Nigeria is searching for a sustainable way out of its mono-revenue quagmire amid the historic slump in the price of crude oil – the country’s main source of revenue. With inflation at four-year high, foreign exchange crisis triggered by steep decline in foreign reserves, slowdown in foreign direct and portfolio investments, rising unemployment and growing population, Nigeria not only needs a large catalytic pivot but also a sustainable one to drive its way out of the economic crisis. Capital Market Editor Taofik Salako reports that agriculture offers the best hope for national development if only governments and all stakeholders can provide the missing link-finance.
Nigeria approximately spends $6.5 billion annually on food imports. Instructively, after China, Nigeria is the second world largest importer of rice. In a paradox that reflects that Nigeria is losing on both ends, the food and Agriculture Organisation (FAO), an arm of the United Nations (UN), says Nigeria is sitting on great agriculture potential while grappling with food insufficiency and economic dislocation as a result of food imports being fed by underdevelopment of domestic agriculture. According to FAO, it is estimated that Nigeria has lost $10 billion in annual export opportunity from groundnut, palm oil, cocoa and cotton alone due to continuous decline in the production of those commodities. Food-crop production increases have not kept pace with population growth, resulting in rising food imports and declining levels of national food self-sufficiency.
There is a global consensus on Nigeria’s agricultural potential. In spite of the dominance of oil revenues in government earnings, Nigeria remains largely an agrarian economy with agriculture being the largest sector and employer. With a land area of 910,768 square kilometres out of a total area of 923,768 square kilometres, Nigeria has a total of 84 million hectares of arable land of which some 40 per cent is under cultivation. From the North to the South, from West to East, Nigeria’s climate and terrain are suitable for cultivation and breeding. Notable agriculture produce across the regions include cocoa, peanuts, palm oil, corn, rice, millet, cassava, sorghum, yams, rubber, cattle, sheep, goats, timber and fish, among others. World’s largest producer of cassava and one of Africa’s largest producers of rice, Nigeria’s land and climatic conditions make for leading position in world food production including food crop, livestock, fisheries and animal products. Beside export potential, food sufficiency and employment are important factors in socio-economic stability of Nigeria’s burgeoning population of 180 million, in which agriculture already accounts for about 50 per cent of employment of the labour force.
Common solution to common problem
Governments and stakeholders undoubtedly recognise the central position of agriculture to resolving Nigeria’s economic and wealth creation problems. At The Nation Newspaper’s 1st National Economic Forum held between April 7 and 8 in Lagos, where the Vice-President Prof Yemi Osinbajo made a detailed outline of government’s economic blueprint, the communiqué succinctly captured stakeholders’ agreement that agriculture remains the key to solving Nigeria’s problems and guaranteeing future prosperity. “Our economic rebirth must birth with food sufficiency and security. A serious focus on agriculture should also provide thousands of jobs for our jobless youths. Agriculture should help relaunch Nigeria’s industrialisation, through agricultural processing. So, there should be deliberate government policies to encourage agro-allied industries to create jobs for our teeming youths,” the communiqué stated.
But there is also a consensus on the challenges facing the Nigerian agricultural sector. FAO highlighted the several challenges facing the sector to include outdated land tenure system that constrains access to land, very low level of irrigation development with less than one per cent of cropped land under irrigation, limited adoption of research findings and technologies, high cost of farm inputs, poor access to credit, inefficient fertiliser procurement and distribution, inadequate storage facilities and poor access to markets. “Even though agriculture still remains the largest sector of the Nigerian economy and employs two-thirds of the entire labour force, the production hurdles have significantly stifled the performance of the sector,” FAO stated in its profile of Nigeria. While some of the challenges could be solved with policy changes, the crux of the problems appears to be finance. Adelabu alluded to this. According to him, commercial banks have in the past shied away from investing heavily in agriculture because of the unpredictable nature of the sector as draught and even excessive rains could turn the tide and put the banks at risk from scooping their investments in record time. “Unlocking finance for this sector is crucial for the sector’s growth and efforts of government to diversify the Nigerian economy and create jobs,” Nigeria’s former Minister of Agriculture and Rural Development and now President, African Development Bank (AfDB), Dr. Akinwunmi Adesina said.
