Market opportunities attract agricultural investors, and industry support initiatives incentivize them to navigate through inevitable difficulties, but ultimately, a strong enabling environment is what sustains and expands private investment.

Our analysts interviewed small and medium-sized private companies operating in five geographically diverse countries — three in Africa, one in southeast Asia, and one in Latin America — to determine incentives and disincentives to agricultural investment. Input suppliers, technology providers, processors, and traders all cited pre-identified market opportunities as driving their investment, specifically in these cases for innovative products or services ripe for scaling to a profitable consumer base of smallholder farmers.

These same foreign and domestic companies also cited weaknesses in the enabling environment as disincentives that often became increasingly or surprisingly costly as time went on, forcing them to reevaluate business approaches, product lines, and in some cases, continued investment. 

Constraints that threatened the ease and security of doing business varied but included some or all of the following: instability in market policies, unpredictable duties and regulatory procedures, burdensome and unpredictable tax policies and procedures, fluctuating currencies, lack of access to finance, lack of contract enforcement, and unreasonable customs delays within and across borders.

Companies did note that there were incentives that helped to de-risk investment amidst these uncertainties that included the availability of donor-supported start-up funding mechanisms (e.g., business incubators, grant programs, impact investment) and, where available, national government initiatives focused on joint R&D investment, tax breaks, and (sometimes) concessionary loans.

In the longer run, however, stronger enabling environments were deemed essential because the policies, laws, regulations and norms that govern behavior in market systems impact the viability, scale, speed, and profitability of business growth. Towards this end, company feedback took an interesting turn.

Well-run, in-country industry associations with broad value chain or cross-sectoral mandates were referenced as being very useful in initiating and organizing public-private sector dialogue, coordinating information clearinghouses, and leading advocacy campaigns.

And the ability of USAID and other international development agencies to provide evidence-based analysis — whether on new industries, gaps in legal and regulatory frameworks, or review of existing or proposed policies — was considered particularly critical. This was in part because comparative data from other countries and competitors were typically included, as was input from globally recognized experts. Most importantly, public and private stakeholders perceived these analytical products as transparent and objective, so insights gleaned could be the foundation for important reforms.

Information contained in this blog was taken from Feed the Future Enabling Environment for Food Security report, “Private Sector Voices: Building an Enabling Environment for Investment.” For the full report, click here.