By Daniel Essiet
The World Bank forecasts that by 2030, the food market in Africa will grow to be a $1 trillion industry. For Nigeria to maintain its share of the continent’s agriculture gross domestic products (GDP) by 2030, experts say the country needs to grow its agriculture sector.
Currently, the agriculture sector is one of the largest employers in the country. More than 70 per cent of the working population is associated with agriculture in one form or another.
However, the overall contribution to the nation’s gross domestic products (GDP) is only a meagre five per cent.
The recent estimate, according to analysts, indicates that the sector is performing way below its potential. For this reason, agriculture projects are attracting more attention in recent years.
While agriculture is a growing segment of the economy; however, access to capital remains an issue for many agriculture companies. This has had a debilitating impact on the growth prospect, as farmers and is excluded from lending through high interest rates, and their creditworthiness is assessed based on their record.
Following this, several agricultural experts and emerging agribusinesses have lamented the lack of financing opportunities in the sector.
Indeed, the sources for formal financing in the agric sector today is the Central Bank of Nigeria(CBN), Nigeria Incentive-Based Risk Sharing System for Agricultural Lending PLC (NIRSAL), banks and non-banking financial institutions. Still, small-time farmers continue to rely on informal sources of lending.
A missing piece is significantly under-investment from the capital market for agriculture and food.
While the rest of Nigeria enjoys the fruits of stock market returns, the agric sector has thus far not tapped into the stock markets to the extent imaginable. Despite the increased interest in agriculture, the capital market has not provided enough funding for mid-sized and emerging agriculture and food companies.
It was the spear point of a hybrid webinar held in Lagos. It was organised by Growvest, a Lagos based investment club platform. Industry experts explore the theme ‘ Short-term funding options for agribusiness in the capital market”. The goal was how to uplift farm businesses and make them a part of Nigeria’s growth story.
Speaking during the webinar, the Head Registration, Exchanges, Market Infrastructure and innovation, Securities and Exchange Commission (SEC), Emomotimi Agama said what the capital market provides was long term and not short-term funding. He explained that if the sector is looking at short term funding they have to go to the banks.
He added that the commission has stipulated a lot of rules to enhance the participation of agribusiness in the capital market.
His words: “The most recent is the crowdfunding rules that spoke to digital commodities investment platforms. The rule was put in place basically to assist investors which span the entire gamut of agribusiness. Besides that, as part of regulations to enhance the agribusiness sector, our rules are copious and wide large enough for companies in the sector to access the capital market to raise money and fund agribusiness.” So clearly, the regulator is on top of the game and we are well ready to assist would-be participants to grow the agric sector.”
As the agric sector’s income generation prospect has continued to fuel activity, Agama, emphasised that corporate governance structures were critical if investors and producers are to cooperate and meet the rising demand for food.
While the capital market is well regulated in a manner to protect investors base, reforms and initiatives, he continued, were ongoing for investors to tap into a more open and streamlined business environment, with significant growth opportunities identified across range sectors.
According to him, SEC aims to create a capital market capable of supporting the country’s economic development through better provision of finance for the agric sector.
These include improving opportunities for the private sector to raise finance to improve the resilience of the agric sector.
The Chief Executive, Sigma Pensions Limited, Dave Uduanu explained that agribusiness needs long term financing. He noted that there was a possibility of pension funds investing in agriculture.
Uduanu continued that since agriculture tends to be very risky due to volatile agricultural commodity prices, investors were reluctant to invest in agriculture.
On the whole, he stressed that investors in favour of agric investing would prefer, well-structured and large scale businesses.
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In the agriculture sector, he explained that businesses lack formal financial statements and that farmers were unable to fund their operations because banks cannot rely on their credit history and records.
While there is an ever-increasing need to invest in agriculture, the Director, UCML Capital Limited, Egie Akpata pointed to additional industry-specific factors limiting agribusiness access to credit. These include volatile commodity prices, bad weather conditions or disease outbreaks that could impact the repayment.
Generally, he said financial institutions concentrate their activities on non-agricultural activities with a quick turnover. Lending, according to him, is restricted to well-established medium- and largescale companies in the sector.
For starters, Akpata maintained Central Bank of Nigeria (CBN) support was very critical. Also, that banks have diversified banking products and services for farmers.
While rapid growth and development of the agricultural sector is opening up new opportunities, Akpata observed that corporate governance structures were lacking in most agribusinesses.
He explained that the lack of data makes it challenging to carry out a comprehensive approach and process, where risks in agriculture are assessed, prioritised and tackled in a structured way.
He explained that the situation does not guarantee financial security for investors who see opportunities in investing in local producers.
An important challenge, according to him, is to address systemic risks and lower operating costs in dealing with smallholder farmers.
The Chief Executive, Farm360, Mubarak Badamasi believes with the financial industry support Nigeria will become self-sufficient in food production. With what he is doing, he hopes that financial institutions will help increase lending to agriculture and collaboration is very important and would be a game-changer in the sector. Badamasi said agribusiness companies have large and unmet financing needs, both long-term and short-term.
He explained that agribusinesses have short-term working capital needs in the form of advances to farmers and huge inventory because of the seasonality of the industry.
He outlined the challenges and opportunities facing agribusiness in raising funds, adding that it has not been possible for his organisation to access credit because of collateralisation challenges.
“This collateral thing is a big issue. The banks hold the position that agric is risky and they will not put depositors funds in it. There are times we have issues with short-term funds. But they will always ask for collateral outside the farm. They said things like (You must have a property in the federal or state capital that is up to 135 per cent the value of the loan you looking for.). It is one big issue.”
To circumvent this they adopted business credit. His words: “We have been able to establish a relationship with vendors. Our suppliers offer us short-term credit facilities for one or two weeks. This notwithstanding, there are times we have to pay ahead to secure supply. So far that is how we have been pushing it.”
The inherent structural challenges, the Chief Executive, Farmkart, Jesse Osiobe noted, make agriculture an unattractive sector for the new-age entrepreneurs to venture into.
While large-sized agri-tech startups have continued to attract alternate funds, with increased demand from the market, Osiobe remarked that the situation was not the same with starters.
As a consequence, some startups have not been able to overcome challenges in accessing funds.
Osiobe said the company provides an agric-tech platform where people can invest in livestock farming to increase local food production, support farmers and get returns on their investment.
While the market opportunity is there, he noted that the volatile nature of the livestock industry is such that a huge investment in a sector like poultry can be wiped out in a few minutes.
Vice President, Financial Markets, AFEX Commodity Exchange, Oluwafunto Olasemo advocated the capital market increasing support for the agriculture sector.
With the vast ocean of financing required in Nigeria agriculture, banks alone, Vice President, Financial Markets, AFEX Commodity Exchange, Oluwafunto Olasemo, believe would not be able to respond sufficiently to the challenge of the sector.
Like in other economies, she believes investment funds, pension funds, and other capital markets players can certainly perform an important role in the agricultural market in Nigeria.
The Vice President, Financial Markets, AFEX Commodity Exchange who moderated the panel observed that it was critical promising agribusiness firms received considerable attention from investors if they are to unleash their potential in improving the food production system.
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