Nigeria had been one of the most promising agricultural producers in the world before it faced oil production squarely. From 1962 to 1968 cash crops were the mainstay of the country’s foreign exchange. As a top global producer in palm oil, beating Malaysia and Indonesia with a very wide margin, it was trailing United States and Argentina.
However, its agricultural engine room has greatly diminished. While the second global player in the production of cocoa in the 1960s accounting for 18 percent of the global supply, Nigeria is now battling to provide a mere 8 percent of the world’s supply. Same goes for tomatoes where it once produced roughly 65 percent of the highly sought-after agricultural product in West Africa, Nigeria is now the largest importer of tomato paste.
Nigeria’s oil left in its wake, a comatose agricultural sector often attributed to as one of the reasons of the rising poverty level within the country. The current seeming growth in Nigeria’s economy has become delusional in the sense that the backbone of most developed and high-performance nations includes agriculture. Nigeria is not one of those nations with similar economic structure.
Researchers and analysts are often puzzled by Nigeria’s economic statistics owing to its weak agricultural sector wherein millions of people are not impacted positively. As the country continues to post high growth figures often making it into Goldman Sachs’ Next 11’ emerging markets group, there is a constant rise in poverty level with over 100 million people living on less than $1.2 per day. In 2010, the National Bureau of Statistics reported that over 60.9 percent of Nigerians live in absolute poverty against the previous 54.7 percent in 2004.
Critically observing the trend, analysts have pointed out that over indulgence in oil has increased Nigeria’s poverty rates. In addition to this, various government policies had created a crippling effect in the once vibrant private sector such as restrictive trade policies of 1970s and early 1980s, tariff increases, rise in import licenses and duties, and export bans and tariffs as well as centralizing marketing of agricultural produce through the formation of crop-specific commodity boards. Today, Nigeria a once self sufficient country in food is a net importer, spending $11bn on imports of rice, fish and sugar.
Finance is a critical catalyst for growth. In Nigeria, it has proven very difficult to link the two together. Only about 2 percent of all Nigerian banks lending goes to agriculture. Probably this could be seen as short sightedness on their part not being able to connect the dots.
This now is beginning to change as banks now take a second stand the prospects that agriculture has to offer with the new government reforms.
Percentage of lending by banks to the agricultural sector was just 1 percent in 2010 by has now increased to 4 percent with a target of 10 percent. Banks for the first time started to lend to seed companies. After an assessment of the performance of the beneficiaries of the loans, the banks realized a zero percent loss. Therefore banks are now planning to improve their lending to a tune of $400m to seed companies alone. Part of the reason for the zero losses is because of the restructured agricultural sector. Today, agricultural companies are among the best performing stocks in the Nigerian Stock Exchange.
Consequently, it could be deduced that critical institutional reform rather than heavy public spending that can improve the financing in the agricultural sector.
Finally, public spending on critical infrastructure, roads and irrigation facilities are necessary and should be undoubtedly, what government should do. But the greatest way is through the private sector.