CHAPTER 1. INTRODUCTION

1.1 Background

As a part of its efforts to contribute to eradication of hunger and alleviation of poverty, the FAO Fisheries Department, through its Fishery Development Planning Service, has initiated the promotion of commercial aquaculture in developing countries, especially in sub-Saharan Africa. The goal of this activity is to assist developing member countries in the development and implementation of policies that encourage the emergence or expansion of entrepreneurship in aquaculture for a sustainable development of this sector.

To achieve this goal, wide-ranging studies covering socio-economic, marketing, policy, legal, regulatory and institutional aspects of commercial aquaculture were commissioned in Côte d’Ivoire, Madagascar, Malawi, Mozambique, Nigeria, Zambia, Costa Rica and Honduras. Research also included literature pertinent to the topic. The findings of the studies are reported in different volumes.

In addition to discussing the concept of commercial aquaculture and outlining some pre-requisites for its successful development, Volume 1 provided the rationale for promoting sustainable commercial aquaculture, discussed the main constraints to its development and presented a general policy framework for its promotion.

Commercial aquaculture, those farming operations of aquatic organisms whose goal is to maximize profits (business-oriented) and primarily by the private sector, is promoted for its potential contribution to food security, directly by producing food fish and other products, and indirectly through employment creation and generation of income for the purchase of food. It is also promoted for its ability to generate government revenues through tax collection, its non-reliance on government funds for financial survival and because of its potential to assist small-scale rural aquaculture (Ridler and Hishamunda, 2001).

A combination of factors impedes aquaculture development in sub-Saharan Africa. These factors include: limited direct domestic and foreign investment in the sector, limited availability of good quality seeds and feed, inadequate extension and training services, unavailability of suitable land in some countries, undefined or poorly defined land and water rights, lack of legislation specifically for aquaculture in most countries, absence of or inaccessibility to capital and high cost of money (Ridler and Hishamunda, 2001; Percy and Hishamunda, 2001). Insufficient information on markets for farmed fish also limit or could limit aquaculture expansion in sub-Saharan Africa (Ridler and Hishamunda, 2001).

A mix of good governance, openness to trade, macroeconomic growth policies, emphasis on private investment as a source of wealth, guaranteed land security, tax exemptions and tax holidays, loan guarantees, debt-equity swaps, promotion of large farms, producer associations, strategic planning, and existence of transparent regulatory procedures are key ingredients in attracting investors to commercial aquaculture, addressing the issue of inadequate extension and training services and in positively influencing long-term development of aquaculture in sub-Saharan Africa (Ridler and Hishamunda, 2001).

Land and water related issues as well as the issue of legislation specific to aquaculture in most countries are examined in depth in Volume 3 of this report, which deals with legal, regulatory and institutional framework for the promotion of sustainable commercial aquaculture. The market side of commercial aquaculture is analysed in Volume 4 of the report. There remains the questions of absence or inaccessibility of capital and high cost of money in the sector, which is the focus of this volume.

1.2 Methodology

The overall methodological approach to the study was discussed in Volume 1. Wide-ranging studies covering socio-economic, marketing, policy, legal, regulatory and institutional aspects of commercial aquaculture were commissioned for six sub-Saharan African countries^[1] and two Latin American countries^[2]. Farmers’ enterprises that were successful and were considered sustainable were surveyed. The study was limited to the three species: tilapia, catfish and shrimp^[3], which, in 1998, accounted for more than half of the aquaculture production in the region.

Interviews with farmers were supplemented by further interviews with bankers, fish retailers and government officials. The interviews identified constraints to the development of commercial aquaculture, information about markets and policies that could encourage the development of aquaculture.

To examine the problem of risk of failure of commercial aquaculture ventures more closely, economic feasibility of commercial aquaculture was assessed by analysing financial data, which were collected from a number of farms in the six African countries surveyed. Available literature which describes experiences from developed and developing countries on how governments dealt with the problem of difficult access to capital to finance aquaculture was also reviewed and reported.

1.3 About this volume

This volume of the report brings into sharp focus the key problem of adequate financing of commercial aquaculture ventures in sub-Saharan Africa. It first reviews, in Chapter 2, capital in commercial aquaculture ventures in the region, focusing on sources and factors that hinder entrepreneurs’ ability to secure the investment capital necessary to establish a commercial aquaculture business.

Subsequent chapters of the Volume are devoted to discussing factors identified in Chapter 2 as limiting entrepreneurs’ access to investment capital. Specifically, Chapter 3 analyses the perception of risks in commercial aquaculture ventures and assesses economic feasibility of selected commercial enterprises in sub-Saharan Africa. Chapter 4 deals with the issue of collateral and high interest rates. Chapter 5 discusses the problem of lack of knowledge in loan seeking. In addition to discussing the problem, each chapter explores policies and/or strategies that could be used to ease the problem. The suggested policies are problem specific as they are identified based on investment related issues that were uncovered by surveys. Chapter 6 consists of an overall summary, conclusions and recommendations.