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Agriculture and Finance in
Nigeria: Experiences and Lessons
By
Paul N. Eluhaiwe
Director, Development Finance Department
CENTRAL BANK OF NIGERIA ABUJA
Panel notes for the Agriculture Stakeholders Session at the Nigeria Development
Finance Forum 2014 Conference New York U.S.A. (May 29th -31st , 2014)
INTRODUCTION: AFRICA AT A GLANCE
•Population: 1.033 billion
•GDP growth rate: above 5% in
2012
•It is the world’s second fastest
growing region after Asia .
•Agricultural sector employs over
60% of the population
•High rate of unemployed youth
population (3 in 5)
• High cost of finance hampers the
continent’s competiveness in the
global economy.
• Has the largest share of arable
land in the world (16%) and the
largest share of uncultivated
arable land (79%).
Sources:
African Development Bank 2012
Africa commission 2011
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INTRODUCTION: FACTS AND FIGURES ON AFRICAN AGRICULTURE
The African Development Bank (2013) reported that although
agricultural performance has improved since 2000, but growth is not
yet fast enough.
•69 % of all Sub-Saharan
Africans (SSA) work force
engage in agriculture.
•In the EU, currently, only 5.1
per cent of the population
make their living from
agriculture – the majority of
people work in sectors of
industry or services. - World
Bank.
• 63% SSA live in rural areas,
whereas 74% of EU-citizens
live in urban areas.
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•SSA agricultural
productivity (yield per
hectare) is about 50 per
cent of its European
equivalent.
•Women account for over
50% of the agricultural
labour force and grow 8090% of the food.
•They own less than 2%
of all land and receive less
than 10% of all credit.
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INTRODUCTION: FACTS AND FIGURES ON AFRICAN AGRICULTURE
• Average tractors per
100km2 of arable
land
• Currently, it is estimated
that 3.5 million tractors
would be needed to bring
Africa up to the level of
other regions.
• World: 200
• South Asia: 129
• Africa: 13
•
Post-harvest grain losses
in sub-Saharan Africa
could total $4 billion per
year.
• Approximately
626,000 tractors in
Africa, for over 200
million people
economically active in
agriculture,
• Almost 90 percent on less
than US $2/day
(IFAD, 2011).
•
• 60 percent of the rural
population live on less
than US $1.25 a day.
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AFRICA’s FOOD IMPORT BILL
• over ⅔ of African countries are
net importers of agricultural
products.
• On average, the annual food
trade bill of the continent was
$17.3 billion of exports and
$24 billion of imports, leading
to an average annual deficit of
$6.6 billion.
• It is estimated that Africa
imports about 28% of its
calorie
requirements.
The
major imports are wheat
(58%), rice (41%) and oils
(54%).
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THE COMPREHENSIVE AFRICA AGRICULTURE
DEVELOPMENT PROGRAM (CAADP) & THE GROW
AFRICA INITIATIVE
•
CAADP was developed by the
African Union to foster agricultureled development.
•
By 2011, (3 years after 2008
deadline to attain the Maputo
Declaration of 2003) only nine
African countries reached the
target 10% of budgetary allocation
to agriculture.: Burkina Faso,
Ethiopia, Ghana, Guinea, Malawi,
Mali, Niger, Rwanda, Senegal.
•
Grow Africa Initiative (GAI) was
launched by the AU Commission,
the NEPAD Agency and the WEF
in 2011 to coordinate accelerated
private sector investment for
sustainable growth in African
agriculture.
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• During the 2014 World
Economic Forum on Africa in
Abuja,
Nigeria,
African
leaders
reaffirmed
their
commitment to achieving GAI
objectives.
• Partners of the GAI have
pledged to increase their
investment in agriculture
from $3.5 billion in 2011 to
$7.2 billion in 2014.
• The aim is to double the
incomes of at least 25,000
African smallholder families .
•
•
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MULTILATERAL AGENCIES’ ACTIVITIES IN SUB-SAHARAN AFRICA
Over a period of 35yrs
(1974 – 2008), the African
Development Fund
approved 1,407 loans, and
768 grants, totaling $19.14
billion.
Agriculture and rural
development accounted for
23.3%: infrastructure took
the bulk of the resources at
35.7%, while the multisector and social sector
received 19.0% and 18.5%
respectively.
