IMPROVING THE COMMERCIAL ATTRACTIVENESS AND THE BANKABILITY OF A NATIONAL AGRICULTURAL PROJECT IN RURAL SUDAN

Source: [10]

Summery

• Sudan is the world’s largest exporter of gum Arabic and has a considerable scope for growth in the production of a variety of crops including cotton and livestock to meet both domestic and export demands. Agriculture continues to employ 80% of the work force of which the majority are the vulnerable sectors of the population however, agriculture contributes to only 27% of the countries’ GDP [1]. This is mainly due to the large portion of informal sector employed in the agricultural industry which might explain partially the low tax to GDP ratio (8.6%) [2]. A socio- economic agricultural revitalization program is thus required to reduce poverty and enhance growth by increasing domestic resource mobilization via exports and increased employment. The Productivity and Investment Climate Survey (PICS) 2008 however, found that 47 percent of firms surveyed considered access to finance a major obstacle in Sudan. The share of financing to agriculture in total bank credit has been declining, from 18 percent in 2000 to 7.4 percent in 2006 [1]. Blending of milestone grants with loans and equity, as well as guarantees and risk sharing mechanism via lender syndication, mezzanine debts and increased diversification schemes ,can catalyze public and private investments . This presentation represents a financing model for the government to improve the commercial attractiveness and the bankability of a national agricultural project in rural Sudan.

• Agriculture contributes to just 1/3 of Sudan’s GDP –[2]

• Recorded investment in agriculture 3.8 % [1]

• The share of financing to agriculture in total bank credit has been declining, from 18 percent in 2000 to 7.4 percent in 2006 [1]

• Only an estimated 15%-20% of Sudan’s arable land is cultivated [3]

• Rain-fed traditional agriculture-60% of the total cultivated land-Employs informally about 65% of the agricultural population-It is characterized by low productivity [2]

There is considerable scope for growth in the agricultural sector to meet both domestic and export demands. the realization of this growth demand will alleviate poverty in rural Sudan

Source: [6]

CROPS

Sudan has three major agricultural production systems1. Irrigated2. Rain-fed semi-mechanized3. Rain-fed traditional agriculture [2]

LIVESTOCK

livestock is the leading agricultural export product of Sudan. There are some 69 million sheep and goats in Northern Sudan, with most produced in the two poorest regions in Sudan Kordofan and Darfur, and exported to neighboring middle-eastern countries [2]

Results reveal that improving the agricultural efficiency under a devalued Sudanese pound by 5% would improve the Sudanese exports, trade balance, and the GDP [2]

Source:[7]

Source:[7]

• Sudan produces 75-80% of the world’s total output of Gum Arabic

• There are some 69 million sheep and goats in Northern Sudan

• Labor force in the agricultural sector represents 80% of total employment

• Agriculture contributes to other activities such as transportation, agro-industries, and commerce, in the industrial, trade, and service sectors which account for a large share of the GDP [4] Source: [9]

• Sudanese authorities, allocated 5 Billion USD to promote the agricultural sector

• The Central Bank of Sudan (CBoS) has formulated a strategy for developing and expanding the microfinance sector

• In 2007, Central bank of sudan mandated commercial banks to lend 12 percent of their lending portfolio to microfinance

• Loan Tracking System (LTS) is intended to support microfinance institutions in managing data relating to loans disbursed to clients. A number of Multilateral financial institutions have applied to the Multi donor trust fund for funding for the procurement of the LTS

• The establishment of a Ministry of Investment (MOI) with its one-stop-shop, demonstrates the government’s commitment to pro-investment policies

• The incentives include low profits tax

• 10 percent for agriculture; exemptions from customs duties for machinery and equipment including commercial vehicles; reduced duties on intermediate inputs and spare parts; and access to land below commercial prices [4]

Earnest efforts are now being made by the Sudanese

government to revive cotton production

Source:[10]

Access to credit is one of the major constraints to private sector economic activity in Sudan. The Productivity and Investment Climate Survey (PICS) in 2008 found that 47 percent of firms

surveyed considered access to finance a major obstacle while 52 percent considered the cost of finance a major obstacle to doing business [1]

To catalyze public and private/SME investments, increase domestic resource mobilization, employment, exports and

bring an end to poverty in Sudan

The proposed financing model presents a solution to improve the commercial attractiveness and the bankability of the

national agricultural project in rural Sudan.

