Nigeria Country Session

Presenter: Irede Ajala, Special Adviser, Investment Promotion and Agribusiness

Federal Ministry of Agriculture and Rural Development of Nigeria

Facilitator: Wim Plazier, Partner, A.T. Kearney

2 2

Since 2010, Nigeria has focused on restarting its quasi- commercial agriculture sector with some key successes

• Domestic production of rice paddy has risen by 1M – 2M tons/annum, enabling a commensurate reduction in imports from Asia

• Production of chicken and eggs on the rise again, after recovery from Bird Flu episodes in recent years; about 165M birds and 0.65M tons of eggs are produced/annum

• Domestic production of cocoa growing again (at 0.5M – 0.7M tons/annum) following intensive efforts to replant with faster maturing hybrids and set up of Cocoa Marketing Corporation

• Levels of mechanization improving with banks and tractor owners working to add thousands of new tractors; 600,000 new tractors needed

• Use of fertilizer rising rapidly with Notore and Indoramanow producing crop specific varieties; Dangote plant on track to opening

• New commitments helped drive access to finance from less than 1% of all formal credit to ~6% by 2015; CBN/NIRSAL role has been critical in providing credit guarantees and interest rebates

Source: FMARD, Nirsal Plc, Central Bank of Nigeria, various literature

3

Soybean

Cassava

Wheat

Rice

Fertilizer

Maize

Palm

Source: Company websites, company financials

West Africa

Investing $100m in soybean

crushing in Edo state

Investing $100m in cassava

starch plant in Kogi state

Committed to investing

$2.3b in rice & sugar plant

Building 100k mt/pa starch

factory in Kwara State

Invested $70m in mechanized

rice farm

Recently built a 1m mt palm oil refinery in

Lagos state

LOCAL MULTI-NATIONAL

These successes have encouraged domestic and foreign investors to intensify exploration of Nigeria’s potential

4

5

Note: 1Excludes Oranges, Lemons and Grapefruit Source: FAO Stat; Index Mundi

Groundnuts

3,070

Citrus

fruits1

3,900

Rice

4,833

Fresh

Vegetable

s

6,200

Food

Sorghum

6,900

Maize

9,410

Yams

30,000

Cassava

52,404

000’s Tonnes, 2012

Nigeria’s Top Staples

1 1 13 1 4 17 2 3

Global

Ranking

The Top Commodity Value Chains And Global Competitiveness

6 6

The diversity of the Nigerian Diet Provide Opportunities for Investments in Primary Production, Supply Chain and Logistics and Food Processing Infrastructures

Food Expenditure

Non-Food Expenditure

2009/2010

65%

35%

8%

4%

4%

4%

4%

5%

9%

10%

15%

23%

10%

Other Cereal2

Vegetables

Tubers and Plantain

OthersFruits

2%

Meat

3%Bread

Oils, Fats and Nuts

Soft Drinks

Fish and Other Seafood

Maize

Rice

Beans and Peas

65% of household expenditure is on food products: tubers, plantains, and cereals are the staple food

categories in Nigeria

Diverse Household Expenditure on Food

Breakdown of Food Consumption, %Breakdown of Total Consumption, %

2012

% % $ $

Food Alc + TobaccoConsumer ExpenditureExpenditure on Food

56.9 1.4 1,585 902

7

Such investments will have implications for Nigeria’s food processing market e.g. downstream wheat noodles

Note: Consumption data based on sales of goods by companiesSource: Euromonitor

• Indomie has a relatively strong market share position

• Future expansion of noodle manufacturing market is unclear

• Growth of ~6-8% is expected driven by affordability, changes in consumer preferences & increase in demand for convenient foods

MARKET EXPECTED TO BE ~330K MT IN 2019

INDOFOOD LEADER WITH ~71% SHARE COMMENTARY

8 8

Nonetheless, despite such growing attention, Nigeria’s agricultural sector has not reached its full potential

