The Central Bank of Nigeria (CBN) and banks are focusing on agriculture in the hope of turning it to a cash cow in the face of falling oil price. Consequently, the apex bank has instituted policies aimed at securing low cost funds not only for farmers, but for other operators in the agricultural value chain. Banks are also expanding credit to the sector to discourage importation of goods that can be produced locally. COLLINS NWEZE reports.
e spoke with passion. And the message by Alhaji Danladi Garba, Chairman, Tractor Owners & Hiring Facilities Association of Nigeria (TOHFAN) was clear: give operators more credit and see the impact of improved food production not only on the employment market but in the economy.
Garba, at a news conference organised by the First City Monument Bank (FCMB) Limited tagged: ‘Agric business: Diversifying the Nigerian economy’ said Nigeria can produce its own food and that agric business remains profitable.
Garba is right. Gone are the days when borrowers beg banks to lend to the agric sector. Today, the tides have turned. The buzz for agric financing is on, and no lender wants to be left behind. This was not the case 10 years ago when no lender would give funds to farmers.
Such loans would be considered lost from the date of approval. But today, the lenders have begun a scramble for agric businesses, having seen the potential and knowing how much a well priced loan can add to their profitability.
The Group Managing Director/Chief Executive of FCMB Limited, Mr. Ladi Balogun, assured businessmen that the bank will intensify its support to the agricultural sector and its value chain including lending more to the subsector in the interest of the economy. The bank chief said the lender is focused on being a strategic partner to the government and other stakeholders in the agric sector to ensure food sufficiency, employment and revenue generation.
Balogun said the lender will continue to provide credit to the sector and its value chain, including small and medium scale businesses. He said 30 per cent of Nigeria’s Gross Domestic Product (GDP) comes from the agricultural sector. It was 40 per cent before the economy was rebased last year. “The agric transformation is real. It is not rhetoric. We built agric business that is at the centre of transforming the economy. If we really want to continue employing the growing population, we need to not only feed Nigeria, but feed the world,” he said.
The CEO of FCMB said the lender realises that there are millions of farmers across the country that need credit at affordable rates, considering the level of attraction the sector has garnered.
“That is why we are increasing our level of support,” he stated.
“FCMB is not alone in the scramble to lend to the agric sector. United Bank for Africa (UBA) has also keyed into the programme. Its Managing Director Phillips Oduoza, said the bank has continued to channel resources to the sector because it remains the mainstay of most economies in Africa. “UBA has a deliberate policy to continue to fund agriculture. Our lending to the sector is already above the industry average. We are doing about seven per cent of our total portfolio in agriculture,” he said.
Noting that banks’ lending to agriculture is generally on the upward swing, he said that banking sector funding to agriculture has moved from just about 0.5 per cent of total industry portfolio prior to 2009 to about 4.9 per cent of banking industry loan book currently. “Interestingly, the non-performing loans coming from agriculture lending is lower than most people would have thought,” he said.
Oduoza also explained that UBA is expanding its electronic banking products to improve the way it serves its more than seven million customers. He said that the bank has rolled out an array of electronic banking products, from cards to point of sale terminals, which is helping to reduce the cost to income ratio of the bank while making a positive impact on the bottom line.
Union Bank of Nigeria Plc is not left out. Its Group Managing Director, Emeka Emuwa, urged Nigeria and other African nations to make agriculture more productive in their fight to end the scourge of poverty on the continent. He spoke at the International Conference organised by the African Rural and Agricultural Credit Association (AFRACA) sponsored by the bank.
In his welcome address to the conference with the theme: “Propelling economic development through functional agricultural value chain financing models: Lessons learnt and emerging opportunities, in Lagos, Emuwa advised African nations to redouble their efforts to make agriculture more productive. “If you can get agriculture to become more productive, you will be better positioned to tackle the scourge of poverty in the continent. It is unfortunate that there has been a decline in the sector due to the emergence of other economic sectors in Africa,” he said.
Citing Nigeria, Emuwa told the conference participants that the emergence of oil and gas sector stunted the agricultural sector. He said that Union Bank has been supporting agriculture over the years, stressing that in the current financial year, Union Bank will be engaging directly with farmers in order to have a deep understanding of the entire segments of the business so as to inject more funds than have been invested in the past.
“We will continue to invest in agriculture. In the past years, agriculture has played a significant part in our business but we want to look at the entire value chain more intently. We want to engage with the rural farmers directly and not just from policy level”, he emphasised.
