Type of Review: Annual Review
Project Title: Additional funding to Africa Agricultural Development
Company (AgDevCo)
Date started: July 2013
Timeframe of Annual Review: July 2013 – December 2013
Date review undertaken: 26 May to 23 June 2014
Instructions to help complete this template:
Before commencing the annual review you should have to hand:

the Business Case or earlier project documentation.

the Logframe

the detailed guidance (How to Note)- Reviewing and Scoring Projects

the most recent annual review (where appropriate) and other related monitoring reports

key data from ARIES, including the risk rating

the separate project scoring calculation sheet (pending access to ARIES)
You should assess and rate the individual outputs using the following rating scale and description.
ARIES and the separate project scoring calculation sheet will calculate the overall output score taking
account of the weightings and individual outputs scores:
Description
Scale
Outputs substantially exceeded expectation
A++
Outputs moderately exceeded expectation
A+
Outputs met expectation
A
Outputs moderately did not meet expectation
B
Outputs substantially did not meet expectation
C
1
Introduction and Context
What support is the UK providing?
The UK will provide up to a total of £79.08 million (£76.58 million to AgDevCo) made up as follows:


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£50.0 million of re-deployable capital over 5 years (July 2013-June 2018) to catalyse private sector
investment in agriculture and agribusiness infrastructure through Africa Agricultural Development
Company Limited (AgDevCo), an affiliated facility of the Private Infrastructure Development Group
(PIDG). AgDevCo will set up 3 new SMEs Catalytic Funds in Malawi, Zambia and Ghana of £10
million each funded by DFID Country Offices and a new Regional Innovation Investment Fund of
£20 million funded by Africa Regional Department;
£15.58 million of additional re-deployable capital to catalyse private sector investment in
agribusinesses through AgDevCo for specific investment in 3 projects in Tanzania;
£11.0 million from Private Sector Department to AgDevCo under the PIDG Business Case for
mainly early-stage and greenfield large-scale agribusiness infrastructure, predominantly irrigation or
irrigated large-scale production; and
Up to £2.5 million funding for an independent impact evaluation and research component in
multiple countries to generate evidence and learning on stimulating private sector investment in
agriculture that maximizes developmental benefits for smallholders and women. The budget for this
component has recently been revised down to up to £1.8 million.
The proposed coordinated Africa Division (AD) and Private Sector Department (PSD) funding
framework will reduce transaction costs and increase institutional learning. It will be open to future
contributions from other Country Offices and will contribute to a more strategic focus in UK support to
agriculture transformation in Africa through private sector investment. The scale-up funding is currently
disbursed through the Private Infrastructure Development Group (PIDG).
Through the provision of debt and equity AgDevCo will recoup a substantial proportion of the funds it
invests. As a non-profit-sharing investment company with an already proven impact investment model,
AgDevCo will redeploy funds into future projects generating even greater employment, income and
development outcomes. AgDevCo estimates that 75% of projects will reach exit with funds being
returned to AgDevCo. In this way UK aid money will be redeployed several times over, multiplying the
developmental impact.
What are the expected results?
By 2018, DFID funding to AgDevCo will allow leveraging of private sector investment in African
agribusiness and agriculture infrastructure. The intervention will contribute to inclusive agriculture sector
growth which benefits SMEs and smallholders in five African countries (Malawi, Mozambique, Zambia,
Tanzania, Ghana).
By 2018 the intervention will produce the following results, assuming an estimated 25% failure rate of
investees:


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

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Development or expansion of 57 agribusiness enterprises that are financed, owned or operated on a
commercial basis (4 large, 24 medium and 29 SME investments) which will result in an additional
sales turnover for these enterprises of £122m;
189,988 additional outgrowers engaged in agribusiness and increasing household income;
7,543 (50% women) additional FTE jobs created in enterprises supported by AgDevCo;
34,370 hectares of additional land under irrigation;
124,325 metric tonnes of additional processed throughput;
An additional $22.44m generated in regional trade;
AgDevCo investments are expected to create jobs and income which will directly benefit 873,945
additional people (50% women) and will positively impact at least 996,791 people through indirect
additional investments and improvements in agriculture infrastructure.
2
By 2021, 75% of the investment will be returned to AgDevCo to be used for reinvestment, so permitting
UK aid money to be redeployed and multiplying the estimated developmental impact.
What is the context in which UK support is provided?
Africa is recognised as the continent with the most unexploited potential for agriculture production1.
Africa’s food markets, currently valued at US$313 billion a year, could grow to US$1 trillion by 2030 if
Africa’s farmers and agribusinesses were able to access more capital, electricity, better technology and
irrigated land, according to the World Bank2. Sustained economic growth of around 5% p.a. combined
with strong domestic and global demand for food and agricultural commodities, offers the opportunity to
develop agribusiness and transform agriculture in Africa in a way that creates jobs and income for the
large African smallholder base.
Despite Africa’s agricultural potential there has been relatively little investment in commercial
agriculture, even in countries where the policy environment is now more supportive. This is largely
because investors face very high costs and risks associated with early-stage development – including
high land clearing costs, lack of essential infrastructure (e.g. bulk water supply, electricity connections,
feeder roads), lack of an experienced workforce and poor access to affordable finance, especially for
emergent and smallholder farmers. More generally there is a lack of a supporting network of service
companies (e.g. inputs suppliers, logistics companies, rural finance providers), which further increases
operating costs for pioneering agricultural investors.
Country Catalytic Funds
Country level funding for the setting up of in-country SME Catalytic Funds will address the specific
needs of existing SME agribusinesses for:



Additional equity and debt finance for working and long-term capital
Better linkages to markets and commercial demand, and
Managerial and technical capacity strengthening.
Investing in the development of clusters of commercially viable SMEs linking in larger numbers of
smallholders will complement existing investment in large-scale agribusiness and agriculture
infrastructure funded by DFID and other donors through PIDG. AgDevCo will combine social venture
capital with technical assistance to address the financial and technical constraints to SME participation
in agricultural value chains.
Regional Innovation Investment Fund
Africa Regional Department will support a new Regional Innovation Investment Fund for innovative
agribusiness ventures with the potential to substantially stimulate production in multiple countries. In
response to growing and evolving local, regional and global demand, agriculture is developing into a
more modern, competitive system driven by consumer demand for higher value, more processed
products, with more consistent quality and safety standards. The development of modern regional food
value chains in Africa is an opportunity to maximise local economic growth and job creation while
increasing the competiveness of the regional agriculture sector.
Investment in innovative medium to large scale agro-processing is constrained by3:


