The administration of President Muhammadu Buhari announced its policy of diversification of the nation’s economy into agriculture sometime ago. Many people thought that with that pronouncement, agriculture would immediately take the commanding heights of the economy. That is not so. The fact is that agriculture in Nigeria presents an interesting yet pathetic scenario: Over 60 per cent of the population are farmers, the country has large hectares of arable land yet to be fully utilised, while majority of the population is living in abject poverty. If anything, food insecurity stares the nation in the face.
The dietary energy consumption of most Nigerians is still below the minimum requirement for maintaining a healthy life and carrying out light physical activity. Across the country, agriculture is seen more as a trade than business; whereas, it should be seen as business and not a trade.
Above all, farmers lack adequate access to funds to revolutionise farming activities: mechanisation of farms, development of functional agriculture value chain for their crops, and the will power to shift from agriculture as trade to business. In Nigeria, despite the sector’s 45 per cent contribution to the GDP, only one per cent of the entire banking sector’s credit goes to agriculture, owing to its inherent risks. In fact, no meaningful agriculture can be done with the high interest rates charged by the banks.
Yet, agriculture is important for food security, export, economic growth, employment generation and poverty alleviation in the country. There is inadequate funding, knowledge and information on how to invest in basic farming inputs such as seedlings, fertilisers, implements and irrigation.
There is little or no commercial financing to those aspiring to build businesses that could enhance food production and enable farmers to earn sustainable profit. There is, therefore, a dire need for foreign investment and agricultural expertise in the country. Agriculture financing promotes investment in agriculture and adoption of the right technology to increase agricultural productivity and economic growth.
The Central Bank of Nigeria puts the annual demand for agribusiness financing over the next 40 years at $6.5 billion per annum, compared to the current annual fund supply of between $1.5 and $5 billion. The CBN also has a N200 billion Commercial Agricultural Credit Scheme established with the Federal Ministry of Agriculture. It is funded through the issuance of FGN bond by the Debt Management Office.
Loans made under this scheme are at single digit interest rate, subject to a maximum of nine per cent, while CBN bears the interest subsidy at maturity. Initially established to promote commercial agricultural enterprises, it was later expanded to accommodate small-scale farmers through the on-lending scheme of the state governments.
For Nigeria, investment in agricultural smallholdings provides the greatest returns in terms of poverty reduction and growth. For large-scale farming, foreign investment (finance) is required to purchase (or lease) land, construct buildings, hire labour, particularly experts, acquire modern farm machinery (e.g. tractors) and equipment, improved (or hybrid) seeds, fertilizer, chemicals (such as pesticides, herbicides) and to have good irrigation water. Finance is also needed to purchase new and appropriate technologies (e.g. cold storage facilities and transportation vehicles) and to purchase post-harvest storage facilities and technologies for post-harvest processing (e.g. flash drying facilities for cassava).
When there is finance, there is acceleration of adoption of new technologies. So, foreign investment is needed to fund some special transportation and other kinds of infrastructure, stabilise the business and acquire trained business and scientific talents.
But, how do we get foreign investment in agriculture? Foreign investment can be in the form of long-term investment from private investors, foreign Direct Investment (FDI), portfolio equity investment, official development assistance, foreign loans, loans from bilateral, multilateral and international capital market, bond finance and other private loans.
Investments can include infrastructural developments such as construction of road or rail links or port facilities.
Before, Gulf countries favoured investing in Sudan and other African OIC member states, while China favoured Zambia, Angola and Mozambique for such investments.
Investors are primarily private sector. Now, governments and Sovereign Wealth Funds are also involved in providing finance and other support to private investors in agriculture. Major current international investors are the Gulf States, China and Republic of Korea. Private sector investors, usually investment or holding companies like HADCO in Saudi Arabia are involved in such investments. Such investors have the expertise to manage large-scale investments in agriculture.
Current involvement of Sovereign Wealth Funds, investment funds and institutional investors is limited but the magnitude of the funds at their disposal make them potentially important sources of investment funds in the future. Some FDIs often favour joint ventures such as contract farming.
To be meaningful to Nigeria, FDI in agriculture must maximise benefits and minimise inherent risks for all involved. Foreign investors from countries with food security concerns or requiring flows of agricultural raw materials for processing have also seen profitable opportunities for portfolio diversification into food production investments, especially as returns on other investments become less attractive. Others have been motivated by the prospects offered by bio-fuel developments. A number of dedicated investment funds – the Africa Transformational Agriculture Fund, for example – have recently been established to invest in African agriculture.
FDIs in agriculture provide developmental benefits through technology transfer, employment creation and infrastructural developments. Under contract farming or out grower schemes, smallholders can be offered inputs including credit, technical advice and a guaranteed market at a fixed price, although at the cost of some freedom of choice over crops to be grown. Mixed models are also possible with investments in a large-scale core enterprise at the centre and out growers under contracts to supplement core production.
Benefits accruing to Nigeria from FDI in agriculture include capital inflows, technology transfer leading to innovation and productivity increase. Others include upgrade of domestic production, quality improvement, and employment creation, backward and forward linkages.
Other benefits include multiplier effects through local sourcing of labour and other inputs and processing of outputs and an increase in food supplies for the domestic market and for export. This is in addition to other benefits like technology transfer, employment creation, upstream and downstream linkages.
