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Tuesday, 6 August 2013
N200 billion agricultural development fund: New ingredient for the economy
Putting some things right, the Nigerian economy can begin to exhibit some form of green shoots
The Federal Ministry of Agriculture and Water Resources recently confirmed that the Federal Government has released N100 billion of the N200 billion agricultural development fund. The Central Bank of Nigeria is to disburse N75 billion of the amount to United Bank for Africa (UBA) while First Bank would receive N25 billion. Under the guideline, 20 per cent of the fund (N40 billion) was earmarked for the smallholder farmers, while 80 per cent would be dedicated to agro-processing development or large agricultural enterprises. To ensure accountability, the government has also involved the EFCC and ICPC as part of the tracking system, adding that the list of beneficiaries would be published monthly to create a transparent process.
The former approach of government disbursing directly to individuals does not always work as people just queue to collect such supposed loans and treat as their own share of the national cake without any efforts of repayment. The approach of government appointing two banks-First Bank of Nigeria Plc and United Bank for Africa Plc (with prospects of appointing more banks) – to further select large commercial enterprises to whom this proposed loan is given to, makes sense. State Governments including the Federal Capital Territory (FCT) can also access the special fund up to twenty per cent of the N200billion through specialized agencies or secretariats established for the purpose of on-lending such funds to Co-operative Unions, Co-operative Societies, Self-Help Groups and Agricultural Commodities Associations in their respective states.
On the part of the private sector, the example being set by Nestle Nigeria Plc readily comes to mind. The food and beverages conglomerate has initiated various efforts at boosting cocoa production in its West African host communities. The Group has started a new factory at Sagamu, Ogun State and a research centre in Cote de Ivoire all aimed at increased production capacity for the company while also impacting on the society. Other corporate bodies should emulate this gesture voluntarily as part of their corporate social responsibility to the country. As more efforts are geared towards increased agricultural production, the law of demand and supply will always hold in the context of surplus or scarcity as they relate to price movement. If we produce more food, the price of food would come down and vice versa. Food security is a critical denominator that influences major economic and social indicators.
Some financial institutions are also recently focusing on agricultural financing as a means to support the revival strategies of the managers of Nigeria’s economy. The United Bank for Africa Plc (UBA) recently floated a bank-specific N50billion Agric Support Scheme and sub-sectors covered by it include poultry, fishery, crop cultivation, production, plantation, farm machinery and hire services. From the stable of Fidelity Bank Plc, we have the Agric-Nigeria Scheme made up of Fidelity Cooperative Union Facility, Fidelity Agric Lease Facility and Fidelity Agric Trust Fund. Oceanic Bank Plc last week organized an international summit during which various noble laureates and international scholars deliberated on food security as a way of directing efforts at boosting agricultural production in Nigeria . More banks should join in designing special funds targeted at agricultural financing in Nigeria to spur economic growth and thereby chart a path to recovery from the global crisis. The National Food Security Programme (NFSP) of the Federal Government should be taken seriously.
Looking at the United States economic strategy in this recessional times, we see how the US president, Barack Obama beamed light on the automobile industry because of the comparative advantage they have in automobile production (unfortunately Chrysler has just filed for bankruptcy and approval given for sales of assets and the Bank of America needs to urgently raise capital by $34billion to remain operational even after receiving $45billion as bailout package from the US government). Nigeria surely has a comparative advantage over many countries as regards agricultural production, petroleum and liquefied natural gas. If this special fund targeted at boosting commercial agriculture is well disbursed and closely monitored, it has the capacity to bring about the first green shoots we may see in the Nigerian economy as we journey through this global economic meltdown. Diversified agricultural ventures (poultry and crop farming, fishery, animal husbandry) have the capacity to guarantee food security, timely supply of varied raw materials for the production of some hitherto imported finished goods, creation of mass employment and provides an opportunity to diversify the economy. If Nigerians can get cheap food to buy anytime and more Nigerians can find engaging employments, it will be matter of short time that we begin to see true and sustainable green shoots of recovery.
When can one begin to see green shoots’ in the Nigerian economy even in the midst of thick uncertainties and perceived dormant policy drive of the government? Green shoots’ of recovery means early signs of the economy picking up from a downturn or recession. These green shoots could be seen as revival of companies from losses and near bankruptcy to profit making; it could also be seen in capital market recovery in form of stable upward movement of share prices or at least reduction in the crashing momentum of share prices; reduction of food prices and inflation rate; reduction in job losses as more companies are revived; increase in price of oil in the international market (since oil remains the major source of income for the Nigerian economy); and resumption of loans from the international finance community into the economy. In all these, food security and low food prices are critical to defining the standard of living in any economy.
Taking a look at the Nigerian economy, one may say the capital market is still sustainable in that we still see some price gains though not stable, international oil prices are making shaky and undulating movements, most companies are still making profits and government still has excess crude money to share around the tiers of government. Various companies in Nigeria are still making successively increasing profits as the years roll by even in the spheres of economic meltdown experienced in the global economy since last year. As at the last count, companies are still grossing huge earnings and still making profits. For instance, monitoring companies’ Profit After Tax (PAT) profile, we see that companies like Nestle Plc (N8.3billion), GT Bank Plc (N28.3billion), Presco (674million), PZ Cussons Nigeria Plc (N2.69billion), Nigerian Bottling Company Plc (2.181billion), Okomu Oil Palm Company Plc (N1.207billion), Mobil Oil Nigeria Plc (N1.718billion), UAC Property Development Company Plc (N3.55billion), Total Nigeria Plc (N4.40billion), Tantalizers Nigeria Plc (N305million), Guinness Nigeria Plc (N11.88billion), Glaxosmithklime Nigeria Plc (N1.277billion), Unilever Nigeria Plc (N2.60billion) among others have declared good results and paid out dividends as at their last financial year-ends.
All things being equal, if government can provide some very basic but crucial infrastructures, we see that enterprises in Nigeria could remain viable and likely to bring about the first tranche of green shoots that may be sustainable in Nigeria . The Nigerian business environment remains one of the most hostile to conduct profitable business in. Corporate bodies have lots of challenges to cope with as seen in lack of electricity, bad roads, inconsistency in government policies making them injurious to businesses, fuel scarcity and untamed smuggling. In the midst of these, the economy has exhibited some form of good shocks against external economic tendencies. This leads us to believe that putting some things right, the Nigerian economy can begin to exhibit some form of green shoots soon. To have green shoots that would be sustainable, grassroot welfare (food, security & shelter) must be addressed. This is what puts the federal government’s recently launched initiative to boost commercial agriculture in good place.