FARM TO FORK, FARM TO FASHION – INVESTING IN NIGERIA’S AGRICULTURAL VALUE CHAINS, SELF SUFFICIENCY IN FOOD PRODUCTION RAW MATERIALS FOR INDUSTRY SANUSI, LAMIDO SANUSI, CON GOVERNOR, CENTRAL BANK OF NIGERIA Presentation to the Investment Summit on Nigeria 1 st August, 2012

PRESENTATION OUTLINE Overview of Nigeria’s Agricultural Landscape Agricultural Value Chain, Chain Actors & Value Chain Models NIRSAL: Concept, Pillars, Policy Fixes and update Conclusion 2

1.The agriculture sector is central to Nigeria’s economy, accounting for 40 per cent of GDP and providing 60 per cent of employment. Agriculture is a major source of employment growth: Between alone, it accounted for 51 per cent of job creation in Nigeria. 2.Since the 1960s, Nigeria has lost a dominant position in exports of key crops such as cocoa, groundnuts, ground nut oil and palm oil. In the 1960s, Nigeria had over 60% of global palm oil exports, 30% of global ground nut exports, 20-30% of global ground nut oil exports, and 15 % of global cocoa exports. By the 2000s, Nigeria global share of exports of each of these crops was 5% or less. 3.Today, Nigeria is a net importer of agricultural produce, with imports totalling $4.2 bn. Large food products import include wheat ($1.1bn), fish ($0.7b), rice ($500m), and sugar ($400m). Total food import bill of USD 4.2 billion annually. 4.Nigeria’s agriculture sector has enormous potential – with an opportunity to grow output by 160%, from USD 99 billion today to USD 256 billion by This growth potential comes from increasing yields to % of benchmark countries; increase acreage by 14 m ha new agricultural land, approximately 38% of Nigeria’s unused arable land of 36.9m ha; and shift 20% of production to higher value crops. 5.Nigeria faces a large and growing global agricultural market – Rising commodity prices, growing demand for food, and opportunities in bio-fuel all present significant opportunities for Nigeria. For example, global cereal demand will grow by between 31% and 150% by 2050 depending on the region, and global commodity prices are in their second major spike in three years. Agriculture can become the main driver for more equitable income growth, compared to oil and gas sector. OVERVIEW OF AGRICULTURE IN NIGERIA 3

Overview of Nigeria’s Agricultural Landscape Agricultural Value Chain, Chain Actors & Value Chain Models NIRSAL: Concept, Pillars, Policy Fixes and Update Update PRESENTATION OUTLINE 4

Processing Input supply Trading Retailing Consumption Production Post-harvest handling Research Communication Transportation Government Policies and Regulations Input supply Technical and business training services Financial Services Market Information and Intelligence AGRIC VALUE CHAIN Source: Adopted from Ferris (2007)

The value chain includes all activities required to bring a product to the market, including horizontal linkages to suppliers of goods and services Actors in the value chain – service providers, farmers, processors, traders & wholesalers and retailers Dynamics of actors in the value chain – actors exist to maximize profits, information flow is asymmetrical and actors who are value chain drivers tend to intimidate other actors in the value chain 6 VALUE CHAIN ACTORS AND MODELS

Overview of Nigeria’s Agricultural Landscape Agricultural Value Chain, Chain Actors & Value Chain Models NIRSAL: Concept, Pillars, Policy Fixes and Update Conclusion PRESENTATION OUTLINE 7

8 NIRSAL is an initiative designed to appropriately define, price and share agribusiness related credit risk NIRSAL has the following partners: Central Bank of Nigeria (CBN) The Bankers’ Committee (CEOs of deposit money banks, specialized banks, discount houses), insurance companies. The Federal Ministry of Agriculture & Rural Development (FMA & RD) Federal Ministry of Finance Federal Ministry of Trade & Investment NIRSAL seeks to achieve the following: Mobilize financing for Nigerian agribusiness using credit guarantees to address the risk of default Create markets Act as Investment Advisor NIRSAL is a flexible financing tool designed to change the behavior of financial institutions Covers all crops and livestock activities in Nigeria, while improving investment outcomes and creating jobs. Builds on a legacy of previous CBN interventions in agriculture.

