Africa needs fertiliser credit guarantees to limit price-shock impact

In depth
This article is part of the dossier: Africa must invest in Africa

By David Whitehouse
Posted on Wednesday, 8 June 2022 06:00, updated on Tuesday, 14 June 2022 12:25

Kenyan entrepreneur turns farm waste into low cost organic fertilizer in Mwea
A farmer in a paddy field in Mwea, Kenya April 6, 2022. REUTERS/Thomas Mukoya

The fertiliser price shock triggered by the Russia-Ukraine war highlights the need for a continent-wide system of credit guarantees, Michael Sudarkasa, CEO of the Africa Fertilizer and Agribusiness Partnership (AFAP), tells The Africa Report.

The war has contributed to a “bottleneck in both food and fertiliser supply,” Sudarkasa says from Johannesburg. “If you don’t get the fertiliser, you won’t get the yields.”

AFAP, an independent non-profit organisation, works with the African Development Bank’s Africa Fertilizer Financing Mechanism (AFFM). The AFFM provides country-specific credit guarantees in some African countries, but the program for Nigeria expires in July. Getting that renewed is an urgent priority, Sudarkasa says. “Speed is of the essence.”

Aliko Dangote in March opened the continent’s largest fertilizer plant in Lagos as global prices climbed. The $2.5bn urea and ammonia fertilizer plant has the capacity to produce 3 million metric tons of urea yearly. Analysts have questioned how long the plant will take to reach full production.

Meanwhile, global suppliers remain cautious about supplying fertilizer to Nigeria and  the rest of Africa due to the sub-optimal scale of supplies required by small farmers and concerns over ability to pay, Sudarkasa says.

A number of institutions are looking to assist, including Afreximbank, the US International Development Finance Corporation and the European Investment Bank, Sudarkasa says. Even an investment of $5m to $10m in the form of a credit guarantee would achieve strong leverage in Nigeria, he says. “That would unlock some of the reluctance of traders and manufacturers to provide fertiliser” to the Nigerian market.

Sudarkasa aims to build a pool of capital which would enable AFAP to set up credit guarantees for fertiliser in more African countries. About 45 African countries don’t have them, meaning “many of them are outside anyone’s purview.”

  • An investment of $200m would accelerate the flow of fertiliser across the continent, Sudarkasa says.
  • Priority countries where there isn’t a credit guarantee system include Zambia, Kenya, Ethiopia, DRC and Côte d’Ivoire.

The right blend

AFAP was founded in 2012 with support from the Bill & Melinda Gates Foundation, and has a customer base of 7.5 million smallholder farmers. One of its original aims was to increase the capacity of fertiliser trading intermediaries to operate at scale and so reduce costs for small farmers. The operation, which specialises in last-mile logistics and derisking for fertiliser purchases, is present countries including Nigeria, Ghana, Mozambique, Malawi, Uganda and Tanzania, as well as South Africa.

Credit guarantees alone won’t fix the bottleneck. Legislation is needed in some countries to allow inorganic fertilisers to be mixed with organic ones, says Sudarkasa, who helped to put in place a blending policy in Nigeria.

  • Governments need to do more to ensure quality checks on products, and more testing facilities are needed, Sudarkasa says.
  • “The farmer is relying on the government” to ensure that the fertiliser does what it says on the label.

Bottom line

Fertiliser credit guarantees could have a rapid impact in limiting the impact of the global food price shock in Africa.

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