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Nedbank committed to strengthening the agriculture sector

Nedbank committed to strengthening the agriculture sector

Namibia’s agricultural sector is a cornerstone of its economy, yet it faces a myriad of challenges that threaten its sustainability and growth.

Agriculture contributes over 8% to the gross domestic product (GDP), with about 70% of the population dependent on it for income and food security. Additionally, agriculture is the largest employer in the country, accounting for over a fifth of the local workforce.

Despite its economic significance, the agriculture sector received only 4% of the total loans and advances from private banks between 2017 and 2021.

John-James Tromp, Head of Business Banking at Nedbank Namibia, highlights this discrepancy, noting the disparity in credit allocation to agriculture when compared to its significant contribution to the GDP.

“There is a clear need for increased financial support in this sector, which is a common issue across Africa, where many agricultural small and medium enterprises (SMEs) struggle to access bank loans and are too large for microfinance,” says Tromp. ‘This has resulted in a N$100 billion gap in unmet financing demand. Bridging this gap is crucial for reviving the agriculture sector and, in turn, ensuring future food security.’

Tromp adds that while the bulk of financial assistance to farmers has long come from government-owned entities such as Agribank and the Development Bank of Namibia, private banks also need to do the work to democratize credit access to smaller-scale farmers and those in rural areas.

A survey of small and medium farmers in northern Namibia done by Harvard’s Growth Lab, as part of a research project undertaken in collaboration with the government of Namibia from 2020 to 2023, highlighted the challenges faced when it comes to accessing finance. These included unclear information about formal credit availability and conditions, burdensome and difficult-to-meet requirements, and the insufficient presence of regional officers to understand local needs.

“In response to this pressing need, Nedbank has introduced a new agribanking offering by employing a decentralised operating model,” says Tromp. ‘Credit managers, equipped with a comprehensive understanding of the Namibian agricultural landscape, aim to visit selected clients to gain deeper insights into their risk environments.’

Loans such as Nedbank’s agribanking solutions are available to individuals, partnerships, companies, close corporations, and trusts. At Nedbank specifically, these solutions cater to both full-time and part-time farmers who derive more than 50% of their income from sustainable agricultural activities, game farming, land-based environmental preservation, and timber and forestry activities.

‘Any financial services company aiming to support agriculture in Namibia must grasp the unique challenges faced by farmers navigating Namibia’s unforgiving landscape,” cautions Tromp.

As the driest country in sub-Saharan Africa, Namibia encounters severe limitations in agricultural development. Persistent issues such as land degradation and bush encroachment have drastically reduced land fertility and carrying capacity. Moreover, climate disasters like floods and droughts have led to significant losses, particularly in livestock farming.

“Given the unpredictable weather and uncertainty surrounding crop and livestock performance, cash flows for farmers often fluctuate. This underscores the importance for banks to comprehend industry cycles that may impact repayment ability,” says Tromp adding that its agribanking products are tailored to the seasonal income of businesses, offering flexible capital repayment options, including monthly, quarterly, biannual, or annual repayment.

These financial products include short-term finance, providing working capital through overdrafts that are repayable within 1 year or a seasonal cycle, asset-based finance for procuring equipment and machinery, and medium-term loans for purchasing equipment, livestock, seed, and other necessary farming inputs. For property purchases, land acquisition, fixed long-term improvements, and establishing long-term crops, long-term financing vehicles are also available.

“Nedbank’s renewed commitment to Namibia’s agricultural sector aims to align the country with global agricultural trends,” says Tromp.

Since the 1960s, the agricultural ‘green revolution’ has witnessed the global adoption of high-yielding crops resilient to harsh weather and pests, sustainable irrigation systems, sophisticated equipment and machinery, and innovative farm management practices like crop rotation and soil conservation. These advancements have notably enhanced agricultural output by maximising the value of existing cropland rather than expanding the amount of land under cultivation.

According to the Harvard Growth Lab study, Namibia’s production pattern sharply contrasts with these global trends. Despite an increase in agricultural land use over the past couple of decades, the country’s agricultural output has remained largely stagnant since the 1980s.

‘This finding underscores the urgent need for increased funding and concerted efforts to transition Namibia’s agricultural sector towards greater sustainability and energy efficiency,” adds Tromp.

To tackle these challenges, the bank provides renewable energy loans specifically tailored to green energy initiatives. These loans could assist farmers in financing solar panels, wind turbines, hydroelectric systems, biomass energy production, and geothermal heat pump installations.

“Access to this type of funding aims to bolster agricultural productivity and sustainability in Namibia, bringing the country in line with global agricultural standards and mitigating the impacts of climate change on local farming communities.”


 

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