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INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA (ICAN)
CONFERENCE 2018
SMEs: Revving the Economy to Action…the NIRSAL Agribusiness Perspective
Presentation by MR. ALIYU A. ABDULHAMEED
MD/CEO NIRSAL
October 3, 2018
Introduction
Agribusinesses and the Nigerian Economy
NIRSAL’s Activities in Facilitating Agribusiness
Conclusion
1
2
3
4
1
Contents
INTRODUCTION
Section 1
2
Economic growth trends in Nigeria
3Source: World Bank Open Data, NIRSAL Analysis
The Nigerian Economy
NIGERIA, GDP PER CAPITA (CONSTANT 2010 US$) 2007- 2017
US$2,5642016
US$2,4122017
NIGERIA, GDP GROWTH (%) (CONSTANT 2010 US$) 1961 - 2017
-1.6%2016
0.83%2017
33.7%2004
25%1970
• Nigeria experienced the highest spikes in real GDP growth in 1970 (25% ) and 2004 (33.7%). • The nation managed to record a meagre 0.8% GDP growth in 2017 recovering from the depression in
2016 with -1.6% growth.• Real GDP per capita in Nigeria grew by a Compound Annual Growth Rate (CAGR) of 3% in the first 7
years of the last decade 2007-2017 and declined by 2% in the last 3 years leaving GDP per Capita at US$2,412 compared to world average of US$10,634.
20 High Income
Countries7 Long-term
Out performers 11 Recent
Out performers
9 ‘Middler’ Very recent
Accelerators
17 ‘Middler’ Consistent Growers
13 ‘Middler’ Volatile Growers
14 Under performers
Including Ghana and
Rwanda
Including Tanzania, Uganda,
Morocco
These 18 Outperformer countries have cumulatively lifted 1billion people out of poverty between
1990 and 2013
According to September 2018 McKinsey Report, Nigeria is ranked a “Volatile Grower” with “No relative change: No or inconsistent improvement in spite of the nation’s potentials
4Source: McKinsey Global Institute (MGI), September 2018, NIRSAL Analysis
Profile of 91 Countries
assessed by MGI
Outpaced US growth
consistently from 1965-2016 with
GDP per capita growth above
3.5% annually for 50 years
Outpaced US growth consistently from
1996-2016 with GDP per capita growth
above5% annually for 20
years
Fallen behind: Slower relative growth than US from 1965–2016
Economies with GNI per capita of $6,000 or more in
1987, except Hong Kong and Singapore which
are Outperformers
No relative change: No or inconsistent improvement relative to US from 1965–
2016
5Source: McKinsey Global Institute (MGI), September 2018, NIRSAL Analysis
Profile of 91 Countries assessed
by MGI
Rapid growth of Outperforming economies were attributed to certain key factors in the MGI report
6Source: McKinsey Global Institute (MGI), September 2018, NIRSAL Analysis
Lessons from high growth
economies
Government Policies enabled a pro-growth Cycle based on Productivity, Income and Demand by:
• supporting capital and technology accumulation
• enabling connection to foreign markets
• creating environments for investments, competition and market efficiency.
Numerous highly Competitive Large Firms:
• expansion of a vibrant private sector characterized by highly competitive firms emerging as global players.
