One of the most common questions that I get asked is: “How is agriculture in Nigeria really doing?” This is often followed by another question: “Is agriculture now a good area for investment or to pursue a career?”
Perhaps the best answer to the first question can be found in some appropriate metaphors. Nigerian agriculture is currently an exciting field of great possibilities and awesome potential. There are many shoots of promise and flowers of hope. Best of all, there is also an increasing number of significant harvests in many areas. Yet, like in any farming enterprise, progress is hampered by stubborn weeds of many varieties that continue to cling on despite the efforts to eradicate them. But we can safely say that the sector is no longer defined by the weeds but by a growing number of harvests.
I can say this with confidence because my three years at the helm of the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) have brought me up close and personal with Nigerian agriculture. I have inspected agricultural projects around the country, engaged with the financial sector at different levels, participated in brainstorming sessions within and outside Nigeria and interacted extensively with many players across agricultural value chains – from big investors to smallholder farmers. There is no doubt that agriculture and agribusiness have entered a significant stage which may turn out to be an inflection point but many challenges remain. I have no hesitation in giving a strong affirmative answer to the second question: from a business or career perspective, agribusiness is a great area to invest in or make a career out of.
The progress of the work that we are doing at NIRSAL provides a good perch to observe and calibrate the historic gains being made in this critical sector in the midst of significant challenges. Established in 2011 by the Central Bank of Nigeria as a non-bank financial institution designed to appropriately define, price and share agribusiness-related credit risk, NIRSAL has the mandate to increase the flow of finance and investment to all actors across commercially viable agricultural commodity value chains by de-risking and fixing the value chains and incentivizing the actors to good performance measures, agricultural and financial.
It is important to clarify that NIRSAL is not a lending institution. Rather, our job is to stimulate the flow of finance and investment into fixed and de-risked agricultural value chains, build long-term capacity and institutionalize incentives for agricultural lending leveraging our five strategic pillars: Risk Sharing, Innovative Insurance Product Development, Technical Assistance, Incentives and Rating. Thus, NIRSAL serves as a catalyst that enables providers of finance and investment to lend and invest in agribusinesses leveraging on its Credit Risk Guarantees and other Risk Management Products, Tools, Techniques, Methodologies and Strategic Partnerships.
NIRSAL’s core mandate is thus an urgent one because a critical challenge facing the sector is the reluctance of banks and other institutions in the financial sector to lend to agriculture. The gap in financing is a central issue because without the necessary resources, Nigerian agriculture cannot make the transition from subsistence farming to agriculture as a business.
The financial challenges that the sector continues to face are underscored by a 2018 National Bureau of Statistics (NBS) report which found that the oil and gas sector received N3.55 trillion – the highest allocation of private sector credit from the banks – which translates to 23.45% of the total. Manufacturing was second with 14.74%. Other sectors got less than 10%. Agriculture which employs about 70% of working Nigerians and is responsible for a quarter (25.13%) of Nigeria’s GDP received 4.03%
These dismal statistics won’t change overnight. The conditions that make short term, high return investments more attractive to the banks are not likely to disappear anytime soon. Neither will the historic challenges of subsistence farming such as farmland fragmentation and the low capacity of impoverished rural farmers to keep the kind of records that can inspire the confidence of sophisticated bankers. The difficulty of NIRSAL’s mission of creating a handshake between the financial and agricultural sectors can be better appreciated against this background.
Yet there is a strong basis for optimism. The progress that we have made over the past three years despite challenges is a metaphor for the overall progress achieved in the sector. Over the span of its existence thus far, NIRSAL has facilitated a total of over N86.03 billion into the sector. This was achieved by catalyzing funding into various value chains from the private sector – deposit money banks, the capital market, other categories of financial institutions, vendor financiers and other value chain actors.
The breakdown of the total amount leveraged by NIRSAL Credit Risk Guarantees and other Agricultural Risk Management Tools and Products into Value Chain activities tells the story better:
· a total of N46.2 billion in the pre-upstream segment of the agricultural value chain primarily to mechanization and agricultural inputs such as fertilizer, seeds and agrochemicals required before primary production.
· over N17.2 billion into the upstream which is mainly the primary production of maize, cassava, soybeans, rice, cotton, poultry among other commodities.
· N22.6 billion midstream segment of the agricultural value chain used predominantly in the processing of cassava, rice milling, cotton, oil palm, and cocoa.
It is also noteworthy that in line with the rigorous prudence that animates NIRSAL’s operations, these funds were facilitated with less than 1% risk crystallization or claims payout on NIRSAL’s core transactions.
NIRSAL’s track record reflects the upward trend in investments into the agriculture sector that has been gaining momentum recently. According to another NBS finding, foreign investment into the sector rose from $159 million (N57 billion) in 2017 to $289 million (N104 billion) in 2018.
As important as the funds that we have helped to direct into agriculture is, the fact that NIRSAL has created over 400,000 jobs through its various interventions in the various value chains is worth noting. And we are working harder to improve on that figure. Just like the taste of the pudding is in the eating, in NIRSAL we believe that making measurable positive impact in the lives of benefitting individuals and communities is the best return on investment.
Clearly, the focus of the Buhari administration on agriculture which is amply reflected in both the Agricultural Promotion Programme (APP) and the Economic Recovery and Growth Plan (ERGP) is producing a healthy harvest of benefits for Nigerians. Following the collapse of global oil prices on the international market which plunged the Nigerian economy into a 25-year low in 2016, there has been a renewed focus on the agricultural sector, as the country attempts to diversify its economy away from oil.