High front end costs and risks related to the absence of physical infrastructure (rather than to land
clearing, preparation and development);
The need to ensure a reliable throughput in a fragmented and thin market which increases risks
Africa holds almost 50% of the world’s uncultivated land which is suited for growing food crops, comprising as many as 450 million hectares
that are not forested, protected or densely populated. Africa uses less than 2% of its renewable water sources, compared to a world average of
5%. Its harvests routinely yield far less than their potential and, for mainstay food crops such as maize the yield gap is as wide as 60% to 80%.
Post-harvest losses run to 20% for cereals and are higher for perishable products due to poor storage and poor farm infrastructure.
2
World Bank (2013), Growing Africa: Unlocking the Potential of Agribusiness.
3
World Bank (2013), Growing Africa: Unlocking the Potential of Agribusiness; Tyler and Dixie (2012), Investments in Agribusiness: A
Retrospective View of a Development Bank’s Investments in Agribusiness in Africa and East Asia.
1
3
and costs for investors.
Unless these needs are addressed, the current trends of increased imports to meet the emerging and
evolving local demand will continue, negatively impacting countries’ balance of payments position,
while the possibilities for neighbouring countries to trade with each other remain largely untapped.
Regional Innovation Investment Funds provide the opportunity to consolidate the integration of SMEs
and smallholders into modern regional value chains, stimulating cross border trade and generating jobs
and income. Access to regional markets will increase profitability and sustainability of SMEs funded
through national SME catalytic funding, ensuring that they share in the growing regional food and
agribusiness sector linking in larger numbers of smallholders. Conversely, tapping into more reliable
and higher quality agricultural production through linkages to SMEs clusters will increase the viability of
regional agro-processing investments.
Improved Coordination and Strategic Approach
The proposed new coordinated funding from Africa Division for country level SME Catalytic Funds and
for a Regional Innovation Investment Fund and larger co-investment in Tanzania will complement
existing funding to AgDevCo, including:
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
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DFID Private Sector Department funding of £11 million through PIDG for social venture and patient
capital, mainly into early-stage and greenfield large-scale agribusiness infrastructure,
predominantly irrigation or irrigated large-scale production;
DFID Mozambique funding to AgDevCo to manage Beira Agriculture Growth Corridor Catalytic
Fund (£6.5 million accountable grant); and
DFID Ghana funding to develop two large-scale irrigated outgrower farm hubs in Northern Ghana
(£2.47 million accountable grant).
The new Africa Division framework will both significantly scale up support through AgDevCo and
address the need for a more strategic and coordinated UK approach to leveraging private sector
investment in African agriculture and agribusiness maximising development benefits. Rigorous learning
from the independent evaluation and research component will inform wider UK strategies for
agriculture transformation in Africa and lessons learned will be shared widely with other programmes
and other donors operating in the region.
Section A: Detailed Output Scoring
Output 1: Develop or expand agribusiness enterprises that are financed, owned or operated on
a commercial basis by AgDevCo
Output 1 score and performance description: A+ (Outputs moderately exceeded expectation)
A+ score is awarded because actual results exceeded planned results by a good margin in almost all
cases.
Progress against expected results:4
Milestone
2013
Achieved
2013
1.1 Number of enterprises created or expanded (cumulative): a) SME
businesses, b) Medium size financial investments, c) Large project
development investments
a) 2
b) 6
c) 0
a) 3
b) 4
c) 1
1.2 Volume of investment committed in agribusinesses or agricultural
development projects (cumulative) ($m)
$7m
$8.6m
$0.89m
$1.4m
Indicators
1.3 Increase in Agribusiness turnover (cumulative) ($m)
4
Throughout this review, data measuring actual achievements has been provided by AgDevCo which in turn has collected impact data that has
not been verified. Checking on the reliability and accuracy of data sources is a task for the independent Evaluation Manager when appointed.
Examination and validation of data collection and reporting processes and systems by AgDevCo are a specific component of the Evaluation
Manager ToRs.
4
Indicator 1.1 – overall target (8) achieved although with a slightly different balance of investment sizes
than planned. Two out of three metrics achieved and one metric two-thirds achieved.
Indicator 1.2 – over-achieved by 23%.
Indicator 1.3 – over-achieved by 57%.
AgDevCo’s investments of $8.6m up to 31st December 2013 have helped to develop or expand 8 small,
medium and large agribusinesses. Achievements on all three indicators have equalled or exceeded
milestone targets for the period, due largely to networking contacts at country level with agribusinesses
already working with smallholders, or with plans to contract with smallholders, which allowed early
stage investments to proceed on or ahead of schedule.
Logframe amendments5
Indicator 1.2 requires amendment to ensure that M&E does not face future measurement and reporting
problems:



Disbursed should be changed to committed
The indicator should state value (and not volume).
The meaning of investment is ambiguous – AgDevCo’s should be inserted before investment.
Indicator 1.3 requires amendment because it does not adequately measure successful business
development:

Sales turnover is an inadequate concept as either a direct measure, or a proxy measure, of
successful business development. Profit is the most relevant measure (though might not always be
available or reliable for an SME investment) and either pre-tax profit, EBIT (earnings before interest
and tax) or EBITDA (earnings before interest, tax, depreciation and amortisation) should replace
sales turnover. However, profit measures are likely to record negative value, typically for the first 3
years.
NB: Recommendations for logframe improvements made throughout this review should be
considered by the Evaluation Manager due to be appointed in July 2014, in cooperation with
DFID and AgDevCo
Recommendation 1: Logframe amendments should be made as follows:
- Indicator 1.2 should be amended to read as follows: Value of AgDevCo’s investment
committed in agribusinesses or agricultural development projects ($m)
- Indicator 1.3 should be amended to read as follows: Increase in agribusiness net profits ($m)
Impact Weighting (%): 30%
Revised since last Annual Review? No
This is the first Annual Review. No revision is proposed.
Risk: High
Revised since last Annual Review? No
The risk rating should be raised from Medium-High to High to reflect properly the probability (high) and
impact (high) of the risk of failure of investments in small- to medium-scale agribusinesses in SubSaharan Africa (SSA) countries. This is consistent with AgDevCo’s own assessment of its performance
risk (failure to meet financial or impact expectations). Performance risk is the only risk carrying the
highest probability rating (“highly likely”).
Output 1 assumptions do not include the high risk of failure of investees or of outgrower projects which
are stated in the Business Case at 25%. Research based on CDC investments found that only 55% of
projects achieved financial self-sufficiency; while AECF investments carry a 30% risk of outright failure.
One of the main challenges will be mitigating the risk of either outright failure of the investee
(insolvency) or failure of the investment to achieve intended results (see more detail in Challenges
below).
5
Note that no attribution of results to DFID and other funders has been attempted in this Annual Review.
5
Recommendation 2: Output 1 risk rating should be raised to High.
Recommendation 3: The following assumption should be added to Output 1: The failure rate of
investments including both outright insolvency and failure to achieve development impact
results will not exceed 25%. (Note: this assumption should also be added to Outcome.)
Output 2: Increase integration of smallholders into commercial agribusinesses through access
to irrigation, processing infrastructure, modern inputs, etc
Output 2 score and performance description: A++ (Outputs substantially exceeded expectation)
A++ score is awarded because actual results exceeded planned results by a very large margin6
Progress against expected results:
Indicator
2.1 Number of smallholder farmers engaged7 in agribusinesses (cumulative):
(a) male farmers; (b) female farmers; (c) total individuals benefitting (i.e. total
male and female farmers multiplied by household size)
Milestone
2013
Achieved
2013
a) 10
b) 10
c) 92
a) 1,484
b) 1,475
c) 13,611
AgDevCo’s investments are assisting 2,959 smallholders (49% women). Although the overachievement of engagement with smallholders (due to the early launch of investments) should be set
against low intended results, the output of “integration...into commercial agribusiness”, a longer-term
achievement, has not been recorded. This omission, which will add a qualitative dimension to the
broad metrics, is rectified in the recommendations below.
Logframe amendments
Indicator 2.1 should not measure results cumulatively since results are stocks (not flows). Note: the
entire logframe should contain annual metrics (not cumulative) unless a cumulative measure would
give a more accurate picture of development impact. It is easy enough to produce cumulative results
from annual results, if required.
A single indicator measuring only numbers of smallholders is inadequate. The Output should measure
smallholder integration into commercial agribusinesses. Additional indicators should therefore be
added to measure the criteria by which increased numbers of farmers are integrated into commercial
agriculture, as follows:



