ARC Ltd. and IFC join forces to boost investment in African agriculture
JOHANNESBURG, 28 February 2025 – African Risk Capacity Limited (ARC Ltd.) and the International Finance Corporation (IFC) have signed a Letter of Engagement today to strengthen agricultural insurance solutions in Africa. This partnership aims to create a safer and more attractive environment for investment in agriculture by reducing risks linked to climate change and other uncertainties. The signing took place at the Marriott Hotel Melrose Arch in Johannesburg, South Africa, with Lesley Ndlovu, CEO of ARC Ltd., and Sérgio Pimenta, IFC Vice President for Africa, along with their teams. Agriculture is the backbone of Africa’s economy, providing livelihoods for millions. Yet, farmers and agribusinesses struggle to secure funding due to the high risks posed by unpredictable weather, market fluctuations, and limited financial protections. Africa has approximately 183 million hectares of cultivated land, with 95% of it dependent on rainfall, making the sector highly vulnerable to climate variability. The World Bank estimates that food demand will increase by 70% by 2050, requiring massive investments in agriculture. However, in Africa, less than 5% of farmland is irrigated, and access to financing remains a major barrier to growth. Without effective risk management solutions, many investors hesitate to support agricultural projects, leaving farmers exposed and food production unstable. Through this new partnership, ARC Ltd. and IFC will develop insurance solutions that help farmers, financial institutions, and agribusinesses manage these risks. The initiative will support the IFC Africa Inclusive Insurance Program (AIIP) by introducing insurance products that protect farmers from climate shocks and other uncertainties. This will not only reduce financial losses but also encourage more investment in agriculture, leading to increased food production and improved food security across the continent. The collaboration will focus on several key areas, including identifying priority regions for agricultural insurance, developing tailored insurance products, and working with governments, financial institutions, and AgTech providers to expand access to risk protection. By ensuring that farmers and businesses can recover quickly from losses, this initiative will create a more stable and productive agricultural sector. “This partnership is an important step in our mission to strengthen Africa’s resilience to climate and financial risks,” said Lesley Ndlovu, CEO of ARC Ltd. “By working with IFC, we can scale up agricultural insurance solutions and provide farmers with the confidence to invest in their future.” Sérgio Pimenta, IFC Vice President for Africa, highlighted the impact of the initiative: “Agriculture is central to Africa’s economy and food security. Supporting food security and nutrition of the continent is an important priority for IFC in Africa which reflects our commitment to fostering economic development and resilience in the region. With this collaboration, we are creating insurance solutions that will protect farmers and attract the investments needed to drive sustainable growth in agriculture.” At a time when climate change and global food demand are putting increased pressure on African agriculture, this partnership marks a significant step toward ensuring food security and economic stability. By reducing risks and increasing access to financial protection, ARC Ltd. and IFC are working to build a stronger, more resilient future for African farmers and investors alike.