• Competition driven innovation and investments in R&D
• Human capital development and higher incomes
Acknowledgement and deliberate Support to Small and Medium Enterprises (SMEs):
• SMEs have been a policy focus of many outperformer economies
• Support is provided though credit guarantee programs, innovative subsidies, assistance with international certification, digital technologies, e-commerce and connectivity platforms
MSMEs are a critical component of the Nigerian economy and deliberate attempts must be made to support their growth
7Source: ERGP 2017-2020, SMEDAN/NBS Survey 2013
Focus on MSMEs in Nigeria
37,000,000MSMEs in Nigeria account for:
50%of its GDP
84%of Employment
7.27%of Export Earnings
In spite of their important contributions and potentials for growth, SMEs face a number of constraints and challenges
Inadequate access to finance
Poor infrastructure
Limited access to markets
Limited use of modern technology
High levels of unskilled workforce
Multiple taxation
Difficult regulatory environment
Agribusinesses and the Nigerian Economy
Section 2
8
Nigerian Agricultural Potentials
The Agriculture sector has the potential to grow to a rate of
8.37% in real terms
By 2020
grew @ a rate of
3.45% in real terms
In 2017 full year
The Agriculture sector:
The economy as a whole:
grew @ a rate of
0.83% in real terms
while
NGN17.2 Trillion (Real/ Constant Prices)
(contributed 25% to REAL GDP)
NGN23.9 Trillion (Nominal/ Current basic Prices)
NGN69.2 Trillion (Real/ Constant Prices)
NGN114.9 Trillion (Nominal/ Current basic Prices)
NGN21 Trillion (Real/ Constant Prices)
* Source: NBS 2017 Reports & ERGP
Agribusiness MSMEs, particularly, remain one of Nigeria’s greatest hopes for economic growth and development
9
Ecosystem of Agribusinesses Agribusiness MSMEs span across segments of various agricultural
value chains, accounting for 97% of the Agricultural GDP of Nigeria as at 2013*
Pre-Upstream Upstream Midstream Downstream
AVC
Se
gmen
ts
• Retailers• Export
brokers• Export
Merchants and Logistics
• Fertilizer Agro-dealers• Seed, CPP and other
Input Distributors• Tractor and
Equipment Hiring Agents, Booking Agents, Operators, Mechanics, etc.
• Research Farmers• Extension Agents
• Primary Producers of Cereals, Tubers, Aquaculture, FFV, Poultry, Ruminants, Apiculture, etc.
• Agro-processors (extraction, milling, drying, cleaning, etc.)
• Service Providers for:o Haulageo Aggregationo Storageo Transportationo Packaging
• Middlemen/ IntermediariesTy
pes o
f Agr
ibus
ines
ses
*2013 NBS and SMEDAN Report
Some of these
Agribusinesses can
generate up to 200%
Returns on Investment
10
Nigeria is blessed with four (4) major opportunities for agribusinesses to thrive
Source: AfDB, 2015, Friends of Europe, 2014
…which if properly managed, would deliver:
Food Security & Nutrition
Economic Growth &
Diversification
Employment Generation & Livelihoods Sustainability
Foreign Exchange Earnings
Balance of Trade
Nigerian Agricultural Potentials
LAND84 million hectares of arable land with only
about 50% in use
MARKETHuge consumer market of
200million people with unsatisfied demand
LABOURHuge supply of labour–
over 90 million population aged 15-65 years
WATERPredictable rainfall pattern; Billions cu. m of surface and
underground water
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Capitals required to maximize the potentials
of Agribusinesses
FINANCECapital
Patient capital to power an agricultural revolution
TECHNOLOGY Capital
Scientific and technological
solutions for increased
productivity
HUMAN Capital
Intellectual and technical capacity
for agribusiness
EQUIPMENT Capital
High-end equipment for mechanisation
and commercialisation
…but lacks four (4) critical capitals
12
Other limitations of Agribusinesses …and is limited by several other constraints…
• Real and perceived risks
• High transaction costs
• Limited attractiveness
• Exclusion of women and youth in agricultural development
• Poor focus and commitment to climate resilient practices
• Ineffective policies, regulation, grades and standards
• Poor market access and incentives
Broken and underperforming
value chains
Poor infrastructure
Adverse agri-business
environment
Poor focus on inclusion and sustainability
Poor access to finance
• Epileptic Power supply
• Poor road networks• Inadequate
Transport and Storage Facilities
• Lack of organization• Low technical know-how• Insufficient inputs,
equipment, technologies and support services
• Poor logistics services• Unstructured markets
Source: NIRSAL, AfDB
NIRSAL exists to De-risk Agriculture and Facilitate Agribusiness
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Section 3