Indicator 2.2 – Increase in number of smallholder farmers using improved inputs
Indicator 2.3 – Increase in number of smallholder farmers selling to aggregating, storage or food
processing services
Indicator 2.4 – Increase in number of smallholder farmers using agricultural extension services8
Recommendation 4: Indicator 2.1 should be amended, as follows: delete cumulative.
Recommendation 5: Additional Output 2 indicators should be added, as follows:
- Indicator 2.2 Increase in number of smallholder farmers using improved inputs
- Indicator 2.3 Increase in number of smallholder farmers selling to aggregating, storage or food
processing services
- Indicator 2.4 Increase in number of smallholder farmers using agricultural extension services
Impact Weighting (%): 30%
Planned results are for only 6 months. Actuals are based on AgDevCo’s monitoring and data collection processes and system which have not
yet been examined and validated by the independent Evaluation Manager, who will be appointed in July 2014.
7
Numbers are additional to those already engaged unless AgDevCo’s investment has 'sustained' the engagement. 'Engaged' is defined to
include smallholders who are the target of the intervention, selling products, receiving a service and/or buying a product.
8
To include extension services supplied by government and hub agribusinesses.
6
6
Revised since last Annual Review? No
This is the first Annual Review. No revision is proposed.
Risk: Medium-High
Revised since last Annual Review? No
There is no reason to revise the risk rating of this indicator.
Output 3: Increase employment through the development of agribusinesses
Output 3 score and performance description: B (Outputs moderately did not meet expectation)
B score is awarded because actual results did not achieve planned milestones: the result for men
achieved 70% of the milestone; and results for women achieved only 38% of the milestone.
Progress against expected results:
Indicators
3.1 Number of jobs created (FTE) (cumulative): a) men; and b) women
Milestone
2013
Achieved
2013
a) 132
b) 132
a) 93
b) 50
The results for jobs created in investees are below plan because of delays in registering and receiving
licences and permissions for agribusinesses from government ministries and agencies. Jobs are net
new jobs calculated as full-time equivalents (FTEs) as defined by the employer, and include the selfemployed (field sales agents), and where 2 seasonal workers count as 1 FTE. AgDevCo has included
jobs “sustained” which are jobs that would have been lost if it were not for AgDevCo’s investment.9
Logframe amendments
Indicator 3.1 should not measure results cumulatively since results are stocks (not flows).
Recommendation: The same logframe correction as R4 should be made to Indicator 3.1.
Impact Weighting (%): 10%
Revised since last Annual Review? No
No change to the impact weighting is proposed.
Risk: Medium
Revised since last Annual Review? No
There is no reason to revise the risk rating of this indicator.
Output 4: Increase agriculture-supporting infrastructure in targeted countries
Output 4 score and performance description: A (Outputs met expectation)
A score is awarded because actual results for the one indicator due to be measured in 2013 met
expectations; the second indicator is not due to be measured yet.
Progress against expected results:
Indicators
4.1 Increase in hectares of irrigated land (ha)
Milestone
2013
Achieved
2013
310
310
The DCED Standard defines net additional jobs created as: “Net additional, full time equivalent jobs created in target enterprises as a result of
the programme, per year and cumulatively”. AgDevCo does not use the DCED standard of 240 working days p.a.
9
7
4.2 Increase in processing throughput/capacity (MT cumulative)
0
not due to be
measured yet
The increase in irrigated land comes from just one investment in Malawi where outgrowers have
established a cooperative to farm 310 ha of sugarcane using water pumped from the Shire River. It is
still too early to assess increases in processing capacity.
Logframe amendments
Indicator 4.1 should not measure results cumulatively since results are stocks (not flows).
Recommendation: The same logframe correction as R4 should be made to Indicator 4.1.
Indicator 4.2 cannot measure processing throughput (a flow) and capacity (a stock) in the same
indicator. It is proposed that capacity be deleted as throughput is sufficient.
Recommendation 6: A correction to Indicator 4.2 should be made as follows: delete capacity.
Impact Weighting (%): 30%
Revised since last Annual Review? No
No change to the impact weighting is proposed.
Risk: Medium
Revised since last Annual Review? No
There is no reason to revise the risk rating of this indicator.
Section B: Results and Value for Money
1. Progress and results
1.1 Has the logframe been updated since last review? No
This is the first Annual Review. Changes to the logframe are recommended above and are summarised
below in Section 7.
1.2 Overall Output Score and Description: A+ (outputs moderately exceeded expectation)
The overall output score is based on individual scores as follows:
Output 1 = A+
Output 2 = A++
Output 3 = B
Output 4 = A
1.3 Direct feedback from investees/beneficiaries
Malawi
Investee – Phata Sugarcane Outgrowers Cooperative Society (Chikwawa, lower Shire Valley)
Phata Sugarcane Outgrowers Cooperative Society has 379 members of which 172 are women (45%).
There is an elected Board of Directors – the review team met the Chairman, Vice Chair and Treasurer.
The membership is divided into 13 groups each with a leader. There is a MWK500 membership fee and
members are paid a dividend once Illovo (the hub supplier/customer) has paid for the season’s output.
The Coop was founded in 2011 when plots were GPS mapped and a 99 year lease on 300 acres
negotiated for the Coop (plot sizes range from 0.8 ha to 4 ha). Farmers produce a mix of sugarcane,
maize, cotton, sorghum, millet, sunflowers, etc. Sugarcane is grown under centre pivot irrigation
systems. Infill crops (mainly maize and beans) are planted between the circles of sugarcane. Illovo
supplies seeds, fertiliser and herbicides to Coop members and provides credit which is repaid once
sugarcane is delivered to the factory. The first season ended in November 2013 with a sugarcane
harvest of 32,000 MT. After costs and repayment of outstanding short-term debts, a dividend was
8
declared amounting to MWK64.5m (£97,000) or 60% of net profit or approximately MWK170,000
(£256) per smallholder.10 This only reflects the first provisional dividend payment. Total net profits for
the year were $360,000. The Coop policy is to pay our 60% of net profit as a dividend with the
remainder reinvested. To date members have received a cash dividend of $560 (£340) each for the first
season.
Phata’s first season produced a yield of 106 MT/ha and an 11% sucrose yield, which was said to be
much higher than yields produced by individual smallholders. Breakeven is approximately 60 MT/ha.
Farmers reported a rise in seasonal smallholder income from MWK40,000 (£60) to MWK170,000.
Households typically spent the dividend on new or improved housing, school fees, bicycles,
motorcycles and savings in a revolving loan fund.
Phata are being assisted by Agricane, a specialist agribusiness and agriculture consultancy which has
worked with nearby Illovo sugar factory since 2008 to create a hub-outgrower model that satisfies all
parties and qualifies for donor funding. Agricane secured EU grant funding of €2.4m for Phata as well
as an AgDevCo loan of $503,810. Agricane negotiated a supply contract between Phata and Illovo for
the output of 300 ha of sugarcane. The output of a further 300 ha has been offered to Phata by Illovo.
Agricane will provide a full range of support to the Coop over five years, including management of
operations and business and agronomy training.
Beneficiaries – farmer members of the Phata Coop


