Agriculture as Driver of Nigeria’s Economic Resurgence


Chika Amanze-Nwachuku writes that with the increasing interest of Nigerian banks in agriculture and strong government backing, the sector can be developed to become a major revenue earner for the country in the near future

Erisco Foods Limited, an indigenous manufacturer of food products in Nigeria, has, over the last one year, even without a loud roadshow, emerged as the new exemplar of local enterprise. It joins the shortlist of other notable Nigerian companies such as Dangote Group, BUA, and Ibeto Group that are currently forming the building block of Nigeria’s industrial and economic renaissance.

What makes the Erisco story interesting is that although the firm was established in 2004 and began operations in 2009; today it has become the poster-boy of Nigeria’s current drive for economic diversification and local manufacturing. Erisco Foods Ltd, which is reportedly enjoying financing from Stanbic IBTC Bank, has almost become synonymous with tomato processing and agriculture. Its remarkable trajectory was buoyed by the ban on the importation of substandard tomato produce into Nigeria, which gulps a staggering N80 billion from the nation’s coffers annually.

Juxtapose this huge drain with the billions of tax payers’ money allocated to agriculture yearly and the fact that most Nigerians depend on agriculture for sustenance and livelihood. Yet, the funding agriculture gets in Nigeria, whether it is from banks, public allocations, Foreign Direct Investment (FDI), private investments or as assistance from multilateral organisations is surprisingly too little.

The ban on importation of goods, which can be produced locally demonstrates the current government’s renewed focus on agricultural development to ensure diversification of the country’s revenue source away from oil. Minister of Agriculture and Rural Development, Audu Ogbeh, speaking at the inauguration of the Technical Working Group of Agricultural Roadmap, emphasized that the decline in global oil prices has made it imperative for the country to diversify the economy, with agriculture as major anchor. “We have to diversify and that diversification holds a lot of promises through agriculture,” Chief Ogbeh stated. “We need to fashion out how to liberate Nigeria from the stranglehold of food importation. The government realistically cannot afford to encourage importation of food, particularly those we have the comparative advantage to produce in the country. We cannot sit idly and watch our agricultural resources fritter away,” he added.

Lack of Access to Finance

A factor bedeviling the industry is the lack of access to finance, a major impediment that prevents farmers from investing in basic inputs, such as good seeds, fertilizers and small-scale irrigation needed to raise productivity and generate sustainable income. As a result, yields have not increased significantly, leading to pervasive hunger and poverty. Similarly, with little or no commercial financing and other incentives available to entrepreneurs seeking to build businesses that could boost food production, agricultural production remains at a subsistence level.

“Regarding agriculture, the opportunity is immense,” said Jerry Gushop, Head of Agricultural Banking at Stanbic IBTC Bank. “Though much is required, and a collective inertia still remains, there are increasing signs of how agricultural transformation can change the country’s fortunes. The current economic situation, especially with strong government backing, makes agriculture an attractive prospect for the country. Note also that the demand for upstream products linked to the broader agri-business sector will blossom, creating new economic opportunities for a wide range of local and international enterprises,” he added.

Agriculture is expected to feature as one of the driving forces in Africa’s economic resurgence and was already among the key factors contributing towards a swelling interest in the continent’s natural resources. It is estimated that over 60 percent of the world’s available and unexploited cropland is in sub-Saharan Africa. In the case of Nigeria, agriculture contributes about 22 percent of its GDP and over 90 percent of employment. However, about 90 percent of the agricultural output is accounted for by small scale farmers with less than two hectares under cropping. This situation presents huge gaps that can be exploited for good and possibly put an end to the era of treating agriculture as a development programme.

Government’s Efforts

However, the various governments and the Central Bank of Nigeria have introduced financing initiatives to encourage local banks to finance agriculture and also help to reduce the cost of finance for investors/ entrepreneurs in the sector. Some of these initiatives include the Nigeria Incentive-Based Risk Sharing Model for Agricultural Financing (NIRSAL), an initiative that provides guarantee on exposure to the financing institution while also providing interest rate rebate for the borrower. The other is the Commercial Agriculture Credit Scheme (CACS), a CBN initiative that provides single digit financing through commercial banks at nine percent annually for commercial farmers. The Real Sector Support Fund (RSSF), also a CBN initiative which provides single digit financing to the real sector, including the Agric sector for periods of up to 15 years at nine percent per annum interest rate. The Anchor Borrowers Programme, another CBN initiative, provides financing at nine percent per annum interest rate. The scheme was recently established to cater for small-holder farmers via an ‘anchor’ platform, by creating markets/offtake for the smallholder farmers.