Similarly, Ecobank Nigeria said it will grow its agriculture support loans to over N50 billion in the next one year. In a statement, the bank said the plan is in line with its policy to support the growth and development of the agriculture sub-sector of the economy, as part of its contribution to the agricultural transformation agenda of the Federal Government.
Ecobank Country Head, Agric and Export Finance, Abel Ajala, who disclosed this, said the lender has introduced concessionary interest rates for its agriculture finance scheme, as well as created agriculture and export units manned by professionals for easy loan risk assessment, ensuring that beneficiaries utilise fund given to them judiciously.
He noted that Ecobank is supporting the agriculture value chain that comprises the producers, the processors and markets/exporters of agricultural products.He reiterated that the focus on the agric sector has become necessary to stem an impending food crisis on the continent.
Bankers’ Committee
The CBN and deposit money banks in Nigeria, under the aegis of the Bankers’ Committee have restated their commitment to expanding bank lending in agro-business in order to discourage importation of goods that can be produced locally.
The bankers also stated their resolve to explore large corporates as anchors to lend to participants across the value chain to improve the capacity of Nigeria’s agro-businesses so as to create sustainable jobs and inclusive growth.
The bankers also affirmed their commitment to financial deepening of the economy, improving financial access to key sectors of the economy, innovative solutions for the critical finance of generation, provide finance for small and medium enterprises, among others.
“We note that four basic commodities that are consumed by Nigerians – rice, wheat, fish and sugar jointly account for a significant amount of the country’s annual import bill. We are convinced that the nation has the capacity to produce these consumables in required amounts to meet our domestic consumption needs. With its attendant impact on Gross Domestic Product (GDP) and job creation, agriculture remains a critical focus sector of the financial system,” it added.
CBN’s roles
The CBN set the tone when it introduced Nigerian Incentive-Based Risk Sharing Agricultural Lending (NIRSAL) to the banks. By that single policy, banks can lend to agricultural sector and its value chains without fear of losing such funds. The NIRSAL is already being implemented by the banks and is expected to drive agricultural revolution in the country.
The CBN explained that NIRSAL, unlike previous schemes which encouraged banks to lend without clear strategy to the entire spectrum of the agricultural value chain, emphasises lending to the value chain and to all sizes of producers.
The Federal Government also plans to double agriculture’s share of banks’ credit to 10 per cent in two years. The loans to agriculture as a share of total credit rose to N320 billion, or five per cent, at the end of last year from less than one per cent in 2011.
Agriculture Minister Akinwunmi Adesina said the Federal Government has made a fundamental shift that agriculture is not a developmental activity, but a business. “The CBN has shifted the mind-set of the banks. It’s a new agriculture sector in which they can actually invest money and make money,” Adesina said.
Agric potential
Already, banks and the CBN are discussing how to increase lending to the sector. For the apex bank, government needed to pay more attention to agriculture, which still has one of the greatest potentials in growing the economy.
CBN Deputy Governor, Economic Policy, Dr. Sarah Alade said that one way of achieving this is by collaborating with the banking system to fix the value-chain problems in the agricultural sector. She said economic development was about enhancing the productive capacity of an economy by using available resources to reduce risks, remove impediments, which otherwise could hinder investment.
Speaking at an international conference on agricultural value-chain financing in Lagos, she said the CBN has so far committed about N1.169 trillion to different intervention schemes being promoted by the Federal Government.
Alade said the funds were committed by the CBN in collaboration with the Federal Government into key economic schemes for economic development.
She listed the schemes as the Agricultural Credit Guarantee Scheme (N69 billion); Commercial Agricultural Credit Guarantee Scheme (N200 billion); the Nigerian Incentive-Based Risk Sharing System for Agricultural Lending (N200 billion); Small and Medium Enterprises Credit Guarantee Scheme (N200 billion).
Others are the SMEs Restructuring and Refinancing Scheme (N200 billion) and Power and Airlines Intervention Fund (N300 billion).
Alade, who was represented by CBN Director of Research, Charles Mordi, said schemes were meant to address the challenges confronting agriculture and agric business in the country.
She said the Federal Government and CBN instituted the intervention programmes to enable key players in the economy have access to finance, adding that access to credit remains important to agricultural value-chain.
