Affordable irrigation systems
Affordable irrigation systems
Business Model Description
Provide irrigation solutions for farmers, such as affordable solar systems and integrated solutions with multipurpose dams, incl. extension services for capacity building.
Expected Impact
Contribute to agricultural productivity as well as increase farmers' yields and income.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Kenya: Coast
- Kenya: Nyanza
- Kenya: Rift Valley
- Kenya: Nairobi (Province)
Sector Classification
Food and Beverage
Development need
According to the Sustainable Development Report, SDG 2 - Zero Hunger is a major challenge in Kenya and the overall score for this goal is stagnating. The COVID-19 crisis contributes to price fluctuations, food insecurity and supply chains disruptions. Food inflation in Kenya reached 10.6% in March 2020, compared with 2.8% in the same month in the previous year.(1)
Policy priority
Policy documents and initiatives such as the Third Medium Term Plan, the Kenyan Vision 2030 and the Agricultural Sector Growth and Transformation Strategy highlight the potential of agriculture for national development. Achieving food security is among Kenya's top four policy priorities according to its 'Big Four Agenda'.
Gender inequalities and marginalization issues
Women constitute almost 80% of agricultural workers in Kenya. Yet, they often do not have any ownership of farming lands or production equipment. They also suffer from an unequal access to relevant agricultural loans.(31)
Investment opportunities introduction
Accounting for 34% of Kenyan gross domestic product (GDP)(2), agriculture is the main employer of the Kenyan population. Total sales in agriculture reached USD 26.5 billion in 2019 and are expected to grow at an average rate of 1.52% in 2020-2025.(3)
Key bottlenecks introduction
Some critical bottlenecks include poor education and management skills among farmers, business atomization, supply chain deficiencies, limited access to capital and inputs, lack of storage and poor handling practices, low access to information and ICT (information and communications technology) services, as well as the aging farming population.
Food and Agriculture
Development need
Kenyan households that are engaged in the agriculture sector contribute 31.4% to the reduction of rural poverty. Agriculture is the largest income source for both poor and non-poor households in rural areas.(4) However, major challenges remain for Kenya's SDG 2 performance, particularly in undernourishment, stunting, cereal yield and nitrogen management.(5)
Investment opportunities introduction
The government aims to provide access to land, security, power and water supply to attract private sector investors in agriculture.(6) Several priority programs were established to revitalize agriculture in Kenya such as the Agricultural Development Program along the LAPSSET (Lamu Port, South Sudan, Ethiopia) corridor, Agri-Business Development Program, and the Revitalising of the Coconut Industry Program.(7)
Agricultural Products
Pipeline Opportunity
Affordable irrigation systems
Provide irrigation solutions for farmers, such as affordable solar systems and integrated solutions with multipurpose dams, incl. extension services for capacity building.
Business Case
Market Size and Environment
USD 100 million - USD 1 billion
207,000 ha to be covered by irrigation and drainage infrastructure between 2018 and 2022
The potential market for drip irrigation is estimated at USD 460 million.(10) The construction of large-scale multipurpose dams through public-private partnerships (PPPs) (usually Build-Operate-Transfer) proposed in the Kenya Blue Economy Booklet can range form USD 120 million to USD 870 million, depending on the scale and capacity.(11)
Between 2018 and 2022, the government wants to increase irrigation and drainage infrastructure by 207,000 ha through large-scale, smallholder and groundwater irrigation projects. In 2017, 193,000 ha of land were under irrigation.(12)
The Agriculture Transformation Strategy includes creating 50 large-scale farms with 150,00 acres under sustainable irrigation based on the existing infrastructure (e.g. through dams rehabilitation).(13)
Indicative Return
15% - 20%
Small-scale irrigation projects can achieve an internal rate of return (IRR) between 17% and 32%. Dam constructions may achieve an IRR of 12%.(14)
Small-scale irrigation generally has a higher IRR than dam construction, due to a higher potential and lower capital expenditure. In Kenya, small-scale irrigation construction has an IRR of 30% and dam construction exhibits an IRR of 7%.(15)
Stakeholders estimated the rate of return for small-scale irrigation to be around 10% - 15%.(16)
Investment Timeframe
Medium Term (5–10 years)
According to stakeholder testimonies, the timeframe for small-scale irrigation is around 7 to 10 years.(16)
An investor in a neighboring country stated it is possible to generate revenue after 4 years, depending on the size of the investment and the type of crops using the irrigation systems.(17) (18).
