Leveraging fertiliser initiative to check inflation, forex savings
Unlike in advanced nations where some level of inflation is tolerable to stimulate economic activities, Nigeria’s inflationary trend is detrimental to its growth due to structural deficiency, logistic problems, and insecurity among others. Many of the factors that have fuelled Nigeria’s rising inflation are not showing any signs of receding in the short term. Combined with a revenue problem, the need for government to boost local food production spurred the implementation of the Presidential Fertiliser Initiative (PFI). FEMI ADEKOYA writes on progress made thus far.
To conserve foreign exchange, the Central Bank of Nigeria (CBN) placed some products on restriction, while urging many businesses to embrace import substitution.
For Nigeria, improved forex earnings come with benefits to the economy and determines to a very large extent, the value of the naira, state of the foreign reserves and inflation figures.
Despite the re-opening of the border in December 2020 and concerted efforts to bring down the rise in food inflation, it has sustained its upward trend for many months and it is projected that the food inflation rate could surge further in months to come.
To address shortfalls in food production occasioned by structural deficiencies, key challenges of access to fertiliser became a front burner issue as many farmers in Nigeria rely more on wet season farming because of the shortage of functioning irrigation facilities for the dry season farming.
Earlier reports showed that with the fast-approaching rainy season, there is fear among farmers over the inability of many of them to procure fertilizer especially Nitrogen, Potassium, and Phosphorous (NPK) variety because of high costs.
To check access to fertiliser, the Nigerian Sovereign Investment Authority (NSIA), one of the federal government agencies striving to save forex for Nigeria, embarked on the on-going implementation of the Presidential Fertiliser Initiative (PFI).
The Authority has continually supported moves by the Federal Government to diversify the revenue base, improve forex earnings through its initiatives and support accretion to foreign reserves.
According to the NSIA, over $350 million has been saved from the erstwhile payments on subsidy and import substitution through the implementation of the PFI. The agency has also begun implementing the directive for the restructuring of the PFI.
In a bid to make the programme more sustainable and following its notable successes and transformative impact over the past four years, the presidency approved the restructuring of the PFI programme starting in the 2021 cycle with various modifications.
Under the modifications, the NSIA has been transitioned to an upstream player thereby limiting its involvement to importation, storage and the wholesale of raw materials to blenders.
The NSIA subsidiary NAIC-NPK Limited will be spun off to the Ministry of Finance Incorporated. Under the new arrangement, blenders will no longer be paid blending fees by NAIC-NPK as they will recover their costs directly from selling the fertiliser to the market.
This will balance the incentives of the business and ensure the blenders build the right capacity to actively participate in the local supply sub-sector.
The blending plants are expected to provide bank guarantees to cover requisitioned raw materials demand that are appropriated for their respective production volumes.
As part of the new structure and in line with the Presidential directive, the Federal Ministry of Finance Budget and National Planning and the Central Bank of Nigeria are expected to engage commercial banks to facilitate lines of concessionary credits to blending plants for the purchase of raw materials.
Stakeholders on implementation plan
THE Chairman, Implementing Committee of the PFI and Jigawa State Governor Mohammed Abubakar Badaru at a recent event in Abuja, said: “The programme has in many ways served to augment the Administration’s policy-driven programmes to diversify the Nigerian economy.
“The programme has bolstered Nigeria’s industrial base, resuscitated, and strengthened domestic production capacity for fertiliser. It has also eliminated the huge fertiliser subsidy burden placed on Federal Government, created thousands of direct and indirect jobs and alleviated the plight of the domestic farmer by ensuring availability of fertiliser.
“Clearly, the programme is a strong value proposition for the nation in the agriculture space given the variety of socio-economic benefits it presents. We are grateful to Mr. President for creating this programme and look forwards to supporting the next phase as it evolves.”
The Managing Director and Chief Executive Office of NSIA, Uche Orji, said with the support of the President, the programme has accomplished its principal objectives.
He said: “Having fulfilled the establishment, stabilisation, and market discipline phase of PFI, the primary objective of which was to revive the blending plants and create a viable domestic blending industry, we believe the PFI should gradually evolve into the next phase, which is a tactical withdrawal of intervention in the industry and the emergence of a self-sufficient, sustainable, and efficiently operated market.
“NSIA is pleased with the Government’s decision and looks forward to seeing the innovation and creativity which will characterize the open market in the sector.”
Fertiliser Producers and Suppliers Association of Nigeria (FEPSAN) Chairman Thomas Etuh said the restructuring was a welcome development for the group.
He said: “The new approach will afford operators the opportunity to build recognisable and trusted brand while ramping up distribution nationwide”.
