How banks are assisting in diversification of economy via investments in agribusiness

Since the economic recession of 2008, mono-economy countries like Nigeria, have struggled to diversify in order to be self-sustaining and create the needed employment. In this write-up, Josephine Okojie examines developments in the agribusiness sector of the economy, highlighting the impact of banks in helping the government actualise its self-sustenance status and creating jobs.

Nigeria is blessed with favourable climatic conditions, vast arable land and fertile soils. It has never been in doubt the significant role agriculture plays in any nation’s quest to achieve stainable development.

 Aside ensuring food availability and therefore decimating hunger; agriculture, as attested to by empirical evidence, remains instrumental to effective jobs creation, value addition, and wealth creation as well as in spurring economic development.

 In other words, countries could, through agriculture, create additional agricultural value chains on the line, while exploiting whatever other resource nature had blessed them with.

 Of concern however is that as desirable as agriculture is to economic wellbeing, many countries in the sub Saharan, Nigeria inclusive, are yet to maximise their potential.

In the case of Nigeria, it is a combination of various factors some of which include the relegation of agriculture to subsistence farming; non-prioritisation of agribusiness at the different levels of governance; the lack of infrastructure such as poor storage facilities, poor state of research, poor extension and disjointed value chains as well as the distraction occasioned by the discovery of oil.

 Each of these factors has had a far-reaching impact on the development of agriculture in the country, but of much more impact was the relegation of agriculture the moment petroleum was discovered as a prime revenue earner.

 Millions of productive men and women, especially the youth, headed to the cities to work in factories and refineries, or at administrative posts with dignified statuses.

 As much as countries and governments realise this, and have demonstrated readiness to embrace agriculture and leverage all its potential, the point still remains that the sector is still fraught with some challenges including resource scarcity, technology and infrastructure inadequacies and climate change for Nigeria.

  What appears even much more gargantuan is the challenge of financial resources and credit for the agriculture sector, believed to contribute between 20 percent and 30 percent to the nation’s Gross Domestic Product (GDP).

 From available statistics, 150 million Nigerians live on less than $1 per day, and the bulk of this poor population, ironically, are the small-scale farmers who do not have access to finance in addition to other associated challenges, that are saddled with cultivating the nation’s vast land for food production. 

 Sanusi Lamido Sanusi, former governor, Central Bank of Nigeria (CBN), had alluded to this while speaking on the nation’s agricultural sector, but stressed that of all challenges, key is the lack of access to finance and the resultant inability to invest in basic farming inputs such as seedlings, fertilizers, implements and irrigation.

He said these had led to a situation where yields have remained largely stagnant, leading to pervasive hunger and poverty.

 According to him, the nation’s banking sector reform has direct bearing on the development of the real sector as it seeks to position the system to contribute to the growth and development of the various sectors of the economy.

 Sanusi further put the annual demand for agribusiness financing over the next 40 years to about $6.5 billion per annum, compared with the current annual fund supply of $1.5-$5 billion.

 “This presents a huge financing gap which a forum such as this should be able to critically examine and develop policies and implementation frameworks to minimise the gap in the interest of agricultural development in the region.”

 FCMB appears to have realised this early enough. A major component of the bank’s sustainability principle is on agriculture and empowering farmers with a view to reducing the level of poverty among them as part of its financial intermediation role for national development.

 This can be buttressed by the fact that the bank’s intervention has resulted in better access to financial resources by needy individuals, organisations and companies. It has also led to improved processes, better output and profitability. Much more, it has enhanced confidence in the ability of the financial services sector to drive economic growth.

 One of FCMB’s initiatives is the collaboration with the International Financial Corporation, (IFC). The partnership would put on the table, an investment package for the agribusiness and education sub sectors of the economy.

 By the agreement, the IFC was to route more lending to private businesses involved in the agribusiness sector, which, as already stated, is a key driver of the country’s economic growth. The bank had reasoned that continued credit availability for agricultural-based businesses would help maintain the sector’s growth momentum.

 The package, a long-term senior loan of $50 million and a convertible loan of $20 million, was targeted at supporting the bank’s growth strategy and helping it increase financing of small and medium enterprises. 

Commenting on that collaboration, Ladi Balogun, GMD/chief executive, FCMB, who had viewed IFC’s investment as a stamp-of-approval on the bank’s strategy and commitment to good corporate governance and risk management, said, “this partnership with IFC would help FCMB achieve our strategic growth objectives.”

