OLUSHOLA OBIKANYE is the group head of agric & solid minerals finance at Sterling Bank PLC. In this interview with JOSEPHINE OKOJIE, he spoke about Nigeria’s agriculture and how it can become an important source of revenue for a diversified Nigerian economy.
With the government’s renewed focus on agriculture and its contribution to the nation’s GDP, FX earnings, and employment generation, how can the sector expand its contribution to the national economy?
Agriculture as a sector does quite a fair bit 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 sizable 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 meet local demand, and exporting the excess as a trade commodity once capacity is achieved.
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
However, 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 smallholder 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 drive the sector’s growth 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 to effectively play its role.
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 to 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 Nigeria’s agribusiness financing. 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 practising agribusiness sector stakeholders and as financiers of the sector.
This positions us uniquely to view the problems and analyse the variables, the relationships and the 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 some 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 percent 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, fertilisers among others.
That is how much we believe in the potential of the sector. On post-harvest losses and improving market access, we are solving two problems with some of our solutions. A worrying statistic is the loss of approximately 45 percent of harvests due to improper storage.
This equates to the loss of almost half of the value created and is 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 the harvest cycle, the preservation and capture of value outside of the regular cycles.
Some of the commodities we have successfully implemented are staples of Nigerian homes such as 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 33.3percent 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 practised 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 measures are not taken to encourage the youths 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 five 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 organisations to provide technical training to youth and women as they start their journey into agriculture.
Sterling 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 production 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, the crop, and livestock farmers. In the last five years, we have developed expertise in the segments 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 the unlocking of the true value of these products.
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 just being a platform that enables trading of commodities to a 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 derivatives can be bought and sold on the platform.
Financing is still a gap for the agribusiness sector. What are the factors contributing to this problem and how can Nigerian banks support in addressing 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. The state of the available infrastructure also adds a layer of cost to industry players as they now carry the expense of building and/or maintaining existing infrastructure in a rapidly changing economic environment.
Add to these the dependence on imports for a lot of our inputs and equipment. With a volatile exchange rate, the cost of securing these crucial inputs, which are priced in foreign currencies, negatively impacts the costing dynamics of agribusiness ventures. Adding these three elements together paints a picture of why the supply of financing to the sector is yet to be matched.
Simply put, there is a fair amount of uncertainty in the moving parts. Solving this problem requires a bit of bravery and a lot of dedication on the side of the financier.
At Sterling, Agriculture is a key part of the HEART strategy. These sectors, Health, Education, Agribusiness, Renewable Energy and Transportation, are the focal areas of our investments in the mid to long term. With the commitment to agriculture sorted, we are then able to effectively close the gap by developing specialised products to address these issues and correct them where achievable.
Also, standardising and digitising the process of application will make lending decisions easier for us as an organisation. Lastly, working closely with the beneficiaries of the loans to maximise these investments through the provision of consulting and advisory services, as well as regular monitoring activities are ways we are tackling the financing gap and getting resources to agribusinesses that need them.
