ARC urges innovative financial solutions for African farmers amid challenges

The need for innovative financing mechanisms for Africa’s farmers is increasingly urgent as the continent faces challenges such as climate change, low productivity and conflict, according to African Risk Capacity (ARC).

african agricultureAt the 10th African Regional Forum on Sustainable Development (ARFSD), experts urged policymakers to assess farmers’ needs and improve access to finance 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 importance of Africa’s agricultural sector, which provides 70% of the continent’s food supply. However, it is threatened by the increase in extreme weather events caused by climate change, which causes soil degradation. This degradation costs farmers up to $1,400 a year and has affected 65% of African soil, on which 83% of sub-Saharan Africans depend for their livelihoods.

Addressing these challenges requires significant investment, but investor caution and obstacles to financing remain. Overcoming these obstacles is crucial to achieving the agricultural transformation and food security outlined in the African Union’s Agenda 2063.

The conflict between Russia and Ukraine, which increases global food insecurity by disrupting Ukrainian 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. gap, unlocking immense economic growth and development potential. Tapping into the funding 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 Program (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 subsidizing climate insurance to encourage investment, with private sector participation crucial to 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-sized 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 to increase productivity and income.

Lesley Ndlovu, CEO of ARC Ltd., says: “No story about African development can be told without taking into account agriculture and the need to protect investments in the sector.”

Additionally, ARC Ltd. has been involved in several projects across Africa to expand climate insurance to 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 from climate risks. Ange Chitate, Project Manager and COO of ARC Ltd., explains: “Our priority with this grant is to provide coverage to 19 states.”

Chitate adds: “With the support of the United States Government, we will refine and develop innovative products to meet the changing needs of these countries.”

Future plans involve developing customized micro- and meso-insurance for various beneficiaries, including pastoralists and humanitarian organizations.

ARC concludes: “With growing climate risks, innovative financial solutions such as parametric insurance have significant potential to safeguard farmers’ livelihoods and drive development across the continent. Greater awareness and understanding are essential to encourage adoption. “More investments in this space and policy reforms to scale up climate risk management strategies and empower Africa’s farmers are also imperative.”

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