In fiscal year 2013 (FY13),
the World Bank Group’s
financial commitment to
SSA, was US$15.4 billion:
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MULTILATERAL AGENCIES’ ACTIVITIES IN SUB-SAHARAN AFRICA
The Lomé Conventions (now
Cotonou Agreement)
Alliance for Financial
Inclusion
The objectives of the Cotonou
Agreement are to reduce poverty,
promote sustainable development
and the progressive integration of
the ACP countries into the global
economy. Under the agreements
aid and investment commitments
by EU to ACP States for the first
five years amounted to ECU 12
billion.
The African Development Bank
(2014) reported that overall, only
23% of adults in Africa have
accounts in formal financial
institution which implies that 77%
of African adults are financially
excluded.
To achieve optimal level of financial
inclusion in Africa, 26 African
countries are registered members
of the Alliance for Financial
Inclusion (AFI).
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INTRODUCTION: NIGERIA AT A GLANCE
Population
GDP Growth Rate
Inflation Rate
Nominal GDP
GDP Per Capita
Financial Exclusion rate
168.3 million
7.41
8%
$509,970.14
$2,921.45
39.7%
Life Expectancy at birth 47.6 years
Incidence of Poverty
Unemployment Rate
72.6%
25.7%
SECTORAL CONTRIBUTIONS TO GDP (2013)
Sources:
Central Bank of Nigeria
National Bereau of Statistics
EfinA
Agriculture
Industry
Services
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21.40%
26.37%
52.23%
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NIGERIA’S AGRICULTURAL POTENTIALS
168.3 Million people, projected
to grow to 470 Million by 2050
Large Internal
Markets
110 Million Youth in
the work force by
2020
279 Billion Cubic
Meters of Surface
Water
Agricultural
Potential
Labor
Low wages for
agricultural
intensification
Water
Untapped irrigation
potential with 3 of
the 8 major river
systems in Africa.
Land
84 Million Ha of Arable
Land; 40% utilization
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Food Import Dependency is Hurting Nigeria’s Economy.
Yearly, Nigeria Imports over N1.127 Trillion or (aboutUS$11 Bn) in
Wheat, Rice, Sugar and Fish
Key Takeaways
Nigeria’s Imports
Nigeria’s top 4 Imports
Measure: Annual Food Imports (N’Billions)
Wheat
• Nigeria’s food import bill is
exceptionally high. The top four food
imports consume over N1.3 trillion
Naira in foreign exchange every year.
• Relying on the import of expensive food
on global markets fuels domestic
Rice
Sugar
Fish
•
Nigeria is World’s largest Importer of US
hard red and white winter Wheat.
•
World’s number 2 largest importer of
Rice.
inflation
• Excessive imports put high pressure
on the Naira and hurt the economy
• Nigeria is importing what it can produce
in abundance.
• Import dependency is hurting Nigerian
farmers, displacing local production and
creating rising unemployment
• Import dependency is not acceptable,
nor sustainable fiscally, economically or
politically
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Comparison of Nigeria’s crop yields with that of other
leading agricultural countries
Index of crop yields relative to Nigeria’s yields in 1961
Measure: Relative growth in crop yields
Annual growth rates
1961-2008
YIELD PER HECTARE: This is a main driver of agricultural competitiveness.
Nigeria's yield per hectare is 20% of the world’s highest yield compared
to some other similar developing countries that achieve 50%.
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INPUTS: Nigeria has one of the lowest usage rates of agricultural
Inputs. Nigeria ranks at the bottom on agricultural indices
Nigeria’s low fertilizer utilization
Measure – Kg per Hectare
Mechanization Intensity: 10 tractors per
1000 Ha compared to Indonesia with 241
tractors per 1000 Ha
Nigeria’s low utilization of improved seeds
Measure – Percent of farmers
Irrigation: 0.8% of arable land
irrigated compared to Thailand’s
28% of arable land irrigated
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Nigeria’s Unemployment Challenge
Nigeria’s unemployment rate is spiraling upwards, growing at 11% per year. The youth of
the nation are the most impacted, with a youth unemployment rate that is over 50%.
Spiraling general unemployment
rate growing at 16% per year
Youth unemployment rate
Nigeria’s unemployment rate is spiraling, driven by the wave of 4 million young people entering the
workforce every year with only a fraction able to find formal employment.
Agriculture has demonstrated an ability to solve this challenge with countless potentials that have
remain under-exploited.
