African Fertilizer Financing Mechanism
Agriculture is the mainstay of most African economies and source of employment and income for at least 65% of Africa’s population. It is also an indirect source of income for many millions more, since it transcends the continent’s entire economy via numerous linkages to the non-farm sector. Agricultural development is, therefore, vital to Africa’s economic growth and it is particularly vital to alleviating poverty and to achieving food security. Yet, African agriculture lags behind all developing regions and continues to witness declining productivity due to the degradation of soils and agricultural production ecosystem. This situation, if not addressed, will remain as one of the biggest challenges to sustainability of the continent’s agriculture, as well as its economic prosperity, and prospects for meeting the MDGs.
One of the principal causes of Africa’s stagnant agricultural productivity is the low use of fertilizer – African farmers apply only five to ten percent of the fertilizer amounts used in other developing regions, such as Asia. It is against this background that the June 2006 Summit of African Ministers of Agriculture adopted the Abuja Declaration on Fertilizer for an African Green Revolution (the “Abuja Declaration;”), a commitment of African states to work together in boosting the production and availability of fertilizers throughout the continent, and in enlarging the demand for fertilizers at the farm gate. The specific target is to achieve at least a six-fold increase in average fertilizer utilization in Africa by 2015.
One of the major agreements resulting from this multilateral Summit was the establishment of an Africa Fertilizer Financing Mechanism (AFFM), the main purpose of which is to enhance agricultural productivity by promoting the use of fertilizers. The Summit charged the African Development Bank with the responsibility of establishing the AFFM.
In proposing the establishment of an AFFM, the Abuja Summit recognized two critical facts. First was the stagnation of Africa’s agricultural performance over the last 30 years; Africa’s agriculture has remained the least performing in the developing world, with productivity increases quite below the population growth. Second, a principal cause of Africa’s meager agricultural productivity is that African farmers apply only five to ten percent of the fertilizer amounts used by their counterparts in other developing regions, such as Asia. The Abuja Declaration represents the steadfast commitment of African states to work together in boosting the production and availability of fertilizers throughout the continent, and in enlarging the demand for fertilizers at the farm-gate. The specific target of the Declaration is to achieve at least a six-fold increase in average fertilizer utilization in Africa by 2015.
The AFFM is intended to serve as a vehicle for financing the various activities agreed upon at the Abuja Summit. Specifically, it will: i) help the African public and private sectors conduct feasibility assessments and secure financing for promising fertilizer production ventures; ii) improve the “economies-of-scale” of fertilizer production, procurement, and distribution, for example by creating “platforms” to help the private sector be more cost effective in delivering key agricultural inputs to remote farm-gates; iii) boost fertilizer demand at the wholesale and retail levels by disseminating information about fertilizer’s impact and return on investment (ROI), and by extending credit guarantees to farmers and suppliers; and iv) exploit other potential “targets of opportunity” in the value added chain, i.e. by helping to better align transnational customs policies, which currently make cross-border transactions inefficient and costly.
The AFFM will work multilaterally – in concert with African governments, regional institutions, the private sector, other development banks, and international donors – to study the fertilizer value-added chain in detail, focusing particular attention on the key transnational factors impeding fertilizer use in order to develop comprehensive strategies for jump-starting Africa’s stagnant agricultural productivity.
The African Development Bank hosts the AFFM as a special fund, similar to the African Water Facility, the NEPAD Infrastructure Project Preparation Facility, and other such funds. The AFFM will have a Governing Council, a Coordinator, and staff deemed necessary to carry out the activities of the Mechanism. To facilitate start-up actions, the Government of Nigeria has generously provided an initial contribution of U.S. $10 million, and other donors have also expressed keen interest.