William: owns a general dealer in Chikwawa. He used to grow cotton but has replaced cotton with
higher value sugarcane. He is very pleased with the dividend and has used his income to pay
school fees and add to his savings. His small business already produces a profit which he has used
to build a house.
Ibrahim Bwanasi: manages his father-in-law’s joinery business in Chikwawa. He has built a small
house and bought a bicycle with his dividends which have “changed his life” for the better. He
expects even higher income next season. Neighbouring communities have heard about their
success and want to join their Coop or start their own project.
Hub grower and processor – Nchalo Estate, Illovo Sugar (Malawi) Ltd
Illovo owns 13,600 ha of sugar estate at Nchalo, employs 5,600 staff and contributes R3bn to the
Malawi economy. The company supports 2,434 outgrowers and 13,000 indirect labour.
Phata has a written three year supply agreement with Illovo. There have been no difficulties with the
agreement (no arbitration has been invoked). Phata’s rateable delivery was below standard last season
but is now slowly catching up.
According to Illovo’s General Manager, the main risks to long-term success are a) disputes in the Coop
arising over land tenure (these have undermined outgrower agreements in South Africa where Illovo
also operates with the hub-outgrower model) and b) viability of the financial model. In respect of a),
Phata’s land has been surveyed and mapped, which should reduce the risk of disputes. In respect of
b), with thin margins (sugar is a commodity susceptible to global market conditions) and no real
bargaining power, the Coop has to manage its finances very carefully. Overheads must be kept to a
minimum which is possible only by scaling up production to take advantage of economies of scale..
AgDevCo’s own detailed financial modelling based on conservative assumptions shows the project is
fully sustainable at 300ha in current market conditions and the project is already outperforming
AgDevCo’s financial projections. Risks remains (eg the sugar price post-2017) and there could be
benefits in expanding the scheme (planned for a phase 2). Phata’s internal capabilities to manage its
affairs are being developed by Agricane, and developing fully competent technical and management
capabilities in five years from a very low competence base is certainly challenging. Agricane agreement
could be rolled over for at least another 5 years on the same terms – a clause inserted into the contract
by AgDevCo envisages this possibility. Alternatively, if the Coop wanted to select another manager
and/ or appoint professional management staff AgDevCo will work with them (through its seat on the
Coop board) to achieve this. In the meantime Coop members are being exposed to modern agricultural
management techniques and training. This “hands on” experience is essential to build a cadre of
indigenous commercial farmers.
10
GBP £1 = MWK665.73 (08Jun14). http://www.oanda.com/currency/average
9
Zambia
1. Investee (hub) – NWK Grain Handlers Ltd (Mpongwe, near Ndola)11
NGHL is a start-up grain handling business (storage depot, logistics and procurement agent) in the
Mpongwe District of the Zambian Copperbelt. It is a joint venture between NWK Agri-Services Zambia
Limited (60%), a South African cotton and grain trader, and Golden Lay Agri Limited (30%), a Zambian
egg producer. Both companies are backed by international investors. AgDevCo has invested $70,000
for 10% of the equity and has provided a $2m loan over 8 years.
AgDevCo’s investment will create grain buying, storage and distribution capacity of 40,000 MT p.a.
from year three and will benefit 5,000 smallholders. Goldenlay will purchase some 11 MT of NGHL’s
output.
NGHL will purchase grain (maize and soya) from individual farmers and will provide access to inputs
and extension services. The investee does not intend to contract with farmers in the first season
(deliveries to the facility will start in June 2014) but contracts may follow in later years. The company
claims that contracts are more difficult to monitor in grain farming because of side-selling.
The AgDevCo negotiations were protracted (9 months) but straightforward and the local AgDevCo
team was very cooperative. The project might not have been launched readily without AgDevCo’s
funding, although private finance could have been sought so the project could have gone ahead
anyway, albeit more slowly. Loan finance from commercial banks is available at ±7% ($ loans, but at
±20% for local currency) to a company with a robust balance sheet and experienced investing partners.
AgDevCo’s loan is more flexible (moratorium) and is subordinate to other borrowing which means that
external loan financing is not impaired.
NGHL expects to buy at ZMW1.3/kg – 1.4/kg, although farmers are optimistically hoping for upwards of
1.4/kg. Grain prices tend to rise slightly during the main buying period from June through to September.
The investee reported that the main risk to future progress is a) climate change, b) unpredictable
government action (agricultural policy) and c) strikes in input sectors (power, haulage). The company
can do little or nothing to mitigate these risks, apart from lobbying through active membership of the
grain handlers’ association (the CEO is chairman).
Beneficiaries – farmer outgrowers
Nine farmers (one woman) who plan to join the scheme were interviewed, as follows:
- George – owns 145 ha; part cultivated with maize, soya, groundnuts, sunflowers, beans
- Amos – owns 6 ha; part cultivated with maize, sweet potato, groundnuts, beans
- Lericon – owns 35 ha; part cultivated with maize, soya, groundnuts, sunflowers, beans and cattle
- Leonard – owns 10 ha; part cultivated with maize
- Agnes and Kasengo – own 85 ha; part cultivated with maize, soya, groundnuts, beans
- Frederick – owns 6 ha, part cultivated with maize, groundnuts
- Manje – owns 50 ha; part cultivated with maize, groundnuts, cattle
- Peri – owns 47 ha; part cultivated with maize, cattle
- Treno – owns 67.5 ha; part cultivated with maize, soya, groundnuts
Their main problems are: lack of markets for non-grain crops (groundnuts, beans); grain prices are still
too low due to the absence of a food processor value chain (there are higher prices paid in some areas
but transport costs are prohibitive); it is still difficult to get credit, so they need an outgrower scheme
that supplies credit.
The farmers will benefit from the NGHL scheme because: a) cash is paid on delivery (some buyers
keep them waiting e.g. the FRA can pay 3 months late); b) their bags will be returned (others don’t) –
bags cost ZMW2.5/bag; c) they know and trust the NGHL director; and d) contracts (which could be in
place from next season) will provide for the security of a floor price.
Other issues explored are as follows:

Smallholders can expand by purchasing land from village heads or from the government, but bush
clearing is very costly (ZMW1,000/ha);
11
Note that this investment was approved in Q1 2014 and therefore strictly does not belong in 2013. It was not possible to visit the only
investment approved and disbursed in 2013 (EPFC).
10



Most smallholders work with their wives (and other family members) on their farms;
They belong to a cooperative of 75 members; and
NGHL has been distributing leaflets to promote the scheme, but the farmers prefer a meeting to
discuss how the scheme will work, and would like regular dialogue with NGHL
2. Investee (hub) – New Rotations Zambia Ltd12
This is a $1.5m investment in a groundnut procurement and trading venture in Zambia’s Central
Province, creating scale by linking emergent smallholder farmers to international, regional and
domestic markets. It is a start-up joint venture with CHC Commodities Limited (45%) and Canon Garth
Group (55%), a UK trading company with supply contracts with Mars and Pepsi. By 2018 the project
will establish a commercial seed outgrower base of 2,500 ha and an emergent/smallholder outgrower
base of 5,000 ha farmed by 10,000 farmers.
The project is going through a seed certification process which should be completed by June 2015.
New Rotations will contract with small and large farmers throughout Zambia. Early stage contracts are
being negotiated with large hub farmers to begin the scheme on an experimental basis until full scale
operations can begin in 2015. New Rotations will provide extension services but not offer credit.
The AgDevCo due diligence process was supposed to be fast track but was very slow. The partners
could have borrowed elsewhere but at a higher interest rate and without such favourable conditions.
They are working well with the AgDevCo team and will discuss other possible projects with AgDevCo.
The main risks to ultimate success are a) local weather conditions, which are unpredictable and b)
political risks (government policy).
1.4 Summary of overall progress
The AgDevCo scale-up programme in only six months has achieved a very satisfactory set of
development impact results across all outputs and has excelled in two (Outputs 1 and 2). At 31st
December 2013 AgDevCo had committed $8.65m of funds to 8 investments in addition to $1.33m of
private and commercial finance in five target countries. AgDevCo had £48.3m left from DFID committed
funding for further investments until 2018. With a start date in July 2013, most investments up to
December 2013 were running according to plan with a strong pipeline into 2014. In Quarter 1 of 2014,
AgDevCo committed a further $3,995,000 to four investees in target countries; and more than $20m in
seven new projects was cleared in principal for full approval. No significant delays were anticipated by
AgDevCo in mobilising these investments.
Since the launch of the scale-up programme in July 2013, AgDevCo increased its staff complement to
45 people and established a clear organisational structure. By June 2014 AgDevCo will be at full staff
complement (57) with a Country Director and Country Manager in each of the five countries.
By December 2013 Operating Policies and Procedures (OPPs) were improved and implemented,
although upgrading of accounting software and customer relationship management (CRM) software
continues in most country offices. AgDevCo has appropriate governance policies, procedures and
mechanisms and is deliberating on new delegated authorities to reflect the growing scale of investment
activities.
Data measuring actual achievements has been provided by AgDevCo and has not been independently
verified, a task for the independent Evaluation Manager when appointed by DFID in July 2014. A
review of AgDevCo’s M&E strategy and an examination and validation of data collection and reporting
processes and systems at country level by AgDevCo are specific components of the Evaluation
Manager ToRs.
Recommendation 7: The independent Evaluation Manager should review AgDevCo’s M&E
strategy and examine and validate AgDevCo’s central and country data collection and reporting
processes and systems.
1.5 Key challenges
1. Risk identification, assessment and mitigation
12
This investee is in the pipeline. One of the principal investment partners, CHC Commodities, was visited.
11
If the assumed failure rate of investments is 25%, the assumed failure of projects to achieve
development impact should be higher. AgDevCo’s investees carry a degree of risk associated with a)
outright insolvency, b) the technical feasibility of the hub-outgrower model and its time to becoming
cash positive (lead times for bringing outgrowers to the point of financially sustainable commercial
operations might be much longer than anticipated), and c) the continuing propensity of both parties to
persevere with the model, particularly in the face of obstacles and uncertainties (whether internal to the
model e.g. contract dissention, or in the external business environment e.g. market factors).
[Note that the AECF Tanzania Agribusiness Window for example provides for a potential project failure
rate of 30%, with 40% achieving average performance and only 30% performing well. AgDevCo scaleup programme however has a much more handson approach due to equity investment and business
development services provided through the TA funds]
Two specific types of risk are of particular concern:



While each investment has its own particular risk profile, a high level of gearing – the majority of
AgDevCo’s investments are term loans – is itself a major risk due to the outflow of cash to cover
interest payments and repayments of principal. Such outflows normally require an investee to be
profitable with tight financial controls in place. Although it is too early to judge long-term cash flow of
individual investees, there is some doubt about long-term sustainability. One of AgDevCo’s
Zambian investments (EPFC) has not been able to repay its loan with the result that repayments
have been rescheduled. EPFC is a social enterprise with inadequate management systems and
controls.
Mitigation: AgDevCo attempts to leverage additional equity or grant finance from external sources
to reduce gearing; and provides business advice (BDS) to assist profit growth and improve
financial management systems. But SMEs and farmer cooperatives/FBOs have a very low
absorptive capacity (farming is hard enough without the additional burden of management) and
mitigations can have only a marginal effect on financial sustainability. The hub-outgrower model
adopted by the investee implies that the success of management arrangements is a key risk area.
For example in the case of Phata the future transition from the current management consultancy
arrangements will present a risk to be managed in the framework of the overall business
sustainaibility.. The first year Agricane management fee was $33,500, representing less than 3% of
revenues. Other fixed overhead costs (legal, insurance, audit, medical etc) amounted to $50,000.
The first year P&L shows that the project comfortably covered its fixed and variable costs and
made a net profit after tax of $357k (28% of turnover). This represents an impressive achievement
for a primary farming operation in its first full year of production.
The progress made by consultants Agricane in supplying early stage managerial capability in
combination with management capacity building is excellent and the exit strategy should consider
the need for continuous access to management services for the cooperative as foreseen by
AgDevCo.
In the case of Phata, first year results and AgDevCo’s detailed financial modelling show that sugarcane
gross margins are above 40%. This seems to prove that with irrigation and professional management
sugarcane provides a reliable cash flow stream which can sustainably cover operating costs and
overheads.
Alternative models, where the hub provides specific inputs directly to farmers in return for supply
loyalty and consistency – could be considered where concerns about commercial sustainability
increased. The models adopted by NGHL in Zambia and Illovo Malawi, where the hub deals direct
with farmers rather than through a cooperative or FBO, resulting in lower overhead (but higher
transaction costs to the company), may prove attractive if profit margins became thinner. Such
standard outgrower model however involves purchases from smallholders who do not have access
to irrigation and consequently achieve much lower yields, quality and incomes. Without irrigation
there are no opportunities for farmers to grow food crops all year round and sustainability is
therefore by no means guaranteed. In this sense Phata represents a more ambitious model, whose
early results are extremely encouraging but whose risks, sustainability and expansion should
continue to be monitored and assessed against alternative management arrangements.
Mitigation: The costs of building managerial competences in farmer based organisations (FBOs) can be
covered by AgDevCo loans. (Note: AgDevCo’s Investment Policy and Procedures, para 3.1.2, provides
12
for “a programme of support from AgDevCo once the investment has been made and/or a commitment
to pro-development impact elements of the opportunity.”) But mitigation should also include a)
convincing farmers to pay a lot more for effective and efficient management of their FBO to generate
higher sales revenues and profits, and b) more efficient management practices that gradually reduce
overheads over the life of the management contract. Bolder approaches to improving management
efficiency are also needed e.g. using ICT to bolster coordination, communication and transparency
within FBOs.
Recommendation 8: As part of its investment appraisal process, AgDevCo should evaluate the
options for managerial competence building in investees or beneficiary FBOs to improve the
chances of long-term commercial sustainability.
2. Indigenous entrepreneurs
AgDevCo’s current investments and pipeline depend almost exclusively on existing social and business
contacts and networks which are largely Euro-centric. AgDevCo has no specific marketing function and
very little promotional marketing. In order to reach agribusinesses owned by nationals in each country,
a formal marketing campaign is needed including links with local stakeholders and other DFID
programmes to explore and convert prospects in indigenous segments of the agribusiness market. This
will be a higher cost strategy (than prospecting among existing social and business networks) to pay for
the costs of a targeted systematic marketing campaign and more intensive TA, probably requiring a
higher level of funding. This would be a higher risk strategy than that currently being pursued.
Recommendation 9: AgDevCo should plan a properly resourced marketing campaign for finding
and securing investments in agribusinesses owned and managed by indigenous businessmen
and businesswomen in the five countries.
3. Stakeholder relationships and networking
There has been minimal stakeholder engagement in AgDevCo’s country programmes. Closer
systematic collaboration with stakeholders will secure marketing benefits (building a reliable deal flow),
facilitate access to agro-inputs and finance, help to resolve public policy and regulatory constraints and
generate support and ideas for a more inclusive investment policy.
Recommendation 10: AgDevCo should collaborate systematically with agribusiness
stakeholders to exploit synergies for the benefit of investees and smallholders.
4. Qualitative research into local change
What is happening to smallholder farmers in this programme? Are they reducing their own labour input
into their farms in favour of greater mechanisation and hired labour? What is happening to their
livelihoods and are there unintended negative effects? There is scope for local low-cost research that
can provide content for the required case studies under the LoA, particularly around behavioural and
livelihoods changes and the type of organisational model that can effectively produce development
impact. This can be achieved cost-effectively, for instance, by linking up with local agricultural colleges
and research institutes (and their student populations) to commission small-scale qualitative
longitudinal research to provide rich stories to supplement quantitative analysis. Mid-term or ex-post
evaluations will not easily be able to establish the finer points of behavioural change but local studies
can establish a baseline on which later evaluations can build.
Recommendation 11: AgDevCo Country Offices should investigate the possibilities for
commissioning local baseline research studies into qualitative development change.
5. Additionality
It is questionable whether all AgDevCo’s investments are creating additional benefits, narrowly defined,
beyond those which could have been created by loans from commercial banks. There are examples in
the current portfolio of investees with very considerable track records and strong balance sheets, yet
where investees have raised concessionary finance from AgDevCo. In a few cases, finance could have
been raised at a lower interest rate from commercial lenders. AgDevCo’s OPPs speak of the need for
additionality and the requirement at the appraisal stage that commercial funding is not available on
reasonable terms. (AgDevCo Investment Development and Appraisal Guidance. Annex A) In a wider
definition of additionality, AgDevCo brings to each investment agronomic expertise and technical
13
assistance not normally available from commercial lenders. It is important that AgDevCo continues to
apply its development impact additionality investment conditions rigorously to ensure that by financing
agribusinesses it achieves developmental impact additional to that achieved by the market.
Recommendation 12: AgDevCo should continue to apply its investment appraisal criteria
rigorously to ensure that additionality in its widest interpretation is present in all investments.
6. Attribution
The multiple sources of finance (owners’ funds, public sector donors, commercial financial institutions,
impact investors, philanthropists, etc) supporting AgDevCo investees make attribution particularly
difficult, thus careful attention needs to be given to which financial sources are responsible for which
results. The proposed M&E arrangements should focus on baseline and progress metrics that will
permit annual reviews and evaluation studies to assess readily attribution to DFID funding.
Recommendation 13: The independent Evaluation Manager commissioned by DFID should
make proposals for attribution of development impact results.
7. Reporting
AgDevCo reporting is burdensome for both authors and recipients and should be rationalised and
streamlined. AgDevCo is obligated (according to the LoA valid until 31/3/2015) to report to PIDG PMU
as follows:






annual business plan and budget
annual audited accounts
logframe monitoring reports
quarterly unaudited financial statements, including cash flow forecast and pipeline projects, P&L
and balance sheet, risk matrix, and funding required
quarterly progress report
case studies
There is merit in providing more narrative about project activities, whilst at the same time presenting
financial information more clearly. Website information could also be improved. AgDevCo quarterly
reports should contain the following information:






a table of current investments (committed and disbursed) and status issues
a table of the pipeline, including assessment of progress and investment probability
a table of pre-pipeline enquiries and other prospects and assessment of investment probability
actions taken against business plan for the quarter (as set out in annual plans) and issues arising
a table of changes in portfolio risk assessment
results progress against logframe and issues arising
Annual reports should also contain organisational issues such as staffing, capacity development and
systems/processes/governance issues.
Recommendation 14: AgDevCo should rationalise their DFID reports and propose a more
streamlined reporting process to reduce the burden to both parties. [by Quarter 3, 2014]
1.6 Annual Outcome Assessment
The Outcome of the AgDevCo scale-up programme is to leverage private sector investment in
agribusiness and agricultural infrastructure; increase agricultural cross border trade; and generate jobs
and income in targeted countries.
The investments made by December 2013 have begun to provide a contribution to achievement of the
intended Outcome, as follows:
Outcome Indicators
1. Volume of capital leveraged13 into agribusinesses a) private and b) DFIs
(cumulative) ($m)
Milestone
2013
Achieved
2013
a) 0
b) 0
a) $1,180,000
b) $150,000
Only 'additional' finance raised is recorded. ‘Private’ includes shareholders, commercial banks and private equity. DFIs include other impact
investors and/or international development agencies like IFC, AfDB.
13
14
2. Direct increases in household income of a) outgrowers and b) employed
(cumulative) ($)
3. Value of a) agricultural products exported or b) imported by agribusinesses
(cumulative) ($)
a) $4,715
b) $373,824
a) $970,950
b) $139,501
a) + b)
$208,000
a) 0
b) 0
80%
80%
4. Percentage of private sector investment in DAC I, II countries
The AgDevCo programme has after only six months managed to leverage $1.33m of private and DFI
finance into their agribusiness investees. This is still a long way from the intended leverage ratio of 2.4
to be achieved by 2018.14 Outgrower household income has increased significantly, albeit against a
very low baseline. On average, each farmer has benefited by $328 in the six month period to 31st
December 2013.15
Logframe amendments
Outcome Indicator 1 requires correction, addition and clarification, as follows:



