Harnessing the power of African SMEs to deliver both nutrition and climate goals

Currently, 80% of Africans cannot afford a healthy diet, facing higher risk of chronic illnesses such as heart disease or diabetes. Only about 50% of fruit and vegetable volumes needed to meet WHO dietary recommendations are available on the continent, let alone accessible. At the same time, African countries are some of the most vulnerable to climate change and the combined effects of rising temperatures, CO2 concentrations, increasingly frequent floods and droughts will likely cause falling crop yields and reduce the nutrient content of foods. By 2050, under a 3°C warming trajectory, the number of Africans who are undernourished is expected to rise from 282 million to over 350m due to the effects of climate change. COP27, described as ‘Africa’s COP’, is a critical opportunity to focus attention on action on these challenges.

African small and medium enterprises (SMEs) produce over half of calories and over 80% of animal-source foods, fruits and vegetables, while processing or handling about 65% of food in later stages of the value chain. They are the key drivers of food supply, especially for the poorest and most vulnerable people.

SMEs require financing to grow and scale, but in Africa they often struggle to access finance. While impact investing volumes have been growing to a size of USD $1.164 trillion in assets under management (AUM), only a small percentage is allocated to food and agriculture. Even when available, many of these agriculture and food funds often focus on export crops, often with limited nutritional value, such as coffee and cocoa, that are not meant for consumption by people in low-income countries where they are produced. While agricultural exports are rising, the continent remains a net food importer at an annual cost of USD $43 billion and, without action, the continent’s food import bill could top USD $110 billion by 2025. The Global Nutrition Report 2021 estimates that an additional USD $39bn to $50bn is needed every year to close the finance gap and reach the nutrition targets of SDG 2, zero hunger. Similarly, current levels of climate finance are far from the predicted $15bn needed for climate adaptation in food and agriculture.

Helping to meet the needs of African agrifood SMEs can both increase the local supply of healthy and nutritious foods while incorporating low emission and climate adaptation responses. One example of an innovative approach to meet these needs is the Nutritious Foods Financing Facility (N3F), a first of its kind fund. The fund provides targeted financial support alongside technical assistance to SMEs across Sub-Saharan Africa, enabling them to invest in their businesses and increase access to nutritious foods through wider distribution and improved availability, as well as reduced environmental impact through decreased food losses.

The number of Africans who are undernourished is expected to rise from 282 million to over 350m due to the effects of climate change. Image: Omotayo Tajudeen/Pexels

The N3F has been designed as a collaboration between the Global Alliance for Improved Nutrition (GAIN) and Incofin Investment Management, an investment fund manager with EUR 1 billion in assets under management, focused on emerging markets. There are three components to the N3F: a direct investment fund, a technical assistance facility for the SMEs, and an enabling environment component which aims at sharing learnings from the N3F on impact metrics and monitoring, with the goal to attract further investment capital towards nutrition.

Environment and climate have been fully integrated into the design of the N3F as one of five impact areas that the N3F will assess throughout the investment cycle. For instance, the Fund will assess its investees plans or processes to reduce the use of natural resources; plans to reduce carbon footprint, plan to expand renewable energy practices, recycling programs, policies to measure and address food waste/food loss; the reduction of plastic in other packaging pollution among others. Each SME engaged with the N3F will have its contribution to the environment and climate assessed at two stages in the process, first at the investment decision point (impact audit) and later during the monitoring and reporting on the impact of the fund.

These assessments will also be used by the technical assistance arm of the N3F to ensure that SMEs have a sound climate agenda. For instance, leveraging GAIN’s experience from the Postharvest Loss Alliance for Nutrition, the N3F will support SMEs in adopting technologies such as cold storage units, extending products shelf lives and best handling practices to reduce food loss and waste. Reducing food loss and waste has significant climate mitigation potential with an estimate 6-8% of all greenhouse gas emissions arising from the production, processing and transport of food which is later wasted.

The N3F is a proof of concept and the ambition is far beyond the initial fund, and aims to prove that nutrition is investible, that it can be achieved simultaneously with climate goals and unlock additional funding to transform Africa’s food systems.

For instance, by investing and supporting the scale up of SMEs that supply foods fortified with essential micronutrients, the N3F aims to counter the impacts of climate change on the micronutrient values of crops, which is estimated to place hundreds of millions of people at risk of iron, zinc and protein deficiencies.

The N3F is just one of the many solutions needed at COP27. We must integrate action on nutrition and climate, and scaling-up action to support African SMEs is a critical lever to do this. Governments around the world must commit to supporting the communities most affected by climate change. Businesses and investors must help to fund and scale-up the solutions, including innovative financing mechanisms such as the N3F. Together we can harness the power of SMEs to drive a transformation of Africa’s food systems to both address climate change and provide a healthy and sustainable diet for all.