9 NIRSAL creates access to finance by integrating end-to-end agriculture value chains with financing value chains... Agricultural value chain 1 Includes working capital loans; fixed asset finance; trade finance Farmers Agro Dealers / Storage Input producers Agro processors Industrial manu- facturers Distribution and exports Agricultural financing value chain Loan Product Dev. 1 Loan origination Credit Distribution Credit Assessment Managing and pricing for risk Loan Disbursement Enablers Infrastructure Credit bureau PoliciesExtension services Price stability boards

10 NIRSAL is driven by Five Pillars - particularly the Risk Sharing and Technical Assistance pillars... NIRSAL ($500m assets to stimulate lending financial institutions) De-risk agriculture finance value chain Build long- term capacity Institutionalise incentives for agriculture lending NIRSAL Objective Goal Expand bank lending in agricultural value chains Risk sharing Facility ($300m) Insurance Facility ($30m ) Technical assistance facility ($60m) Bank incentive mechanism ($10m) Agricultural bank rating scheme ($100m )  Shares lending risks with banks (e.g. 50% loss incurred )  Link insurance products to the loan provided by the banks to loan beneficiari es  Build the capacity of banks, micro- finance institution s  Build capacity of agricultura l value chains  Expand financial inclusion  Targeted incentives that move banks to a long term, strategic position and commitme nt to agricultural lending  Rate banks according to their effectivene ss of lending to agriculture

11 NIRSAL – Current Status NIRSAL’s key lending Guidelines were approved by the CBN’s Committee of Governors in April 2012 NIRSAL is now open for business and accepting applications for Credit Risk Guarantees (CRGs) Two applications have so far been received:  N250million credit facility for the supply of sorghum to Guinness Nigeria Plc. The Bank is requesting for 50% Guarantee cover.  N75million credit facility for the supply of cassava chips to China with the Bank requesting for a 75% Guarantee cover Under the insurance pillar, plans are underway to expand the insurance landscape and enable private sector participation. Two insurance companies have recently been granted approval by NAICOM to offer insurance products for agri-businesses

12 NIRSAL – Current Status NIRSAL has engaged 26 (70%) State Governments in Nigeria and held focal meetings with strategic Stakeholder groups focusing on the major crops rice, tomato, cotton and aquaculture NIRSAL is currently working with financial institutions to improve competitiveness of loan pricing, increase accessibility and use of mobile phone channels and encourage insurance companies to introduce market-based innovations that align with customer needs Presently awaiting the approval from the President to commence the legal formation of the NIRSAL Plc. i.e. stand as a non-bank financial institution

Overview of Nigeria’s Agricultural Landscape Agricultural Value Chain, Chain Actors & Value Chain Models NIRSAL: Concept, Pillars, Policy Fixes and Update Conclusion PRESENTATION OUTLINE 13

CBN‘s agricultural interventions have over time, led to increased access to finance by farmers and other stakeholders These initiatives have promoted the growth of the agricultural sector, facilitated employment and income generation in the rural areas We will work closely with the Federal ministries to field joint teams especially around our priority value chains We anticipate that these engagements will yield insights about what additional activities our institutions need to prioritize e.g. – insurance sector reform, trade policy changes Our objective is to ensure that the ideas at the heart of NIRSAL become institutionalized and rolled out into the market place quickly CONCLUSION 14

CBN’s Other Major Agricultural Finance Programmes at a Glance CBN’s Agricultural Financing Initiatives Commencement Year/Duration Performance/ Outreach ACGSF - Agricultural Credit Guarantee Scheme Fund (ACGSF) 1978 Guaranteed $358m to 760,636 farmers. $221.87m (73.3%) recovered from 557,318 (62.0%) farmers. IDPF - Interest Drawback Programme Fund 2003 Paid $6.67m as 40% interest drawback to 159,367 eligible farmers. ACSS - Agricultural Credit Support Scheme 2006 Paid $5.82m as 6% interest rebate on 43 large projects. CACS - Commercial Agriculture Credit Scheme 2009 Released $1.19bn to 227 agric. value chain projects (198 private promoters and 29 State Governments) through18 banks 15 (a) Exchange Rate = USD1.00 = N Nigerian Naira (b) Population of Nigeria :167m (c ) Nigerian Farming Population (58% of Nigeria’s population): 96.8 m