Investments are expected to take more than 10 years to generate a positive IRR, accounting for the time needed for water dam construction and the required capital expenditure.(19)
Ticket Size
USD 500,000 - USD 1 million
Market Risks & Scale Obstacles
Business - Supply Chain Constraints
Business - Supply Chain Constraints
Market - uptake challenges due to social norms
Impact Case
Sustainable Development Need
In Kenya 54% of people were employed in agriculture in 2020. However, the value added per worker (based on 2010 constant prices) is lower than it used to be 15 years ago, at USD 1,120.(2)
SDG 2 - Zero Hunger and SDG 8 - Decent Work and Economic Growth presented as major and significant challenges respectively. The cereal yield indicator shows a major challenge with only 1.5 tons/ha.(5)
In 2018, only 151,000 ha out of 5.8 million ha of arable areas were equipped for irrigation.(4) According to an economic analysis by the World Bank Group, declining farm size and particularly the limited irrigation usage are important constraints to improving agricultural productivity in the country.
Gender & Marginalisation
Women constitute almost 80% of agricultural workers in Kenya. Yet, they often do not have any ownership of farming lands or production equipment. They also suffer from an unequal access to relevant agricultural loans.(31)
Expected Development Outcome
Increased yields (agriculture and livestock), productivity levels and incomes for farmers
Increased possibility of expanding farm sizes and land usage for agricultural purposes
Reduced price volatility, mitigated food insecurity and reduced reliance on rain
Gender & Marginalisation
Increased employment opportunities especially for youth and females due to the development of the agricultural sector
Primary SDGs addressed
2.1.1 Prevalence of undernourishment
2.3.1 Volume of production per labour unit by classes of farming/pastoral/forestry enterprise size
2.3.2 Average income of small-scale food producers, by sex and indigenous status
29.4% (32)
Agricultural value added per worker USD 1,987.13 (32)
N/A
0%
By 2030, double the average productivity of food producers
N/A
6.4.1 Change in water-use efficiency over time
12.43 rate in 2010 (Water productivity is calculated as total gross domestic product (GDP) measured in constant 2010 USD divided by annual total water withdrawal) (32)
N/A
15.3.1 Proportion of land that is degraded over total land area
40% - proportion of land that is degraded over total land area (32)
N/A
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Indirectly impacted stakeholders
Corporates
Outcome Risks
Aquifers, river systems and downstream groundwater may be at risk of depletion from increased water extraction following irrigation activities (22)
Waterlogging and salinization of soils resulting from potential irrigation schemes are also risks, which need to be addressed while planning the investment process (23)
Increased incidence of water-borne and water-related diseases (malaria, bilharzia) (24)
Gender inequality and/or marginalization risk: Any negative environmental outcome will predominantly impact the main source of income for women and rural households: farming lands.
Impact Risks
Unexpected impact risk: Unexpected negative impacts are probable, by depleting groundwater resources and changing rural lifestyles.
Impact Classification
What
Scaling up small irrigation systems and integrated solutions with dam constructions are likely to increase yields, farmers' income and productivity.
Risk
Low levels of water together with rising population and low up-take from farmers to these new solutions may constrain the impact of the investments.
Impact Thesis
Contribute to agricultural productivity as well as increase farmers' yields and income.
