Opportunities for investment in the agriculture sector

Nigeria has a great potential to be Africa’s agriculture powerhouse. In February 2017, Nigeria’s then Acting President Professor Yemi Osinbajo while speaking at the National Institute for Policy and Strategy Studies (NIPSS) stated that Nigeria has about 84 million hectares of arable land, of which only about 40 per cent has been cultivated.

Nigeria used to be a major player in the global agricultural market in the past, as the world’s largest producer of groundnuts and palm oil in the 1960s, and the second largest exporter of cocoa. The country was also self-sufficient in food production before the emergence of oil in the 1960s. Notwithstanding the inadequate attention over the past decades, the sector has continued to produce major commercial crops such as beans, sesame, cashew nuts, cassava, cocoa beans, groundnuts, kolanut, maize (corn), melon, rice, millet, palm kernels, palm oil, plantains and rubber among others.

Some progress has also been recorded in the sector in recent years. Between 2011 and 2014, national food production grew by 21 million metric tonnes and led to a sharp reduction in food imports.  Nigeria’s food import bill also fell from an all-time high of N3.19 trillion in 2011 to N635 billion in 2013; an estimated 403 per cent reduction while direct farm jobs rose by 3.56million in the period 2012 to 2014.

In June 2016, the Federal Government of Nigeria (FGN) released a comprehensive agriculture policy titled Agriculture Promotion Policy (APP) to build on the achievements of the preceding administration which implemented its own Agriculture Transformation Agenda (ATA) implemented between 2011 and 2015 with some significant results already highlighted above.

The focus of the APP is to promote self-sufficiency in food production and increase foreign exchange earnings through agriculture exports. The APP also places emphasis on partnership with private investors across farmer groups and companies to develop end to end value chain solutions. This is understandably in line with government’s desire of encouraging private participation in the national economy through the provision of financial support to farmers as well as improving the supply of specialised fertilisers and high yielding seeds.

Aligning with the plans of the FGN for self-sufficiency and calls for the diversification of the economy from over-reliance on crude oil sales, a number of private-sector led initiatives have taken root in food processing including a $20 million tomato processing factory built in Kano by the Dangote Group while some state governments like Lagos and Kebbi states have collaborated on rice production and distribution. These events among others reflect renewed interest in the agriculture sector and the sector’s growth by 3.01 per cent in the second quarter of 2017 contributed significantly to the 0.55 per cent growth in the national Gross Domestic Product (GDP) which made Nigeria exit its worst recession in 29 years.

From the foregoing, it is clear that Nigeria’s agriculture sector holds the potential for more growth and presents a veritable opportunity for investors to take positions as the economy rebounds alongside an attitudinal adjustment among Nigerians as to the potentials of the sector. Potential investors in agriculture may do well to take note of the following:

Federal Government Support:

As can be gleaned from the APP, the FGN intends to boost system productivity, reduce post-harvest losses and expand market access related activities. The government has also outlined plans to facilitate access to finance and investment development for agri-business in Nigeria. These efforts will help to address some of the challenges in the sector such as poor farming methodologies, lack of access to finance, post-harvest losses due to lack of storage facilities, unreliable power supply, poor transport infrastructure and unattractiveness of farming in terms of return.

Funding:

There are a number of funding options now available to the agriculture sector. These options include the Cottage Agro Processing (CAP) Fund managed by Nigeria’s Bank of Industry (BoI) to support the establishment of cottage agro processing plants that will produce food products and raw materials; the N750bn Agriculture Intervention Fund provided by the FGN; and the Nigerian Incentive-Based Risk Sharing in Agricultural Lending (NIRSAL) scheme facilitated by the Central Bank of Nigeria (CBN) and the Federal Ministry of Agriculture and Rural Development. The NIRSAL scheme guarantees 75 per cent of loans provided by Deposit Money Banks (DPB) to farmers as part of efforts to transform the country’s agricultural sector.

Other sources of funds include the Bank of Agriculture which is supervised by the agriculture ministry and has a mandate to provide sustainable agricultural financing services; social entrepreneurship grants from notable philanthropic organisations and loans from commercial banks.

There are certain conditions attached to securing funding from any of the above-mentioned institutions and potential investors will need to be guided by legal and commercial advisers on how best to meet the requirements and structure the loans to ensure the growth of the business.

