How encouraging local agro-commodities production can boost economy —Obikanye

Dr. Olushola Obikanye, Group Head, Agric & Solid Minerals Finance, Sterling Bank Plc, in this interview dwells on the recent data on Nigerian agribusiness industry, its contibution to the country’s GDP, FX earnings and how the agricultural sector can increase its contribution to the national economy:

 

Given the recent data on the agribusiness industry on its contribution to the nation’s GDP, FX earnings, and overall employment, how can the sector expand its contribution to the national economy?

Agribusiness as a sector does quite a bit fair in employment but can do so much more.

As of Q3 2021, the sector contributed about 29.94 percent to the nation’s GDP. This is a sizeable contribution and also shows immense potential for outsized performance. Maximising this potential to increase economic contribution can be achieved by encouraging more local production of agro-commodities to fulfill local demand, exporting the excess as a trade commodity once capacity is achieved.

But this optimised potential is dependent on creating a conducive environment for current and prospective agribusinesses to thrive. This can be achieved through incentives like tax holidays for agric focused businesses; start-ups, key players in the export value chain, financing small holder farmers at sub-commercial rates with intervention funds to drive production at scale and more.

Most crucially, all of these can be achieved with increased participation of the private sector in agribusiness.

 

With your background/experience in agriculture-related academia and financing, what do you think can be done to upscale the industry and make it attractive for large-scale investment?

A couple of factors could be considered which are pivotal in enhancing scalability and making the sector more attractive. These start with the pivotal need to create an enabling environment to allow the private sector effectively play its role. This has been observed in other markets that have built around their agribusiness industry, resulting in an increase in local production.

With an increase in private sector participation, the market opens up and increases in attractiveness to foreign investments, making even more resources available given the exchange rate.

However, all of these can be accelerated by making cheap funding available to stimulate participation and increase scale with smallholder farmers and agro-focused SMEs.

Lastly, leveraging data and technology will exponentially improve the efficiency and effectiveness of our practices, minimising waste and allowing industry players optimise to achieve maximum output.

Combining these solutions will simultaneously increase production and the creation of value, making the industry more attractive to much needed investment.

 

Over the years Sterling Bank has grown to become a major player in the Nigerian agribusiness financing sector. How does the Bank intend to grow its participation given the current economic environment?

Beyond being financiers of the sector, one of the key strengths we have is that the core of our agribusiness team is comprised of specialists and practitioners. So, the industry’s challenges are understood and experienced on two fronts – as practicing agribusiness sector stakeholders and as financiers of the sector.

This positions us uniquely to view the problems and analyse the variables,  relationships and  resultant effects. This guides the solutions we develop in implementing our HEART strategy, of which agribusiness sits right in the middle.

From a problem analysis, we have observed that participation has been affected by a combination of factors like insecurity, high input costs, changing weather systems, limited use of technology, antiquated practices, limited market access, wastage and post-harvest losses and so on .

With an understanding of the impact of  these problems, we have developed some solutions in-house, collaborated with key stakeholders on others and are actively brainstorming to find lasting solutions to others.

By crafting solutions to some of these problems, we are growing our footprint as practitioners and financiers.

For example, financing ranks as one of the largest challenges faced by growing agribusinesses. To address this, we have increased our lending to the agribusiness sector from 10% to 12% and are willing to extend further if the need arises. This funding cuts across the needs of producers and aggregators where loans can be provided in the form of inputs – seeds, fertilizers etc. That is how much we believe in the potential of the sector.

On post-harvest losses and improving access to market, we are solving two problems with some of our solutions. A worrying statistic is the loss of approximately 45% of harvests due to improper storage. This equates to the loss of almost half of value created and a contributor to food pricing volatility. To address this, we have partnered with key stakeholders to develop SABEX to improve access to storage, trading and credit facilities, which in turn allows for commodity trading out of harvest cycle, the preservation and capture of value outside of the regular cycles. Some of the commodities we have successfully implemented for are staples of Nigerian homes, rice, beans, sorghum and so on. Now, farmers, traders and other stakeholders can visit sabex.ng and sell their commodities

 

There’s a seeming gap in the participation in agribusiness by the younger generation dwelling in urban areas. How can agribusiness financiers increase participation among the younger generation and leverage opportunities across value chains?

It’s interesting to note that 33.3% of the Nigerian population today falls within the age of 16-35 years, which forms the bulk of the Nigerian youth population. It’s projected that this figure will be on the increase by the year 2040. Having said this, the average age of the farming populace is well over 55 years, which means agriculture, as of today, is majorly practiced by a more mature generation. This paints a picture that agriculture in Nigeria and everything associated with it, local food production included, is on the path of extinction if adequate measure is not taken to encourage the youth into the sector.

To address this problem, we have partnered with the Mastercard Foundation to develop SWAY AgFin – a single digit interest financing solution for agribusinesses run and owned by women and youth. With a flexible tenor, extending up to 5 years in some cases, we are seeking to involve a fresh generation of agribusinesses to increase production where possible and maintain sustained food production across generations. In addition to this, we are actively collaborating with organizations to provide technical training to youth and women as they start their journey into agriculture.

 

The Bank has a proven track record of lending to the production/primary sector of the value chain. Are there any plans to expand investment into secondary and tertiary parts of the agricultural value chain? If so, how?

Yes, we have begun plans to extend our activities to other sector players beyond the primary producers.

At Sterling, we see the model of the industry as extending beyond primary, secondary and tertiary value chain players. In more detail, today’s agriculture value chain can be segmented into pre-upstream, upstream, midstream and downstream.

Over time, most financial institutions have focused on the upstream segment – primary production,  crop and livestock farmers. In the last five years, we have developed expertise in the other segment beyond the upstream segment and have been able to finance players within and beyond that segment.

We have also leveraged interventions from the Central Bank of Nigeria such as the Paddy Acceleration Aggregation Scheme, Maize Acceleration Aggregation Scheme, Real Sector Scheme Funds and many more. These deliberate investments to expand well beyond the primary producers include aggregators, processors, commodity traders and exporters who are crucial in  unlocking of the true value of these produce.

 

What level of investment support can you deploy to the secondary and tertiary parts of the agricultural space to drive growth?

Beyond tweaking existing products and developing new ones, we are taking one of our viable products into the next level of market penetration in meeting needs.

For example, SABEX has now evolved from  being a platform that enables trading of commodities to an on-lending platform where farmers or aggregators can get credit based on the quantity and quality of commodities they have. We have partnered with AFEX in making this a reality by leveraging their warehouse network across the country.

Our goal is to make SABEX a secondary trading platform where derivates can be bought and sold on the platform.

 

Financing is still a gap for the agribusiness sector. What are the factors contributing to this unique problem and how can Nigerian banks solve them?

A few items have become influencing factors as to why funding has become a key problem. If we take the effect of inflation on the increase in the pricing of input materials. This affects how loans are priced and eventually disbursed.