AGRICULTURE’S SHARE OF GDP HAS REMAINED WITHIN RANGE

… AS REAL GROWTH HAS LARGELY REMAINED FLAT SINCE 2012

Source: National Bureau of Statistics (Q4 2015 GDP Report)

9

Nigeria’s full potential remains a challenge because of solvable problems such as infrastructure barriers…

• Insufficient farm to factory infrastructure and supply chain connectivity

• Insufficient productivity growth as a result of poor transfer of proven technology (seed, irrigation, crop protection, and extension knowledge) into farms)

• Failure to meet regulatory and food safety requirements of key export and domestic markets

• Policy missteps and delays e.g. insufficient liberalization of internal and cross-border food / agribusiness markets to allow for more competitive pricing as well as market openings

Source: FMARD

10

These constraints can be tackled as they arise in the short to medium term…

• Expansions of foreign/local market partnerships e.g. to close infrastructure, channel, customer insight and government relations gaps

• Flexible capital that is aligned with key cropping life cycles e.g. 3 to 4 year loans to finance plantations and processing plants, and willingness to accept a purchase order from Shoprite or Dangote as a high quality receivable

• Skilled labor, including a new generation of professional farm managers who can organize key production assets into productive sources of cash flow

• Communities and farmer networks that take an investor’s lens, and push for better contracting terms that give them a share of processing upside, and not just volatile crop prices

• Informed governments, who understand how business choices will be made, and have a clear sense of what the key constraints to growth are e.g. importance of remaining cost or value competitive versus top 3 global competitors

11 11

Crowd in private investment across the value chain of

agribusiness

Boost Nigeria’s production of key

agricultural output from crops to tree

crops to fish to bees

Intensify focus and investment on

setting and implementing

policy

• Access to Finance

• Agribusiness Investment Development

• Access to land

• Soil Fertility

• Access to Information and knowledge

• Access to Inputs

• Production Management

• Storage

• Processing

• Marketing & Trade

• Consumption & Nutrition

FMARD has instead grouped the challenges and potential solutions into a new 3 theme policy platform, the APP

• Institutional Setting and Roles

• Youth and Women

• Infrastructure

• Climate Smart Agriculture

• Research & Innovation

• Food and Nutrition Security

Policy Goal

Key Focus Areas

BOOST PRODUCTIVITY

PRIVATE INVESTMENT

REALIGN FMARD’S ROLE

A B C

12 12

Lever Value Chain Constraint Policy ObjectiveProposed Policy

Reform Enabling ProgramSupporting

Program

Access to Land

Limited investment and low productivity of small-medium scale producers and the private sector/ investors due to

1. Absence of investment in land due to insecurity of longer –term rights of land use for small, medium and large scale farmers

2. Cultural practices on land use unfavorable to women

3. Land grabbing: communities dispossessed of large parcels of land

4. Lack of access to finance since land can’t be used as a collateral (Current Land Use Act is not conducive for agricultural activities (e.g. short-term lease doesn’t allow for agricultural loans, difficult process in acquiring title to land)

Policy to ensure conducive access to land in order to attract investments by small, medium and large farmers and processors

Policy to:

1) Amend current Land Use Act especially facilitating the recognition & entitlement of land ownership by formal or customary means to assist collateralization

Programs to address:

Ad 1-4- Map, inventory and log

ownership / titles of all land in Nigeria using GSP and related low cost technologies

- Support reforms to land titling (in States)

- support farmer/ land registration (identity, location, landholding; farm size)

- improve ease of access to land title information e.g. via low cost web databases

- Provide financial institutions link to land title databases and fund collaterization initiatives

1. Enhanced access to Finance (Policy thrust 10)

2. Enhanced access to Information & knowledge (Policy thrust 3); info on land title procedures

For example, Easing Access to Land Is a Key Driver of Productivity

A

13 13

Lever Value Chain ConstraintPolicy

Objective Proposed Policy Reform Enabling ProgramSupporting

Program

Access toFinance

This relates to access to finance for short term credit for annual inputs as well as for longer-term investment in agriculture.