LENDER-GOV TRANSACTIONS

GOV-SPV/FARMER TRANSACTIONS

SPV/FARMER-CONTRACTOR/CIVIL SOCIETY TRANSACTIONS

REVENUE STREAMS

KEY

NON FINANCIAL TRANSACTIONS

LENDERS/FUNDING

DEBT (70%)

COMMERCIAL LENDERS (BANK

SYNDICATE)

MULTILATERAL /BILATERAL/

EPORT CREDIT AGENCIES

CENTRAL GOVERNMENT

SUB-NATIONAL GOVERNMENT

CONTRACTORS

EQUIPMENTS

CONSTRUCTION

OPERATIONS & MAINTENANCE

CORE INFRUSTRUCTURE & CAPCITY BUILDING• WATER FOR IRRIGATION• WHOLESALE MARKET AND TRADING

CENTER• AGRO-PROCESSING• INFRASTRUCTURE & COMMUNICATION

TECHNOLOGY• ROADS, POWER SUPPLY• TRAINING CENTERSECONDARY INFRASTRUCTURE:• BANKS , SCHOOLS, HOSPITALS ETC…

SPV (EQUITY PARTNERS/SME’s)-30%

GROWERS & EXPORTERS

50% DEFAULT RISK

GRANTS & /LOANS (LONG GRACE PERIOD)

RE-PAYMENT

AWARD PROJECT & DEVISE REGULATORY FRAMEWORK & INCENTIVES

SERVICES

PAYMENT FOR OPERATIONS & MAINTENANCE

LOAN

RE-PAYMENT

BUNDLING AGRICULTURAL INFRASTRUCTURE (DIVERSIFICATION TO REDUCE RISK) – REACH A SIZE THAT RENDERS IT OF INTEREST TO BOTH EQUITY AND COMMERCIAL LENDERS

MILESTONE CONSTRUCTION & LAND FOR FACILITY GRANTS

SMALL-FARMERS

MICRO CREDIT LOANS (LOW INTEREST RATE)

MICROFINANCING INSTITUTE (GRAMEEN BANK)

RE-PAYMENT

REVENUE STREAMS: DOMESTIC SALES , EXPORTS & TOLLS

TAXES & CROSS- SUBSIDY FROM PROFITS OF URBAN

BASED CONCESSIONS

CIVIL SOCIETIES &

FAO

MONITORING &TRAINING & SERVICES PROVISION

REVENUE STREAMS:DOMESTIC SALES

PROFIT &EXPORT TAX

REDUCED TAX

Entity Funding source , revenue streams and risk mitigation mechanism (default payment back up plan)

Commercial lenders • Syndication to share risk with other banks• Mezzanine debt (Bank receives equity share if SPV fails to re-pay)

Multilateral agencies Donors (ODA, MDB, Civil societies , NGO’s, UN, IFAD, FAO)

Government • Taxes • Export tax a modification to the tax that allows additional exports after

producers meet a minimum sales requirement for the domestic market and taxed exports

• Cross-subsidies (e.g. to utilize urban concession subsidies e.g. telecom)

SPV’s (private sector) • Reduced risk through diversification and bundling of agricultural infrastructure

• Revenue steams: domestic sales, export and toll fee

Microfinance institutions The Multi-Donor Trust Fund administered by the world bank

Government willingness

Incentives and regulatory framework

Attract international financial and donor organizations , civil

societies & non for profit organaizations

Introduction of monitoring, management and training

bodies (training, wholesale and trading centers)

Introduce microfinancing for small farmers & Risk sharing &

diversification schemes

Increased trust and transparency

International and domestic private investor participation

(SME’s)-increased attractiveness through bundling agricultural infrastructure schemes which

creates additional revenue streams

Expertise and knowledge sharing (efficient practices and

introduction of other crop production lines and reviving more profitable crops such as

cotton, R&D and environemtnal preservation schemes )

Increased efficiency, accountability & shared

responsibility

Increased export and growth

Increased export and profit tax and domestic resource

mobilization, Increased foreign currency & appreciation of local

currency

Increased employment & welfare of the poorest

Investors attracted to invest in more rural rehabilitation

scheme and secondary capacity building

Decreased urbanization

Sudan moves towards achieving sustainable

development goals (social, economic and

environmental)

Potential stakeholders

• Arab agricultural fund

• Micro financing banks e.g. Grameen

• Civil organizations

• GIF (world banks global infrastructure facility)

• MIGA (guarantees to infrastructural funds)

• OPIC Aid funds for education hospitals

• IFAD

• FAO

• Arab companies (willing to participate

)

• Development and export banks e.g Arab African Bank

• Ministry of finance and trade and agriculture

• Ministry of investment

• Rural development fund companies

• ODA

• MDBS (to join after revenues have been secured to match their additionality criteria)

• Sudanese fmcg’s

• UAE funds companies

Sources

[1] https://www.imf.org/external/pubs/ft/scr/2013/cr13318.pdf

[2] http://www.indexmundi.com/sudan/economy_profile.html

[3]http://ageconsearch.umn.edu/bitstream/112786/2/Agricultural-Efficiency-AgEcon1.pdf

[4]http://www.fao.org/3/a-i4388e.pdf

[5] http://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/837.pdf

[6]www.unccd.int

[7]www.umuhinzi.com

[8]rainwaterharvesting.tamu.edu

[9]www.fao.org

[10] radiotamazuj.org