Speaking further, she said the Agricultural Credit Guarantee Scheme was introduced in 1978 to encourage lending to the agric sector. Alade said the scheme has up to date, supported the sector by guarantying loans to over 800,000 beneficiaries.
NIRSAL performance
According to the CBN, NIRSAL is also expected to be a catalyst for innovative risk management strategies, long-term financing for agribusiness 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 agribusiness in Nigeria,” the CBN said.
Under NIRSAL, there are five pillars to be addressed by an estimated $500 million that will be invested by the CBN, according to the programme document.
There is also 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.
Besides, there is also a Technical Assistance Facility amounting to $60 million meant to equip banks to lend sustainably to agriculture, producers to borrow and use loans more effectively and increase output of better quality agricultural products, among others.
The current improvement in the sector was linked to access to credit through the new policy focused on increasing private sector participation, emphasis on the entire agriculture value chain, and using agriculture to boost employment, wealth creation and food security.
Analysts have praised the performance by banks as demonstrating their fate in the capacity of agriculture to transform the economy. The CBN explained that with the credit trend emanating from the banks, Nigeria might be close to winning its economic diversification objectives that will lead to less dependence on oil.
Years back analysts said the structural imbalance of the economy has over the years, remained a source of concern to government, stakeholders and investors who insist that the economy has to be diversified. The discovery of oil in the early 1970s diverted government’s attention from agriculture to oil. This has adversely affected the performance of the agricultural sector over the years but opened calls for the diversification of the economy beyond oil revenues.
Therefore, the dismal performance of the agricultural sector in terms of its contribution to Nigeria’s yearly total revenue in the last four decades prompted the CBN, in conjunction with the Bankers’ Committee to deliberate on ways of increasing lending to agriculture.
This prompted the CBN, in collaboration with the Federal Ministry of Agriculture and Water Resources to establish the Commercial Agriculture Credit Scheme (CACS) in 2009. The CACS was meant to finance agricultural value chain from input supply to marketing. The scheme commenced operations on April 23, 2009 with the approval of the Federal Government.
The establishment of N200 billion CACS was meant to fast-track the development of the agricultural value sector of the economy through the provision of credit facilities at a single digit interest rate to large-scale commercial farmers.
There has been, in recent years, huge flow of funds from abroad to the agricultural sector. Nigeria attracted agricultural investment worth more than $8 billion in the past 18 months ended June, 2013 Adesina said on June 13. Still, only 40 per cent of its 21 million hectares of arable land is cultivated. Agriculture employs 70 per cent of Nigeria’s population, Marie-Francoise Marie-Nelly, the World Bank Country Director for Nigeria, said.
These statistics, analysts said, remain a pointer to the immense opportunity that the agric sector represents, which the banks and government at all levels need to harness for the overall good of the people.
Impact on the economy
A report by the Alliance for a Green Revolution in Africa (AGRA) showed that Agriculture accounts for roughly 41 per cent of Gross Domestic Product (GDP) in Nigeria and 50 per cent of the economically active population in the country. Figures revealed by the report showed that if the Nigerian government is sincere in its poverty reduction campaign, it absolutely has to fix agriculture.
It also showed that the country has 70 per cent of its population rightly in rural areas and about 70 per cent also living on less than one dollar a day. It attributed the 70 per cent population figure still living on one dollar a day to the fact that the nation was yet to revive its agricultural sector. It stated that since 2000, agriculture has been the slowest growing sector, growing roughly at about 5.1 per cent per annum.
According to Adesina, who was formerly the Vice President for Policy and Partnerships (AGRA), the subsector’s development has to be encouraged in order to transform the economy, generate jobs and equitable growth.
Adesina, who spoke at a Bankers Committee meeting he attended to discuss funding needs for the subsector, said: “When you look at the history of the agriculture sector, in the 60s, we used to have the groundnut pyramid; we used to have palm oil, cocoa among others.
“Nigeria was known as an agricultural basket, not only in the country, but globally. Today, we have lost all that. So we are actually importing inflation because as global commodity prices are rising, we are importing food and by that we are driving inflation in the country.”
Nigeria, he said, is trying to reverse decades of neglect of its farming industry and push agriculture as its “new frontier for growth” because it can no longer depend on oil to drive its economy, President Goodluck Jonathan said in July, last year.
The government’s efforts to boost food supply by 20 million metric tons from 2011 to 2015 has seen the country’s food import bill drop by more than half to $5 billion from $11 billion two years ago, Adesina said.
