By Nkiruka Nnorom
Jerry Gushop is the Head of Agribusiness, Stanbic IBTC Bank. In this interview with Financial Vanguard, he spoke on the bank’s involvement in agribusiness financing in Nigeria. Specifically, he said the bank has disbursed in excess of N25 billion in the CBN’s Commercial Agriculture Credit Scheme, CACS. He also spoke on the impact of various initiatives put in place by the federal government to change the face of agribusiness in Nigeria. Excerpts:
Calls have been strident, both within and outside Africa, that in order to guarantee food security, funding for agriculture must increase. In your opinion, is agriculture underfunded in Africa and more specifically in Nigeria?
This is absolutely correct considering the rapidly growing population of most African countries. Nigeria, for instance, was a strong agricultural produce exporting country prior to the oil boom era, with very strong export volumes and value in produce like cocoa and rubber.
You very well know that the first palm kernel seed planted in Malaysia was taken from Nigeria, and that country today is one of the world’s largest exporters of palm oil. Agricultural funding is gradually increasing via various funding initiatives and I will touch on this as I go on.
My strong opinion is that the low crude oil price has and is helping to change the general mindset of Nigerians with more private investors initiating projects focused on commodities and grains with strong export potentials, such as cocoa, sesame seeds or foreign exchange conservation potentials, like rice and soya beans. It may interest you to know that the CBN intervention fund initiatives have also been focused in these regards as well.
Now, to your direct question on funding of agriculture in Nigeria; the reality is that with a population that has grown from about 30 million in the late 60’s and early 70’s to almost 200 million now, I would say funding has not grown exponentially vis-à-vis our population growth in order to guarantee food security and also contribute immensely towards increasing our Foreign Exchange, Fx, earnings as a country.
A main culprit for the high level of subsistence farming practiced in the country is largely attributable to education and this has begun to change with the entrance of a new generation of farmers into the sector, which has brought new ways of doing things.
However, the various successful Outgrower Schemes have made it possible for a good number of subsistence farmers to acquire the requisite knowledge and skills that can make them break out of this level of operation.
How will you assess the effectiveness of the Commercial Agriculture Credit Scheme, CACS, using Stanbic IBTC’s involvement as marker?
Stanbic IBTC Bank has featured prominently in the CBN CACS initiative, having disbursed funds in excess of N25 billion since commencement of the Scheme between 2008 and 2009.
The availability of single digit pricing on facilities has provided immense opportunities for medium sized manufacturers like Integrated Dairies Limited, manufacturers of Farm Fresh Yogurt, and Novum Agric Industries, manufacturers of Supreme Brand of Animal Feed. This has enabled them to not only remain competitive in cost of production versus product pricing against imported brands, but has also been profitable for the banks due to less attrition as a result of performing loans in most cases.
I must also add that the scheme has contributed immensely to the development of agriculture in Nigeria, with a lot of projects being initiated and supported across the agriculture value chain, most especially core manufacturing, processing, poultry and in more recent times, production with strong backward integration initiatives being driven by organisations like Olam, Erisco, Dangote, and Nalmaco, among others.
Can you outline some of the major deals Stanbic IBTC has consummated in the agriculture sector in the last couple of years?
Stanbic IBTC Bank has consummated and participated in some major deals across the agriculture value chain over the last couple of years. Some of the deals include the Dangote Industries, N35billion; Flour Mills Nigeria, N27.68billion; Olam Nigeria, N11.2billion; Grand Cereals, N3billion; Integrated Dairies, N2billion; and Livestock Feeds Ltd, N1.1billion.
The sector’s contribution to GDP has remained unimpressive, partly because it still operates at a subsistence level. How important can agriculture become to Nigeria and its GDP as economic diversification gains primacy?
The importance of agriculture towards diversifying the Nigerian economy cannot be overemphasized, considering current realities we are facing with a largely mono-product economy mainly dependent on oil exports. As highlighted earlier, various initiatives currently being promoted via local and international intervention funds are gradually supporting a reduction in the level of agricultural practices at a subsistence level.
In addition to the above, other initiatives focused on Small Holder farmers includes the recently launched Anchor Borrowers Programme with a structure that not only provides financing but also creates market and input opportunities for small scale farmers.
The credit risk associated with agricultural lending is one of the reasons banks are reluctant to finance the sector. An elixir is for the government to create an enabling environment as well as introduce policies that will reduce this risk. Has that been the case?
The sector already has a Guarantee Scheme in place to encourage financial institutions to lend to agricultural projects. There was the Agricultural Credit Guarantee Scheme (ACGS) and the Nigeria Incentive Based Risk Sharing System for Agricultural Lending (NIRSAL), which have also been repositioned and restructured to play this role.
NIRSAL’s role also includes providing back-end interest rate rebate to farmers who have borrowed at commercial lending rates in order to achieve a lower average cost of fund. However, this is contingent upon a continuous performance of their loans.
About six years ago, the Alliance for a Green Revolution in Africa (AGRA), a continental initiative to create an innovative fund for Africa’s smallholder farmers, came into being with Standard Bank as one of the prime movers. To what extent has the Standard Bank /AGRA partnership been explored in Nigeria?
The Standard Bank and AGRA partnership has been successfully implemented in Nigeria through what we call the Outgrower Scheme. In fact, this scheme is what the CBN has also further modified (based on the successes recorded) with its recently launched Anchor Borrowers Programme.
The basic principle of the Outgrower Scheme is to match smallholder farmers with off-takers, service providers and input providers. This concept helps to create markets for the production output of the small farmers as well as provide them the necessary technical support (via the input providers), to achieve better production yield. The CBN actually invited Stanbic IBTC Bank to be a member of the Committee for setting up the Anchor Borrowers Programme, based on its appreciation of some of the successes achieved with the Outgrower Scheme.
What are some of the lessons Stanbic IBTC Bank is drawing from Standard Bank in order to play a pivotal, transformative role in Nigeria’s agriculture sector?
One cannot overemphasise the level of technical support provided, most especially with regards to structuring deals and the support with setting up a dedicated agriculture banking desk which made Stanbic IBTC Bank one of the first set of banks to pay that level of attention and commitment to the sector. However, I must say the local experienced has also played a very important part with regards to the successes achieved by the bank in this Sector.