22 May Reform in the Agricultural Industry: A Catalyst for Economic Growth?
It is common knowledge that Nigeria is heavily dependent on the oil industry for its budgetary income however agriculture remains a critical component of the country’s economy. The agriculture sector is the largest employer (roughly 30% of the population) and accounts for roughly 23%-26% of GDP (Nigerian Bureau of Statistics).
Traditionally, Nigeria was famous for the export of cocoa, groundnut, rubber and palm oil but over the years the rate of export of these produce has declined attributable to some of the factors enumerated below:
- Paucity of basic infrastructure;
- Lack of funding;
- Inconsistent and poorly thought out Government policies; and
- Lack of expertise/mismanagement
The recent fall in the price of oil, the country’s high tolerance on imports and a depreciating currency has led to the Federal Government in particular the Federal Ministry of Agriculture and Rural Development (FMARD) placing higher emphasis on domestic agriculture taking centre stage once again in a bid to boost the increasingly fragile economy.
The reasoning of the above is twofold:
- Dependence on imported food/reduction of food import bill;
- Insignificant foreign exchange earnings from agriculture.
In 2011, the FMARD launched the Agricultural Transformation Agenda (“ATA”) aimed at promoting agriculture as a business and refocusing Nigeria’s attention on agriculture. To achieve this agenda, the Government put in place the following measures:
- Fiscal inducement to advocate domestic import substitution;
- Removal of restrictions on areas of investment by foreign investors;
- No currency exchange controls i.e. free repatriation of capital, profits and dividends;
- 0% duty on agricultural machinery and equipment imports;
- Pioneer Tax Status for agricultural investments;
- Duty waivers and other industrial incentives.
In a move to supplement the ATA, the recent administration vide the FMARD introduced the Agriculture Promotion Policy (Building on the Successes of the ATA, Closing Key Gaps) (“APP”). The APP was designed as a “refreshed strategy” in tackling the two key issues being:
- Inability to meet domestic food requirements; and
- Inability to export at quality levels required for market success.
In addition to the above, it is believed that the APP would bridge the gaps not materialised by the ATA and has set out a number of specific objectives for the period of 2016-2020 namely:
- Grow the integrated agriculture sector at 1x to 2x the average Nigerian GDP for 2016 – 2020;
- Integrate agricultural commodity value chains into the broader supply chain of Nigerian and global industry, driving job growth, increasing the contribution of agriculture to wealth creation, and enhancing the capacity of the country to earn foreign exchange from agricultural exports;
- Financing agricultural development programmes;
- Promote the responsible use of land, water and other natural resources to create a vibrant agricultural sector offering employment and livelihood for a growing population;
- Facilitate the government’s capacity to meet its obligations to Nigerians on food security, food safety and quality nutrition
- Create a mechanism for improved governance of agriculture by the supervising institutions, and improving quality of engagement between the Federal and State Governments.
The FMARD has also indicated that it will work closely with other ministries departments and agencies e.g. Power, Transportation and Trade to ensure that the APP is executed as intended.
We are already beginning to see the implementation of the financing aspect of the APP. Some of the key financing developments include:
- Agriculture sector receiving an allocation of N103.7 billion from the 2017 Appropriation Bill, an increment of N12 billion compared to the N92 billion naira earlier proposed for the sector last year.
- African Development Bank recently approved $9 million equity investment in the Fund for Agricultural Finance in Nigeria (FAFIN) to provide expansion capital to agricultural small and medium-sized enterprises (SMEs);
- World Bank $200 million Agriculture Productivity Processing Enhancement and Livelihood Scheme Projects (APPEALS).
While it remains to be seen whether the Federal Government can meet many of the ambitious targets it has set in the agricultural industry, its commitment to reducing food imports and boosting lending should ensure that production continues to increase, pushing Nigeria closer to self-sufficiency and a strong agricultural export growth.
In addition to the above, with increased foreign exchange earnings from the agricultural sector, the over-dependence on crude oil exports would dwindle to an extent thus providing an extra source of foreign income into the economy. The agricultural industry has a significant part to play in the recovery of the Nigerian economy with properly managed methods and policies.
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