 In the same vein, Kudzai Gumunyu, divisional head, Agricultural Business Finance, FCMB, while elaborating the bank’s interest in agric financing, was quick to assert that agriculture was the first occupation for man from creation and will remain the most vital until the end of days.

 “That agriculture has the potential to stimulate economic growth is no longer news. It follows that agricultural financing becomes an important instrument of economic policy for Nigeria, in her effort to stimulate development in all directions,” Gumunyu said.

 Beyond this is the fact that agriculture is the biggest employer in Nigeria and other developing economies even as it has been demonstrated that economies that are self-sustaining in agriculture have relatively lower inflation rates.

 Nigeria is blessed with fertile soils, good rainfall, reasonable priced labour and a huge demand for agricultural produce owing to a large population base. It would therefore, be unforgivable if such a blessed country does not have the bragging right as a major exporter of agricultural commodities in the world.

According to him, FCMB intends to partner players in the agric space with a view to taking advantage of the many opportunities it presents and ultimately contribute positively towards economic growth, employment creation, import substitution and economic sustainability.

 With regards to the fears by farmers that the turn-around time and conditions attached to some credit facilities could be prohibitive, he allayed the fears, saying it is a positive experience with the FCMB facility.

 In his words: “Farmers have a point in complaining about slow approval processes as their businesses are season bound and need access to finance. Most complaints stem from some Nigerian banks not understanding the farmer’s businesses.

 Fortunately they will not experience this at FCMB as we have a team of experienced and qualified Agric Bankers who do not only have a holistic knowledge about agriculture, but its associated businesses, especially the fact that they are time and season bound.

 “We are committed to providing feedback to clients on the status of their requests within competitive timelines provided we are in possession of all the requisite information which can enable us make a decision.

 However, farmers have to realize that they also can help by providing the requisite information and that not all credit can be approved as the bank has to be satisfied with the risk and return of such transactions.’’

 He added that, the bank has put in place systems and processes to improve its credit turnaround time, including the recruitment of agric credit analysts who are dedicated to working on agric transactions and a structured trade and commodity finance team which to date, has assisted in several structured commodity finance deals that ensured prompt service delivery to customers.

‘’Every loan request is treated on a case-by-case basis. Requests for intervention funds from the CBN are dealt with using the attendant guidelines governing such scheme,” Gumunyu said.

 It is equally worthy of note that FCMB’s agric financing portfolio was 0.8 percent of the banks book in January 2012 and has grown to 6.64 percent of the bank’s assets by July 31, 2015.

 The bank’s interventions cut across various enterprises and activities in the agric value chain. These include poultry, fisheries, oil palm production and processing, cassava, maize production and commodities trading, among others.  

 The bank is also active in other value chain sections such as agrochemicals, fertilisers, seed and mechanization, and has been deploying unique solutions for inclusive banking as well as asset financing.

 On what distinguishes the FCMB Agric loan packages from other banks in the country, Gumunyu asserted that FCMB provides its clients with expert advice on best practices to enhance their operational efficiency and equally brings innovativeness to bear in designing its agric products.

 A case in point is the Mechanisation product, specially structured to suit Small Holder agriculture. Also, loan packages are designed to address specific financial challenges and cost of transactions based on robust Agric Credit Policy.

 All said and done, the bank’s intervention in the agribusiness sector appears set to leave far-reaching impact on this crucial sector of the economy, as attested to by the chairman, Tractor Owners and Hiring Facilities Association of Nigeria (TOHFAN), Alhaji Danladi Garba, when he commended FCMB for its support to the agric sector and farmers, at an engagement with the media in Lagos.

 FCMB had provided funding worth N300 million to TOHFAN for the acquisition of tractors that were distributed to farmers in Kaduna state.

So far, the bank has also collaborated with Doreo Partners to launch a support programme for farmers, known as Baban Gona (or great farm).

 This is an agricultural franchise model, where farmers are trained and offered specially packaged loans to carry out their farming activities.

 The programme is still running and its impact is being felt across the country. It is indeed comforting that the bank’s helmsman, Balogun, recently reiterated that its agric intervention is real, and it is building a solid agric business that is at the centre of transforming the economy.

 ‘’If we truly want to continue employing the growing population, we therefore need to not only feed Nigeria, but feed the world.”