Unlocking Investment in Frontier Markets: A Challenge in the Agriculture Sector
In frontier and emerging markets, agriculture is a challenging sector for private investment. Deals in this space can carry higher real or perceived risk, long investment terms and lower financial returns, limiting interest from and participation of commercial investors.
This is a big problem, because with limited access to finance, farmers and agricultural processors cannot expand, invest in improvements, increase food production or create jobs. The space is ripe for blended finance — using development funding to mobilize additional private sector investment for impact.
Access to finance is critical in every sector and in every supply chain. In frontier and emerging markets, banks are often very conservative and don’t offer the products businesses need to grow. Companies need to look elsewhere for growth funding, but most business owners are unfamiliar at first with seeking investment, especially from international players. This is a space where donors can play a critical role, providing technical assistance, transaction advisory support and catalytic funding to help companies with positive social and environmental impacts reach their full potential.
For example, in Tunisia, USAID is helping businesses in the agriculture sector and beyond access the financing they need to grow. Agriculture is an important sector in Tunisia, employing about 14% of the country’s workforce and generating about 10% of the country’s gross domestic product (GDP). Helping farms and agribusinesses expand can unlock significant social and economic benefits for local communities.
The work that is underway in Tunisia can serve as a model for any country where access to finance is a significant constraint for businesses, and, unfortunately, this is the case across all frontier and emerging markets. The examples below show how access to finance can strengthen value chains, increase food security and improve livelihoods for farmers.
Helping dairy farmers earn a reliable living
Dairy processor Natilait collects and processes milk from more than 5,000 farmers in northern Tunisia. Most of these farmers have just a few cows and send their milk to Natilait through a network of 250 collection centers. The company packages and sells the milk or processes it into higher-margin products, like yogurt and desserts.
Natilait has a sizeable impact on the lives of farmers in the region, which has a high level of poverty and few employers. “This is a rural area. There was no agro-industry here. We are the first agro-industry in the north,” says Natilait founder and president, Dr. Hichem Chraief. “For the sustainability of the region, local production is very valuable. It’s a big issue that in all these rural areas where there’s a lot of production, the processing happens in other cities.”
The company is an anchor in the community. It pays farmers reliably every 15 days, and it has a unit that assists farmers with best practices to produce high-quality milk. “This is where we see the impact on the rural region,” says Dr. Chraief. “We keep the farmers here. We assist them. And that allows them to stay here in the region and not go to the cities.”
Tunisia is particularly vulnerable to climate change, and the region is coping with droughts, floods and other threats to farmers’ livelihoods. Natilait is contributing to the resilience of local farmers and helping Tunisia preserve the capacity to supply its own food. “If there is a period when there is not enough rain and the situation is difficult for farmers, we provide money so they don’t have to sell their cows,” says Dr. Chraief.
Natilait is ready to expand its operations, but it needs support to access growth capital. This type of financing is hard to come by in Tunisia, and Natilait needs to look beyond the country’s borders. With support from USAID, CrossBoundary — a transaction advisor operating in frontier markets — is helping Natilait strengthen its business strategy, develop investor materials and connect with investors, all with the goal of raising $20 million in private capital.
According to Dr. Chraief, “The company is seeing a huge opportunity. The market is asking for the product.” This new financing would be used to strengthen the company’s logistics and processing unit and provide working capital. It would also allow the company to increase its production from 350,000 liters to 500,000 liters per day, hire at least 50 more staff and work with about 1,000 more farmers.
Boosting local mint farmers
USAID also provided support to Orientea, a company that manufactures instant mint tea under the Kyufi brand in Tunisia’s northern Ben Arous region. The added-value product sells for about twice as much as a tea bag, creating profits that benefit the company and the local community.
Kyufi supports the livelihoods of more than 120 local mint growers, over 80% of whom are women. “Nobody buys like what we buy. This year we are aiming to buy 165 tons of dried mint,” says Kyufi’s Directeur Général Talbi Tarek. “In Nadour, the name of Orientea is just Charika — the Company — because we have become well-known, because we buy a lot. So I think it made a change in this place and we improved the level of life there.”
According to Tarek, the company pays 20% above the market price for the mint it purchases. This ensures the company has a dependable, high-quality supply, but it also benefits local farmers, who know that Orientea will pay them reliably and well.
The company has been poised for growth for some time, but it had trouble accessing capital to upgrade its production line. Because Tunisian banks are very conservative, Orientea had a particularly hard time securing working capital. This was a big problem for a company that needs to purchase and import large volumes of tea to combine with mint in its final product.
Through its partners, Small Enterprise Assistance Funds (SEAF) and Alternative Business Consulting, USAID provided catalytic funding and transaction advisory support to help the company access the financing it needed to grow, increase production and enter new export markets.
“We had discussions with Alternative Business Consulting to find the right business plan and the right pitch with investors. It can be simple to know what we need, but you have to formalize it, to write it well, to be understandable by investors,” says Tarek. “And thanks to the work we did, we received $500,000. That’s very important to us, this funding. We have drastically increased our production capacity, thanks to the packaging unit. And they helped us to buy tea directly from the suppliers.”
With this new financing, Kyufi has expanded its production and warehousing capacity and hired about 60 additional employees. The company purchased a new packaging unit that allows Kyufi to assemble about 1,800 boxes per day — up from the 300 boxes it could package manually.
“In Tunisia, the people who succeed are the people that never give up,” says Tarek. “It’s quite challenging, but you can make it if you don’t give up.”
USAID’s INVEST initiative has leveraged transaction advisory services in dozens of markets to support local businesses and reach international development goals. INVEST shares trends and lessons learned in this learning brief: Mobilizing Investment for Development with Transaction Advisory Services: Learning Brief.
This blog is made possible by the support of the American people through USAID. The contents of this blog are the sole responsibility of INVEST, implemented by DAI, and do not necessarily reflect the views of USAID or the U.S. government.