Working Paper 193 - Large Scale Agribusiness Investments and Implications in Africa- Development Finance Institutions' Perspectives

Agricultural sector in Africa has increasingly been the recipient of significant amount of attention from investors, in the form of large scale agribusiness projects, and the concomitant demand for land. Development Finance Institutions (DFIs) such as the African Development Bank (through its private sector department) and the World Bank Group (through IFC and MIGA) have been providing financing for many projects in the sector. In fact, DFIs provided about USD 12 billion globally between 1998 and 2008, with the AfDB accounting for most of the DFI financing of projects in Africa. This paper analyses the additionality – that is, bringing development-relevant qualities to projects that cannot be contributed by commercial lenders. We pay particular attention to land governance, given the fact that land is the most important factor of production in agribusiness projects, and the considerable amount of controversy surrounding it. The high level of DFI financing for private sector projects presents both a challenge and opportunity. The institutions need to justify that their investments in profit-oriented private sector operations are consistent with their poverty reduction mandates. Fortunately, there is ample opportunity to demonstrate additionality by bringing features that maximize development outcomes of projects. This paper contributes to the debate on large agribusiness projects and land concessions by drawing from the actual experiences of the AfDB in the field to demonstrate how DFIs can maximize development outcomes of projects without compromising commercial viability.