Central Bank of Nigeria’s roles defined
ACCORDING to the new guidelines, the Central Bank of Nigeria (CBN) will ensure that the foreign exchange needed for the programme is provided as and when needed to cover some raw materials.
The approval, which takes effect immediately, was communicated in a letter through the Office of the Chief of Staff to the President, that was issued in November of 2020.
Under the new arrangement, blenders will be responsible for bulk of the activities in the fertiliser production value chain such as transporting the raw materials, sourcing filler, blending the fertiliser, and selling to off-takers.
Also, the Federal Ministry of Agriculture and Rural Development will perform its statutory monitoring and quality control role over blender activities.
The benefits of this new approach include but not limited to unlocking of more development finance (loans and investments) into the local fertiliser blending value chain of Nigeria.
It would also strengthen market systems and encouraging actor participation. This will lead potentially to mergers and acquisition and innovation and growth across the industry, which will benefit farmers.
The new approach would further reduce food price inflation in the market, as the availability of fertiliser will drive down the price or cost of food product. It is also expected to reduce the high rate of unemployment, as more people will become engaged in the production process.
Benefits to the economy
WITHIN four years of the initiative, the programme has delivered on key outcomes including over 30 million bags of 50kg NPK 20:10:10 equivalent spanning project period; price reduction on fertiliser from over N10,000 to under N5,500.
According to the NSIA 41 blending plants have been resuscitated from an initial number of four plants at project inception, adding that an estimated 250,000 jobs (direct and indirect) across the agriculture value chain including in logistics, ports, bagging, rail, industrial warehousing, and haulage touch points amongst others have been created.
It also said food security has been achieved by facilitating increase in domestic food production through the provision of affordable, high quality fertiliser.
Other benefits include unlocking of more development finance (loans and investments) into the local fertiliser blending value chain of Nigeria; strengthening of market systems and encouraging actor participation.
“This will lead potentially to mergers and acquisition and innovation and growth across the industry which will benefit farmers,” the NSIA said.
There will also be further reduction of food price inflation in the market as the availability of fertiliser will drive down the price or cost of food product and reduction of the high rate of unemployment as more people will become engaged in the production process.
Findings however show that continuous scarcity and rise in the prices of fertilizer would heighten the inflation rate in the coming months. In addition to curbing the rise in insecurity, the government must work with private stakeholders such as FEPSAN, and farmers to ensure that fertilizers are readily available at a cheaper price.
Partnerships for sustainable economic growth
HITHERTO, the NSIA and the OCP Group of Morocco had partnered to boost fertiliser production and agricultural development in Nigeria.
This followed an agreement signed between the Federal Government of Nigeria and the OCP Group of Morocco at the University Mohamed VI Polytechnic in Morocco by OCP Africa. Minister of Petroleum Resources Timipre Sylva chaired the Nigerian delegation.
Also, during the visit, a Memorandum of Understanding between OCP Africa, the Nigerian National Petroleum Corporation, and NSIA was sealed. The pact was to evaluate the opportunity of an equity investment by the Nigeria National Petroleum Corporation in the Joint Venture Company and for its support on gas.
The business visit was a follow up to the industrial project which was officially launched in June 2018 and reaffirms the OCP, NSIA’s support of agricultural development initiatives in Nigeria.
The project was first announced during the official visit to Morocco of President Muhammadu Buhari and it is aimed at developing a versatile industrial platform in Nigeria.
This is expected to utilize Nigerian gas and Moroccan phosphate to produce 750,000 tons of ammonia and one million tons of phosphate fertilizers annually by 2025.
To achieve the set target, a number of agreements were signed between OCP Africa, the Fertiliser Producers and Suppliers Association of Nigeria, and the Nigeria Sovereign Investment Authority in order to commit to the second phase of the Nigerian Presidential Fertiliser Initiative.
Similarly, a Shareholders’ Agreement was also signed between OCP Africa and the NSIA for the creation of the Joint Venture Company. This agreement would oversee the development of a versatile industrial platform that will produce ammonia and fertilizers in Nigeria.
The visit also provided the Nigerian delegation another opportunity to seal a Framework Agreement between OCP Africa, Mobil Producing Nigeria, the NNPC, the Gas Aggregation Company Nigeria and the NSIA on gas supply for the industrial platform.
This is in addition to a Memorandum of Understanding that was sealed between OCP Africa, Akwa Ibom State government and the NSIA on land acquisition, administrative facilitation and common agricultural development projects in Akwa Ibom State.
These agreements seek to provide Nigerian farmers quality fertilisers adapted to the needs of their soil at competitive prices and produced locally.
Moreover, these pacts also aim at strengthening the solid partnership between OCP Group and the different institutions in the gas industry in Nigeria.