Constraints in this area are due to:

1. Limited rural credit access points

1. insufficient access to credit and loans for small-medium scale producer/ processors due to need for collateral, risk for crop failure

1. high interest rates for agricultural lending

1. limited budget support for agriculture (1% of budget) and therefore limited public financing of inputs

Policy to enhance availability of credit at reasonable conditions for farmers and agribusiness

Policy reforms to:

Ad 1 to 3.- Facilitate and legislate alternative

finance mechanisms e.g. warehouse-receipt financing, commodity-trade financing, equipment leasing, crowdsourcing, etc.

- Promote incentives for commercial and microfinance banks to develop appropriate financial products relevant in rural areas for farmers, women and youth

- Promote inclusive agribusiness development to facilitate small farmers access to technology, services and financing;

- Lobby to increase public sector funding to the minimum recommended 10% of the national budget (Maputo Declaration)

- Continue reform in the agricultural insurance sector through developing new products (e.g.. micro-insurance, weather-index insurance) and allow private insurance companies to participate to government-sponsored insurance programs.

Programs to address:

Ad 1. Expand rural access points:

Ad 2 and 3. reduce need for collateral:- intensify push to have lenders lend

based on purchase order from downstream user

- stimulating cooperative banking and affordable loans through commercial banks, microfinance banks and financial NGOs;

- recognition of cooperatives and other farming- based organizations financial institutions

- capacity development of financial institutions to lend to the agricultural sector

- increase capacity and size of market-driven guarantee and risk schemes (e.g. NIRSAL) targeting rural areas

- Capacity building of FMARD to facilitate agribusiness investment

Ad 4. expand targeted public financing:- intensify push to raise public budget to

10% of spend; refocus on enabling services e.g. extension, rural infrastructure and improving access to capital

Complementary measures;

Work with commercial banks and large buyers of feedstock to deepen “anchor lender” supply chain based financing

Work with Central Bank of Nigeria (CBN) on ensuring utilization of MSME Fund and Non-Oil Export Fund

Work with Nirsal Plc on expanding innovative use of credit guarantee and interest rebate

Work with NSE and family owned enterprises to use capital markets to go public

Improving Access to Finance will help crowd in private capital whether from banks or other sources

B

14 14

Lever Value Chain Constraint Policy ObjectiveProposed Policy

Reform Enabling ProgramSupporting

Program

Infrastructure

Main problems with rural infrastructure (energy, roads, railways, airport, water supply, ICT connection) are as following:

1. Poor state of rural infrastructure to attract investment in rural areas.

1. urban-bias in development policy

1. high costs of transport due to ‘taxes’, poor road maintenance, scarcity of transport in rural areas.

Policy to ensure that all stakeholders play their roles in the provision of rural infrastructures.

enforce existing inter-ministerial policies

Policy reform is to:

Ad 1.- Incentivize states and

private investors to expand pool of rural infrastructure

Ad 2.- Promote Economic

activities in rural areas; provide the enabling environment for investment opportunities

- Identify and address conflicting policies and synergies

Ad 3.- Simplify and reduce

cost of intra-state transport; consider creating legislation to solve issue

Programs to address:

Ad 1, 3- Setup a multi-stakeholder

mechanism to ensure that all stakeholders play their roles in the provision of rural infrastructure and barriers are reduced (energy, roads, railways, airport, water supply, ICT connection, banks);

- resuscitate and review the Rural Infrastructure Survey project of FMARD, with a view of re-establishing the database for rural infrastructure planning.

