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Agricultural Business Initiative

Agriculture is the most important export sector in Uganda contributing nearly 46 pct. of the total exports in 2010.  The sector provides employment to over 70 pct. of Uganda’s labour force. However, there are significant barriers to increasing production and productivity, as well as value addition, especially to the export crops.

Agricultural business in Uganda

The agricultural production of Uganda is dominated by smallholder farmers operating on less than two hectares. 70 pct. of the smallholder farmers are women producing 70 pct. of the agricultural GDP. The prospective to increase the size of the agricultural production to make it a viable and sustainable business is limited by significant barriers. Among these are limited availability of medium and long-term finance as well as high interest rates; the weighted average commercial bank lending rate over the past ten years has been 20.5 pct. Other barriers include lack of access to quality and timely market information, poor agricultural practices leading to significant pre- and postharvest losses, limited access to and use of quality agro-inputs, as well as poor extension services.


The Agricultural Business Initiative (aBi) component of U-Growth II

The Agricultural Business Initiative Trust (aBi Trust) is a multi-stakeholder entity co-founded in July 2010 by the Government of Denmark and the Government of Uganda with the objective to “Promote Private Sector Agribusiness Development to Enhance Wealth Creation in Uganda”.aBi Trust acts as a vehicle for channelling financial and technical support to beneficiaries and partners for private sector agribusiness development. aBi Trust supports the Government of Uganda and the private sector in achieving the objectives of the Competitiveness and Investment Climate Strategy (CICS).
aBi Trust follows a long term commitment by being both a catalyst in support of the Ugandan agricultural sector and a conduit through which development partners and investors can build the capacity of the agricultural sector. aBi Trust provides both business development and financial services to selected agricultural value chains and offers an integrated approach to value chain development. The Trust is designed to strengthen competitiveness of Uganda’s agricultural and agro- processing sectors.

The establishment of aBi Trust was unique in the sense that instead of delivering the support through a traditional project set up, it was agreed to establish an institution, which would allow other sponsors and investors to channel financial support to agribusiness development. As mentioned above, aBi Trust provides a combination of business development services and finance to agribusiness. The fact that aBi Trust on the one side can structure interventions with partners in agribusiness and provide matching grants for these interventions, and on the other side provide funds and guarantees to financial institutions to finance such activities makes aBi Trust a unique vehicle for supporting agribusiness, and has placed aBi Trust at the forefront when it comes to support to private sector development in agribusiness.

aBi Trust was provided with funding under an Endowment Fund held in aBi Finance Limited (aBi Finance) in order to provide a vehicle for sustaining the operations of aBi Trust. The Endowment Fund is today serving different purposes; (i) indemnifying loan guarantees, (ii) stimulating agro lending by providing negotiated credit lines to banks and other DFIs, and (iii) creating a flow of income from investing the Fund, sufficient to maintain the real value of the Trust and to partially cover the operational costs of running aBi Trust.

aBi is focusing on the following areas of intervention:
1. Value Chain Development: The six value chains (coffee, cereals, oilseeds, pulses, dairy, and horticulture) currently supported will continue to be of highest priority. Matching grant support is provided to address opportunities and constraints in production, processing, marketing and organisational development and capacity as a part of U-Growth II, the Value Chain Development Component will also include issues that address green growth and Human Rights Based Approaches (HRBA) into the activities being supported. These additions to the aBi Trust programme work will, however, have to be done in such a way that it does not compromise the private sector approach and the efforts to make agribusiness activities commercially viable.

2. Financial Services Development: Under this business area, aBi Trust will be assisting financial institutions to expand and strengthen their rural outreach. Support will be made for hardware such as establishment of branches, purchase of mobile banking units or motorcycles for staff, computers, etc. Support to will be provided for “soft activities” such as savings mobilisation campaigns, staff training, development of loan products, etc. Banks, MFIs and SACCOs are the 12 aBi Business Plan 2014-2018 main partners. Technical support will also be provided for VSLAs through VCD partners following successful implementation under the G4G programme. FSD will also address issues related to insurance risk developing and guarantee uptakes.

3. Development Finance: This will be implemented by aBi Finance, a restructured capitalised institution in the framework of aBi as outlined below, operated on commercial terms providing an SME loan guarantee facility and extending lines of credit to financial institutions. Consideration is being given to development of other financial instruments, such as an agricultural bond, a debt fund, green technology loan fund, etc.