Wednesday, May 20, 2009

The N200b agriculture fund

LAST month, the National Economic Council approved the Federal Government initiative to provide the sum of N200 billion for on-lending for large-scale agriculture. The Central Bank of Nigeria (CBN) has subsequently provided guidelines on the disbursement method to be adopted and there is already, an overwhelming number of applications for a sum in excess of N300 billion which is above the current total of the scheme.

It appears that from conception to the invitation for applications, the CBN and the Government have been quick off the marks and deserve to be commended. However, there is so much cynicism about the efficacy of the policy and the fund.

The creation of the Commercial Agriculture Credit Scheme (CACS) is, in part, a recommendation of Government and non Government-Committees on the requisite responses to evident distress situations in the Nigerian macro-economy: how to handle the effects of a global financial meltdown, the contraction profile in Nigerian public finance and a long-standing alarm on a burgeoning current food crisis.

The CACS package of N200 billion is exclusively dedicated for the intervention in the agro sector. Except for the N40 billion reserved for State Governments, it bears all the hallmarks of a medium-term commercial lending programme - five years maximum tenor - with the additionally unique feature of a single digit fixed interest rate. The CBN also underwrites to the Banks or Treasury the unstated subsidy differential which is bound to arise in the Nigerian market.

This scheme, said to be different from, and not to be regarded as another of the CBN's generational efforts in agriculture finance, is to be administered in direct partnership with the Federal Ministry of Agriculture and Water Resources, as the proxy of the Federal Government. The funds for lending are from proceeds of a bond market fund-raising by the Debt Management Office and to be lent at an absolute maximum rate of nine per cent through two Nigerian banks to farms and agricultural enterprises.

In the current agriculture credit scheme, it is regrettable that the policies and guidelines that govern access to the fund are hardly known even among the target segment of 'large' companies (must be worth over N300 million in assets excluding the land) and 'non-integrated farm or agro-allied farmers (N200 million) until they meet either of the two designated banks. With regard to the State Governments and the Federal Capital Territory, the political masters, otherwise known as Governors or in the case of the FCT, the minister are left to pick and choose the beneficiaries of this selected access to cheap funding. This may not be good enough.

The frenzied advertising of the N200 billion fund for agricultural projects so far depicts our national peculiarities at throwing money at a problem. This impedes a proper dissemination of the important details of the initiative. This is a recurring reason when so often, Nigeria obtains suboptimal results from sound policies and ultimately make less than the desired impact on the national economy.

It is axiomatic that the National budget made no proposals for an agricultural sector fund, yet without much of a discussion, commercial banks incorrectly began to advertise to Nigerians that they had custody of funds from the Federal Treasury for agricultural sector borrowers. It is part of the misguided enthusiasm that may convey the long-term scheme as a political player's venture.

Taking into account the many hues and cries for Government intervention to inflate the economy, it is important that the Commercial Agriculture Credit Scheme does not end up as one of those quick-fix suggestions in that direction. Nigerian political and business leaders should not misunderstand the scheme as a vehicle for populism and political party patronage.

It is a paradox that the place of agriculture finance in the political economy of Nigeria is so variegated and tends to be much abused in times of real emergency and under the direction of political champions. In this regard, both the Green Revolution and its predecessor, Operation Feed the Nation programme in the past, more or less became political adventures. We can reflect that, the one programme under the civilian authorities was not as successful as the initial efforts of the then Military regime; it is held generally that the then Green revolution was unable to sustain the agricultural prices index in the years soon after the military left.

But times have changed drastically. Nigeria caters for the agricultural produce that serves West Africa and the Sahel region and her own population growth rate has been excessive with little success in making the important socio-economic corollary milestones to mitigate the crisis. Providing support for the Nigerian farmer, through access to affordable loans, should however, be a good means of addressing the challenge of food security, if properly managed.