“Funding is the biggest problem we have in Nigeria’s agriculture,” Heineken Lokpobiri,
Why Nigeria must De-risk Its Agric Finance

Nigeria’s expectation from its agricultural sector may never crystallize if banks remain unwilling to lend to the sector.

Agriculture has long been known to hold a great promise and has historically been Nigeria’s major source of revenue and foreign exchange.

In the 60s and 70s, the country attained extra-ordinary height from its agricultural production as it generated the bulk of its revenue from it. Then it all happened that oil was discovered in commercial quantity and Nigeria abandoned the sector.

However, since the 2014 collapse of global oil crude prices, there has been renewed focus on the agricultural sector as the country attempts to diversify its economy away from oil.

The shift was necessitated by the growing statistics of youth unemployment and the vast agricultural potentials that can drive a more sustainable economic development in Africa’s most populous nation.

With the current economic downturn, the country is grappling with, there is consensus across board that there is no better time to leverage the potentials of the agricultural sector than now, not just to pull out of recession, but also to diversify the economy and place it on the path of sustainable growth and development.

One of the factors that have continued to impede the sector is Finance. Lack of access to adequate financing by farmers and other actors in the sector has remained a major impediment that prevents investments in basic farm inputs needed to raise productivity and sustain the growth of the non-oil sector.

As a result, yields have failed to increase significantly, leading to pervasive hunger and poverty.

Similarly, agro-entrepreneurs seeking to build businesses that could boost food production have continued to remain at a subsistence level in the country.

“Funding is the biggest problem we have in Nigeria’s agriculture,” Heineken Lokpobiri, minister of state for agriculture and rural development, said at a breakfast meeting with banks CEOs in Lagos last year.

“We need finance to put all the factors of production together to drive growth in the sector. We know that banks are still finding it difficult to fund agriculture but until we have the money to fund agriculture at the production, processing and marketing level, we would not achieve anything from the sector,” Lokpobiri said.

Nigeria’s agricultural fundamentals are robust and include an estimated 84 million hectares of arable land out of which only 40 percent is cultivated and less than 40 percent is cultivated optimally.

Two of Africa’s largest rivers (Niger and Benue) flow through and within the borders of the country. There is adequate annual rainfall; a large young workforce and over 180 million consumers that offer a domestic market to support increase food production and processing.

It is only the finance to unlock all these potentials that are lacking. Experts say the glorious days of Nigeria’s agriculture could be revived when banks start lending more to the sector.

To ensure that farmers across the country have access to adequate finance and also ensure that money deposit banks lend more to the sector, even as the country realize its agricultural potentials, experts say Nigeria must begin to hedge banks against the risks associated with funding agriculture.

With such, experts believe that banks would lend more to the sector to drive growth and development.

Despite efforts targeted at increasing funding to Nigeria’s agriculture sector, the role of commercial banks in financing the sector still remains minimal owing to the risky nature of the sector, low financial literacy among smallholder farmers and difficulty in determining their creditworthiness.

Successive governments and the Central Bank of Nigeria have introduced various financing initiatives to encourage banks to finance Agric at lower interest rates.

Currently, the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) is currently hedging banks against risks associated with the sector.

But the government does not have enough resources to lend to all actors across the value chain, so the need to encourage banks to increase lending to the sector can never be overemphasized.

The private sector needs to be at the forefront of agricultural lending while the government support with the provision of infrastructures needed for production and productivity.

Source: Business Day

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