Economic Update

07 Mar, 2013

A mix of reforms and investments aimed to revive Nigeria’s agriculture industry are set to stimulate growth up and down the production chain and create new jobs that could number in the millions. However, vital to this plan will be efforts to encourage banks to boost lending to crop farmers and large-scale processors, as well as for the government to deliver on its promises.

Speaking in Geneva on January 22 during a closed-door meeting of the newly-formed Eminent Persons Group, which is comprised of several influential global leaders, including former UN Secretary-General Kofi Annan, Microsoft founder and Gates Foundation co-chair Bill Gates and African Development Bank president Donald Kaberuka, President Goodluck Jonathan said Nigeria was targeting an increase of 20m tonnes in agricultural production and the creation of at least 3.5m jobs in agriculture and associated industries by 2015.

While much of this growth would come from private sector expansion, it would also be supported by state efforts to enlarge production and facilitate downstream activity, said Jonathan. In particular, the government would focus on investments in infrastructure to improve access to electricity and water, and strengthen the logistics chain by spending more on transport.

Jonathan said the government now considers the agriculture sector to be a business, rather than a development programme, putting stock in its ability to provide food security, create wealth and generate jobs.

Paul M Gbededo, managing director of the agro-allied division at Flour Mills of Nigeria, believes measures initiated by the state could provide the springboard the farming and agricultural processing industry needs.

“Government efforts to enable growth in the agricultural sector are an attempt to unlock potential that is available today,” he told OBG. “This is the same potential that made Nigeria a major global food producer in the mid-20th century. We are in the process of creating an enabling environment that will allow us to get back to what we once were, and an essential part of this will be to make funding available for agricultural projects at low interest rates and for the long term.”

An Agricultural Transformation Action Plan (ATAP) now provides a comprehensive government strategy for the sector. Much of the motivation behind the renewed focus is down to reducing the cost of food imports, diversifying the economy and developing rural areas of the country. The Federal Ministry of Agriculture and Rural Development wants to boost domestic production of staple crops such as rice, sugar and cassava to lower imports and encourage the development of agribusinesses.

Focusing on those value chains where it sees a competitive advantage, the ministry has announced an integrated approach covering production, storage and industrial processing epitomised by the establishment of the new integrated staple crop processing zones, with the goal of attaining both self-sufficiency in key food staples and growing its position in soft commodity markets.

To do so, however, Nigeria’s banking sector will need to support agriculture’s development. Despite the Central Bank of Nigeria (CBN) issuing a circular in 2012 requiring lenders to establish a unit responsible for dealing with the agriculture sector, not all banks have complied. According to data from the CBN, agriculture accounts for 40% of GDP, yet it attracted only 2% of bank lending in 2012. While this is an improvement from the 1% of banks’ portfolios in 2009, the sector still has difficulties accessing capital commensurate to its size.

The Nigeria Incentive-Based Risk Management System for Agricultural Lending (NIRSAL) is the best example of the evolving approach to financing the sector. The ministry and the CBN jointly run the programme. NIRSAL aims to improve the agricultural value chain so that banks have more confidence in these investments. At the same time, the CBN wants to provide the technical and financial incentives to encourage banks to lend.

But the finance sector has yet to fully recognise the terms and conditions under which agriculture operates, according to Celestine Ayok, a consultant at Famag-Jal Farms, a producer and processor of dairy and meat. Significantly, the Nigerian banking sector has not created financial products that suit the timelines and needs of agricultural projects.

“A timeline for a given project in the livestock industry must factor in the importation of assembled equipment, installation of this equipment and also natural processes and growth of the animals,” he told OBG. “Banks must bear this in mind when lending to the industry and remember that the needs of farms are very different from the needs of a fast-moving corporate client.”

Jerry Gushop, the head of agriculture sales and distribution at Stanbic IBTC Bank, a regional lender, acknowledges that some banks need to do more to meet the needs of primary industry.

“All banks are to take the initiative to innovate in lending to the agricultural sector in order to support the government’s efforts,” Gushop told OBG. “By acting as transaction specialists and not as advisors, banks should use all opportunities to develop in-house capacity and improve the productivity and investment risk of a given customer.”

While there is opportunity for banks to grow their portfolio through lending to the agriculture sector, this will depend on their ability to create products that are suited to the needs of their clients. Just as crucially, the success of the government’s efforts to reinvigorate the agribusiness sector will depend on the development of a long-term relationship between the two industries.