Innovative mechanisms to finance Cabo Verde's agricultural sector transformation

Water scarcity, limited arable land and soil erosion, all aggravated by climate change as well as ageing rural population are the key challenges Cabo Verde faces in the development of its agricultural sector. With the objective to increase the contribution of the sector to food and nutrition security as well as national wealth, the Government of Cabo Verde has planned over EUR 200 million of investments in water agricultural and agricultural development.

With its recent graduation to middle-income and its high level of debt to GDP ratio, Cabo Verde has limited resources to finance the necessary transformation of its agriculture. Financing this transformation requires novel and evidence-based approaches to foster the sector's modernization.

Meeting these agricultural investment needs requires mobilizing and blending new resources: local savings, institutional investors, climate finance and the diaspora, at scale and cost-efficiently for the Government.

KOIS supported the International Fund for Agricultural Development on a study that explored several innovative financing opportunities, including the mobilisation of local banks and savings for private investments, international institutional investors, climate finance under concessional and grant terms and the diaspora.

The mobilization of the diaspora to support the development of the agricultural sector represents an emerging opportunity with water financing being an appealing investment for the diaspora featuring both financial and development returns.

With the current level of Government's indebtedness, excess liquidity in local banks combined with the willingness of the Government to further engage the private sector, KOIS and IFAD identified climate-focused project finance as an attractive financing instrument. De-risking project finance through guarantees and concessional financing could create new private sector's revenue-generating investment opportunities that better match the risk-return profiles of local financial institutions.

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