Why invest? The cost of malnutrition
Today, one person in three is malnourished around the world. This malnutrition places unacceptably high costs on individuals, families and entire nations. The estimated impact of malnutrition – in all its forms – on the global economy could be as high as US$3.5 trillion per year.
Investing in nutritious foods – a major part of the solution
Every individual has the right to adequate food. However, the realization of this right cannot be achieved unless food systems better facilitate healthy food choices. Nutrition-sensitive capital investments along the entire food value chain are therefore critical to drive better availability, access, affordability — and finally — consumption of nutritious foods.
The challenge and the opportunity – agri-food SMEs
At the Global Alliance for Improved Nutrition (GAIN), through our various platforms, we are providing technical support to over 1,000 companies working along food value chains in Asia and Africa. SMEs deliver a significant percentage of the foods consumed in Africa. One platform through which GAIN provides support is the Scaling up Nutrition Business Network. In Africa alone, this network comprises 300 member companies of which 75 percent are national, small and medium-enterprises (SMEs). To better design solutions for this critical group, GAIN and Dalberg recently completed a survey among agri-food SMEs on constraints to growth and delivery of nutritious foods. Access to finance came up as the top barrier.
The major constraints on access to finance (equity or debt) faced by these SMEs are not dissimilar to those faced by SMEs in other sectors and are summarised below.
• Risk aversion: local banks often do not have the risk appetite to lend into sectors on which they have little knowledge. At the same time, many domestic banks can generate secure profits through less risky lending to governments and established companies, and do not have the incentive to seek out new SME clients.
• High transaction costs for banks: lending to SMEs is labor intensive, particularly when sector knowledge of agriculture and nutrition is limited, which may make it challenging for banks to make enough in fees on small transactions to compensate for time spent. Similarly, there is a need for costly professional services such as the expense of attorneys and consultants which can be unaffordable for small- and medium-sized projects; and
• High interest rates imposed by local banks.
GAIN – following nine years of success in blended finance for fortified foods and managing a trade financing facility for vitamins and minerals which has provided US$70 million in extended credit while maintaining a one percent default rate – is aiming to address these constraints through its fledgling Nutritious Foods Financing Program.
We aim to provide targeted technical assistance and establish new financing platforms which provide access to private and public sector investment for SMEs producing safe, nutritious foods. To this end, the program is developing an investable nutrition project pipeline by consolidating GAIN’s engagements — and our partners’ — with over 400 agrifood SMEs in Africa.
The programme, initially supported by the government of The Netherlands, will help facilitate multi-stakeholder engagement processes, evaluation of capital markets and available financing instruments, and broad networks within the investment and finance communities to develop a financing platform capable of attracting investment capital that will contribute to reducing malnutrition through:
• alleviating constraints and creating incentives for large and small companies to focus on and invest in nutrition;
• building on and maintaining the medium- and long-term sustainability and predictability of finance availability to the nutrition sector; and
• creating an opportunity for investors seeking new themes for investment which improve development outcomes; and
• providing targeted technical assistance to investee SMEs.
Through these efforts, GAIN and partners aim to catalyse more, long overdue investment in food and nutrition security in Africa. Encouraging private sector investment into SMEs can help tackle a stubborn and damaging public health challenge that disproportionately affects the poor on the continent.
To learn more join at the Nutrition Africa Investment Forum 2018 in Nairobi https://www.gainhealth.org/knowledge-centre/event/nutrition-africa-investor-forum/
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