The rice revolution driven by the multi-pronged Anchor Borrowers’ Programme (ABP) of the CBN under the leadership of Mr. Godwin Emefiele, Chairman of the Board of NIRSAL, is a notable example. The ban on rice importation combined with policy support for boosting rice cultivation is having a clear and measurable impact. The production of milled rice has spiked by about 60 percent as a result, from 2.5 million metric tonnes in 2015, to 4 million metric tonnes in 2017. According to Ministry of Agriculture figures, a total of six million jobs have been created in the agricultural sector under the current government through various initiatives.
As one of the Participating Financial Institutions in the ABP, CBN has authorized NIRSAL to bring the full complement of its institutional and strategic capacities to the programme. Our work on the ABP is a core commitment because empowering and improving the lives of smallholder farmers who constitute over 90% of Nigeria’s farming population should be a central priority of any plan to improve Nigeria’s agriculture. That is why we have concentrated our institutional firepower on fixing the agricultural value chains in order to provide a reliable platform for de-risking lending to the sector; mobilizing financing for agri-business through deploying credit risk guarantees to reduce defaults; providing technical assistance in pursuit of these objectives; and reducing the cost of loans for agriculture, etc.
To achieve a strong foundation for our ABP efforts, NIRSAL has conducted comprehensive verification exercises nationwide, matching the biometric details of farmers with their Bank Verification Numbers (BVN) for those who have account numbers and the creation of new ones for those who do not. Over 400,000 farmers have had their details captured nationwide in the NIRSAL farmer database, which serves as the pool from where beneficiaries of the programme are taken.
This process has produced encouraging results. A few examples: thanks to the Central Bank of Nigeria, our owner, NIRSAL’s ABP efforts have helped to create over 415,000 direct and indirect jobs across the country. We have provided improved inputs and facilitated affordable, single-digit interest rate finance of N15.8 billion to 69,167 ABP farmers from the commencement of NIRSAL’s participation in the programme in 2017 to date. Due to our robust risk management framework, the loan performance rate has also improved, and the likelihood of default by beneficiaries significantly curbed.
An innovation that we have introduced to the ABP is the creation of “geo-cooperatives”: using advancements in geospatial technologies to map the farmer to his/her farmland’s geographical coordinates under a cooperative arrangement with group governance put in place. The objective is to reduce the incidence of fake cooperatives with fake land claims accessing the scheme.
ABP is not the only area that NIRSAL has focused its innovative efforts on. In fact, it’s no exaggeration to say that innovation is in NIRSAL’s DNA. It permeates NIRSAL’s operational blueprint: the Concepts, Plans, Projects and Results (CPPR) framework. This innovation mindset is anchored on a core conviction that the judicious deployment of science, technology and innovation to agriculture, agricultural financing and agricultural risk management is the game changer that can help leapfrog Nigeria’s agriculture from subsistence into the realm of higher and sustainable productivity.
Innovation is also present in NIRSAL’s insurance facility, one of our five pillars, designed to expand agricultural insurance products to reduce credit risk and increase lending to farmers. Prior to NIRSAL, agricultural insurance in Nigeria was simply indemnity based which only provided compensation equivalent to farmers’ cost of production in verified incidences of physical disasters and recorded low uptake.
Today, NIRSAL, working with a consortium of four Insurance companies and the Nigerian Agricultural Insurance Corporation (NAIC), has developed the innovative NIRSAL Area Yield Insurance Index product to protect farmers’ revenues from losses due to pest, diseases, adverse weather conditions and general drops in expected yields. So far, at a start-up scale, a total of 29,229 farmers cultivating 27,831 hectares have used the NIRSAL Area Yield Insurance Index product to protect a total harvest value of N6.49 billion with over N121.434 million paid out as compensation to the insured farmers that suffered low yields.
We have also assisted five insurance companies to secure approvals from National Insurance Commission (NAICOM) for the deployment of agricultural Insurance products.
NIRSAL, working with a consortium of local and international insurance actors, aims to create additional innovative insurance products including the Revenue Index, Hybrid Index and finally the NIRSAL Comprehensive Index Insurance product. Our goal is to expand insurance uptake by primary producers from 0.5 million to 3.8 million by 2026.
Innovation is at the heart of our Agricultural Primary Production Aggregation Service System (A-PASS), a project which is aggregating four million hectares of farmland into 16,000 NIRSAL agro geo-cooperatives of 250 hectares each. These agro geo-cooperatives will focus on the production of: Industrial Commodities (maize, soya, wheat, cassava and cotton); Export Commodities (Value added hibiscus, sesame, ginger and shea); Consumer Commodities (rice, sweet potatoes, and beans); Controlled Environment Agriculture Commodities (vegetables, aquaculture) and Integrated Livestock Commodities (beef, dairy, hides and skin).
Like other positive developments elsewhere, NIRSAL’s modest successes confirm that Nigeria’s agriculture is definitely on an upward trajectory. The current administration’s policy focus on agriculture is bearing significant fruits. There is much to cheer. But there is no room for complacency because significant obstacles dot the path of sustainable agricultural transformation in Nigeria. For us at NIRSAL, the priority is to continue to escalate the rate of progress achieve
d in the execution of our core mission by facilitating more finance to the sector, boosting our support for smallholder farmers through the ABP and other bespoke programmes and expanding the footprints of innovation in other vital areas.