Nigeria’s agricultural resurgence

When Ronke Aderinoye started work on a run-down farm after finishing university and national youth service in Nigeria, her aunt, who owned the land, thought it was a passing fancy. Nevertheless, she was so passionate about the farm that she funded its development by making and selling clothes and entering competitions. 

During this first attempt at farming, Ms Aderinoye lost a lot of money, so decided to take up a job in banking instead. After five years of the corporate life, she resigned to run her start-up ‘Agrihub’ full-time.

Oil reliance

Ms Aderinoye is one of a growing number of Nigerians who have either left their corporate jobs to pursue agribusiness-related careers or are farming or agro-processing alongside their white-collar jobs.

So what is driving this change? In recent years there has been a resurgence in Nigeria’s agricultural sector. The country is Africa’s top oil producer and in the top 20 globally, but back in the 1960s agriculture accounted for 57% of Nigeria’s GDP and generated 64.5% of its export earnings.

With the discovery of oil, which was seen as more lucrative, that percentage fell over time to a mere 5.1% of export earnings as Nigeria went from being key exporter to a major importer of items it formerly produced.

Since the 1980s, several government policies have been introduced to revive and revamp the agricultural sector, but in 2014 Nigeria hit a crisis point. The decline in the price of crude oil, which led to the devaluation of the naira, highlighted just how much the country was running on a model it could not sustain.

The renewed focus on Nigeria’s agricultural sector has been driven by three objectives: lowering the level of food imports, self-sustainability and export promotion. “It became clear our dependency on food imports was massive and whenever we had a major crisis, such as an oil price fall, we realised it had implications for inflation and so many other issues,” says Adedayo Akinbiyi, an economist at PwC. “If we can start the import substitution of food, then we can reduce appetite for foreign exchange, we can preserve our foreign reserve and use that to support currency stability.”

A potential giant

Nigeria is the most populous country in Africa, with about 190 million people. This figure is set to surpass 300 million by 2050, making it the third most populous country in the world. It has more than 83 million hectares of arable land, but less than half of this is currently cultivated. The majority of farmers are smallholders who focus on manual farming, and there are far fewer large-scale mechanised farming operations.

The underdeveloped value chain of production, processing and storage is the main challenge holding back growth. Farmers do not have enough of the right kind of fertilisers and pesticides to increase yield and improve the quality of what they produce. 

Mechanisation is another stumbling block. Ms Akinbiyi points to Brazil as an example of where improvement of the agricultural value chain resulted in agribusiness generating 16 million new jobs in 2012 and accounting for 46.3% of exports. “To deliver the numbers we need to meet self-sufficiency targets you cannot use hoes and cutlasses,” she says. “We need to go big on tractors and harvesters, but the mechanisation rate is low.” 

Taking action

Nigeria’s infrastructure for storage and processing is insufficient, typified by power cuts that can increase the cost of doing business. The challenges have not gone unnoticed by the government, which has stepped up measures to stimulate growth in the past few years.

In 2015, the Central Bank of Nigeria published a list of 41 items it felt Nigeria could produce domestically, so that banks would not sell foreign exchange to anyone importing any of those products. This led to an increase in demand for those products to be produced locally.

“There have been successive development strategies introduced to boost the sector’s performance, but more recently the country has been eager to introduce policies conducive to more private investment,” says Souhir Mzali, regional editor for Africa at market research company Oxford Business Group.

The goals outlined in the government’s 2017 Economic Recovery and Growth Plan are aimed at increasing Nigeria’s GDP growth to 7% by 2020. Growth in the fourth quarter of 2017 rose to 1.92%.

The growth plan states: “[One of] the main priorities for economic recovery and growth is using agriculture to achieve food security, create jobs and save foreign exchange for food imports. Plans are in place for national self-sufficiency in rice by 2018 and wheat by 2019/20. Successful harvests will contribute in reducing inflation and promoting economic diversification.”

To support this, the government is also committed to stabilising the macroeconomic environment with low inflation, increased energy output and an improvement in the country’s inadequate transportation infrastructure. It also plans to leverage the private sector.

Agriculture dash

Another initiative is the Anchor Borrowers’ Programme, which provides agricultural loans to farmers. “It is my first time in government, but I get the sense there is a bigger attempt to coordinate the work of the different parts of government,” says Yewande Sadiku, chief executive of the Nigerian Investment Promotion Commission.

Agribusinesses have benefited from bank grants, including the $200m approved by the World Bank in March 2017 to support small and medium-sized Nigerian farms, while local banks have also awarded grants.

Agri-entrepreneurs such as Ms Aderinoye and Ada Osakwe, chief executive of Agrolay Ventures, are taking advantage of opportunities in the market. Ms Aderinoye’s Agrihub runs small clusters of farms and also trains others on how to run a business of their own.

Ms Osakwe had spent years working with the African Development Bank before moving to New York to work with an Africa-focused private equity fund. After working as an adviser to Nigeria’s former agricultural minister, Akin Adesina, she decided to start Agrolay Ventures. The company invests in food start-ups and also incubates its own agri-ventures.

“Over the past five years I have had a front-row seat in Nigeria’s agricultural resurgence, observing how the sector has gone from being viewed as a poor man’s job to something that’s now considered cool and lucrative, especially among millennials,” she says. “Through [the advisory job], I saw the opportunities Nigeria and the rest of Africa had to transform an annual food import bill of nearly $40bn.”

Ms Osakwe adds that despite the importance of agriculture, most smallholder farmers are unable to access credit as banks rarely lend in this sector.

Finding the money

African private equity financing to the agricultural sector has been low, at 3%, compared with sectors such as telecommunications, extractive industries and the consumer sector.

“Agriculture, like most other sectors in Nigeria, requires significant capital,” says Ms Osakwe. “Both public and private capital are essential sources of funding to ensure Nigeria is able to harness the vast opportunities the sector offers. Private investment is certainly a more market-driven and sustainable financing source and will go to assets that demonstrate strong returns.”  

Ms Mzali adds: “With adequate upgrades in investment throughout the value chain, there is definitely room to expand local production and processing.”

In focus: Nigeria's retail market struggles

The retail sector in Nigeria experienced slowing growth in 2017 even though value sales in 2017 were higher than in 2016, according to a study by Euromonitor. The slower growth was due to the general increase in prices as a result of the recession in 2016, although the economy started to show signs of recovery in 2017.

The rise in general prices of consumer goods with little or no increase in disposable income meant that consumers’ purchasing powers were inhibited in 2017. Consumers struggled to make purchases in bulk because the desired income was affected by the high inflation in the country.

However, the growing urban population continues to drive retail growth in Nigeria.

The report from Euromonitor found that an increase in employment also boosted retail in 2017. “The larger multinational supermarkets/hypermarkets and independent small grocers or neighbourhood stores, which are adapting by changing their store layouts and designs to be more modern, benefited from consumers requiring more convenient shopping and longer open hours,” it said.

The growing awareness of convenient mobile payment systems coupled with a government drive for a cashless economy continues to support the retail sector’s growth.

The report added: “The increasing usage of mobile phones to make purchases, even in rural areas, and the introduction of mobile payment systems such as mVisa and MasterPass, by Visa and MasterCard, respectively, are impacting positively through improving payment speed and convenience.”

The future outlook is that Nigeria's retail market is expected to continue to grow due to the growing urban population and the changing structure of the environment from traditional to modern channels.

Nigeria remains on the radars of foreign retailers, and with a push by the government to increase local production of manufactured goods – aided in part by import substitution and supply chain improvements – the potential for sustained recovery has grown.