Enabling Environment
Policy Environment
Kenya's Third Medium Term Plan: According to this plan, achieving Food and Nutrition Security is one of Kenya's 'Big Four' initiatives. Proposed projects include irrigation projects concentrated mainly on constructing large-scale multipurpose dams.(25)
The Ministry of Agriculture’s 2019-2029 Agricultural Sector Transformation and Growth Strategy aims to maintain Kenya’s existing irrigation infrastructure and increase small and medium size farmers’ access to affordable irrigation systems to boost productivity.(13)
The government launched multiple irrigation projects such as the National Expanded Irrigation Programme, Community Based Smallholder and Irrigation Projects and the Galana-Kulalu Food Security Project, which are still in progress.(25)
Financial Environment
Financial incentives: Kenya has a 150% investment allowance for the cost of buildings and machinery for investments worth around USD 2 million (KSH 200 million) and situated outside Nairobi, Mombasa, Kisumu.(28)
Fiscal incentives: Kenya offers custom duties and VAT (value added tax) exemption on the import of irrigation equipment.(29)
Other incentives: Kenya offers many public-private partnership (PPP) opportunities in constructing large-scale projects such as multipurpose dams.(25) (11)
Regulatory Environment
Irrigation Act of 2019: This Act makes the Cabinet Secretary of the Ministry of Water and Sanitation and Irrigation the main body responsible for irrigation. The Cabinet formulates policies, guidelines and regulations, and supervises the Irrigation Authority.(26)
National Irrigation Authority: This authority is supervised by the Ministry of Water and Sanitation and Irrigation. It replaced the National Irrigation Development Authority (established 2017) and National irrigation Board (established in 2012).
Kenya Water Act 2016: This Act includes considerable changes to water management structures. It instituted the Water Resources Authority (which manages water resources at the national level) and the Basin Water Resource Committee (which manages water resources at the regional level).(27)
Marketplace Participants
Private Sector
SunCulture Kenya Ltd, The Watermark, G. North & Son, Amiran Kenya Ltd, Elgon Kenya Ltd , Grundfos Kenya Ltd, Rrico International Ltd, Agro Irrigation And Pumps Services, Agritech Farming Systems And Supplies Co Ltd, Kickstart International Inc (Approtec), Greener Earth Ltd
Government
Ministry of Agriculture, Livestock and Fisheries
Multilaterals
World Bank, Japan International Cooperation Agency (JICA), CDC Group, Energy Access Ventures, PG Impact Investments, Aster Capital
Non-Profit
Global Water Security and Sanitation Partnership, International Fund for Agricultural Development (IFAD)
Target Locations
Kenya: Coast
Kenya: Nyanza
Kenya: Rift Valley
Kenya: Nairobi (Province)
References
- (1) World Bank (2020). Kenya Economic Update: Turbulent Times for Growth in Kenya.
- (2) World Bank database, 2020. https://data.worldbank.org/
- (3) ISIC Classification Revision. Comparative Industry Forecast Tables - Agriculture.
- (4) World Bank (2019). Unbundling the Slack in Private Sector Investment: Transforming Agriculture Sector Productivity and Linkages to Poverty Reduction. April 2019 | Edition No. 19.
- (5) Sachs, J., Schmidt-Traub, G., Kroll, C., Lafortune, G., Fuller, G., Woelm, F. (2020). The Sustainable Development Goals and COVID-19. Sustainable Development Report 2020. Cambridge: Cambridge University Press.
- (6) Ministry of Agriculture (2019). Agricultural Sector Transformation and Growth Strategy: Towards Sustainable Agricultural Transformation and Food Security in Kenya 2019-2029.
- (7) Government of Kenya. National Agriculture Investment Plan (NAIP) 2019-2024. http://extwprlegs1.fao.org/docs/pdf/ken189052.pdf
- (8) World Bank (2020). Kenya Economic Update: Turbulent Times for Growth in Kenya,
- (9) Food and Agriculture Organization of the United Nations. Agriculture Policies Database for Kenya.
