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2016 BUDGET: Tackling Hurdles Of Agribusiness SMEs

By Fabian Odum
24 January 2016   |   3:02 am
If the nation were truly persuaded on diversifying from crude oil business, then the N76billion budget for agriculture in 2016 would raise eyebrows. For instance, the ambitious national wheat production project, alone, would gulp about N2.5billion to source certified seeds if that target fully set sail last November.
Locally processed fresh chicken drumsticks at Pedro Farms in Agege, Lagos…SMEs like this in the poultry value chain need all the support to be more productive                        PHOTO: FABIAN ODUM

Locally processed fresh chicken drumsticks at Pedro Farms in Agege, Lagos…SMEs like this in the poultry value chain need all the support to be more productive PHOTO: FABIAN ODUM

• As Nigeria Thinks Economy Diversification

If the nation were truly persuaded on diversifying from crude oil business, then the N76billion budget for agriculture in 2016 would raise eyebrows. For instance, the ambitious national wheat production project, alone, would gulp about N2.5billion to source certified seeds if that target fully set sail last November.

Following the African Union’s Maputo agreement that member nations should allocate, at least, 10 per cent of their annual budget to agriculture, Nigeria would need about N600billion to make impact. With oil at an all-time low of less than $29, taking off the bottom from Nigeria’s benchmark crude price of about $35 per barrel, a fresh game plan is urgently required to put life to the economy.

So experts agree that the next gold pool of jobs would be in agriculture and services sector of the economy. But by Central Bank of Nigeria (CBN) definition, “a Small and Medium Scale enterprise (SME) business is an enterprise that has an asset base of (excluding land) between five million Naira and N500million and labour force of between 11 and 300.

On the other hand, it clarifies the micro/cottage industry as one with not more than 10 workers and total asset of N1.5million including working capital not more than the cost of land.
Being the bane of SME entreprises, access to fund remains an issue as even the CBN and other financial institutions attempt to address it. However, several hurdles as conditions required by these institutions for SMEs to meet are as challenging as ever.

Recently, CBN Governor, Godwin Emefiele, in a bid to get farmers to lay hands on funds, introduced the Anchor Borrowers programme especially if they come in as cooperatives. It was at the flag off of the Wheat/Rice planting season at Kebbi State in November 2015 that President Buhari said the nation cannot continue to spend huge sums on the importation of food items that it can produce. He added that the programme would be a way that smallholder farmers are financed across the country.

The fund is coming from the N220 billion Micro, Small and Medium Enterprises Development Fund, MSMEDF, which is designed to reach farmers at interest rate of nine per cent per annum. Apparently, the fund has been set aside since the days of the last administration, to address funding matters for this category of entrepreneurs.

Although other channels of funding are apparent like in the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL), and a bunch of them in the vaults of Bank of Industry, but the experiences of farmers remain virtually the same. The hurdles of conditions to be met are there for real, and the cold shoulders from commercial banks are even more intimidating and discouraging.

Although the CBN has the intention of strengthening the nation’s agricultural base along the various value chains to enhance food security, the conditions do not give much hope to micro, small and medium scale enterprises.

Undoubtedly, poor funding, low quality inputs and lack of mechanisation as enumerated by Emefiele as major hindrances facing stakeholders in various value chains in the agricultural sector, stare the agro-entrepreneur (agropreneur) in the face.

For instance, Emefiele’s Special Adviser on Development Finance, Mr. Paul Eluhaiwe said farmers need to be trained on global best practices as well as being members of a validated cooperative as conditions for accessing the loan. With this stance, it remained to be seen how many SMEs would be able to access funds from package.

According to CBN, the farmer has to be specially assessed in terms of knowing how much it will take to produce a hectare of rice farm, in the case of the Anchor Borrowers programme, in order to determine the amount of money to be approved for an individual.

So, the small farmer and the up and coming agricultural business operator would naturally look up to government in 2016 to source funds in light of the unfavourable attitude of banks and other financial institution towards agribusiness.
SME and job creation

Ministry of Industry, Trade and Investment document shows that SMEs remains the best way to create jobs and reduce unemployment and the group employed 75 per cent of Nigerians. The agribusiness sector constitutes a vibrant sector that helps drive the nation’s economy.

A 2010 survey reveals that about 32 million people in Nigeria are employed in this area and accounts for about 45 per cent of GDP, but the challenge for the agricultural sector continues to be a monotone.

It is envisaged that the Anchor Borrower’s programme will lift the status of many smallholder farmers to become big time farmers and agribusiness investors. Invariably, attaining success in the sector would reduce food importation that fuels domestic inflation and depletes foreign reserves.

In a thrust that the agro-allied sector would further be the plank to create about 20,000 direct and indirect jobs, the Bank of Industry (BoI) launched a five billion Cottage Agro Processing (CAP) fund.
The loan package is at a single digit interest rate of nine per cent per annum with total management fees of one per cent.

BoI Managing Director, Rasheesd Olaoluwa, at the launch disclosed the loans will be on a five-year tenor with a moratorium of six months and an overall objective to finance about 1,000 projects under the fund.

“It is targeted at Small and Medium Industry (SMI) at the low-technology, labour intensive end of the agro-processing spectrum. And inclusive growth is our primary consideration. It represents BoI’s first direct intervention in any sector,” he said.

The CAP fund provides agro-processors access to finance and technology to convert agricultural products to create economic prosperity. It is said to guarantee speedy processing and working capital.
Knowledge and skill gap

While it is desirous to get the micro and SMEs kick-started in business, management experts, while acknowledging the fact that there are many hurdles to scale, particularly for those prospecting into the agriculture sector, say there are fundamental things many have to learn.

Lack of knowledge of some requirements, which may not even be explicit in application forms, or on websites of loan-granting bodies, may constitute difficulties that lead to non-approvals.

The CAP fund, according to a consultant, for instance, may require a guarantor, who will underwrite the liability in case of default by the loan beneficiary.

The CAP fund, which is at nine per cent interest, means that if you borrow five million naira, it is expected that the sum of N5,450,000 will be paid back in 60 months (in addition to the administrative charge of one per cent). This would translate to about N91,000 every month for five years. Any business should be properly assessed for such cash flow to bear the weight of the loan when it falls due.

While the challenges may come from the half-hearted attitude of banks to grant loans to agribusinesses or unwillingness of others to consider micro and SMEs for any financial leeway, the business promoters should acquire some measure of financial knowledge and hands-on experience to succeed.

However, appropriate government policies and programmes supportive of those with sound business plans, but financially disadvantaged should be put in place if the business and entrepreneurship that would lift the economy would thrive.