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Nigeria’s Infrastructure
Challanges
Only 40 per cent of Nigerians have access to
electricity and Nigeria currently requires more than
10,000mw. Current power generation is 3,800
megawatts (mw)
INFRASTRUCTURE
• Energy (electricity)
• Road Network
Resources
• Water
• Rail System
• Telecom
Only 80% of federal roads in Nigeria are partially
paved, disallowing proper coverage of the nation’s
over 900,000km2 landmass. Over N300 billion will be
required to construct and maintain the balance of
20%.
Nigeria is currently investing about N82.5 billion
into the sector. This is less than a quarter of the
expected investment in water management annually
from the three tiers of government.
Nigeria’s railway infrastructure is in dilapidated state
with very limited coverage.
“Locomotive availability of 6 per cent in Nigeria is
dismal compared with 75 per cent for South Africa.
.
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WHAT TO DO TO BOOST NIGERIA’S AGRICULTURAL
SECTOR
•
All relevant stakeholders to
intensify efforts in de-risking the
agricultural value chains where
Nigeria has comparative advantage
•
Treat agriculture as a business
•
Employ the value chain approach by
integrating food production,
storage, food processing and
industrial manufacturing (Farm to
Fork)
•
Initiate Investment-driven strategic
partnerships with the private sector
•
Increase Investment drives to
unlock agriculture potential of
Nigerian states.
Nigeria can exploit its
agricultural potential to
meet the domestic staple
food needs and unleash
its intermediate/finished
agricultural export
potential.
This potential however,
cannot be achieved
without a total overhaul
and transformation of
the of the agricultural
sector.
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VISION AND STRATEGY OF AGRICULTURAL
TRANSFORMATION AGENDA (ATA)
The realization of the enormous
benefits to be derived engendered the
President Jonathan’s administration to
embark on the on-going sector
transformation-Agricultural
Transformation Agenda(ATA.
VISION OF ATA
•
To achieve a hunger-free Nigeria
through an agriculture that drives
income growth.
•
Accelerate the achievement of food
and nutritional security
•
Employment generation
•
Grow wealth
farmers
for
millions
of
STRATEGY OF ATA
• Growth Enhancement Support
Scheme (GES)
• New fertilizer procurement
and distribution approach
• Establishment of marketing
institutions
• Fixing the financial value
chain
• Restructuring of agricultural
investment framework.
• NIRSAL to drive achievement
of market oriented/market
surplus into a commercialized
system.
• Establishment of Staple Crops
Processing Zones.
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KEY POLICIES TO ACHIEVE AGRICULTURAL TRANSFORMATION
AGENDA (ATA)
KEY POLICIES
Agricultural policies
Creation of institutions to support ATA
 Marketing Corporations to replacing
marketing boards
Industrial Policies
 Gradually move from fertilizer
consumption subsidies to
support for local fertilizer
manufacturing.
 Transforming the Agricultural
Research Council (ARCN) into a
National Agricultural
Transformation agency like
EMPRAPA in Brazil.
Market Development
 10% Cassava flour substitution
 Blending of 10% ethanol with
petrol.
 Ensure guaranteed minimum price
for food crops
Fiscal Policies
 Zero tariffs (customs, excise and
value added) for import of
agricultural equipment.
 Tax holidays for investors putting
processing plants in staple crop
processing zones.
 Irrigation facilities to be rapidly
revamped/expanded
 Land Use Act to be revised to enable
investors have easier access
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KEY POLICIES TO ACHIEVE AGRICULTURAL TRANSFORMATION AGENDA
(cont’d)
Fiscal Policies (cont’d)
Increase levy (import, excise duties)
on any commodities that Nigeria can
produce (starch, wheat and sugar).
 Supportive incentives for investors
establishing blending plants for
ethanol.
Financial Service Policies
 Provision of incentives to enhance
farmers’ access to weather index
insurance.
 Removal of current monopoly on
agricultural insurance by National
Agricultural insurance Company
(NAIC); allowing private sector
insurance companies to compete.
PRIORITY COMMODITIES
Cotton, Cassava, , Cocoa, Rice,
sorghum, maize, dairy, beef,
leather, poultry, oil palm, and
fisheries.
EXPECTED IMPACT (2012 – 2015)
Jobs: 3.5 million jobs
Wealth: N60 Billion (USS380
million)from substituting 20% of
bread wheat flour with cassava
flour.
Food Security: Increase staple food
by 20 million tons.
Rice: 2 million tons
Cassava: 17 million tons
Sorghum:1 million tons.