NIRSAL’s Activities in Facilitating Agribusiness
CBN
Designed to Re-Define, Measure, Re-Price, ShareAgricultural based risks
Incorporated
2013$500million Non-Bank Financial Institution
Nigerian Bankers Committee
Federal Ministry of Agriculture & Rural
Development
Public Private Partnership
Raise commercial bank agric. lending portfolio
from the current figure to 7% by 2026;
Expand Insurance Coverage from 0.5 to 3.8 million small-scale farmers across various agric. value
chains
Expand commercial lending to 3.8 million small-scale farmers by 2026 using
value-chains
NIRSAL Objectives
About NIRSAL
About NIRSAL
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NIRSAL’s Mandate
Institutionalize incentives for agricultural lending
Fix b r o k e n agricultural value
chains (AVC)
Redefine, Dimension, Measure, Price and Share agribusiness related credit
risk
Build long term capacity
Stimulate the flow offinance and investment
into the agriculturalvalue chains
Mission“To forge partnerships
between agriculture and finance; maximizing the
potential of agriculture for food security, job creation
and economic growth”
Vision“Transforming the Economy, Delivering Inclusive Growth
and Impacting Lives”
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NIRSAL’s Mandate
NIRSAL’s StrategicPillars
Share credit risks with providers of Finance and Investments (up to 75% loss incurred)
Develop innovative Insurance productsto beneficiaries
Build capacity of financial institutions and agricultural value chain players; Fixing the broken AVC
Rate lenders and Value Chain actors according to their effectiveness
Reward value added performance by AVC actors and lenders
Risk Sharing $300milion
Insurance$30millon
TechnicalAssistance$60million
Rating$10million
IncentiveMechanism$100million
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Our five (5) strategic pillars provide the funding basis for our risk management operations and interventions
How NIRSAL is Facilitating the Growth of Agribusinesses
18
NIRSAL is focused on the upgrade, development and integration of end-to-end agricultural value chains
NIRSAL’s Approach
Finance can only be attracted to fixed agricultural value chains
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1) Structuring Value Chain FinanceCatalyzing finance and investments for
agribusinesses
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Working Capital and Asset Finance for Primary Producers
Working Capital and Asset Finance for
Processors
Working Capital finance for structured
consumer/retail markets
Working Capital Finance for Technology Providers and Equipment Suppliers
Simplified IllustrationAgriculture
Value Chain Finance and Investments
• Creation of efficient business models and financing frameworks that reflect, fit and capture Agricultural value and cash flows
• Aggregating and linking of primary producers to structured end markets through offtake agreements acceptable to finance
2) Deploying Robust Risk Management Tools for all dimensions of risk
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Innovative Insurance e.g. the NIRSAL Comprehensive
Insurance
Credit enhancement tools e.g. Credit Risk
Guarantees
Tech-driven monitoringusing FMIS, AI
Group and Individual Cross Guarantees
Attraction for Financiers and Investors:
• Minimized risks commensurate to expected returns
• Increased comfort and confidence
Catalyzing finance and investments for
agribusinesses
3) Incentivizing Actors and Shaping Behaviours
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Capacity Building for producers and value
chain actors
Orientation and Capacity Building for agriculture
finance actors
Interest Draw Back Schemes for borrowers
Rating Schemes for agriculture finance actors
Resulting to:• Improved agribusiness performance• Improved repayment behaviours• Increased understanding of the sector
by agribusiness finance value chain actors
Catalyzing finance and investments for
agribusinesses
NIRSAL’s Risk Sharing TTMPs NIRSAL builds and implements innovative Tools, Techniques, Methodologies and Partnerships (TTMPs) for risk sharing
Business Models
Pre-Upstream Upstream Midstream Downstream
• Research for Innovation
• Inputs Mechanization
• Primary Production• Post-Harvest
Primary Processing
• Value-added Processing
• Logistics • Wholesale
• Retail/ Consumer Market
• Industrial Market• Export Market
Sub-
Segm
ents
NIR
SAL’
s Risk
Sha
ring
Inst
rum
ents
Agriculture/A
gribusiness
Va
lue Cha
in (AV
C)
Financing Frameworks
Credit Risk Guarantees and Interest Draw Back Scheme
Geo-spatial Mapping & Aggregation
Field Governance