The government, through the CBN, has over the decades recognised the importance of agric-finance to the development of the primary and secondary value-chains of the agricultural sector. The apex bank in 1977 established the Agricultural Credit Guarantee Scheme (ACGS), under which banks like the defunct Mainstreet Bank Limited, provided guaranteed loans to farmers. It also recently introduced the N200 billion Small and Medium Scale Enterprises Guarantee Scheme (SMECGS) with the main objective of promoting access to credit by SMEs in Nigeria including agricultural companies. Also, the N200 billion Commercial Agricultural Credit Schemes (CACS) was conceived as a quick-win gap-bridging finance for the development of commercial agriculture. Loans made under the CACS are at single digit interest rate subject to a maximum of 9.0 per cent, while the CBN bears the interest subsidy at maturity.
Most stakeholders believe the success factor for agric-finance is provision of enabling incentives for banks to mobilise private funding for agriculture. “I have seen what private sector financing, if done right, can do for the agricultural development of a nation. I have seen small farmers in Kenya expand their production and access to markets. I have seen how Tanzania experienced rapid growth in the use of improved seeds because small rural input shops-agrodealers were able to access financing,” Adesina, said. Commercial banks such as Skye Bank Plc have since taken up the challenge to create a catalytic financial base for agricultural development.
Skye Bank’s contributions
to agriculture
Skye Bank in December 2014 acquired the erstwhile Mainstreet Bank Limited (MBL); a legacy bank with a strong agricultural portfolio having metamorphosed from the defunct Afribank Nigeria Plc. Skye Bank in June 2015 concluded the integration of both banks. Now Nigeria’s fourth largest bank in terms of branch network, Skye Bank, is leveraging on its innate credit risk management success and highly successful agric-finance experience of MBL to break new grounds in agric-finance. In a remarkable departure from the norm, MBL had a history of success in managing agricultural loans. For instance, agriculture accounted for 12.6 per cent and 16.9 per cent of MBL’s loan portfolio in 2012 and 2013 respectively being the second highest sector concentration after ‘general’ sector. Remarkably, non-performing loan (NPL) ratio on agriculture loans was then very negligible at 0.01 per cent.
With the integration of MBL, Skye Bank has set up regional ‘agric desks’ with a view to deepening its portfolio of agric-related transactions. Each regional agric desk is mandated to focus on the specific agricultural produce and businesses in its area of coverage. To illustrate the success of these initiatives and commitment of the bank to agric-lending, agricultural loan has grown by 75.4 per cent between December 2014 and December 2015 from N5.64 billion to N9.89 billion.
Skye Bank is offering a multi-service agric finance package including finances, advisory services and foreign liaison services to support existing and new Nigerian farmers as the nation steps up efforts to diversify its oil-based economy. The bank has increased its well-known traditional financial support for agriculture with establishment of a suite of customer-centric agricultural products and services aimed at not only providing finance but also other major success factors such as financial management services, advisory services, guarantees, information services, local and international liaison and other products and services that may be specially needed to enhance the success of the farmer.
Group Managing-Director, Skye Bank Plc Mr. Timothy Oguntayo said the bank realises the crucial role agriculture plays in the life of the nation, especially as the Federal Government pursues a policy of economic diversification.
He said the extensive agriculture support desk of the bank reinforced Skye Bank’s long-standing role as a key player in agricultural project financing with its project financing portfolio in the agricultural sector covering the entire nooks and crannies of Nigeria.
“We clearly see significant opportunity because the ‘old Skye’, like most other banks, has had challenges in successfully managing agricultural lending. We are leveraging the MBL success story to deepen our footprints in this important sector, using our process standardisation and Information and Communication Technology (ICT) deployment,” Oguntayo said.
Oguntayo also recently disclosed that the bank’s agricultural portfolio had reached about 10 per cent from five per cent two years ago, showing its support to the development of the nation’s economy.
Oguntayo said agriculture comprised a significant portion of our portfolio in Skye Bank, noting that from less than five percent two years ago, the bank has now raised its contribution to the sector to nine per cent and almost hitting 10 percent.