Rising Interests of Nigerian Banks

To move forward, experts say Nigeria must look inward for local financing solutions. Several local banks have become quite active in the agric space, providing both financing and other support to the industry. For instance, a few years ago, Stanbic IBTC Bank collaborated with Tata Africa Services and John Deere Financial, a division of United States-based John Deere, through which the bank is providing a range of financial services to customers of John Deere. At the official unveiling ceremony, Chief Executive of Stanbic IBTC Holdings, Mrs. Sola David-Borha, had urged stakeholders in the agriculture industry, particularly smallholder and commercial farmers, to turn to banks for structured funding to boost their productivity, as the various tiers of government work around creating an enabling environment and appropriate policies that will reduce the credit risks associated with agriculture lending. The bank has a similar partnership with CAT Mantrac on heavy duty equipment for land preparation and is also collaborating with development agencies such as USAID and DFID to explore opportunities in the SME segment of the value chain for funding and provision of agronomy and agriculture extension services for better crop yield and employment generation.

Growing Interests

Companies in different sectors are venturing into agriculture as part of efforts to source their raw materials locally. Guinness Nigeria Plc last year announced its intention to increase its local content usage from the current 43 percent to 75 percent in the next three years. Mr. Peter Ndegwa, the Managing Director and Chief Executive Officer of the company noted that job creation and economic empowerment remain major challenges in Nigeria, but that the local content initiative will substantially address these challenges by targeting the poorest areas and channeling investment into job-creating segments in the agriculture value chain.

For stakeholders though, the multiplier effect of the new strategy on the company, society and the economy will far outweigh whatever short-term concerns there are. Apart from driving down costs for the company, which will in turn ensure higher returns on investment via dividend payouts, the move will in addition create employment opportunities, boost income levels and empower farmers along the agriculture value chain as well as small and medium enterprises and suppliers, resulting in application of modern technologies, improved quality control, higher output, product marketing and self-sufficiency.

Technological advances are also helping in some instances to get around some of the shortfalls in hard infrastructure. For instance, with cellphones people can conduct their businesses more efficiently, rather than rely on face-to-face meetings, a development that benefits the economy and eases traffic congestions. With India and China becoming major world economies, long gone are the practices of sending antiquated factory machinery to Africa. Capital goods manufacturers now fight to sell equipment worldwide, including into Africa. This is helping to raise the quality of goods produced on the continent. An improved policy climate, higher FDI flows, demographic advantages, commodity resources, and a faster growth rate mean that Africa’s technology stock will grow rapidly, and in turn boost growth.

Ultimately, there is a gradual shift in Africa from relying on food aid to focusing on food security. Higher food prices around the world have pushed the focus onto the use of Africa’s fallow arable land. This global focus combined with policy shifts and the increased involvement of multinational companies in agribusiness bodes well for agriculture on the continent. In addition, non-governmental organisations (NGOs) and the donor community are working with African governments towards food security, poverty alleviation, and the sustainable development of the continent.

Changing demographics predicts that a bell shaped population curve will occur in Africa by 2050. With better governance and policies in place, Africa will reap the economic benefits of having a greater proportion of the population in the economically active sector. The large share of agriculture in Nigeria’s GDP, according to experts, suggests that a strong growth in agriculture is necessary to trigger overall economic growth. For a country with a huge youth population, modernisation and incentives will convince the youth to see a viable career path in agriculture. The perception of farming as a back-breaking venture for the old will steadily ebb. Youth unemployment presents both a threat and an opportunity. However, agriculture can change the dial as from the farm to the table lies huge opportunities that the youth can harness, with the right support.

“There is a need and an opportunity for investment that will develop the middle ground in Nigeria’s agriculture. As a leading emerging markets bank, our goal is to perform a transformative role in the country’s agricultural sector in partnership with other organisations,” said Stanbic IBTC’s Gushop.