Green Financing for Agrifood SMEs in South Africa (GreenFi)

project summary

The project investigates how and to what extent South African Agrifood SMEs access green financing and how this influences their climate responsiveness. The project achieves this overarching ambition through three related goals guiding the work packages: a) to study how South African state and non-state actors engage with green financing practices and norms adopted internationally; b) to analyze factors influencing Agrifood SMEs' access to green financing, and how they shape their financing mix; c) to analyze how the share of green finance in the SMEs’ financing mix influence their climate responsiveness.

Agrifood SMEs play a critical role in ensuring food security in developing regions where they account for 70% of food production. In addition, given the Greenhouse gas (GHG) emission in food systems, achieving net zero is impossible without Agrifood SMEs in developing regions. With rising food inflation in countries such as South Africa reaching a 14-year high in 2023, Agrifood SMEs urgently need research and policy scrutiny.

Currently, the greening of finance has orchestrated an emerging “survival of the greenest” phenomenon, which reorients financing to firms able to demonstrate green credentials. As financing is becoming greener, Agrifood SMEs in low-income regions face a widening investment gap as they cannot easily acquire green credentials or adhere to green standards to qualify for green financing.

South Africa has been selected because it is a frontier country in Sub-Saharan Africa on green financing instruments such as green bonds, accounting for more than half of the region's market value. Thus, the impact of the greening of finance is clearly discernable here. Moreover, the significant inequalities characterizing South Africa enable investigating whether the new green financing practices influence Agrifood SMEs with different capacities similarly. To explore this issue we target two main study sites, the Eastern and Western Cape provinces, because we expect that regional economic differences are important for SMEs’ access to green financing. Eastern Cape is one of the poorest provinces (67,5 % poor), while the Western Cape (33.2% poor) is the second richest. Inequalities within and between regions are very important (including racial and gender inequalities), as the history of segregation in Apartheid South Africa has left a distinct feature in society.