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Agric in Ghana: Financing challenges and remedies

Ghana’s agriculture sector is seriously under-resourced. According to the World Bank, agriculture (value addition) contributed 20.71 per cent to Gross Domestic Product in 2014. The agriculture sector in 2010, contributed 29.9 per cent to GDP; in 2011 it declined to 25.6 per cent, dipped to 22.7 per cent in 2012 and further dipped to 22 per cent in 2013. The sector makes significant monetary contributions to the local economy but analysts believe it can do more if the necessary funding support is given to the sector players which is lacking at the moment. According to the World Bank, the United States of America, agriculture’s share of the GDP which was 1.1 percent was about 16 trillion dollars in 2013. This significant gain is mainly attributed to the effective policies in place which makes funding accessible to farmers and all stakeholders involved in the agriculture value chain. Is it a case of Ghana making significant strides in the service and industry sectors at the detriment of the agriculture sector? The Ghana Statistical Service (G.S.S) estimates that the agriculture sector will grow at an average of 3.3 percent between 2016-2018, this is clear evidence of declining sector as services and industry sectors knock agriculture from it long held position as being a significant contributor to Ghana’s GDP.

The total expenditure by government in the agriculture sector for 2016 was cut by GhC40 million despite the sector’s decline growth of 0.04 per cent and this was gathered during the 2016 budget reading by Seth Tekper-Finance Minister. With a growth target of 3.6 per cent much needs to be done to achieve this and analysts believe slashing the budget for agriculture is not the right move to make. 

Most of Ghana’s agriculture activities are subsistence with little or no funding support from government or the private sector. Land acquisition, poor irrigation activities, access to fertilizers and farm implements, access to markets and storage facilities and post-harvest loses are the problems effective funding can solve in Ghana’s agriculture sector. 

How do we fund agriculture in Ghana?

• Banks and other financial institutions

Much of the lack of credit facilities for our local famers and players in the agricultural sector can be attributed to liberalization in our banking sector which has seen some more entries in the banking sector but with little or no support for the sector. The risk involved in the agriculture sector coupled with the uncertainties makes the sector unattractive to the banks to grant credit facilities to farmers. 

The Agriculture Development Bank a wholly-owned indigenous bank was established in 1965 to provide credit facilities for the development and modernization of agriculture and allied industries. ABD asserts it contributes about 85% of the paltry total institutional credit to agricultural sector. ABD as a government institution should focus on providing credit facilities to the sector and its allied institutions. Government through the Ministry of Finance should create a special fund at ADB which should specifically go to support farmers and other stakeholders looking for credit facilities. Overall, the problem with agriculture financing should not be ADB’s fight to fight alone; other banks should be encouraged through agriculture financing policies to bridge the gap. Ghana Commercial Bank and Stanbic Bank in have been commended for doing their part in this regard. 

 The risky nature of the agriculture business can be minimized if the financial institutions don’t just give loans but build the capacity of the farmers in making good use of these loans. 

The capacity of finance managers of these finance institutions should also be enhanced to handle credit facilities to farmers. An extensive education on the agribusiness in Ghana should be considered for department members and heads in making available credit facilities for farmers. As a policy the Bank of Ghana should now be granting licenses to financial institutions who are venturing into agriculture finance. Rural and Community banks should be encouraged to make a good percentage of the businesses agriculture-inclined.

• Revenues from oil 

The Petroleum Revenue Management Act 815, Annual Budget Funding Amount (ABFA) is supposed to be expended on these four priority areas, namely; 

1. Roads and other infrastructure 

2. Agriculture modernization 

3. Expenditure and amortization of loans for oil and gas infrastructure 

4. Capacity building including oil and gas 

In 2015, with the total allocation of GhC1 billion, agriculture had the least share, falling behind capacity building. Many argue we either risk or are risking being affected with the Dutch Disease if we don’t pay close attention to the decline in the agriculture sector. The Petroleum Revenue Management Act is a good move but much needs to be done for agriculture to grow. Fishing which is part of agriculture can be supported solely with the funds from agriculture’s share of the Petroleum Revenue Management’s Annual Budget Funding Amount (ABFA). This will help the sector grow and the other sectors of agriculture will be supported through other schemes. 

• Private Public Partnerships (P.P.P)

The Ministry of Food and Agriculture (MOFA) and the Agriculture Development Bank have expertise in the sector and that should be brought to bear on deliberate partnerships with other stakeholders in the private sector involved in the agriculture sector. These collaborations should aim at leveraging the expertise of all stakeholders in making credit available for famers and allied agriculture stakeholders who need funding.

African Agriculture Fund for Small and Medium sized enterprises (AAF-SME) has been launched for sub-Saharan Africa. It’s a private sector led initiative aimed at addressing the funding challenges faced by farmers in sub-Saharan Africa.  The first phase has a target to raise US$30 million in private equity through a new Databank subsidiary called Agrifund Manager Ltd to be invested in primary agriculture, agro-processing and animal feeds as well as services and infrastructure such as storage, fertilizers and other inputs. Importantly, 25% of the fund will be invested in primary agriculture. The fund is being raised in two phases and by the end of the second phase some US$100 million is expected to be raised. It is part of a pan-African fund promoted by Phatise, it is ultimately targeting a total of US$300 million for investment across west, east and southern Africa. These private sector led initiatives should be supported and tapped into by government for farmers. 

Sustainable Development Goal Two aims at ending hunger, achieving food security and improving nutrition, and promoting sustainable agriculture. This is achievable if Ghana reconsiders how funds are made available to stakeholders in the agriculture sector to ensure growth in the sector and that it contributes significantly to the local economy’s GDP.

Agriculture has been the mainstay of Ghana’s economy for many years bringing in the needed revenues for national development. Stifling it’s growth by hampering access to credit by its stakeholders is the path to eroding the gains to our nation in the form of earnings from this sector. The right policies should be put in place to arrest this trend of lack of credit facilities for its stakeholders. Engaging more with the private sector which has the needed capital is a good step in making available credit to the stakeholders.  The economic gains for the country if these policies are put in place and access to credit is addressed are enormous. 

REFERENCES

1. http://zotomelo.blogspot.com/2011/05/new-initiatives-to-finance-ghanas.html

2. http://www.agricbank.com/products-services/agric-finance/

3. http://www.statsghana.gov.gh/

4. http://www.statsghana.gov.gh/gdp.html

 

Author: Paa Swanzy-Essuman || p.swanzy@ghanatalksbusiness.com

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Henry Cobblah

Henry Cobblah is a Tech Developer, Entrepreneur, and a Journalist. With over 15 Years of experience in the digital media industry, he writes for over 7 media agencies and shows up for TV and Radio discussions on Technology, Sports and Startup Discussions.

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