Stimulating agro-industrial investments, productivity with monetary policies

While commending the past and recent initiatives, agricultural and industrial stakeholders have called on the Federal Government, through the Central Bank of Nigeria (CBN), to consider more downward reviews of interest rates in the country to stimulate borrowing and investments in the agro-allied sectors.

Monetary theory, on which most policies are based, derives from the assumption that tinkering with money in circulation is the main catalyst of economic activities.  It further stipulates that central banks influence growth rates by adjusting the volume of currency and other fluid instruments circulating in economies.

Hence, the Keynes’s monetary proposition revolves around the investment multiplier, the marginal efficiency of capital and the interest rate. Keynes, by analyzing how they interact in the long period, explains why the economy tends to fluctuate around a long-period equilibrium position that is characterised by unemployment, and concludes that the sole objective of the monetary authority should be to use its influence over the interest rate to dislodge the economy from its long-period equilibrium position that is characterised by unemployment.

Interest rate slash has direct impact on propensity to seek financial facilities for investments, and in turn drive entrepreneurship, business expansion, active circular flow of income, increased disposable income and faster economic recovery during recessions, according to modern economic theorists and practitioners.

Hence, agricultural investors, farmers and scientist have expressed optimism that the Central Bank of Nigeria’s (CBN’s) step to rev up borrowing by slashing the monetary policy rate from 13.5 per cent to 12.5 per cent, though marginal, would stimulate the agro-industrial sectors for faster post-COVID-19 economic recovery. But, more could be done to actually make greater impact, they demand.

According to the recent National Bureau of Statistics (NBS) data, the contribution of Nigeria’s agricultural sector to the Gross Domestic Product (GDP) in the first quarter of 2020 was the sector’s highest first-quarter contribution in the last two years.

The figures indicated that the sector contributed 21.96 per cent to the nation’s GDP in the quarter under review. Comparatively, the GDP contribution in the first quarter 2020 is higher than 21.89 per cent and 21.66 per cent recorded in the first quarters of 2019 and 2018.

In real terms, Nigeria’s GDP for the first quarter of 2020 stood at N16.7 trillion, meaning agriculture generated about N3.7 trillion.

If lower interest rate is combined with other earlier measures such as extended moratorium, lower interest rate on intervention funding and targeted facilities, agriculture and industrial sector may experience a leap in productivity and stability, and perhaps agriculture may contribute more than 21.89 per cent of the GDP in subsequent quarters. More can be achieved with combined policies of the government.

Stakeholders commend moves, demand more for agric
The Regional Head of Agriculture of an old generation bank in the southwest, who demanded anonymity, disclosed that a slash in interest rate is a booster to any economic recovery process. Apart from the cognitive monetary appreciation, it also has emotional boost to the beneficiaries of such largesse.

He said in working with numbers, one per cent is a significant bargaining power and in some cases, a deal breaker.

“However,” he pointed out, “there is a political aspect to agribusiness/agricultural loans; the farmers are fixated on the term single digit and will always feel cheated at any facility above 9%.”

He added that the plan to boost the economy through agriculture should be a conscientious and holistic process, and the strategies should be all-encompassing along the agricultural value chain, saying, “Funding should be across board and timely.”

Emphasising accurate data to allocate resources in agriculture, he said the country should, at a press of a button, know the required tonnage of cassava tubers needed as inputs for garri, starch, and cassava flour, and agronomic practices and research products to give high yield and logistics to ensure quality delivery.

“I sincerely believe that agriculture can bail us out as a country, improve our GDP, reduce inflation rate, boost employment and set a pace for all-round economic recovery,” the senior banker said.

The Vice President, Nigeria Agribusiness Group, Mr Emmanuel Ijewere, though commended the initiative, said “the maximum rate that makes any sense at all to agriculture must be a single digit. So, this reduction from 13.5 to 12.5 per cent may be good for industry but not for core agriculture.”

The president of the All Farmers Association of Nigeria (AFAN), Mr Ibrahim Kabir, commended the initiatives of the CBN in particular, saying interest rate reduction at the commercial banks would imply cheaper loans for farmers and other industrial users and this would lead to faster economic recovery.

“It goes without saying that for life to approximate to normalcy, certain decisions will have to be taken immediately to boost the economy. Certainly, a downward review of interest rate on credit signifies relief to a borrower at all times and accompanied by other interventions, it will definitely encourage growth and subsequent recovery.

“A rapid growth fastens recovery from stresses caused by the effect of certain unforeseen occurrences. Today, we have a global pandemic which has been ravaging the economy. As such, it calls for incentives like the down review of interest rates and other palliatives, among other policy decisions that will create the desired enabling environment for recovery,” he said.

The Managing Director, Presco Plc/Siat Nigeria Limited, Mr Felix Nwabuko, also expressed optimism about the interventions, saying, “The reduction is intended to allow increased flow of lending credit into the economy and to have an environment where borrowing can be at lower interest rates.”

He too, however, said “with respect to agriculture and industrial facilities, intervention funds at low single digit (5% per annum) and with reasonably long tenors are the best fit.”

Mr Olabode Adetoyi, Managing Director of Hi-Nutrients Ltd, is of the view that the interest rate reduction should be more, for it increases before it gets to end users.

He said, “There is no significance. This money does not get to the majority of farmers and the conditions attached to accessing it are not easy to fulfil. We need loans of five per cent interest rate with one to two years’ moratorium for serious farming so that the farm could pay for itself.”

Head of Agric Micro Credit, Leadway Assurance, Mr Ayo Fatona, commended the move, and said agribusiness lending rates must remain at single digits to make cost of credits reasonable and attractive to investors in both processing and production value chains, with a longer moratorium.

“It is still very high at that percentage because the support structures are not there, especially in the area of infrastructure. Most businesses do not have infrastructural support to make their businesses profitable. There no logistic support, no energy support and no structured market support. Most businesses spend huge amounts acquiring these infrastructures, which, at the end of the day, adversely affect their balance sheets. The decrease which is marginal at 1% will not make much difference. It’s not yet uhuru,” he advised.

Fatona urged that the government should put these supports in place to make businesses experience exponential growth in the country, saying, “we have the expertise, skills and competence to drive these businesses across all strata.”

Vice Chancellor of Al-Qalam University and grain production specialist, Prof. Shehu Garki Ado, said the assistance to small, medium and large-scale farmers should be intensified, and support should be given to those who are actual farmers rather than politicians who are not farmers.

Prof. Ado recommends that “at harvests, the government needs to ensure minimum guaranteed prices for the produce. The government should procure and stack all the silos if food security is to be guaranteed.”

He suggested that “year-round employment will be generated in the rural area and the country’s GDP will increase significantly” if irrigation facilities are provided or facilitated by the appropriate authorities throughout the country, as these have the capacity to reduce rural poverty than any other form of investment.

He said that “the government should consider revoking all the silos from the companies given concessions. Those companies should be advised to construct their own silos rather than getting those constructed by the government on lease.”

Nigeria as the giant of Africa, he explained, could only answer the name if it is the giant in food production.