The first volume, sub-titled “Policy Framework”, of this report on “the Promotion of Sustainable Commercial Aquaculture in sub-Saharan Africa”, discussed, inter alia, the concept of sustainable commercial aquaculture as the rearing of aquatic organisms with the goal of maximising profit, not just making some profits. It also discussed a number of major impediments to aquaculture development in sub-Saharan Africa, which include absence or inaccessibility of capital, high cost of money, limited direct domestic and foreign investment in commercial aquaculture, lack of access to good quality feed, poor quantity and quality of seed production, inadequate extension services and training, unclear user rights or unavailability of suitable land in some countries, lack of or unclear policies for the development of business oriented aquaculture and lack of legislation specifically for aquaculture in most sub-Saharan Africa countries. The policies aimed at addressing most of these problems were also discussed. This volume of the report brings into sharp focus the difficulty of entrepreneurs gaining access to capital.
Capital, the monetary value of all factors of production used in an enterprise, is necessary to create, maintain, and expand a business, increase efficiency, and to meet seasonal operating cash needs. Because of the lack of own equity, most investors in sub-Saharan Africa will depend on external funding, to start a commercial aquaculture venture. Funds will be borrowed especially from the formal lending sector, as the loans available from informal sources are generally, not only costly, but also limited and mainly intended for working capital needs and contingencies.
However, prospective borrowers in sub-Saharan Africa have difficulties meeting the banks’ lending requirements. They have to be checked for character, capacity, equity and especially collateral. Specifically, there are four major factors which limit access to bank loans by potential entrepreneurs in commercial aquaculture in Africa south of the Sahara: the banks’ perception that commercial aquaculture carries a particularly high risk of failure in sub-Saharan Africa, the banks’ insistence on secured loans and the lack of adequate collateral by borrowers, the high interest rates charged by banks and the lack of knowledge, on the part of borrowers, of how to prepare and present a loan application to a bank, notably a business plan.
While some of the lenders’ perceptions are valid, particularly in instances where the industry is not yet established and difficulties could occur as a result of local unavailability of necessary inputs, the market is untested and there are no examples of commercial success that could offer an indication of viability, evidence seems to indicate that banks tend to exaggerate the likelihood of default of particular classes of borrowers. Economic analysis of some commercial aquaculture enterprises in sub-Saharan Africa discussed in this report demonstrates that it is possible to establish and run highly profitable commercial aquaculture projects in the region. The farms analysed showed rates return on investment of between 71 percent and 117 percent per year. The exception is a farm whose rate of return on investment is 13 percent, and a return that could probably be dramatically improved with the use of feed. These rates of return on investment are high and provide a comfortable cushion against any major negative developments, which either reduce prices or yields.
Nevertheless, the presentation of details of the performance of these highly profitable enterprises is not to suggest that there are no failures. Over the years there have been plenty of them, due to a wide range of reasons of the technical, financial, marketing and management nature. With well-planned and carefully considered enterprises, there is every reason to expect that failures can be minimized and that the larger percentage of aquaculture ventures could thrive and generate very healthy profits for their owners, the local communities and the governments. The process of development needs to be nurtured and the problems inhibiting the establishment and the growth of the sector need to be resolved. Coupled with the untapped potential of vast areas of land and water suitable for its development, commercial aquaculture could and should develop into a substantial industry in the region; it would provide for improved nutrition, better incomes and increased employment over large areas of the continent.
The review of different experiences and options available to ease the problems of lack of collateral and high interest rates provides evidence that innovative ideas, such as forming financially self-sustaining initiatives, can be successfully used to overcome the lack of collateral. The groundbreaking example given by the Grameen Bank in Bangladesh over the last three and a half decades establishes that it is possible to advance loans to borrowers who have few or no assets and recover them successfully. It ought to be possible to initiate programmes that extend these services to entrepreneurs wanting to launch more ambitious commercial projects and who have greater financial needs. In some instances, an adaptation of some form of group lending, through a greater mobilization of small savings for use as collateral, might be possible to support the development of commercial aquaculture in sub-Saharan Africa.
The legal and regulatory environment does not always make it possible to use a wide range of assets as collateral in sub-Saharan Africa. Governments need to ensure that it is possible, within the legal and regulatory environments of each country, to use a wide variety of assets as collateral. The better governments ensure that the legal and regulatory environments enable lenders to establish good security interests over a wide variety of assets offered as collateral, the lower interest rates are likely to be and the wider the possibilities for securing loans for commercial aquaculture development.
With market failure of the magnitude experienced in the supply of financial services to rural enterprises in sub-Saharan Africa, it is necessary for governments to very carefully study the question and consider what ways might be most appropriate for overcoming these difficulties. A cautionary note has been struck in the discussion of interest rate subsidies and government loan guarantees. With such evident market failure in relation to financial services provision, and because it takes some years for the volume of savings and loans to grow sufficiently to break even, subsidizing financial service provision in sub-Saharan Africa may appear an attractive policy. However, it looks unrealistic in the context of fiscal austerity in most countries of the region.
In addition to character and credit history, availability of adequate collateral as a guarantee of repayment of the loan, when evaluating a loan proposal, the lender will check the business plan in great detail to ensure that the proposed business is profitable and that there is a capacity to repay the loan being sought.
A business plan for a commercial aquaculture venture should describe the physical, technical and legal aspects of the business, and the personnel capacity available to implement the plan. It should also present the plans as to who the output from the proposed business is intended, how, when and how much and at what price, and what opportunities the entrepreneur envisages for the expansion of the existing market or the opening of new ones. In addition, the business plan should contain the financial statements for the proposed project. When the business plan is completed, it should be neatly and logically presented in a suitable binder with a cover letter presenting the business plan and requesting the lender to consider lending the money being applied for should accompany the business plan.
Specific training needs to be offered to those wishing to apply to a financial institution for a loan to establish a commercial aquaculture facility so as to maximize the chance of them gaining access to the necessary capital. Knowledge of what information a bank might seek and how to present it could greatly facilitate the relationship between the banks and potential borrowers, and could facilitate the successful applications for loans.
