Agriculture: Strong growth but funding remains elusive
by CALEB OJEWALE
October 2, 2017 | 1:08 am| | | Start Conversation
The Nigerian economy exited recession in the second quarter of 2017 after five consecutive quarters of negative growth, and part of the growth has been attributed to the growth and contribution from agriculture, though that contribution may have been marginal.
The agriculture sector grew by 3.01 percent in Q2 2017 from 3.39 percent in Q1 2017, and 4.03 percent in Q4 2016. While crop production under agriculture grew by 3.21 percent, it was a decline from 3.50 percent and 4.36 percent in the two previous quarters.
Livestock consolidated on its growth, recording 2.28 percent in Q2 2017 from 1.72 percent in Q1 2017, and 1.23 percent in Q4 2016. Similarly, Forestry maintained growth, at 3.89 percent, from 2.59 percent and 2.22 percent in the preceding quarters.
Fishing however contracted, recording -2.27 percent in Q2 2017, a sharp drop from 5.49 percent in Q1 2017.
Olajide Ayinla, President, Fishery Society of Nigeria (FISON), when asked about the factors responsible for the Fisheries’ seemingly huge decline, even as the agric sector generally grew, noted “there are lots of issues involved such as declining investments in captured fishes (which contributes about 70 percent of fish production). It has also been facing challenges from piracy and Illegal, Unreported, and Unregulated (IUU) fishing, and climate change.”
President Muhammadu Buhari, commenting after the announcement of the country’s exit from recession, said that the real impact of coming out recession will be better felt when ordinary Nigerians experience a change in their living conditions. “Until coming out of recession translates into meaningful improvement in peoples’ lives, our work cannot be said to be done”, the president said.
This is very true particularly for agriculture where many people in the industry continue to lament that government’s continuous rhetoric of focusing on it to stimulate the economy remains to be adequately felt.
Adequate financing remains a challenge which has hindered the prospects for rapid growth. As government expects productivity to increase across all sub-sectors of agriculture, funds are however still difficult to access.
“I cannot approach banks for loan at 30 percent interest rate. The Agric intervention funds at single-digit interest rate are not accessible, they are mere political statements,” said Bode Adetoyi, chairman, Poultry Association of Nigeria (PAN), who also lamented that the “poultry industry and feed business is already collapsing and farms, feed mills are closing every day,”
Ada Osakwe, CEO, Agrolay Ventures, puts the financial logjam in perspective, explaining that “In Nigeria’s Agriculture sector, securing capital through commercial banks is typically hard to access and expensive. In spite of the large financing needs of agricultural actors, the public and private sector have not devoted sufficient financial resources for impact. Commercial banks lend only 5 to 10 percent of their loan portfolios to the sector, and focus more on sectors they perceive to be less risky, like the oil & gas and telecoms industries.”
Frans Ojielu, Global Financial Advisor, ICMG Nigeria, expressed the view that “attaining food sufficiency and security in Nigeria and indeed Africa, requires access to financing for agricultural development. The traditional commercial banking facilities are not well suited due to many reasons including extensive monitoring and evaluation processes required by banks for funds deployed. Development finance and innovative financing in terms of private equity and venture capital are required.
Despite the negative perceptions in access to funding, some measure of success was recorded in the course of the year. The Fund for Agricultural Finance in Nigeria (“FAFIN”), announced the successful closure of a $65.9 million debut funding process which included the African Development Bank, CDC Group, and the Dutch Good Growth Fund jointly committing $31 million to FAFIN, and joining existing cosponsors of the fund to drive agricultural transformation in Nigeria.
With the additional capital raised, Sahel Capital which manages the fund, said it aims to invest in 9 – 10 additional companies which would create over 4,000 more direct and indirect jobs, and further uplift the lives of over 36,000 smallholder farmer families across Nigeria.
But as industry watchers have indicated, FAFIN, and $66 million cannot solve the country’s agricultural development needs.
Osakwe offered more perspective, explaining that “unfortunately, with FAFIN and other PE funds, their agriculture investments are still limited by the need to invest in deals with a minimum legitimate operating history. Most Nigerian agriculture enterprises have been unstructured, or are really only in their early-stages, and so do not meet this requirement.
“Furthermore, many PE funds have minimum investment sizes from between $10 million and $50 million, numbers that are far above what the majority of Nigerian agribusinesses can absorb. As a result, PE activity is further constrained in deploying capital because they are unable to find the agribusiness transactions that fit their investment strategy.”
Ojielu, ICMG’s global financial advisor also observed that, though the role of private equity and venture capital is well known in Nigeria, not much has happened except in the technological space where venture capitalists have assisted tech start-ups with promising returns.
For Kazim Yusuf, CEO, Kord capital, an investment advisory firm in Lagos, inadequate private equity activity is a problem with Nigeria generally.
“When you now move into a sector like agriculture, it becomes even more problematic, because even people with experience investing in the Nigerian economy have challenges with agriculture. The agricultural sector has even peculiar challenges,” said Yusuf.
Nigeria is now 57, but remains unable to feed a rapidly growing population of 180 million people despite “making a agriculture a focus” for years. Policy making and funding do not appear to have been properly developed, and deployed to address the country’s food security concerns. To reverse more than $5 billion spent importing food annually, the need for private capital becomes even more imperative.
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