SUNDAY PUNCH
BUSINESS
APRIL 3,2011 N Sub-Saharan Africa, agriculture occupies a
prominent position in
their national economies as the sector serves as a key driver of growth, wealth creation and poverty reduction. It is also the leading economic activity in the continent as it contributes between 20 per cent and 30 per cent of its Gross Domestic Product. However, the future of this sector in the continent is faced with several uncertainties such as resource scarcity, heightened risks from climate change, higher energy prices, demand for bio-fuels and doubts about the speed of technical progress. In Nigeria, for instance, several initiatives meant to boost activities in the sector have not yielded the desired results. The N200bn Commercial Credit Agriculture Scheme was last year a subject of controversy between the National Assembly members, participating banks and the beneficiaries. The scheme was established by the Central Bank of Nigeria in collaboration with the Federal Ministry of Agriculture . It is being funded through the issuance of FGN Bond worth N200bn, by the Debt Management Office in two tranches. The first tranche of N100bn had bee n raised and passed on to participating banks for on-lending to farmers . Loans made under this scheme are at single digit interest rate subject to a maximum of nine per cent, while the CBN bears the interest subsidy at maturity. The scheme, which was initially established to promote commercial agricultural enterprises, was later expanded to accommodate small scale farmers through the on-lending scheme of the state governments. However, owing to series of complaints regarding the accessibility of the fund , the House of Representatives last year threatened to investigate the scheme . The House, in a resolution in Abuja, alleged that th e money had been kept in selected commercial banks in the country for nearly one year without any satisfactory reasons. A member of the House of Representatives, Mr. Dino Melaye, who sponsored a motion on the issue, informed the House that an estimated N32bn had accrued as interest on the funds . He said, "Mr. Speaker, we all know that the interest rate in this country ranges from 18 per cent to 25 per cent. If we are to use an interest rate of 16 per cent, it means that about N32bn would have accrued on the N200bn in nearly one year. "Where is the N200bn? Where is the interest it has accrued? This House owes Nigerian farm ers the duty to investigate
Agriculture funding, still a major challenge Despite contributing 45 per cent to Nigeria's Gross Domestic Product, agriculture, which, before the discovery of oil, was the country's highest revenue earner, is still plagued by funding problem. In this report, IFEANYI ONUBA examines the dearth of funds in the sector
what has happened to this money and why the farmers cannot access it. " However, investigations by our correspondent revealed that the sum of N96.81bn, as at December last year, had been disbursed to 104 projects thro~gh 11 banks. The amount was given to 18 state governments, including the Federal Capital Territory. The beneficiary states are Adamawa, Anambra, Bauchi, Enugu, Gombe, Kebbi, Kogi , Imo, Kwara, Nasarawa , Niger, Ondo, Sokoto, Taraba Zamfara, FCT, Akwa Ibom and Rivers. Each of these states had accessed Nlbn each for on-lending to farmers' cooperatives and other areas of agricultural interventions in their various States. Also, it was learnt that as at December, 2010, 11 banks namely: Access Bank Pic, Fidelity Bank, First Bank of Nigeria, Guaranty Trust Bank, Oceanic Bank,
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Skye Bank, Stanbic IBTC, ' Union Bank of Nigeria, United Bank for Africa, Unity Bank, and Zenith Bank, had participated in the scheme. However, the sum of N13.93bn, being undisbursed fund s had so far been withdrawn from three banks for 18 agricultural projects. The banks are UBA (Nl1.35bn); GTB (581m) and Skye bank (N2bnl, making the balance in the fund as at December to stand at NI 03bn. But this is still inadequate as the African Rural and Agricultural Credit Association had put the annual demand for agribusiness in Sub Saharan Africa within the next 40 years at N975bn per annum. It said that going by the current a nnual fund supply of N225bn, there is a huge financing gap, which governments within the region should critically examine. It said that there was need to develop policies and implementation frameworks to minimize these funding gaps in the interest of agricultural development in the region. But the apex bank governor, Mr. Lamido Sanusi, said that the current funding needs of the sector were largely due to its peculiarities. The peculiarities are long gestation periods for agricultural production; the risks and uncertainties from natural causes and the predominance of small scale producers with little asset base and working capital. He said that the formal banking system in the continent did not have the capacity, skills and resources to single-handedly finance the expected exponential growth in . the agric sector. 1 In view of these, he said there was need to evolve strategies to attract long term 1financing in the form of bonds, debentures a nd venture capital funds . He recommended that regulatory and
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empower corporate investors such as Trusts and Insurance companies, Pension Funds and other institutional investors to provide sustainable long term fund through instruments such as bonds, warrants, leases as well as equity. He said, "Globally, agric business has changed drastically a nd we must blaze the trail or loose relevance. The greatest challenge, therefore, is to cultivate a new set of agricultural entrepreneurs to drive the technological changes in the sector and make the continent competitive and food secure.
"In specific terms, there is the need to provide coherent policy to guide implementation of financial and support intermediation and evolve packets of support services to suit different levels of financial services."
He said that there was need to reposition agriculture, as the sector still had the potential to transform the economy, adding that the CBN was collaborating with the banks to address the problems along the value-chain. The CBN boss lamented that despite the sector's 45 per cent contribution to GDp, only one per cent of the entire banking sector credit went to agriculture owing to its inherent risks. He, however, pointed out that efforts were being made to de-risk the sector through the creation of value-chain covering the entire production and marketing processes capable of generating employment and income .
"We have to unlock the value chain for agriculture to be viable, we don't have marketing boards, and the commodities board in Abuja is not working . So, it is very easy to blame the banks for not lending into the real sector but you have to have a right policy that will make viable cou nterparties available to the banks," he said .