Volume should be replaced by value, capital replaced by finance;
The logframe (version 21 May 2014) provides no planned results before 2017. All AgDevCo
investments from 2013 onwards, however, should involve some private and other institutional
sources of finance; and
Planned results in the logframe are not measured in millions therefore millions should be deleted.
Recommendation 15: Outcome Indicator 1 should be improved, as follows:
- Volume should be replaced by value, capital replaced by finance
- Planned results should be added for 2013-2016.
- Millions should be deleted from all indicators.
At present there is no allowance for measuring repayment of loan capital, a central feature of the
AgDevCo model. The intention is that loans repaid by investees to AgDevCo will be used to finance
new ventures and therefore create additional development impact. Thus an additional indicator should
be added at the Outcome level to measure the value of repaid loans – this is the correct level in the
results chain, because outputs are intended to produce profits (see Output 1 indicators), and if this
happens successfully, then in turn investees will accumulate cash from which loans can be repaid
(assuming that their financial management is of a sufficiently high standard).
Recommendation 16: Outcome Indicator 5 should be added, as follows: Value of loans repaid to
AgDevCo by investees ($m).
As with Output 1 above, Outcome assumptions do not include the failure rate of investments. An
investment failure assumption should be added to Outcome.
Recommendation 17: The following assumption should be added at Outcome level: The failure
rate of investments including both outright insolvency and failure to achieve development
impact results will not exceed 25%.
2. Costs and timescale
2.1 Is the project on-track against financial forecasts: Yes
The intervention is for £76.58m over five years. To 31st December 2013, £5.2m ($8.6m) of these funds
were committed which left AgDevCo with £48.3m still to invest from DFID committed funding (the
balance of £22.12m being for fund management and related overheads). These disbursements are on
track.
14
The DFID Due Diligence Assessment (March 2014) reported that AgDevCo intends to leverage at least £5 of commercial investment for each
£1 of DFID funds it invests.
15
This figure is derived from the total increase in household income (outcome indicator 2) and the total number of farmers engaged in
agribusinesses (output indicator 2.1).
15
2.2 Key cost drivers
The key cost drivers over five years are fund management and overheads (19.7%) and technical
assistance (5%). This compares with fund management and overheads costs of comparable
institutions, such as AECF at 20% and CDC Impact at 20%.
AgDevCo’s fund management and overhead costs in 2013 amounted to $5.4m on committed and
invested funds of $23.3m (23.2% of funds).
2.3 Is the project on-track against original timescale: Yes
Yes, the programme overall is on track after approximately six months, although individual countries
are at different stages of investment commitments and disbursements largely because of different
mobilisation dates.
3. Evidence and Evaluation
3.1 Assess any changes in evidence and implications for the project
Other agribusiness Annual Reviews in the region (such as the TZAW 2014 Annual Review) have made
the point that, because the market for agribusiness finance is becoming more dynamic, providers of
impact investment funding such as AgDevCo should continuously review their criteria for selecting
investees to take into account changing demand and supply conditions in the agribusiness finance
market, how they determine and disburse funds to investees and how they can work closely with
financial institutions to ensure their resources have the maximum leverage.
3.2 Where an evaluation is planned what progress has been made?
£1.8m has been set aside for an independent impact evaluation and research component in multiple
countries to generate evidence and learning on stimulating private sector investment in agriculture that
maximizes developmental benefits for smallholders and women. There will be a mid-term evaluation in
year 3 and a final evaluation to cover 6 years (2014-2020) which is being contracted out through a
competitive process by ARD with support from EvD and M&E specialists in spending departments. An
independent Evaluation Manager, to be appointed in July 2014, will make logframe improvements,
propose VfM measures and validate data and data collection processes and systems as part of the
ToRs within the first 5 months of contract.16
4. Risk
4.1 Output Risk Rating: Medium-High
All four outputs are assessed respectively as high, medium-high, medium and medium risk. The overall
risk rating is therefore assessed as medium-high.
4.2 Assessment of the risk level
AgDevCo maintains an updated risk register which currently contains 23 risks with summary details of
controls and mitigations. The two highest risks are:


Employee health and safety risk, and
Performance risk (failure to meet financial or impact expectations). Performance risk is the only risk
carrying the highest probability rating (“highly likely”).
The Business Case identified six risks to project success. The risks summarised below remain of
relevance.
16
The recommendations contained in this review should be taken into account by the Evaluation Manager, AgDevCo and DFID before the 2014
annual review.
16
Risk
Probability
Impact
Mitigation
1.
Regional macro-economic
stability is not sustained
M
H
Support to overall macro-economic stability
through DFID and other donor programmes
2.
Poor policy and regulatory
environment deters
investment in agriculture
infrastructure and
agribusiness
M
H
Criteria for selection of AgDevCo investments
include countries where business climate is
sufficiently well developed to attract private sector
investment in agriculture.
3.
Fluctuating political support
and strong vested interests
hinders commercial
investments
L
H
AgDevCo establishes and maintains good
relations with local counterparts. Ongoing policy
influence by DFID country offices and other
donors in-country.
4
Non-tariff barriers obstruct
cross-border trade affecting
throughput for regional
agro-processing investment
M
H
Criteria for selection of AgDevCo regional
investment include analysis of costs of tariff and
non-tariff barriers. Coordination with other DFID
programmes targeting NTBs.
5.
Fees charged for use of
improved infrastructure are
unaffordable by the poor
L
H
AgDevCo projects are structured to be viable and
pricing of services is pitched at an affordable level
to poor Africans.
6.
ARD money is used for
projects developed by
private sector without public
sector involvement
L
L
AgDevCo’s investment framework requires
additionality.
To this list should be added the following risk:
7. Investee failure to achieve development impact results (high probability, high impact)
AgDevCo investments carry a degree of risk associated with a) outright insolvency of the investee; b)
the feasibility of the chosen hub-outgrower model and its time to becoming cash positive (which will
delay achievement of development impact); and c) the propensity of both parties to persevere with the
model, particularly in the face of obstacles (which will either temporarily delay or permanently prevent
achievement of development impact). To mitigate these risks, AgDevCo’s investment policies and
processes will apply eligibility and evaluation criteria robustly and will ensure investees have the
competences to implement proposals; and AgDevCo will monitor, manage and report quarterly on
investee risk. This risk is discussed more fully in para 1.5 above.
Recommendation 18: The high risk of failure to achieve development impact results should be
added to the risk register.
4.3 Risk of funds not being used as intended
This risk is assessed as low.
The AgDevCo governance structure with PIDG has been clarified as follows: Some PIDG members do
not support a dedicated agriculture facility within PIDG, but PIDG will continue to support AgDevCo as
an affiliated facility and DFID and PIDG will investigate developing a structure outside of PIDG to
mobilise agribusiness investments. The PIDG PMU will develop a plan for submission to PIDG for
migration of funding for agricultural inputs from AgDevCo, and set out what an affiliated facility is.
(Minutes of the Governing Council meeting, November 2013)
DFID has not yet confirmed whether it intends to provide funding to AgDevCo through PIDG after 31
March 2015.
There are back-to-back agreements between DFID and PIDG (Letter of Arrangement dated 25 July
2013) and PIDG and AgDevCo. AgDevCo systems, processes and procedures for management of
fiduciary risks are outlined in its Operating Policies and Procedures (OPP) Manual and are robust.
DFID disburses funds to AgDevCo through PIDG. AgDevCo sends a Needs Letter to PIDG Trust PMU.
Once checked and approved, this is sent to ARD which then disseminates AgDevCo’s funding needs
to Country Offices. Needs are provisionally defined as “(i) the commercial requirements of AgDevCo to
maintain a stable and commercially sound business model and (ii) the financial funding requirements of
AgDevCo based on its expected short-term corporate operating costs and financial contractual
17
obligations (over the following 6 months) and long-term (longer than 6 months).” (PIDG PMU)
A forecast of drawdown from DFID funds is included in quarterly reports. ARD gathers a monthly
update on the forecast from relevant spending Departments and ensures coordination of Africa Division
disbursements and compliance with Country Level oversight. Funds are disbursed through PIDG for
which PSD has overall oversight.
DFID IAD provides an independent and objective opinion on the whole system of risk management,
control and corporate governance. Internal Audits will be conducted in DFID Ghana, Malawi,
Mozambique, Tanzania, Zambia and ARD between 2012-13 and 2015-16.
A conflict of interest (CoI) case arose in one of AgDevCo’s investments. The relevant investee Director
made a CoI declaration. The AgDevCo Board determined that the named Director had not influenced
the investment decision and decided to appoint the CEO of AgDevCo who has no CoI to negotiate the
investment. (AgDevCo Executive Committee Meeting minutes 3rd December 2013)
4.4 Climate and Environment Risk
PIDG affiliates such as AgDevCo operate in sectors and regions where there is a high risk of
environmental damage. The PIDG adopts World Bank rules on environmental safeguards and
specifically targets the development of low carbon energy projects. AgDevCo has developed specific
environmental standards and undertakes environmental impact assessments as part of its investment
appraisal process.
5. Value for Money
5.1 Performance on VfM measures
AgDevCo’s investments are only a few months old thus it is still too early to judge VfM. The recent
DFID due diligence assessment of AgDevCo, however, stated that DFID will be getting “very good
value for money”. DFID funds are invested as debt and equity rather than as grants, which means that
AgDevCo could recover most of its investment, make a modest financial return and reinvest funds in
new projects. By doing this, AgDevCo brings more resources into small agribusinesses to reduce
poverty by leveraging in private capital.
Taking the 3Es in turn – economy, efficiency, effectiveness:
Economy – Corporate costs compared to similar institutions are a key VfM measure. AgDevCo’s five
year plan shows that 19.7% of funds are allocated to overheads (4.7%) and fund management
(15.0%). This is in line with similar organisations: AECF is 20%, CDC is 20% and private equity funds
are typically at 10%. Technical assistance will amount to 5% of funds.
The Business Case points out that AgDevCo’s operations are more costly than private equity, impact
investment and challenge fund models. AgDevCo’s investments are small therefore fund management
economies of scale are not available. Close monitoring and technical assistance are also costly – early
stage investment requires close involvement – and the outgrower component of investments is typically
time consuming.
Suggested economy indicators:



