IsDB Targets Agri-business Sector Development in African Member Countries with US$3.5bn Investment and Co-financing Arrangements with BADEA and IFAD

The Jeddah-based Islamic Development Bank (IsDB), the multilateral development bank (MDB) of the Muslim world, is targeting food security, agriculture, and climate action in its African member countries, who have experienced severe economic and social disruption as a result of the COVID-19 pandemic.

Of the Bank’s 57 member countries, some 27 are from Africa and 21 from Sub-Saharan Africa (SSA). Agriculture, according to the ISDB, is the most important sector in IsDB member countries contributing US$650bn to GDP annually. The IsDB is the second largest MDB after the World Bank in terms of capital.

Dr Bandar Hajjar, President of the IsDB, addressing a virtual dialogue with 13 African Heads of Government in May 2021 confirmed that the Bank is investing US$3.5 billion in developing the agriculture sector in Africa. The idea is to develop commodity value chains for both staple food and cash crops; to improve technical efficiencies and productivity; and connect local value chains to global ones.

“For our member countries to be ready for future challenges, our new business model concentrates on leveraging global value chains. It analyzes the most competitive industries, identifies strategic investment opportunities, and builds resilient value
chains to unlock their full potential,” he stated.

In the field of agri-business, this includes increasing water use efficiency and productivity via affordable low-tech innovations; developing climate resilient high yield plants with enhanced nutrition that lower production costs; and enhancing commercial farming especially in Africa.

The MDB recently launched a regional rice value chains programme in partnership with the African Development Bank and the Arab Bank for Economic Development in Africa (BADEA) to support five west African countries in achieving rice self-sufficiency by 2025. The IsDB is investing US$180 million to support the programme. “We will continue to support our 27 member countries in the African continent in developing and financing competitive commodity value chains along with appropriate tools that can be deployed to de-risk value chain investments,” explained Dr Hajjar.

In addition, the IsDB has already invested US$3.5bn through its Strategic Preparedness and Response Programme (SPRP) to support pandemic health, food emergencies and recovery programmes in its member countries. Dr Hajjar and Dr Sidi Ould Tah, CEO of BADEA, signed a co-financing agreement at end May 2021 aimed at boosting development projects in common member countries in Africa over the next four years. The IsDB, one of the world’s most proactive issuers of Sukuk, is keen to leverage Sukuk in financing infrastructure and through export credit and investment insurance and guarantees.

In the past ten years, the two institutions have co-financed some 12 projects in Ivory Coast, Guinea, Gambia, Sierra Leone, Mali, Senegal, Chad, Niger, Mozambique and Mozambique in trade, water, sanitation, agriculture, transport, energy and health sectors.

Other IsDB Group entities are also involved. The Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC), the export credit and investment insurance agency of IsDB Group, for example provided $50m in insurance cover through its Bank Master Policy (BMP) in May to support BADEA’s participation in a syndication with the International Islamic Trade Finance Corporation (ITFC), the trade fund of the IsDB Group, and BMCE Bank of Africa.

The syndication is to provide financing to the ECOWAS Bank for Investment and Development (EBID). The financing will facilitate the import of strategic goods from Arab countries to member states of ECOWAS (the Economic Community of West African States), strengthening the strategic South-South cooperation between Arab and African countries. This transaction marks the first Islamic BMP signed between ICIEC and a MDB.

“ICIEC and BADEA’s involvement,” confirms Oussama Kaissi, CEO of ICIEC, “has increased the availability of financing to EBID to not only facilitate the importation of strategic goods to ECOWAS countries but also support the business and growth of Arab exporters and enhancing strategic trade relations within the OIC – a foremost priority for ICIEC in light of the trade shocks presented by the pandemic.”

At the same time, the IsDB has also established a US$500 million Co-financing Facility with the International Fund for Agricultural Development (IFAD) to tackle climate change, improving food and water security in MCs. Each institution is contributing $250m to the facility which covers the 2021-2025 period. The two institutions have a long history of cooperation going back to 1979, four years after the IsDB was founded.

“Food and water security,” explained Dr Hajjar, “are strategic priorities for IsDB member countries, most of which are in arid and semi-arid areas. Demographic growth and climate change are increasing the pressure on these vital resources. The partnership will allow us to co-create financing and investment programmes that will address these challenges but also help our Member Countries tap into emerging global value chain opportunities to build resilience and create wealth in post COVID-19 world.”

According to Gilbert F. Houngbo, President of IFAD, the two institutions would cooperate in agricultural and rural development, agribusiness, value chains development, improved access to markets and rural financial services, improved access to employment opportunities and South-South and triangular cooperation. “Both institutions strive to improve the lives of the world’s most vulnerable people and contribute to ending poverty. We can strengthen our impact in areas of common interests, increasing climate resilience and using technology and innovation to maximize impact,” he added.

Cotton is a commodity particularly attracting attention including from new WTO Director-General Ngozi Okonjo-Iweala as the sector gears up for World Cotton Day in October. According to the International Cotton Advisory Committee (ICAC), cotton production and consumption are expected to increase in 2021/22, with production in West Africa expected to reach 1.5 million tonnes, representing 38% growth. Africa, says ICAC, has lagged behind in adopting new technologies especially for small cotton farmers.

The IsDB Group has been a strong supporter of the African cotton sector over the last two decades. The ITFC, for example, recently signed a US$750 million three-year Framework Agreement with Cameroon whereby ITFC will provide a US$250 million annual financing to support key sectors through integrated trade finance solutions. ITFC also extended an EUR98 million Murabahah financing facility to the state cotton company, Société de Développement du Coton (SODECOTON), to purchase vital agricultural inputs including pesticides, herbicides, cotton seed and soybeans.

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