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WHY NIGERIAN BANKS ARE NOT FINANCING AGRICULTURE
•
Perception
-High perceived risk
-Lack of understanding of the agric. sector
-High default rates from government-driven
lending programs.
-Do not understand agriculture as a business
-Are unable to assess and price the risk
elements and so want the sector de-risked to
make it more attractive for financing.
•
Sourcing of Loanable Funds
-Banks borrow short but the Agric. Sector
requires medium to long term funding
Covariant risks
-Inclement weather, pests and diseases, price
volatility, farming systems and the
differentiation of farmers
•
•
Other Challenges
-Agriculture suffers information asymmetry;
-Lacks the required technology and
infrastructure.
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CBN’S INTERVENTIONS TO ENHANCE REAL SECTOR FINANCING
POLICY AND REGULATORY
PERSPECTIVE
Credit Enhancement Mechanism
•Microfinance Policy (2005
reviewed 2011)
• Financial System Strategy 2020
•Non-Interest Banking
•Cashless Policy
•Adoption of a new banking
model that promotes
specialization by banks.
PROGRAMME AND SCHEMES
PERSPECTIVE
•The Agricultural Credit Guarantee
Scheme Fund (1978)
•Interest Drawback Programme
(2003)
•Agricultural Credit Support
Scheme ACSS (2006)
•Entrepreneurship Development
Centres EDCs (2006).
•Commercial Agriculture Credit
Scheme CACS (2009)
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CBN’S INTERVENTIONS TO ENHANCE REAL SECTOR FINANCING
(CONT’D)
POLICY AND REGULATORY
PERSPECTIVE (cont”d)
Financial Inclusion Strategy
•
•
•
•
Financial Literacy
Consumer Protection
Mobile Banking
Agent Banking
INSTITUTIONAL PERSPECTIVE
PROGRAMME AND SCHEMES
PERSPECTIVE (cont”d)
•Small and medium Enterprises
Credit Guarantee Scheme SMECGS
(2010)
•.N200 billion SME Restructuring/
Refinancing Facilities for SMEs
(2010)
•Nigeria Incentive-based Risk
Sharing System for Agricultural
Lending –NIRSAL – (2010)
•Micro Small and Medium
Enterprises Development Fund MSMEDF – (2013)
•NEXIM Bank (1991)
• Bank of Industry (2001)
•Bank of Agriculture BOA (2010)
• Infrastructure Banks (1992)
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AGRICULTURAL FINANCING INTERVENTIONS OF THE
CENTRAL BANK OF NIGERIA
Enabling Policies
Micro Small and
Medium
Enterprises
Development Fund
(MSMEDF)
(2013)
Nigeria Incentive
Based
Risk Sharing
System
For Agricultural
Lending (NIRSAL)
(2010)
Agricultural Credit
Guarantee Scheme
Fund
(ACGSF) (1978)
CENTRAL BANK
OF NIGERIA
Commercial
Agriculture
Credit Scheme
(CACS) (2009)
Interest
Drawback
Programme
(IDP) (2003)
Agricultural
Credit
Support Scheme
(ACSS) (2006)
These endeavors are expected to facilitate the emergence of a strong and self-sustaining
domestic economy in which private
sector participation in the agricultural
sector would
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ultimately be the major engine of growth.
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THE NIGERIA INCENTIVE BASED RISK SHARING SYSTEM FOR
AGRICULTURAL LENDING (NIRSAL): A VALUE CHAINS APPROACH TO
AGRIC. FINANCE
NIRSAL Background
•An initiative of the Central Bank of
Nigeria (CBN), the Bankers’
Committee and the Federal
Ministry of Agriculture & Rural
Development.
• On August 9, 2010 signed an
Agreement with the Alliance for a
Green Revolution in Africa (AGRA)
to develop this new initiative.
•NIRSAL is a Risk Sharing Fund to
be administered by NIRSAL PLC. ,
a non-bank financial institution
(NBFI).
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Definition and Objectives
NIRSAL will de-risk lending to the
Nigerian agricultural value chain.
• Strategy: Focuses on doing two
things at once:
- It fixes the agricultural value
chains, so that banks can lend
with confidence into value
chains.
- It will improve the capacity of
banks through technical
assistance and other strong
incentives.
• It will also build capacity of the
agricultural value chain actors
including extension workers
and farmers to minimize
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default.