Financing farmers will help advance Africa’s agriculture industry
JOHANNESBURG, 30 May 2024 – The need to create innovative financing mechanisms for Africa’s farmers and revaluate existing ones is becoming increasingly critical as the continent faces compounded challenges, including climate change, low productivity, and conflict. This was highlighted during a session at the recent 10th African Regional Forum on Sustainable Development (ARFSD), where the industry called on policymakers to assess the needs of farmers and enhance access to funding if they expect Africa to meet the Malabo Commitment to end hunger by 2025, or the Sustainable Development Goals (SDGs) by 2030. Collaborative efforts, private sector engagement and strategic partnerships were identified as key to making an impact and advancing these goals. The agricultural sector is the economic backbone of Africa, where an estimated 33 million smallholder farms and the farmers who live on them contribute to 70% of the continent’s food supply. Africa produces all the principal grains and other diverse crops, including rubber and cocoa in the tropical regions; soya and sorghum on the plateaus; tea, coffee, and flowers in the high-altitude areas; as well as Mediterranean crops. However, climate phenomena such as El Niño and increasing extreme weather events, due to climate change, such as tropical cyclones, floods and droughts, are decimating crops, and the resilience of the land and its ability to adapt are being pushed to their limits. Meanwhile, the demands on this vital resource are reaching critical thresholds. Climate change also modifies the properties of soil, both chemically and physically leading to land degradation. Soils become less fertile, lowering crop yields and this impacts on agricultural production. Land degradation is already a major issue in Africa, due to poor soil health, and this is threatening the foundation of its citizens’ livelihoods – because they cannot afford to mitigate it. The president of the African agricultural transformation institution, AGRA, Dr Agnes Kalibata, estimates that land degradation costs farmers up to $1,400 per year. According to the global research partnership CGIAR, 65% (494 million hectares) of Africa’s soil is currently degraded. Eighty-three percent of sub-Saharan Africans rely on this land for their livelihood. As a result, yield gaps on the continent are wide, ranging from as little as 2% to over 50%. Substantial investment in Africa’s agricultural sector is needed, however, the visible impacts of climate change have caused investors to be wary. Other funding impediments include default risks and political risks. Giving farmers access to the right financial resources to address land degradation and climate change challenges would result in more progress being made towards achieving the objectives of the African Union Agenda 2063, which include the transformation of African agriculture and food security. Closing the gaps With the Russia-Ukraine war having increased global food insecurity by impacting production and crop exports out of the former agricultural powerhouse of Ukraine, a significant opportunity exists for Africa. By improving yields and insuring them against climate risks, African farmers could help close the gap, unlocking immense economic growth and development potential. Tapping into finance would also help farmers expand into the 60% of arable land that is still uncultivated on the continent. As part of the Comprehensive African Agricultural Development Programme (CAADP), an initiative that forms part of the African Union Agenda 2063, African governments have committed to allocating at least 10% of their national budgets to agriculture and rural development. But this might still not be enough. Another way in which governments could assist farmers is through subsidising climate insurance. Farmers with their limited resources are reluctant to take out premiums due to the cost, making derisking the industry not only the answer but also a huge economic opportunity. The reduction of risk would encourage investment. Private sector involvement is critical to driving investment, innovation and addressing the challenges in the industry. Making an impact The work of parametric insurer and financial affiliate of the ARC Group, African Risk Capacity Limited (ARC Ltd.), exemplifies the impact that is possible through addressing farmers’ specific needs and forging strategic partnerships. “There is no story that can be told about African development without taking into account agriculture and the need to protect investments in the sector,” says ARC Ltd. CEO Lesley Ndlovu. The company provides insurance to small- to medium-scale farmers in Africa through micro or meso products. With micro insurance, farmers’ assets are insured, and their income is protected, and with meso insurance, banks are insured against a portfolio of loans. “A severe drought in a region will result in a spike in defaults. These defaults can be protected by insurance to avoid the accumulation of risk,” says Ndlovu. As a result, banks can free up more lending than they would usually be comfortable with, helping enhance access to finance so that farmers can invest in improving productivity and income. ARC Ltd. has also been involved in several projects across Africa targeting farmers. In Côte d’Ivoire, the company, together with the Côte d’Ivoire Environment and Sustainable Development Ministry (MINEDD) and the United Nations Development Programme (UNDP), initiated a climate insurance pilot for agricultural value chains, run in collaboration with the FUSCOP RIZ CI “COOP-CA”, a federation of rice producers and their board of directors. Following the successful pilot, and with more partners on board, such as the World Food Programme, the project was expanded to include cocoa production with the aim of replicating it further across other agriculture value chains, such as cotton and maize. The project issued its first payout earlier this year of 16 million CFA francs to 3 594 rice and cocoa producers. In the Horn of Africa, ARC Ltd. is helping fight the impact of the dual hazards of drought and excess precipitation on farmers in Djibouti. The first-ever multi-year, multi-peril agreement on the continent was signed in 2023 between the government and the ARC Group. It has given the country access to five years of disaster risk management capacity building and disaster risk insurance coverage for drought and excess precipitation. ARC Ltd. has also partnered with the US Government (USG) on a