The Skye Bank CEO, who spoke with select journalists on the sidelines of Third Ogun State Investors’ Forum held in Abeokuta, the Ogun State capital, said the bank was supporting agriculture in nine states under the pilot agricultural scheme with focus on rice and cassava production.
“We have brought in international participants – those who have done it successfully in other parts of the world – to come and work with clusters of farmers; a group of farmers we have in Ogun State here, we have in Osun State, we have in the northern states.”
He said that the pilot agricultural schemes currently located in nine Nigerian states and centered on rice and casava production, are expected to open up massive economic opportunities for young entrepreneurs and jobless Nigerians.
Speaking on the Ogun State Investors’ summit, Oguntayo said Skye Bank was partnering with the state on developing SMEs through agricultural financing to support the import substitution strategy of President Muhammadu Buhari adminitration
“Our intervention aligns with the programme of the state. And when you talk about SME, you will be talking about agriculture; you’ll be talking about transportation and you’ll be talking about small-scale manufacturing, value chain. That’s what we are doing with Ogun State and other states in the federation,” Oguntayo said.
He, however, urged government at all levels to support all private sector efforts centred on wealth and employment creation as well as other ventures that tend to improve and grow the nation’s economy, adding that government only needed to create enabling business environment for investment
There are several companies and projects that lend credence to Skye Bank’s agric-finance successes across the entire value chain. Skye Bank s providing financing for the construction of Honeywell Flour Mills Plc’s new plant in Sagamu, Ogun State. The N32 billion-project is designed as one of the largest integrated plant in Sub Saharan Africa for the production of flour, pasta, noodles and feed meal and it is expected to create 400 new jobs locally upon completion. Honeywell Flour Mills, like Skye Bank, is quoted on the Nigerian Stock Exchange (NSE), which further implies wealth creation for thousands of shareholders.
In another instance, Skye Bank contributed to the finance and the development of Beloxxi Industries Limited’s biscuit manufacturing facility at Agbara which produces Beloxxi Brand of Cream Crackers. With the strong financial support, Beloxxi is currently installing its 5th production line and discussions are on – going with the equipment manufacturers for the 6th line. The new line has increased the company’s capacity to 30,250 metric tonnes annually.
The Imo Hill Farm is also a case study of what Skye Bank has been doing in recent times to ease access to finance to farmers and support them all through to meet the peculiarities of their operations. The Imo Hill Farm is an integrated farm project in the South Western part of the Nigeria which covers poultry, piggery, feed mill and meat processing. The farm has engaged MP Farms, a German agric firm known as one of leading names in Europe, as its technical partners. MP Farms would help to oversee the management of the whole farm, with experienced managers in poultry and piggery management already hired to manage each division. The processing unit is to be run by top class professionals from Germany with over 20 years experience in meat processing and food technology. With the supports from Skye Bank, the Imo Hill Farm promises to be a case study in agricultural innovation and livestock development in sub- Saharan Africa.
Collective efforts
Group Head, Financial Advisory Group, GTI Capital Limited, Mr. Kehinde Hassan, said the CBN should provide incentives for banks such as Skye Bank to minimize their risks and create additional on-lending funding opportunities that they could access to boost their institutional agric-lending portfolio. “To effectively deploy capital to the sector, the finance industry needs to be motivated by high expected returns relative to the risk and uncertainty. Public sector strategies and programmes can be critical in facilitating this tradeoff,” Adesina said. A mix of fiscal and monetary incentives as well as special-purpose back-up for active agric-lenders can serve as a linchpin for the much-needed agricultural development.
The United States-Africa Chambers of Commerce, Industry, Mines and Agriculture (US-ACCIMA) estimated that Nigeria will initially conservatively save $11 billion annually from major products such as wheat, rice, sugar and fish. Most analysts agreed that Nigeria stands to gain much more in terms of employment, national income, wealth creation and socio-economic stability. As the government thinks about revamping the historic groundnut, cocoa, cotton and palm oil successes, amongst others, all stakeholders including the Federal Government, CBN, commercial banks and development finance institutions and partners need to work together to provide amenable and easily accessible finance throughout the entire value-chain of the agricultural sector.