Fund management cost ratio – fund management costs to total investment funds
Administrative cost ratio – fund management and overheads to total investment funds
Country administrative cost ratios – as above by country
Efficiency – AgDevCo has increased its capacity during 2013 and will be operating at an efficient scale
during 2014 once new staff, processes and systems have bedded down.
The average leverage ratio has been low in the first few months: AgDevCo has committed $8.65m of
funds to 8 investments against $1.33m of private and commercial finance, a leverage ratio of just 1:6.5.
This is far below the future expected leverage ratio of 2.4:1 (2018) and 4.2:1 (2025).
Suggested efficiency indicators:

Leverage ratio – private and DFI finance to committed AgDevCo investment
18


Disbursement rate – funds disbursed to investees to total investment funds
Loan repayment rate – value of loans repaid to total investment funds outstanding
Effectiveness – AgDevCo has shown early signs of facilitating growth in smallholder commercial
operations: 8 enterprises have been created or expanded engaging with 2,959 smallholders (1,475 or
49.8% are women). In addition, 143 jobs have been created (woman account for 35%).
Suggested effectiveness indicators:







Average investment ratio – total committed investment to number of enterprises financed
Smallholder engagement rate – total committed investment to number of smallholders engaged
Job creation rate – total committed investment to number of jobs created
Total development impact – number of households benefitting multiplied by average benefit per
household plus number of jobs created multiplied by average wage
Development rate of return – total development impact divided by total disbursed funds
Loan default rate – value of defaulted loans to total value of loans outstanding
Business failure rate – number of investees ceased trading
The appointment of an external Evaluation Manager in 2014 will address and resolve M&E VfM issues
particularly measures of economy, efficiency and effectiveness, and areas of improvement of
AgDevCo’s M&E.
Recommendation 19: The independent Evaluation Manager should agree VfM measures and
collection and reporting processes and systems with AgDevCo.
5.2 Commercial Improvement and Value for Money
The procurement policies of PIDG facilities were fully evaluated in the Multilateral Aid Review in 2010
(MAR) and in the recently approved PSD Business Case. PIDG was one of the top three performers in
the MAR, offering very good Value for Money. AgDevCo’s Procurement and Competitive Tendering
Policy and Procedures were approved by its Board in March 2013 and are fully compliant with PIDG
procurement policies.
5.3 Role of project partners
AgDevCo does not have project partners, but has some funding support from Small Foundation, DGIS
and other donors.
5.4 Does the project still represent Value for Money: Yes
AgDevCo is on track to represent good value for money.
5.5 If not, what action will you take?
No action required.
6. Conditionality
6.1 Update on specific conditions
There are no conditions attached to DFID funding.
7. Conclusions and actions
AgDevCo has made good progress in the period July to December 2013, committing $8.65m of funds
to 8 investments in addition to leveraging $1.33m of private and commercial finance. There are early
signs of growth in smallholder commercial operations: 8 enterprises have been created or expanded
engaging or contracting with 2,959 smallholders. In addition, 143 jobs have been created. AgDevCo is
building an investment pipeline in all five countries that should provide a satisfactory deal flow
throughout 2014.
19
There are early indications that investments are beginning to achieve development impact results –
agribusinesses are beginning to implement their plans for expansion and smallholders are seeing
commercial schemes generate increased incomes. In one case (Malawi), smallholders managed to
increase average household income by four times in the 2013/14 season.
Gender targets are being partially met: 49.8% of smallholders engaged are women (target exceeded);
and 35% of jobs created in target enterprises are for woman, although women achieved only 38% of
the job creation target for 2013 (men achieved 70%).
AgDevCo has been rapidly increasing its administrative and fund management capacity and upgrading
its operating policies, processes and systems in preparation for an increased deal flow and additional
funding from DFID and other donors. This additional capacity (people, processes and systems,
including new ICT) should be fully functional by the end of 2014 and be operating efficiently.
There are currently no VfM targets, although broadly there are no VfM concerns at this stage.
Recommendations have been made for the Evaluation Manager to develop and agree with AgDevCo
economy, efficiency and effectiveness measures. Some tentative indicators have been suggested.
There are no serious reported concerns for DFID’s management of the AgDevCo scale-up programme,
apart from the finding that AgDevCo’s reports as currently designed and produced create an
unnecessary burden for DFID and AgDevCo and should be streamlined – this includes tables of data,
portfolio narrative and financials.
The actions proposed in this Annual Review are summarised as follows:
Actions for DFID and Evaluation Manager: Logframe Amendments
A summary of recommended amendments follows. In addition, a general recommendation is that the
entire logframe should be checked for a) consistency of metrics measured in $m or just $, b) use of
“cumulative” when annual non-cumulative metrics will avoid ambiguity, c) the precise meanings of
indicators, some of which require a definition, and d) any typos.
Recommendation 1: Indicator 1.2 should be amended to read as follows: Value of AgDevCo’s
investment committed to agribusinesses or agricultural development projects ($m); Indicator
1.3 should be amended to read as follows: Increase in agribusiness net profits ($m).
Recommendation 2: Output 1 risk rating should be raised to High.
Recommendation 3: The following assumption should be added to Output 1: The failure rate of
investments including both outright insolvency and failure to achieve development impact
results will not exceed 25%. (Note: this assumption should also be added to Outcome.)
Recommendation 4: A logframe correction should be made to Indicators 2.1, 3.1 and 4.1 as
follows: delete cumulative.
Recommendation 5: Additional Output 2 indicators should be added, as follows:
- Indicator 2.2 Increase in number of smallholder farmers using improved inputs
- Indicator 2.3 Increase in number of smallholder farmers selling to aggregating, storage or food
processing services
- Indicator 2.4 Increase in number of smallholder farmers using agricultural extension services
Recommendation 6: A logframe correction should be made to Indicator 4.2 as follows: delete
capacity.