Ad 3- info & KM raise awareness of

rural communities about prevalence or absence of road regulations

- provide options for enhancing local transport

- explore legislative solution to improve intra-state commerce

Finally, improving Infrastructure is a key focus area for FMARD to drive coordination across parties

C

15 15

Successfully delivering the 3 themes will require a number of factors to continuing working in alignment

BOOST PRODUCTIVITY

PRIVATE INVESTMENT

REALIGN FMARD’S ROLE

A

B

C

• First, commercializing existing technologies that are on the shelf today e.g. milling / food processing

• Third, creating new incentive systems for inventors to participate in the upside from R&D

• Third, refocusing the current Agricultural Research network to make it more results focused

• First, build on market confidence and continue to actively engage banks and other investors to bet on Nigeria

• Second, reduce barriers to growth that impose additional cost e.g. reduce taxes on agriculture, improve feeder road and railroad system, and introduce maritime transport for food

• Third, invest in building a new generation of private investor-farmers; work with CBN, technical partners and operators to create real option

• First, refocus and motivate the Ministry to return to core policy design, implementation and monitoring; intensify career growth options

• Second, develop clear positions on key structural reforms e.g. climate resilient agriculture, land use and transforming rural economies

• Third, provide an opportunity for civil servants to also help shape investment support role of the Ministry; consider formal fellowship program that allows private sector to work with Ministry

16 16

To succeed in operationalizing the APP, FMARD also needs support from MDAs and other stakeholders…

RAPID ACCESS TO LAND

SIMPLIFIED CREDIT FLOWS

EFFICIENT MARKET ACCESS

REBUILDING OF EXTENSION

PRELIMINARY

• Two key stakeholders needed i.e. States and River Basin Authorities

• Process for rapid lease of River Basin lands needs to be set up and approved by 2016 Dry Season; in parallel public-private irrigation investments can be made

• State issuances of C of O on land should be further de-centralized

• States and RBAs can also make 2 additional investments: producing soil analysis maps that are web accessible; and GPS tagging their lands by title to bring title closer to collateral

• Alignment with CBN and MoF on easing access to credit via NIRSAL Plc, intervention funds and expansion of non-bank lenders

• NIRSAL mobilizes financing for Nigerian agribusiness by using credit guarantees to address the risk of default. It is a flexible financing tool designed to change the behavior of financial institutions.

• The NIRSAL Facility covers all crops and livestock activities in Nigeria, while driving improved investment outcomes and job creation

• Create templates and forums to facilitate purchase agreements between key corporates and farmer cooperatives e.g. web based system with private sector

• Leverage PPP support to rapidly expand network of warehouses and storage assets across Nigeria, as well as invest in key feeder roads in select crop zones

• Expansion of railway tracks into key production zones e.g. Benue/Oyo will reduce post-harvest losses further

• Work with MDAs and State Governments to engage and train 30,000 – 50,000 extension agents across key cropping zones

• Propose setting up joint public-private-donor funding mechanism

• Engage technical partners e.g. GIZ, IFAD, DFID, Sasakawa, Gates, and State ADPs to design and rollout a 90 day training course

• New staff would be paid centrally from new Fund, assigned like NYSC, and help reduce EA to farmer ratio to 1: 200x (assumes 10M farmers)

The Federal Government Is Enabling Policies, New Institutions and Financing Innovations to Attract Private Sector Agribusiness Investments

17

Full Scale Implementation of the Seed and Fertilizer Policies, Regulations and Laws

Full Implementation of Staple Crop Processing Zones (SCPZ) / Agribusiness

Investment Regions (ABIR)

Full Implementation of Import Substitution Policies (Cassava/Rice)

Mechanized Farming at Scale for Cassava and Rice

Irrigation Farming at Scale for Rice, Maize and Sorghum

Innovative Financing for Agriculture – FAFIN, NIRSAL, CACS

Marketing Corporations / Agricultural Commodity Exchanges

Prioritized Value Chain Development of Specific Commodities

Doreo

Master Plans have been completed for 7 of the Model SCPZ sites/corridors across five value chains, with further sites/corridors and value chains to be added

