27 May 2019

Nigeria: Deepening Agric's Value Chain Investments for Improved Economy

The World Bank in a recent report disclosed that agriculture can help reduce poverty, raise incomes and improve food security for 80 per cent of the world's poor, who live in rural areas and work mainly in farming. Surely, it is an interesting revelation, especially when considering that agriculture remains the largest employer of labour in many of Africa's emerging economies, including Nigeria.

The World Bank Group, as the leading financier of agriculture, through its subsidiaries- International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA) committed $6.8 billion in 2018 alone. IDA aims to reduce poverty by providing loans and grants for programs that boost economic growth, reduce inequalities, and improve people's living conditions.

Similarly, IBRD was established to function as a self-sustaining business and provides loans and advisory services to middle-income and credit-worthy poor countries.

Emerging economies like Nigeria with an abundance of arable land for farming and a large young population rightfully should have agriculture as one of the major sectors for economic development. Already, analysts refer to the agriculture sector as a gold mine waiting to be fully explored.

In another report by PricewaterHouseCooper (PWC), Nigeria has about 84 million hectares of arable land, with about 41 per cent or 32 million hectares being cultivated. This is odd for a country with a growing population of over 190 million, where to a large extent a chunk of its food consumption is still imported.

Clearly, there is an abundance of arable land, a large number of capable hands but suboptimal agricultural output. The reasons for this anomaly can be traced down to the level of investments in the sector.

Insufficient investments in the value chain make farmers resort to subsistence farming and labour intensive practices, which have poor outcomes and discouraging to potential farmers.

Historically, farmers find it very difficult to obtain loans to expand their operations. In addition to a dearth of infrastructure like poor transportation network, lack of storage facilities result in spoilage and wastage of the produce. These are some of the challenges even the existing farmers are currently facing, with low returns as a consequence.

However, respite is beginning to come the way of the Nigerian farmers with interventions by the Central Bank of Nigeria (CBN). The development intervention of CBN in collaboration with the Federal Ministry of Agriculture and Water Resources is gradually returning lost confidence.

So far, the Commercial Agriculture Credit Scheme (CACS), established in 2009 to provide finance for the country's agricultural value chain production, is fast-tracking the development of the agricultural sector by providing credit facilities to large scale enterprises with a minimum asset size of N50 million at a single digit interest rate of nine per cent.

However the Central Bank of Nigeria has amended the CACS and has pegged the maximum loan intake for any project under the scheme at N2 billion, with maximum interest rate at not more than nine per cent, inclusive of all charges.

It also approved the participation of all banks under the scheme with mandate to sponsor projects from any of the target areas indicated in the guidelines and bear all the credit risk of the loans they grant.

The Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) was also was launched in 2011 and incorporated in 2013, by CBN, designed with the objective of enabling the flow of affordable financing to all players along the entire agricultural value chains.

It is a $500 million public-private initiative to define, measure, price and share agribusiness related credit risk, as well as build the capacities of both banks and value chain actors on good practices in agricultural financing, loans utilization and repayment.

NIRSAL insurance facility's primary goal is to expand insurance products for agricultural lending from the current coverage to new products, such as weather index insurance, new variants of pest and disease insurance and the likes. Still, funding for the sector is still low.

The Head of Business Banking, Stanbic IBTC Bank in a recent chat with the media said that the NIRSAL-Stanbic IBTC Agribusiness Finance scheme commenced with a portfolio cap of N10billion, but this was increased to N15 billion in 2018.

He said currently, value of facilities the bank has approved stands at N13.7billion, with utilisation level of N10.67 billion. The difference of N3.01 billion is for transactions that are either undergoing NIRSAL approval process, or awaiting clients' payment on NIRSAL Credit Risk Guarantee invoices issued.

So far, Stanbic IBTC Bank has supported government's objective of enhancing lending to the agriculture sector under this scheme by financing input supplies like fertilizer distributors; operators in processing; and borrowers under the NIRSAL's Anchor Borrower Programme (ABP).

The bank is major player in Nigeria's agriculture sector and has injected over N50 billion into the sector, making it one of the largest investments recorded so far. The lender has been consistent in its support for farmers and other operators in the value chain segment.

A farmer and customer of the bank said the bank's exposure to the sector can be attributed to the expertise and depth of its agriculture and enterprise departments, as well as the determination to assist in revamping the nation's fortunes in the segment.

It also pioneered agric-related schemes with Guinness Nigeria Plc tagged: "Grow with Nigeria", as financial partners, which is in line with government's effort to diversify the Nigerian economy through the promotion of non-oil sectors.

The initiative was targeted at the growth of the agricultural value chain and that of smallholder farmers who form an integral part of Guinness' business. The bank reassured beneficiaries of providing financial solutions and putting the full resource of its agriculture desk at their disposal.

The bank is in partnership with the Enterprise Development Centre (EDC) of the Lagos Business School to host a capacity building series tagged: "Agri-Business Small and Medium Enterprises Investment Scheme (AGSMEIS) capacity training."

AGSMEIS is a voluntary initiative of the Bankers' Committee approved at its 331st meeting on February 9, 2017. The Scheme requires all banks in Nigeria to set aside five per cent of their profit after tax yearly.

The training sessions through the EDC provided capacity building and technical assistance to Micro, Small and Medium Enterprises (MSMEs), which positions makes them for access to funding from the participating financial institutions (PFIs).

The Head, Enterprise Banking, Stanbic IBTC Bank, Ayodele Ojosipe, said: "Stanbic IBTC's commitment to building capacity among enterprises stems from its deep understanding of the important role enterprises play in providing linkages to industries, employment generation and driving growth of the economy."

Olam Nigeria Limited, a big player in the agric sector and recently secured a three-year digital-linked revolving credit facility, aggregating $350 million. This is the first in the world.

Digital loan refers to a lending instrument where the pricing of the facility is linked to receiver's digital maturity score. The digital maturity is a measure of how ready an organisation is to digitally transform, weighed under 15 competencies, evaluated on the level between one and five. The outcome affirms Olam's ongoing efforts towards digital transformation.

While there is achievement presently, however, more investment is needed in the sector in areas of transportation, storage and irrigation systems. Farmers, indeed, need better infrastructure to convey their produce from point of cultivation, as a large percentage is lost due to poor transportation logistics.

It is also pertinent to note that rural agriculture is still largely rain-fed. So, many rural farmers wait on the rains before they begin the process. Therefore, investing in a proper irrigation systems would increase the yield of the produce and also increase the frequency at which farmers plant and be gainfully engaged.

With increased investment in the sector, directly by empowering stakeholders in the sector or through partnerships, the economy would be better for it.

Before the discovery of oil, Nigeria was one of the most promising agrarian nations. Between 1962 and 1968, export crops were the country's main foreign exchange earner.

The country was number one globally in palm oil exports, well ahead of Malaysia and Indonesia, and exported 47 percent of all groundnuts, putting it ahead of the United States of America and Argentina.

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