Recommendation 7: The independent Evaluation Manager should review AgDevCo’s M&E
strategy and examine and validate AgDevCo’s central and country data collection and reporting
processes and systems.
Recommendation 13: The independent Evaluation Manager should make proposals for
attribution of development impact results.
Recommendation 15: Outcome Indicator 1 should be improved, as follows:
- Volume should be replaced by value, capital replaced by finance
- Planned results should be added for 2013-2016.
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- Millions should be deleted from all indicators.
Recommendation 16: Outcome Indicator 5 should be added, as follows: Value of loans repaid to
AgDevCo by investees ($m).
Recommendation 17: The following assumption should be added at Outcome level: The failure
rate of investments including both outright insolvency and failure to achieve development
impact results will not exceed 25%.
Recommendation 18: The high risk of failure to achieve development impact results should be
added to the risk register.
Recommendation 19: The independent Evaluation Manager should agree VfM measures and
collection and reporting processes and systems with AgDevCo.
Actions for AgDevCo
Recommendation 8: As part of its investment appraisal process, AgDevCo should evaluate the
options for managerial competence building in investees or beneficiary FBOs to improve the
chances of long-term commercial sustainability.
Recommendation 9: AgDevCo should plan a properly resourced marketing campaign for
finding and securing investments in agribusinesses owned and managed by indigenous
businessmen and businesswomen in the five countries.
Recommendation 10: AgDevCo should collaborate systematically with agribusiness
stakeholders to exploit synergies for the benefit of investees and smallholders.
Recommendation 11: AgDevCo Country Offices should investigate the possibilities for
commissioning local baseline research studies into qualitative development change.
Recommendation 12: AgDevCo should continue to apply its investment appraisal criteria
rigorously to ensure that additionality in its widest interpretation results from all investments.
Recommendation 14: AgDevCo should rationalise their DFID reports and propose a more
streamlined reporting process to reduce the burden to both parties. [by Quarter 3, 2014]
8. Review process
This review was undertaken by an independent contractor, Peter Wilson. DFID ARD’s lead adviser was
Marco Serena (based in Tanzania) and was supported by DFID ARD and Country Office staff.
Consultations
Consultations were undertaken with the following people:
Name
Position
Email/Phone/Skype
Date/Time (BST)
Marco Serena
DFID-AgDevCo ARD Corporate
Lead
M-Serena@dfid.gov.uk
Mon 2/6 09.00 – Fri
13/6
Andrew McLean
DFID Chair of PIDG Governing
Council
a-maclean@dfid.gov.uk
T: 02070230639
Fri 30/5 10.00
Harry Hagan
DFID ARD Wealth Creation
Team Leader, Chair AgDevCo
Steering Committee
H-Hagan@dfid.gov.uk
Mon 16/6 11.00
Kerry Johnstone
PSD Adviser, DFID Malawi
K-Johnstone@dfid.gov.uk
Wed 4/6 14.00 – Fri
6/6 13.00
Nick Amin
Economist, DFID Malawi
n-amin@dfid.gov.uk
Fri 6/6 8.30
Suzanne Parkin
Inclusive Growth Team Leader,
DFID Zambia
sl-parkin@dfid.gov.uk
Tues 10/6 – Thur
12/6
DFID
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Vincent LangdonMorris
Livelihoods Adviser, DFID
Ghana
V-LangdonMorris@dfid.gov.uk
Fri 13/6 12 noon
Tiago De Valladares
Pacheco
PSD Adviser, DFID
Mozambique
T-Valladares@dfid.gov.uk
Mon 16/6 15.00
Daniel Hulls
CEO AgDevCo
dhulls@agdevco.com
Mon 2/6 15.30
Tue 3/6 10.00
Rui Sant' ana Afonso
Mozambique Country Director,
AgDevCo
rafonso@agdevco.com
T: +258 21 30 55 57
Mon 2/6 8.00
Mike Shaw
Tanzania Country Director,
AgDevCo
mshaw@agdevco.com
Skype: mshaw.agdevco
Nick Jones
Tanzania Manager, AgDevCo
njones@agdevco.com
Jim Henderson
Commercial Agric Adviser
(Malawi), AgDevCo
jhenderson@agdevco.com
Wed 4/6 14.00 – Fri
6/6 13.00
Siobhan Franklin
Zambia Country Manager,
AgDevCo
sfranklin@agdevco.com
Tues 10/6 – Thur
12/6
Yasser Toor
Ghana Country Director,
AgDevCo
ytoor@agdevco.com
Tom Phillips
Ghana Country Manager,
AgDevCo
tphillips@agdevco.com
Diane Harris
MDY Legal
Diane.Harris@mdy.co.uk
T: 020 8643 9794
Bouke Bijl
Director, Agricane, Malawi
bcbijl@africa-online.net
Luca Desideri
Project Manager, Agricane,
Malawi
Wed 4/6 15.30
3 x Coop board
members
Phata Coop, Malawi
Wed 4/6 16.00
Bruce Holmes
General Manager, Illovo Sugar
AgDevCo
Mon 2/6 10.00
Tues 3/6 13.00
Mon 9/6 17.00
AgDevCo Investees
or Representatives
bholmes@illovo.co.za
Thur 5/6 8.15
(Malawi) Ltd
Judith Chilongo
Accountant, Phata Coop, Malawi
Thur 5/6 12.00
2 x Farmers
Chikwawa District, Malawi
Thur 5/6 13.00
Daryl Blanchard
Technical Manager, NWK AgriServices, Zambia
daryl.blanchard@nwkza
mbia.com
Nigel Seabrook
CEO, NWK Agri-Services,
Zambia
nigel.seabrook@nwkzam
bia.com
Colin Fletcher
Broker, CHC Commodities,
Zambia
fletch@chc.co.zm
Chris Hawke
MD, CHC Commodities, Zambia
chris@chc.co.zm
9 x Farmers
Mpongwe District, Zambia
Fletcher Broad
Operations Director, Goldenlay
Zambia
Fletcher.broad@goldenla Tue 11/6 14.30
y.co.zm
Rob Munro
Senior Technical Adviser,
Musika, Zambia
rob@musika.org.zm
Mon 9/6 10.00
Stephen Tembo
Development Consultant,
RuralNet Associates Ltd,
Zambia
stembo@ruralnet.co.zm
Mon 9/6 15.30
Mon 9/6 11.30
Mon 9/6 14.00
10/6 14.00
Other Stakeholders
Documents
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AADC draft accounts 2013
Africa Agricultural Development Company Ltd Due Diligence Assessment, March 2014
Africa Division funding to Africa Agricultural Development Company (AgDevCo)
AgDevCo Board minutes 031213
AgDevCo Business Model Financial Template April 2013
AgDevCo Country Updates (5 countries)
AgDevCo DFID Annual Review - Corporate Report, June 2014
AgDevCo Due Diligence requirements
AgDevCo job descriptions, organisation and risk register
AgDevCo Logframe approved 210514
AgDevCo Management Accounts March 2014
AgDevCo Mandate Letter Template
AgDevCo Operating Policies and Procedures (12)
AgDevCo OPP Workplan
AgDevCo Portfolio Report PSD & ARD Logical Framework
AgDevCo PSD and ARD Global Logframe Dec 2013
AgDevCo Reports to PIDG Q3 and Q4 2013 and Q1 2014
AgDevCo Terms of Business Information Pack
AgDevCo use of funding
DCED. Measuring Job Creation in Private Sector Development, Working Paper by MarketShare
Associates, June 2014
DFID – AgDevCo Oversight Arrangements May 2014
DFID Oversight Arrangements for AgDevCo May14
DFID Submission for additional funding for AgDevCo from DFID Tanzania
DFID Submission for AgDevCo funding viring money from PIDG
DFID Submission to SoS Africa Division Funding to AgDevCo
Impact Assessment Tool Feb 2014
Intervention Summary: Africa Division funding to Africa Agricultural Development Company (AgDevCo)
ODI – Topic guide on smallholder engagement with private sector
ToR for AgDevCo evaluation management unit
Various country reports by AgDevCo
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