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(NIRSAL): A VALUE CHAINS APPROACH TO AGRIC. FINANCE
• Definition and Objectives
FIVE (5) PILLARS OF NIRSAL
•Risk-sharing Facility (USD 300 million).
• Seeks to leverage NIRSAL Fund
to USD 3 billion to shore up total
bank lending to agriculture from
the current 1.4 in 2010 to 7.0 per
cent by 2017.
•Insurance Facility (USD 30 million).
•Technical Assistance Facility (USD 60
million
•Holistic Bank Rating Mechanism (USD
10 million).
•Bank Incentives Mechanism (USD 100
million).
NIRSAL Fund
Other Sources
NIRSAL Plc. has a seed fund of
USD 500 million (N75 Billion) to be
used to operate its five pillars as
follows:
.
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NIRSAL will also collaborate with
relevant Federal MDAs, State
Governments and 3rd party capital
providers (domestic and foreign,
government and private) that want to
co-invest in the Fund.
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THE NIGERIA INCENTIVE BASED RISK SHARING SYSTEM FOR
AGRICULTURAL LENDING (NIRSAL): STRATEGY
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NIRSAL Mechanics
Risk Sharing occurs in the form of selling Credit Risk Guarantee . . .
NIRSAL Credit Risk
Guarantee
(face value)
Guarantee
Fee (1%)
Interest Rebates
Production -40%
Processing & logistics -20%
Loan principal
Identified Lender /
Issuer
/Counterparty
Potential lenders include
traditional banks,
microfinance institutions,
trade finance providers, asset
managers, and private equity
funds
Credit instrument could be a
loan portfolio, a loan, a bond
or in some cases, a specific
commitment letter
Identified Borrower
Loan principal and
Interest payments
Credit Risk
Guarantee
(Face Value)
Production: 75%
Processing: 50%
Logistics 30%
Potential borrowers include
farmer groups (cooperatives),
large corporate farmers,
processing companies, agric
service providers, logistics
companies, wholesale
distributors etc
Whole agribusiness value chain
covered across all crops and
livestock activities
Achievements of NIRSAL
From Inception to April 2014
• Forty (45) CRGs Covers valued N16.272 billion were issued to beneficiaries.
•
•
Seventy three (73) IDPs valued N139.990 million, as at April 2014.
Under the Growth Enhancement Support (GES) Scheme, banks granted 113 loans
valued N19.63billion to agro-dealer and seed companies .
NIRSAL AS AN AUTONOMOUS ENTITY
•
Approval has been granted for NIRSAL to operate as an independent entity.
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Following CBNs interventions in recent years, commercial
banks’ credit to agriculture has increased from 1.4% in 2008
to 3.9% in 2012
BANK CREDIT TO AGRIC SECTOR 2009 - 2012
4.5
4
3.9
3.5
3.5
3
2.5
2
1.5
1.7
1.4
1.4
1
0.5
0
2008
2009
2010
1
2011
2012
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WAY FORWARD FOR NIGERIAN AGRICULTURE
i.
Need for enabling environment
•
Monetary and fiscal conditions (low inflation and favourable
tax regimes)
•
Infrastructure e.g. power, roads, water, telecommunications.
ii. Increased access to finance
iii. Access to technology
iv. Inputs access
•
Access to packaging, quality control and agro-processing
technologies.
v. Horizontal and vertical coordination among various stakeholders
vi. Market access: At international, regional and domestic levels.
vii. Best management practices
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WINDOWS OF OPPORTUNITIES FOR
INVESTMENT TO BOOST NIGERIA’S
AGRICULTURAL DEVELOPMENT
i.
Setting up of Specialized financial institutions to lend to
fixed value chains.
ii. Infrastructure provision: Investment in the power, rural
telecommunications and irrigation projects.
iii. Setting up of fertilizer plants.
iv. Tractor assembly plants and tractor hire services.
v. Seed production ,
multiplication and Research and
Development.
vi. Building of
warehouses for effective and efficient
Warehouse Receipt Management System.
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WINDOWS OF OPPORTUNITIES FOR
INVESTMENT TO BOOST NIGERIA’S
AGRICULTURAL DEVELOPMENT (cont’d)
vii. Establishment of processing plants to mitigate colossal
produce waste due to lack efficient storage facilities.
viii. Partnering with NIRSAL Plc. as fund supplier where good
returns on investment is assured.
ix. Setting up private insurance companies to provide
weather- based insurance services and
ix. Haulage business and general logistics.
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