Land Acquisition:

Land for agricultural purposes may predominantly be found in rural communities. The acquisition of such lands may be done by negotiating with family heads and other identifiable persons. Section 6 of Nigeria’s Land Use Act confers power on local government authorities to grant a customary right of occupancy to any person or organisation over non-urban land within its jurisdiction for agricultural, residential and other purposes. Where the land to be used is however located in an urban area, the investor must of necessity register the transfer of title from the vendor and secure the consent of the governor upon payment of applicable fees. It is very important that the governor’s consent is sought as the absence thereof invalidates the transfer of title.

Acquisition of land from the local government is similar to what is obtainable from the Governor with the exception of the fee, which may be less than that of statutory right of occupancy. A customary right of occupancy cannot be granted to an individual in excess of 500 hectares for agricultural purposes and not more than 5,000 hectares for grazing purposes, except with the consent of the Governor.

A possible challenge to securing loans is the difficulty in using land as collateral as the transfer of title in such lands must be registered with the state government to be effective. This may significantly delay the process. Under the FGN’s APP however, the agriculture ministry has undertaken to pursue an amendment of the current Land Use Act to facilitate the recognition and entitlement of land ownership by formal or customary means to assist collateralisation. For foreign investors who are otherwise precluded from land ownership under the Land Use Act, such investors may consider the alternative of incorporating Nigerian entities through which the land(s) can be acquired or leased.

Water Permits:

Investors need to apply for and secure necessary permits for the use of ground and surface water resources for irrigation purposes where applicable. A legal adviser can assist with this process.

Seed Production and Development:

The Livestock Breeds and Crop Variety Registration, Testing and Release Act 1987 and National Agricultural Seeds Act 1992 regulate various aspects of seed production, variety development and propagation, variety registration, release and certification of seeds and quality control activities in Nigeria. Under the National Agricultural Seeds Act, the Nigerian Agricultural Seeds Council located in Abuja and headed by the Minister of Agriculture and Rural Development is the only body responsible for monitoring, co-ordination, and certification of the production and distribution of seeds in Nigeria. Where investors in the agriculture sector intend to undertake activities in this regard, it becomes necessary to pay closer attention to the activities of the concerned regulatory body.

Tax Incentives:

The cultivation, production and processing of food crops among other activities in the agriculture value chain enjoy the benefit of the Pioneer Status Incentive. The Pioneer Status Incentive (PSI) is in itself a fiscal incentive under the Industrial Development (Income Tax Relief) Act designed to help the benefiting corporate entities cut down on overhead cost through tax exemption for an initial period of three years which can be renewed for an additional maximum period of two years.

Other tax incentives include exemption from paying the 5 per cent Value Added Tax when importing machineries for agricultural purposes, as allowed under Section 3 of the Value Added Tax Act; 25 per cent investment tax credit for companies engaged in the local fabrication of agricultural equipment, as allowed under Section 28 of the Companies Income Tax Act (CITA); 10 per cent tax relief granted to a company in the first year of purchase of plant and machinery used for agricultural production; rural investment allowance the percentage of which varies according to the level of facilities in the rural area where the investment is; and tax incentives applicable to export processing zones. Prospective investors will also need the support of experienced advisers to take maximum advantage of these various tax incentives available to players in Nigeria’s growing agricultural sector.

Conclusion

Nigeria has a fast-growing population already over 180 million people with close to 60 per cent of its arable land yet to be cultivated. These factors among others present opportunities for investment in various segments of the agricultural sector which include crop production; food processing and preservation; livestock and fisheries production; agricultural inputs supplies and machinery as well as water resources development; commodity trading and transportation; and the development and fabrication of appropriate small-scale mechanized technologies for on-farm processing and secondary processing of agricultural produce.

A number of private investors have already taken the lead in recent months by going into strategic partnership and arrangements with state governments to establish rice mills and other food processing plants close to the source of farm inputs. Many farmers have also benefitted from the Presidential Fertiliser Initiative and the Anchors Borrower Programme of the CBN among other initiatives opening up the sector for increased participation.

It is our considered opinion that now is a good time for interested investors to structure befitting entities to invest in desired segments of the sector which is poised for more growth