Category: Business news Written by Kayode Ekundayo, Lagos Hits: 1165
Some decades ago, the agricultural sector was the pivot on which the nation’s economy rotated, creating over 80 per cent jobs and revenue for the nation.
But since the discovery of crude oil in the late 1950s, it has never been the same again. The sector has plummeted to worrisome levels. Although various successive governments, either military or civil, had initiated various policies aimed at taking the sector out of the doldrums, it has remained unattractive and discouraging to investors.
Lately, the sector seems to be experiencing promising changes. Just recently, the World Bank announced it would be committing $1 billion to support agricultural development in Nigeria, while the Bank of Agriculture also stated it would be funding the sector to the tune of N25 billion over the next two years.
Although Nigeria’s reform agenda for the agricultural sector still has crucial milestones to cross, remarkable progress has been made as investors troop in to partake in the reawakening process. Notable recent investments by the private sector include PZ Cusson’s $56 million palm oil refinery joint venture with Wilmar International, Transcorp’s investment in a fruit concentrate plant and the Dangote Group’s planned $1.9 billion greenfield fertiliser plant.
A few days ago, the Minister of Agriculture and Rural Development, Dr. Akinwunmi Adesina and the Blumberg Grain Chairman, Philip Blumber signed a letter of intent (LOI), that will see the multinational food security company invest $250 million in a large-scale food storage facility for Nigeria’s agricultural sector, an investment that promises to create up to 1,000 jobs and boost food production.
The Blumberg Grain’s investment will create job opportunities for an already expanding sector under Nigeria’s Agricultural Transformation Agenda (ATA). The Federal Ministry of Information stated that Nigeria’s ATA’s goal is to add 20 million metric tonnes of food to the domestic food supply by 2015. Reducing an estimated 50 per cent loss in produce from post-harvest losses due in large part to inadequate storage is one of the fastest and most efficient ways to achieve this target.
Also, foreign investors such as food giant Cargill, seed company
Syngenta, brewer SABMiller and Africa’s richest man Aliko Dangote are planning to build agricultural inputs from fertilizer plants to food processing factories.
In 2012, according to data recently released by the Central Bank of Nigeria (CBN),credit to the agricultural sector as a share of volume to the private sector rose to 3.7 per cent, from the 2 per cent figure it hovered in the past five-year period leading to 2011. The CBN governor, Mallam Sanusi Lamido Sanusi explained in Lagos that for Nigeria to diversify its economy and achieve sustainable development, agriculture has to be given its pride of place as the largest employer of labour.
To him, funding is important for the sector. For that to be effective, however, the sector needs to be stripped of inherent risks that impair bank lending. That thinking by the apex bank chief explains why the regulator, in collaboration with the Bankers’
Committee, established the Nigerian incentive-based Risk Sharing System for Agricultural Lending (NIRSAL), which seeks to de-risk agricultural business in Nigeria by ensuring that those in the business have access to loans on a concessionary basis.
Agricultural experts believe that the greatest impetus to the success of NIRSAL was the floating of a N200 billion agriculture credit scheme by the CBN. The apex bank also launched the N600 billion NIRSAL funding programme meant to guarantee up to 75 per cent of bank loans to various businesses in the agric value chain. The CBN plans to spend an estimated $500 million to create further incentives for the banks to sustain the flow of agricultural credit.
Industry watchers said the manner NIRSAL is structured made it a winning formula from inception. The initiative, a brainchild of the CBN, the Bankers Committee and the Federal Ministry of Agriculture & Rural Development (FMARD), seeks to create incentives and catalyze processes to encourage the growth of formal credit, direct and indirect, for the agriculture value chain as a mechanism for driving wealth creation among value chain participants.
NIRSAL is also expected to be a catalyst for innovative risk management strategies and a long-term financing tool for agri-business and significant job creation by new entrepreneurs. “The mandate of NIRSAL is to act as the custodian of all credit guarantee schemes, interest draw-back schemes and commercialisation initiatives related to an integrated value chain approach to agriculture and agri-business in Nigeria,’’ according to the central bank.
Under NIRSAL, there are five pillars to be addressed by an estimated $500 million that will be invested by the CBN, as the programme document indicates. There is a risk-sharing facility of $300 million, planned to address banks’ perception of high-risks in the sector by sharing losses on agricultural loans. There is equally an insurance facility of $30 million intended 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. There is also a technical assistance facility amounting to $60 million meant to equip banks to lend sustainably to agriculture and to producers to borrow and use loans more effectively and increase output of better quality agricultural products.
Data obtained recently from the Bankers Committee show that between July and November last year, the country’s lenders issued over N6 billion in credit guarantees to farmers with the following broad parameters: average loan guaranteed amounting to N397 million, with a range of N4 million to N1.5 billion and an average duration of loans at 285 days. It was anticipated that under NIRSAL, collaboration between banks and counterparts will push loans under guarantee in excess of N20 billion by the end of the first quarter of this year.
The facts on ground indicate the target might have been exceeded. Speaking recently at the World Economic Forum on Africa, in Cape Town, Minister of Agriculture, Akinwumi Adesina said Nigeria is positioning itself to become a key player in global food production. He was reflecting on the increased tempo in agricultural credit and the strength of a new crop of farmers ready to jumpstart production. “We have 84 million hectares of land of which no more than 60 per cent of it is cultivated. In terms of optimal cultivation, no more than10 per cent of it is in high quality seed, fertilisers, mechanisation and good irrigation. But we see beyond the gloomy picture given our collective efforts. The country hopes that through ongoing agricultural transformation agenda and stakeholder support, it can create 3.5 million jobs and add 20 million tonnes to domestic food supply by 2015,’’ Adesina said.
With huge investments in the sector, Reuters predicted a rise in the production of rice, cassava, wheat, sorghum, corn and cocoa this year. In 2012, agriculture exports rose by N128 billion ($788 million) while food imports fell by N850 billion. Wth the credit trend emanating from the banks, Nigeria might be close to winning its economic diversification objectives and looks real to cut dependence on black gold.