As South Africa’s Agri-Tech industry continues to experience rapid growth, the challenges facing cross-border payments have become increasingly pressing. With over 60 startups operating in the sector, Agri-Tech businesses in South Africa are focused on developing solutions to address the challenges facing the agricultural sector, including irrigation, crop management, and supply chain logistics.
The complex regulatory environment and limited access to financial services in rural areas can make it challenging for Agri-Tech businesses to navigate cross-border payments. In fact, according to a report by the World Bank, only 37% of adults in rural South Africa have access to formal financial services. Moreover, the high transaction costs associated with cross-border payments can be particularly challenging for smaller Agri-Tech businesses, which may not have the resources to absorb these costs. Addressing these challenges is critical to ensuring the long-term success of the Agri-Tech industry in South Africa and for promoting sustainable agricultural practices to support both the economy and food security in the country and beyond.
Agri-Tech is a booming industry, with a predicted growth rate of 12% per year, according to the International Finance Corporation (IFC). In fact, it is predicted that there will be 200 million small-scale farmers and pastoralists registered with Digital for Agriculture in Africa by the year 2030, according to the Digitization of African Agriculture report.
In a report by the CIO, Jermia Bayisa Lulu, CEO and co-founder of start-up, Debo Engineering Agritech, highlighted his native Ethiopia, “Our economy is based on agriculture and I believe it should be further supported by technology to increase agricultural productivity… The same is true for most African countries that need to be supported by technological solutions.”
But, this industry comes with its own set of challenges, and farmers in Africa need digital solutions to support them. African countries can experience a lack of developed banking infrastructure and gaps when it comes to innovative solutions, resulting in high fees with traditional banks. According to the World Bank, the average cost of sending $200 (approx. R3,500) to Sub-Saharan Africa is about 9%, versus the global average of 7%. Currency fluctuations and businesses trying to get FX rates that suit their financial appetite make it difficult to receive payments from their customers.
Developing a local partner
A starting point for Agri-Tech businesses is to evaluate who they partner with. Do they have an understanding of local markets? Are they partnered with a non-traditional banker that is designed to accommodate their needs?
Ola Oyetayo, Chief Executive Officer at Verto, says the company is passionate about bringing digital innovation solutions to Agri-Tech suppliers in Africa to help them overcome these hurdles and be able to thrive.
“Agri-Tech businesses should develop partnerships with distributors and the right payments provider who understands the markets they operate in, in particular the local banking regulations,” says Oyetayo. “Not only will this help smooth the operations, but it will ensure they remain compliant and don’t fall victim to any penalties or fines.”
Embracing digital platforms
Another important consideration is to make the move away from traditional banks, which often come with high fees, long delays, and poor communication on the status of the payment. Adopting a digital payment platform that’s specifically designed for cross-border payment support for emerging markets can help reduce fees, improve user experience, and strengthen relationships with customers and suppliers. This will help Agri-Tech companies receive payments from customers safely, on time, and better yet, in their local currency. The success of Agri-Tech is strongly tied to the technology the farmers adopt and its ability to keep up with this growing industry.
Mitigating currency risks
Agri-Tech companies can help reduce the ongoing struggle of dealing with currency rate fluctuations by using a payments provider that allows FX rates to be set by the businesses themselves. “Using a FX marketplace where orders can be executed, prices negotiated and funds arrive swiftly into their accounts in the chosen currency, allows for more control over a volatile market,” explains Oyetayo. “Another method would be using multi-currency wallets, where funds can be held in a vast range of currencies and stored on a digital platform to lock in favourable rates until the time is right to pay out.”
Overall, there are several methods that Agri-Tech companies can use to help tackle cross-border payment challenges, save themselves time and money, and improve their experience.