Money Matters: Oiling the Transformation Machinery
By Tukeni Obasi
As Nigerians get to work on the project of transformation, the question has been asked: how will all these jobs be created and sustained? If the present challenges remain and farmers and other entrepreneurs do not have access to capital, machinery, and information; if the entry barriers for entrepreneurs remain the same; if interest rates are still high and infrastructure is still poor; if the budget allocation for agriculture remains as is, how will change happen at the grassroots? Put simply – as it was put to me some days ago by a concerned Nigerian – where will the money come from?
For private small-scale farmers who are wondering how they will fit in this transformation agenda, this is a real concern. With the current financial lending system and all its hurdles, the banks remain a no-go area for the financially challenged. By lowering these hurdles, especially the interest rates, to figures below 10 percent, banks will become a source for short-, medium- and long-term capital for agricultural entrepreneurs.
This question was addressed by the minister of agriculture, Akinwumi Adesina, several weeks ago at a workshop entitled “Financing Nigeria’s Agricultural Revolution”. During this workshop, he revealed that while N119 billion is to come from the World Bank and African Development Bank, unlocking private sector funds is key to agriculture’s takeoff. Drawing from his years of expertise at home and abroad as an agricultural economist, he said: “I have seen what the power of private sector finance can do to the sector. This is in line with what agricultural stakeholders have discovered, that transformation will be a collaborative effort by all those with the means, those with the interest/passion, and those with the expertise.” According to the minister, the president has already directed the Bank of Agriculture to take the lead by offering single-digit interest rates to farmers.
For the government’s part, the minister promised that the ministry is working hard to bridge the technological gap by providing 10 million mobile phones to farmers, half of which will be earmarked for women farmers. Technical training is also on the government’s agenda as a vital lubricant for this transformation machinery. According to Adesina: “The backbone of any agricultural sector is the farmers’ access to modern technologies. There is also need for a single digit interest rate; we need to look for new ways to make long-term financing available. We want the Asset Management Corporation, pension fund managers to invest in the agricultural sector.”
In the spirit of shifting the paradigm from agriculture as development/welfare to agriculture as business opportunity, the government has said that providing N3 trillion in credit will not only financially empower about 760,000 young farmers but that it will create a turnover of about N4 billion in interest income per annum for crediting banks.
But are private sector corporations willing to bankroll this transformation project or otherwise invest in the myriad opportunities? The story of Dominion Farms, Doreo Partners and several other local and foreign companies seems to indicate that some are. Yet many remain sceptical or focused on other priorities. This is so despite affirmations by several authorities including Arumna Oteh, director-general of the Securities and Exchange Commission (SEC), that agro-business stocks are among the best-performing stocks on the capital market. The SEC DG has also advised currently unlisted agribusinesses to list on the trading floor of the stock exchange in order to secure much needed investments.
One of the reasons for this scepticism is that investing is generally risky business. But when the rate of returns is very high with a short operative cycle – the speed at which the fixed and working capital are able to yield the desired profits/returns – the risk is considerably less and investors are more likely to flock into the sector. But if there’s anything to be learned from the housing booms and busts in the United States, Thailand, and other countries, it is that if capital comes in easily, it can go out just as easily. Thus, the last thing Nigeria needs is volatile capital fuelled by short-term interests. Rather, what a prospective strong economy like ours needs is capital that is well entrenched in the economy and can engender further growth, development, and investment. According to recent government statistics, the agricultural sector in its current state has the capacity to contribute an additional 8.1 million metric tonnes (and over 20 million by 2015) of food produce for domestic consumption. With short-term and long-term capital and a stable financing system, agriculture will be the gift that keeps on giving – to entrepreneurs and financiers alike. This move must, however, be backed by solid insurance schemes which are made available to all to safeguard assets against disasters such as the floods of 2012.
It remains to be seen whether the Bank of Agriculture will truly lead the way through an overhaul of its financial lending system. But it is clear that once an enabling environment is created for entrepreneurs and creditors; once the likes of Dominion Farms and others who are daring enough to invest their capital now begin to reap the dividends of their investments, and continue to plough more capital into the agricultural machinery, investor confidence will rise. At this point, transformation will be a foregone conclusion.