- (10) 2030 Water Resource Group (2016). Agriculture and Irrigation Opportunity in Kenya. https://www.2030wrg.org/wp-content/uploads/2016/12/Agriculture-and-irrigation-opportunity-in-Kenya.pdf
- (11) Sustainable Blue Economy Conference (2018). Blue Economy Bankable Project. http://www.blueeconomyconference.go.ke/wp-content/uploads/2018/11/SBEC-Booklet-2019-20.11.2018-compressed.pdf
- (12) Republic of Kenya (2018). Third Medium Term Plan 2018 – 2022: Transforming Lives: Advancing Socio-economic Development Through The 'Big Four'.
- (13) Ministry of Agriculture (2019). Agricultural Sector Transformation and Growth Strategy: Towards Sustainable Agricultural Transformation and Food Security in Kenya 2019-2029.
- (14) You, L., Xie, H., Wood-Sichra, U., Guo, Z. and Wang, L. (2014). 'Irrigation potential and investment return in Kenya', Food Policy, vol. 47, 34-45. https://www.sciencedirect.com/science/article/abs/pii/S0306919214000712
- (15) International Food Policy Research Institute (2010). What Is the Irrigation Potential for Africa? - A Combined Biophysical and Socioeconomic Approach. Discussion Paper 00993. http://ebrary.ifpri.org/utils/getfile/collection/p15738coll2/id/2205/filename/2206.pdf
- (16) UNDP/PwC Stakeholders Interviews in Kenya, 2020.
- (17) SunCulture (2020). Lta company profile and its investors public profile.
- (18) UNDP/PwC Stakeholders Interviews in Kenya, 2020.
- (19) International Fund for Agricultural Development (2016). Economic and Financial Analysis of rural investment projects. http://www.fao.org/3/a-i6366e.pdf
- (20) Mwamakamba, S., Sibanda, L. and Pittock, J. (2017). 'Irrigating Africa: Policy Barriers and Opportunities for Enhanced Productivity of Smallholder Farmers', International Journal of Water Resources Development, vol. 33. https://www.tandfonline.com/doi/full/10.1080/07900627.2017.1321531
- (21) Mati, B. (2008). Capacity Development for Smallholder Irrigation in Kenya. Nairobi: Jomo Kenyatta University of Agriculture and Technology. https://www.researchgate.net/publication/227772664_Capacity_development_for_smallholder_irrigation_in_Kenya
- (22) KENIvest. Investment Incentives. http://www.invest.go.ke/starting-a-business-in-kenya/investment-incentives/
- (23) Food and Agricultural Organization of the United Nations (2015). Kenya Irrigation Market Brief. http://www.fao.org/3/a-i5074e.pdf
- (24) Food and Agricultural Organization of the United Nations (1997). Irrigation Potential In Africa: A Basin Approach. Rome: FAO Land and Water Development Division. http://www.fao.org/3/W4347E/w4347e00.htm#Contents
- (25) Republic of Kenya'(2018). Third Medium Term Plan 2018 – 2022 Transforming Lives: Advancing Socio-economic Development Through The 'Big Four.
- (26) Irrigation Act 2019. http://kenyalaw.org/kl/fileadmin/pdfdownloads/Acts/2019/IrrigationAct_No.14of2019.pdf
- (27) 2030 Water Resource Group. Understanding the Kenya 2016 Water Act. https://www.2030wrg.org/wp-content/uploads/2016/12/Understanding-the-Kenyan-Water-Act-2016.pdf
- (28) KENIvest. Investment Incentives. http://www.invest.go.ke/starting-a-business-in-kenya/investment-incentives/
- (29) Food and Agricultural Organization of the United Nations (2015). Kenya Irrigation Market Brief. http://www.fao.org/3/a-i5074e.pdf
- (30) SunCulture (2020). Our Impact. https://sunculture.com/
- (31) Deutsche Welle (2013). Women take over Kenya's farming sector. https://www.dw.com/en/women-take-over-kenyas-farming-sector/a-16716322
- (32) SDG Tracker (2021). End poverty in all its forms everywhere. https://sdg-tracker.org/no-poverty