Technical Services Provider

The ZATP aims to contribute to increased market linkages and firm growth in agribusiness. Through the market Linkages in Agribusiness component, focusing on two sets of beneficiaries: “emerging and poor farmers” and growth-oriented agribusiness MSMEs. The project envisages providing interventions that will have a particular emphasis on improving the ability of growth-oriented agribusiness MSMEs to sustainably and commercially link into larger markets by structuring support around offtake opportunities that the private sector themselves identify as high potential. This linkages approach increases income, productivity, and employment growth for all those economic factors involved in the value-chains where they engage, and directly and indirectly affected by the Project activities. Through a combination of grant financing and provision of technical support, the Project will facilitate the evolution of productive partnerships between aggregated farmers and anchor enterprises (SMEs). Better integration of relationships between producers and off-takers will be mutually beneficial. Producer organizations will receive technical assistance to improve production and management of their organizations, grant funding to invest in technology and infrastructure enhancements, and support to access commercial loan finance. Off-takers will benefit from improved and consistent volumes and quality of supplies received.

1. Critical Investments

ZATP makes critical investments to partially address the constraints that Farmers and Agribusiness SMEs face relating to not often having the benefit of a confirmed market for their produce at the time of production (for example, through forward contracts, preferential procurement, and so on) as can be the case for their large-scale counterparts. Furthermore, a number of market and government failures impact agribusinesses, SMEs, and farmers in Zambia, including coordination failures, information asymmetries, capital market inefficiencies, policy distortions, and deficiencies in infrastructure. Limited access and availability of credit also places a severe constraint on farmers and agribusiness SMEs. There is minimal penetration of credit from commercial banks into the agricultural sector. The high cost of finance, along with policy distortions and uncertainty, further constrain productivity growth and commercial agriculture. For agribusiness SMEs, commercial interest rates went over 35 percent this year (2018) , prohibitively high, especially in comparison to the average interest rate SMEs in processing industries report paying in countries like China (5 percent), and Ethiopia (10 percent) Henceforth, to take advantage of the growth in agribusiness markets, supporting agribusiness SMEs will also be important object of ZATP.

2. Project’ Focus on SMEs

The project aims to contribute to increasing sources of growth in the Zambian economy in an inclusive way by enhancing the capacity of the producer groups and agribusiness SMEs supported by the project to increase their productivity, quality and scale, thereby increasing their sales (and therefore income) and ability to develop better and more sustainable commercial links with buyers (formal domestic and regional markets) and allowing them to expand businesses and add employment in higher rates than otherwise. As the project aims for the beneficiary groups to provide counterpart investments (through matching grants [MGs]. It also expects to mobilize private sector capital directly as a result of these interventions, over and beyond the indirect, and possibly much larger, impact that increased productivity and scale will have on private sector investments at the end of the project cycle. Additionally, as the project has a special emphasis on standards, certifications, food safety, and links to regional large buyers, both bottom up (through Component 1) and top down (through Component 2), project beneficiaries are expected to increase average percentage of sales as exports in a modest way over and beyond current rates. Finally, ‘better jobs’ is a very important higher objective that the project is emphasizing to achieve inclusive growth in Zambia, and therefore the project will monitor job creation among beneficiary SMEs and producer groups during its implementation and after its close through targeted impact evaluations.

3. SME Supplier Development Program

4. SMEs Market Connect & Business Linkage Fund

ZATP through the SME Supplier Development Program, will promote agribusiness SMEs’ sustainable integration into value chains with established end-markets and large buyers, by supporting their ability to invest in productivity enhancing know-how and meet buyer requirements. Therefore, this project will help the beneficiary SMEs improve their commercial viability, financial position, and operational efficiency, thereby increasing their productivity, and prospects for increased investments and employment generation. Similarly, to the PAs, the SME Supplier Development Program also aims to create improved market-driven business relationships between off-takers and SME suppliers where off-takers benefit from improved and consistent volumes and quality of supply, and the SMEs benefit from higher productivity and access to new markets.
Four key elements define the nature of a Productive Alliance, namely: a group of organized producers, a buyer, an investment in production and marketing, and technical assistance. The Buyers participating in the Productive Alliances are a diverse group of businesses (SMEs): supermarket chains, agro-processors, hotels, exporters, etc Therefore, their serious commitment to the success of the partnership is essential to provide the producers with a more reliable and stable market.
Henceforth, ZATP will also invest in Market Connect through Business Linkage Fund a financing arm of Market connect, which will be managed by a consortium of service providers through a management contract for over five years. Through Market Connect, ZATP is expected to reach a total of 300 SMEs. Of these 300, 140 SMEs are also expected to participate in the Business Linkage Fund. Market Connect will provide tailored technical support, as well as MGs (through the Business Linkage Fund), to support the ‘upgrade’ of agribusiness SMEs and improve market linkages with end-buyers. Market Connect will be responsible for this custom tailored technical support, as well as managing the Business Linkage Fund. Its key value added will be

its relationships with buyers and the know-how of their requirements, terms, and conditions;
a core staff with the ability to do a 360o diagnostic of the SMEs along with problem solving and coaching around specific business challenges uncovered;
a strong network of specialized providers who can be brought in for unique technical challenges.

Furthermore, SME Supplier Development Program specifically includes the development of a royalty bearing brokerage and TA service offering to growth oriented SMEs and a Business Linkage Fund, which will extend royalty bearing MGs in the range of US$10,000 to US$100,000 to agribusiness SMEs.

5. SMEs Eligibility to Participate in Market Connect

SMEs will be eligible to participate in Market Connect based on their commitment to growth and financial and technical feasibility of their business. Key selection criteria will include

an assessment of SMEs’ current operational, financial, and market positions;
the assessment of potential demand for their products taking into account different market segments, cyclic nature, and substitutes;
market competitiveness based on differentiation, cost, and/or focus;
the identification of viable interventions for advancing the growth of the business; and
and financial and technical viability of their businesses.

The percentage of additional increase in sales that will be paid back into Market Connect will be determined based on the SMEs’ total assets, previous three-year average turnover, and the level assistance and MG received from Market Connect and through the Business Linkage Fund.