The Central Bank of Nigeria (CBN) and commercial banks are beginning to pay attention to agric-based businesses through micro-credit funding.
Head of Agribusiness Department at the Union Bank of Nigeria Plc Olabode Abikoye speaks on the need for increased funding for the sector and how it can be turned to a major foreign exchange earner. He also speaks on the commitment of Union Bank to funding smallholder farmers expected to help the government reduce food imports valued at about N1 trillion annually, COLLINS NWEZE reports.
The agricultural sector has recorded impressive growth in recent years despite the decline in the Gross Domestic Product (GDP) thanks to funding from the Central Bank of Nigeria (CBN) through commercial banks, Head of Agriculture Department at the Union Bank of Nigeria Plc Olabode Abikoye has said.
He said the sector recorded positive growth of above four per cent last year despite the decline in the oil and non-oil sectors, saying the sector thrived in terms of the GDP due to the government’s economic diversification which brought more funding to the sector at a time contributions from the oil sector have nosedived.
“The Nigerian economy is import-dependent with very little non-oil exports. It relies substantially on crude oil and gas exports with other sectors trailing far behind. The economy is, therefore, susceptible to shocks in the oil and gas industry. In recent times, these shocks have been caused by either developments in the international crude oil market or unease in the Niger Delta region. Despite the challenges in the macro environment, businesses are increasing investments in mechanised farming and other activities in the agric value chain, such as processing, storage, packaging, delivery and logistics,” he said.
Abikoye said foreign investors and investment fund managers have also raised their investment plans for the sector.
“The renewed focus of the Nigerian Government on reviving productivity in the agric sector also contributed to this growth. The new Agricultural Promotion Policy (APP), Nigeria Incentive Based Risk Sharing System for Agricultural Lending (NIRSAL) and other Agric-financing arrangement, have given farmers and businesses new impetus and opportunities for growth,” he stated.
“Currently, Nigeria is rolling out ambitious reform programmes through the Ministry of Agriculture across its agricultural sector aimed at cutting the country’s dependency on food imports, creating jobs and generating growth. The reforms such as the move to privatise the procurement and distribution of fertiliser and seed have resulted in more private sector participation as well as increase in foreign direct investments, ”he added.
Besides, the introduction of Agricultural Transformation Agenda (ATA) brought about reforms in the agricultural sector. National food production grew and led to a sharp reduction in food imports. Also, direct farm jobs rose in the period due to ATA interventions.
Other important point to mention here is that the government intends to reduce and eventually stop food importation. The cost of food importation is put at about N1 trillion annually.
“Many private organisations have also diversified into the export market to earn foreign exchange following the prevailing scarcity of forex. Export of agro commodities is a low hanging fruit for prospective exporters and due to the opportunities presented by the devaluation of local currency, the sector witnessed new entrants which also accounted for part of the growth,” he stated.
Abikoye said there was no evidence of improved forex liquidity, and the forex shortage still one of the key constraints on activities in Nigeria.
He added that Union Bank is unrelenting in the provision of funding support and technical advisory services to Micro Small and Medium Scale Enterprises (MSMEs) and Commercial agribusiness projects.
He said Union Bank’s active engagement in agro-commodities value chain financing is hinged on the fact that the benefits of agriculture is becoming more visible, and the sector has huge potentials to become a major foreign exchange earner and help boost the nation’s revenue base. Across the country, our farmers, traders and transporters are seeing a shift in their fortunes. Nigerians who favoured imported products are now consuming made-in-Nigeria products.
“If there is any time to take a serious look at financing the growth of the sector, even as the nation moves away from over dependence on oil, it is now. Our development partners – CBN, NIRSAL, NAIC have been supportive over the years as regards providing the enabling on-lending support for qualitative boost in Union Bank’s agribusiness risk assets portfolio. Our team possesses the requisite skills set to actively function in the specialised sector – in areas such as relevant trainings in agro-commodities value chain financing, technical appraisal of credit requests, project monitoring and evaluation, enabling us make risk-conscious and purposeful decisions,” he said.
On projection for the agric sector within this year, Abikoye said that as the country aims to diversify, agriculture is expected to play a key role in growing the non-oil sector in the coming years.
“The growing demand for food driven by a large population ensures the demand for agricultural produce remains high. However, policies over the medium and long term will influence the growth and development of the industry. However, there is need to deepen government intervention policies as well as increase public and private partnerships for investments in the sector to end food importation and encourage exportation.
“Our small-and medium-scale businesses continue to face difficulties in accessing long term and more affordable credit. Most stakeholders are of the opinion that the criteria set to access the government intervention funds (loans either by the CBN or direct from the Federal Government) are seemingly unrealistic. The conditions are said to be too stringent for the consciously marginalised low-scale farmers, who constitute over 80 percent of the country’s farming population,” he suggested
According to Abikoye, government also needs to address the issue of lack of land title documents by farmers. “The state governments must see reason to make land available to potential farmers for the purpose of achieving the goal of food security. A few suggestions on how we can create an enabling environment for agriculture to thrive include improving farm storage facilities and improving infrastructure, increased investment to make the sector more attractive to young people, and increased funding intervention by the Federal Government and the CBN,” he said.
He advised that to achieve self-sufficiency in food and other farm products, considerable work needs to be done across the various value chains. “In December 2016, Morocco and Nigeria signed an ambitious collaboration agreement to revive the abandoned Nigerian fertiliser blending plants. The agreement focuses on optimising local materials and only importing items that are not available locally. This programme has already commenced and it is expected that it will create thousands of jobs and save Nigeria $200 million of foreign exchange and over N60 billion in subsidy. An increase in such arrangements are required for the sector to progress.
“The agriculture sector has huge potentials to become an alternative foreign exchange earner. However, the key issues remain unreliable power supply, export incentives, and access to finance. We must take advantage of current opportunities to export processed agricultural products and manufactured goods. Expansion of existing, as well as the development of new Export Processing and Special Economic Zones in partnership with the private sector is recommended,” he stated.
Abikoye said that sustained decline in production levels, new orders and raw materials inventories are responsible for the decline in credit to agric sector in 2016 even as global growth remained uneven as the risks remain tilted to the downside.
He attributed the decline to the fall in banks’ holding of government securities which had a negative bearing on domestic credit to private sector like financial resources provided to the private sector through loans, purchase of non-equity securities, trade credits and other account receivables that establish a claim for repayment.
He believes that for the Nigerian economy to achieve greater growth in the future, the financial industry must be encouraged to serve the real sectors while corporate bodies should be encouraged with favorable government policies, to give agriculture the oxygen it needs to thrive by sourcing a greater percentage of raw materials utilised locally in the nearest future.
“Apart from driving down costs for the manufacturers and ease, the pressure on the nation’s dwindling foreign reserves, local raw materials sourcing will also play an important role in creating employment opportunities, boost income levels and empower farmers along the agriculture value chain. Building strategic partnerships with banks, agricultural non-governmental organisations, donor agencies and research organisations and leveraging these partnerships to mitigate some of the challenges that currently affect the agro-commodities value chain will take the agricultural industry to the next level and meet the funding needs of the stakeholders,” he advised.