The Bank of Industry (BoI) has announced plans to extend credit support services to Nigeria’s agricultural sector, noting that this move was crucial, due to the sector’s contribution to the nation’s Gross Domestic Product (GDP), the multiplier effects it has on job creation and food security.
The acting Managing Director, BoI, Mr. Waheed Olagunju, stated that the partnership was also coming against the backdrop of commercial banks refusing to provide financial support for the sector due to its high risk perception.
The Development Finance Institution (DFI) added that “At independence, a lot was done with the nation’s agricultural resources and in the 70s due to the Iranian revolution, oil prices went up and we dumped agriculture. At that time, the nation had an all inclusive growth with almost a double digit GDP and there was massive employment where Nigeria had to depend on expatriates to turn the Nigerian economy around. In otherwords, the entire West Africa and parts of Central Africa, depended on Nigerian economy for their well-being, but today, we are talking about unemployment and recession. This is the price we are paying for loosing focus.
The acting BOI boss during a signing of Memorandum of Understanding (MoU) with Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL), said the MoU would see the bank’s lending guaranteed up to 75 per cent to support primary production and value addition of the nation’s agriculture produce.
“We are also going to support those who have already started processing and wants to integrate backward. We are talking about farm to table, this means primary production, value addition and processing, packaging, distribution, marketing and retailing. We believe the multiplier effect per unit of investment in the agricultural space is the highest compared with other sectors and this is the only way we can achieve inclusive growth,” he said.
According to him: Agriculture is one of the areas where we have competitive and comparative advantage. There is no way we can industrialise without developing the agriculture sector. The sector is the fastest way to achieve inclusive growth and industrialisation of the country and apart from job creation, there are other developmental impacts and multiplier effects that agriculture helps to drive and which is to ensure food security.”
He said currently, Nigeria spends over $12 billion importing food into the country, whereas the country has the capacity to feed itself and even to export to other parts of the world.
“As we all know that Nigeria is more of an agricultural economy than that of oil. The MoU we are signing today is one of the bold steps being taken to ensure that we direct the country’s development. As a result of this, we want to expand our lending to the agricultural sector. This is a sector that is perceived to be highly risky that has made most financial institutions to shy away from it,” he added.
He recalled that prior to the introduction of the Structural Adjustment Programme (SAP) there was a controlled and allocated credit from the Central Bank of Nigeria (CBN) also with the commercial banks authorised to dedicate certain percentage of their credit facilities to agriculture, manufacturing, but stressed that the model never worked as banks would rather pay the penalty than to lend to these sectors.
“Going forward, with our collaboration with NIRSAL, they are going to help us in the area of capacity building to give BOI staff the technical knowledge in intervening in the sector. We would also ensure proper due diligence before embarking on any project and because we want to ensure that only bankable transactions get on this platform,” he assured.
Also speaking at the event, the Managing Director, NIRSAL, Mr. Aliyu Abdulhameed,said
for agriculture to work and contribute its quota to economic growth, guaranteed decent incomes for farmers has to be properly linked to industry, but stressed that unfortunately for Nigeria, the linkages between agriculture and industry are weak, reducing the ability of both sectors to contribute to economic growth.
He added that the supply of agricultural inputs such as fertilizer, seeds, agro-chemicals, farm tools and processing equipment by industries needed to increase agricultural productivity, is low in relation to effective demand, stressing that the industries currently does not provide a significant outlet for agriculture output, lacks capacity to help stabilise agricultural markets and plays only a marginal role in opening up attractive new uses for crops.
“For many of the major crops, industrial use accounts for less than 10 per cent of total production. This leads to massive post-harvest losses that have averaged 50 – 60% for some time now,” he said
He warned that in the short to medium term, if the current food import policy stance of the federal government and the CBN is maintained, the emerging pattern of agricultural growth that the nation is just beginning to witness, is likely to be sustained into 2017.
He noted that the rush by farmers to take advantage of the current market demand for staples as a result of import restriction, the huge urban population that has to be fed, the demand of raw material by the animal feed industry and the favorable conditions in export markets for certain commodities like cashew, sesame, and cocoa all have the combined potential to significantly drive growth of agriculture.
”This is what has led the NIRSAL to seek collaboration with the BOI, a financial institution that also understands the economic urgency of the moment,” he said.
He said key objective under the partnership is to provide the agricultural promotion policy “The Green Alternative” of the federal government with practical solutions for activating the potential of agriculture to ignite pro-poor growth, job creation and food security by facilitating private sector finance into agricultural production.
“To achieve this, the thrust of our efforts will be to package, de-risk and enable the flow of affordable financing of agricultural projects within the priority crop and livestock sub sectors under the APP. This we will do by bridging the competitiveness gap with the rest of the world in agriculture and agro-industry. It is this high level of competitiveness that will attract sustainable commercial and private finance to Nigeria’s agricultural economy,” he said.