Staple Crop Processing Zones: Locations and Value Chains

Model SCPZ State Locations

Anambra/Enugu

Bayelsa

Benue

Borno

Cross River

Kano

Kogi

Kwara

Lagos

Nassarawa

Niger

Ogun

Rivers

Taraba

Kebbi/Sokoto

Bauchi

Gombe

SCPZ Value Chains

Niger

Borno

Yobe

Taraba

Bauchi

Oyo

Kogi

Kebbi

Kaduna

Kwara

Edo

Benue

Sokoto

ZamfaraKano

Adamawa

Plateau

KatsinaJigawa

Ogun Ondo

Nassarawa

Delta

OsunEkiti

Imo

Rivers

Gombe

Cross

River

Enugu

Ebonyi

Abia

Akwa

Ibom

Anambra

Bayelsa

FCT

Lagos

Priority SCPZ State

Locations with Completed

Master Plans

Potential Additional SCPZ

State Locations for Livestock

Model SCPZ State

Locations

Rice

Cassava

Fisherie

s

Horticulture

Sorghu

m

Livestock

(To be

added)

19

Unprecedented and Remarkable Partner Support for Implementation of Nigeria’s SCPZ/ABIR

US$100m SCPZ Support Project

(for SCPZ institutions and

infrastructure) at the Project

Preparation stage

Support for SCPZ infrastructure

through a reorganization of

the WB CADP

Support for SCPZ related agricultural productions through the Fadama Project

Support for SCPZ infrastructure

through approved US$159m ATA

Facility

Pledged Budget Support

Facility for SCPZ

SCPZ Project/ Transaction

Support

SCPZ Project Development

Support through GEMS

SCPZ Project Development

support

Pledged SCPZ related agricultural

production support

20 20

Major Financial Institutions Are Backing Nigeria’s Drive Towards Value Added Staple Food Processing & Agricultural Industrialization

$500 million

$80 million

$1.5 billion$250 million

Nigeria now Priority

country

$5 Million

$ 100 Million £ 37 million$ 1.5 Million

$250 million

21 21

• Inter-Ministerial Coordination: FMARD intends to work closely with the FEC team on a number of critical cross-MDA issues e.g.

- food smuggling (rice, frozen chicken, etc.)

- launch of a “Buy Nigerian Foods” program for all MDAs

- infrastructure expansion

Alongside the APP, FMARD continues to work on a set of time sensitive issues . . .

• Supply Chain Integration: Anchor Lender program and underlying supply chain domestication will receive additional attention in 2016 – 2017

- Important that we work with large corporates to link their purchasing to farmer groups

- Goal will be to work with industry to create an online ordering system, and register suppliers

• Investment Inflows: Multiple investors continue to seek FMARD support on value chain investments

- FMARD will be forming a small Investment Support Team (IST) drawn from Civil Service and private sector to help close deals; team will move to proposed Nigerian ATA once set up

1

2

3

22 22

When successful, the APP strategy will yield 4 key outcomes essential to building sustained prosperity

Improvements to Food Security

Reduction in Food Imports

Enabler of Job Growth

Achievement of Economic

Diversification

Metrics tracking progress against these 4 goals will be reviewed on a quarterly basis

23

In practical terms, success means that Nigerian agribusiness will win a share of Africa’s $1T food market

Source: World Bank – Growing Africa report 2013

• Relatively stable GDP growth of 4.4% in 2016

• SSA food market growth of 6% per annum to 2030

• Net agricultural trade deficit converted from $10B to surplus of $20B

• Agriculture value added increased from $150B in 2010 to $500B in 2030

• Per capita value of food consumption is 25% higher in urban than rural areas

• Commercial value chains (processing, transport, and retail networks) in place for additional urban consumption of ~$400B

ESTIMATED FOOD MARKETVALUE OF $1TR BY 2030

KEY ASSUMPTIONS

24

…A step that will place Nigerian brands and companies on the African and global food market map

SUPPLIERS PRODUCERS RETAILERSINVESTORS PROCESSOR

ILLUSTRATIVE

Thank You