space called Lori operating both in Nigeria and Kenya, and which is also commanding more investments from international investors. In the payments space, you have a company called PayStack and InterSwitch which each managed to get significant equity investments from the global leader in their respective industry segments.
At the height of this crisis, there were phenomenal stories. What we are observing is the change of behavior—and that’s what a crisis is for. It offers a shake down. It allows individuals, an institution, a nation to look inward and seek a new path, to change old habits and find new directions. What we are observing in our space is leading financial institutions like ours collaborating with others to create new platforms, and we are bound to see more of it, especially among DFIs.
However, we must all remember that when you solve the problem of liquidity, improve medical readiness, digitize the infrastructural landscape, the pending issue remains the actual procurement and movement of goods. Africa has the most landlocked countries. The cost of moving things from one border to another tends to be about 150% more than in other geographies. In terms of time, we remain the permanent champion geography where it takes the most time to move goods. So, as a bank, we are doing some programs around cross border trade, providing some guarantees, we have some trade facilitation within our intra-African trade program. We continue to invest in roads and rail projects across Africa, and are investing in a cross border infrastructure project named ZimBorders, a project backed by leading African PE investors at the border of Zimbabwe and South Africa. In our view, these initiatives are really critical to shift the outcomes. In order to change the continent, we need to recognize the wide set of digital opportunities but also remember to address legacy challenges we face at the intra African levels and try to solve them making effective use of the upcoming continental free trade.
