Climate Risks and Adaptation Activities
Agriculture is the most important economic sector in Africa in terms of proportion of the labor force engaged in the sector and is among the most significant sectors by share of contribution to GDP. The sector is particularly vulnerable to the adverse impacts of climate change, and the status quo adaptive capacity of rural smallholder farmers is generally low. The impacts of climate change on Africa’s agriculture are already being felt and will become increasingly severe going forward. A rise in average temperatures of 2 degrees Celsius by the middle of the century is projected to reduce expected yields by up to 20%.
Vulnerability to climatic shocks is especially acute in dry land areas which have a fragile ecology that limits agricultural potential. In these areas, land has already been degraded—de-forested, eroded, and nutrient depleted—over time, increasing its sensitivity to weather-induced shocks and reducing the resilience of rural populations and ecosystems. Climate change has direct impact on crop yields and indirectly on water availability, quality, pests, and diseases. In recent years, yields of staple crops such as maize, wheat, sorghum, and fruit crops have decreased across Africa, which has significant impacts on the food security, nutrition and thus health, livelihood and living conditions of the African population.
Africa’s agriculture sector will need to adapt and improve its resilience to climate change. The most common agricultural adaptation strategies employed are the use of drought-resistant varieties of crops, crop diversification, changes in cropping pattern and calendar of planting, conserving soil moisture through appropriate tillage methods, improving irrigation efficiency, and afforestation and agro-forestry. Activities include crop diversification and resilience, soil health and erosion management, nutrient and pest control management, water management, weather forecasting, and irrigation infrastructure investments.
Context of Broader Investment
In 2003, African governments made commitments to the Comprehensive Africa Agriculture Development Programme (CAADP), an initiative aimed at promoting agricultural growth, poverty reduction and food security in Africa. They committed to allocate at least 10% of total government expenditures to the agriculture sector within five years. The commitment was reaffirmed in 2014 as Malabo Declaration. By 2019, only a fifth of the African countries fulfilled the target of a 10% share of expenditure to agriculture in any year since 2003. Niger, Burkina Faso, Ethiopia, Malawi and Mali allocated more than 10% of their budgets on agriculture growth, while others like Nigeria, Cameroon, and the Democratic Republic of the Congo were unable to reach even 5% annually.
The sector is estimated to hold a USD 1 trillion investment opportunity by 2030 but receives very little bank credit. The share of commercial bank lending to agriculture in Africa ranges from 3% in Sierra Leone, 4% in Ghana and Kenya, to 12% in Tanzania and interest rates are particularly high for smallholder farmers. Agriculture start-ups in Africa undertook fundraising deals of USD 616 million from various sources including commercial banks, angel investor networks, and philanthropic and other private investment funds. Fintech is also playing an increasingly significant role in the sector: mobile technology allows for increased access to banking services, accelerates the use of smart-contracting, and can shift payments to a system on the blockchain to increase transparency.
Approximately USD 2.1 billion in adaptation finance was tracked to the agriculture sector in Africa on average annually across 2017-18 from bilateral and multilateral DFIs (59%), international government ODA (24%), multilateral climate funds (5%), other public funds (11%), and commercial FIs (less than 1%). Finance to the sector was evenly split between grants and low-cost project debt (49% each) followed by market-rate project debt (2%) and project equity (less than 1%).