Field Monitoring
Technical Assistance
MPPS
Innovative Insurance Products
Offtake Arrangements
Climate Smart Agricultural Interventions
Key
Segm
ents
Very High Risk
High Risk
Medium/ Low Risk
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Local
MAMDA & MAMDA RE
PETKUS (Germany)
International
Some of NIRSAL’s Strategic Partnerships
to date
NIRSAL’s SME (YOUTH-FOCUSED) AGRIBUSINESS FACILITATION STRATEGIES
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NIRSAL’s EFFORTS FOR YOUTH DRIVEN
AGRIBUSINESSESNIRSAL is facilitating Agribusiness SMEs through its Youth in Innovative Agribusiness (N-YIA) Strategic Framework
Controlled Environment Agriculture for Youths in Urban
and Peri-Urban Settings (CEA – UPS)
NIRSAL Students Knowledge, Enterprise and Practice Program
(N-SKEP)
NIRSAL Roundtable for Youths in Agribusiness
(NiRA)
The NIRSAL Youth in Innovative Agribusiness (N-YIA) Desk
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Section 4
CONCLUSION
- NGN77.6billion Loans Guaranteed
- 655 Projects Guaranteed
- NGN999million Interest Draw Back Paid
- Developed and launched the Area
Yield Index Insurance product and
protected up to N5.4billion revenues of
25,000 farmers - Launched the NIRSAL Comprehensive Index
Insurance
- Developed Curriculum and Trained 184 Middle Management and Agric
Desk Officers of commercial banks.
- Provided GAP training to 700,000 farmers and 74 Extension Workers
Mobilized over NGN35billion cash-
backed commitments from commercial
banks from Q1 to date 2018 for the financing
of agribusinesses leveraging strategic
partnerships
Risk Sharing Fund
Insurance
Technical Assistance
Fund Mobilization
Investment attracted/Loans guarantee
NGN77.6billion
Direct EmploymentCreated: Over
360,000
Lives Impacted:Over
1.8 million
Some of our Results to date
Guidance on the establishment of Risk Sharing Facility (RSF) models for African
Countries under the aegis of the African Development Bank
(AfDB)
Rest of Africa Engagement
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MIFA successfully launched in Togo
The role of MSMEs in the economycannot be over emphasized
Conclusion
• The economies of several nations have grown through the existence and growth of MSMEs.
• MSMEs are proven to be highly supportive of large firms as providers of interim inputs and in many emerging economies, leapfrog and grow to become large companies.
• The Nigerian economy depends greatly on the performance of productive sectors mainly Manufacturing, Extractives and Agriculture
• NIRSAL’s aim is to properly structure and transition agricultural value chain actors in Nigeria from mere Agricultural practice to optimally operating Agribusinesses capable of transforming the economy.
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Benefits of De-risking
Financiers and Investors
Through its efforts, NIRSAL hopes to deliver the following benefits
• Reduced transaction/ administration costs
• Sustainable real sector interest income
• Preservation and protection of capital
• Improved ‘risk-return’ profile of investments
• Broader investment opportunities/agricultural portfolio
• Increased access to finance
• Improved productivity and resilience
• Revenue protection through insurance
• Greater potential for expansion and growth
• Increased income and standard of living
Agribusinesses
• Economic diversification
• Inclusive growth and sustainable development
• Food security
• Job creation opportunities
• Increased contribution to GDP
• Poverty reduction
The Economy
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Investors and Financial Institutions
Government and Policy Makers NIRSAL
Open up to opportunities for returns maximization and increase financing to Urban agribusinesses leveraging available risk management mechanisms
Create enabling environment for agribusinesses and agriculture finance to thrive for the delivery of additionalities and positive impact to the nation.
Rise up to the challenge to take advantage of opportunities for increased structuring into optimized agribusinesses
Agricultural Value Chain Actors
Call to Action Collaboration is required across the continent for the delivery of significant impact and realization of mutual benefits
The Accountants CommunitySupport agribusinesses in the development of business and financial models that would attract finance and investments to the sector from the money and capital markets.
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Thank youPlot 1581 Tigris Crescent, Maitama District, Abuja 900221, FCT, Nigeria
www.nirsal.com info@nirsal.com
nirsalconnect
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