KEYNOTE ADDRESS BY GODWIN I. EMEFIELE, CON, GOVERNOR, CENTRAL BANK OF NIGERIA, AT THE 39TH ANNUAL CONFERENCE OF THE NIGERIAN INSTITUTE OF FOOD SCIENCE AND TECHNOLOGY ON WEDNESDAY, 14TH OCTOBER, 2015.

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Posted by Adaora Anozie

On November 18, 2015

(Protocol)

Distinguished ladies and gentlemen, I am quite elated to be invited here not only as Special Guest but also as Keynote speaker. This is because the Conference affects the availability of food on our tables and especially as the movements of food prices constitutes a significant component of inflation. As you are already aware, the core mandate of the CBN is ensuring price and monetary stability. Broadly, this means moderating inflation or increases in the general consumer price level, keeping interest rates within desirable limits to boost business activities and managing the demand and supply of foreign currency in the economy to keep the rate of foreign exchange at optimum levels.
I commend the organizers for the apt nature of the theme of this conference, which is “Food Industrialization: A Pathway to Agribusiness Transformation”. Industrialization plays a key role in food production and supply both at the input and the output ends. For instance, inputs such as equipment and machinery must be manufactured by industry before application on the farm. Your choice of theme, therefore, is an attempt to address both the upstream and downstream challenges of the industrialization of the food value chain.
Food industrialization cannot be considered in isolation of overall economic industrialization. Nigeria has absolute comparative advantage in the production of cassava and yam, and a lesser comparative advantage in cocoa, groundnut, oil palm, sorghum, millet, tomato, the production of all of which Nigeria remains in the top ten worldwide. Secondly, the country’s climate, topography and soil conditions are highly supportive of agriculture, making possible the cultivation of a wide variety of crops. In the southern areas, rain-fed agriculture is possible all year round. Thirdly, the geographical location allows fishing for sea foods in the coastal areas and the Atlantic. The drainage also permits all-year round fishing in most rivers.
Notwithstanding these, the country is yet to transform this primary or extractive comparative advantage into secondary or industrial advantage. The World Economic Forum (WEF’s) Global Competitive Index Report 2015 classifies Nigeria among factor-driven economies, that is, economies in stage 1 of development, because of a lack of strong industrial capacity. This is in spite of concerted efforts made by the government over the years, starting with the first National Development Plan in 1962 – 1968 which committed to import-substituting economic development. We have not been lacking in policies and programmes since then.
My focus here today, is on the policy and development challenges, what we are currently doing and must still do to competitively position our agricultural value chains to ensure that agribusinesses, that is, micro, small and medium enterprises (MSMEs) and the food industry sub-sector maximally support economic growth and development.
The 2013 re-based GDP indicated that manufacturing contributed 6.83% to total economic output. Of the 13 sub-sectors of manufacturing, the 6 of them with some form of functional dependence on agriculture contributed 5.49%. These are (i) food, beverage and tobacco with the largest share of 4.62%, while the others, namely, (ii) textile, apparel and footwear, (iii) wood and wood products, (iv) pulp, paper and paper products, (v) chemical and pharmaceutical products, and (vi) plastic and rubber products, summed up to 0.87% contribution. This aptly reflects the about 54% manufacturing capacity of the economy as at the second half of 2014 (July – December 2014 Economic Review, Manufacturers Association of Nigeria).
In the first quarter of 2015, the (manufacturing) sector grew nominally by 1.25% (year-on-year) but declined by 0.7% in real terms. This position was 18.80% lower than that for the corresponding period in 2014. Of the six agro-related sub-sectors, only the plastic and rubber products sub-sector was among the strong drivers of growth. The National Bureau of Statistics (NBS) reported that higher operating costs were responsible for this poor performance.
The range of cost drivers which agribusinesses have to surmount generally arise from the lack of or inadequacy in research and innovation, technology, infrastructure, institutional support, policy and finance. Globally, enterprises (as against corporations) are seen as engines of innovation. Research propels innovation. There should be increased investment by all stakeholders in research. Research should focus on raising productivity and minimizing wastages. Moreover, research output must be utilized to justify spending.
Obsolete technology is responsible for unquantifiable post-harvest losses annually, resulting in the resort to export primary products. Our approach to technology has implications for national economic security and self-sufficiency. Acquisition of technology by outright importation merely serves to expose the economy to import pass-through inflation and defenselessness in the face of international or even bilateral politics. Our emphasis should shift to technical training and human capacity building through technology-based internships in advanced countries to help cultivate a home-grown technological base. We should promote centres of excellence in research/ technology in our secondary and tertiary institutions of learning.
Ladies and gentlemen, not much progress can be made towards industrialization if critical economic infrastructure is inadequate – electricity, storage, standardization and processing facilities, transportation and haulage, potable water and communications facilities impose severe operating constraints on our industries, leading to capacity under-utilization. Fixing infrastructure will require a huge $350 billion in spending by the year 2020. That is, 68% of 2013 GDP! Sustainably addressing this infrastructure deficit will require improvements in tax collection through enlargement of the tax base and plugging of loopholes in the system.
Institutional support has been egregious. The institutions responsible for industrialization are often unable to give their best because of funding challenges, weak governance, insecurity of management tenures, poor staffing, disconnect between strategy and implementation, discoordination between relevant institutions, etc. These are some reasons why the National Centre for Agricultural Mechanization, the other research institutes and the relevant ministries cannot deliver on mandate.
Finance is essential for industrialization. Indeed, most other requirements, including research, technology, infrastructure, manpower development, etc., are acquirable with finance. Making finance work for industrialization will require sustainability of finance in terms of availability, affordability and time. Ladies and gentlemen, this is exactly where the CBN comes in handy. The CBN, inclusive to her core objectives, has a developmental mandate. Under this mandate, we are entitled to intervene in the economy to address financial market failures which would impede the country from realizing the core monetary policy objectives of price stability and safeguarding the international value of the naira.
In this respect, the bank has initiated a number of interventions to provide adequate, affordable and long-term finance to promote food value chain development. These are the Agricultural Credit Guarantee Scheme (ACGS), the Commercial Agriculture Credit Scheme (CACS), the Nigeria Incentive-based Risk sharing System for Agricultural Lending (NIRSAL), the Small and Medium Enterprises Credit Guarantee Scheme (SMECGS), the Micro, Small and Medium Enterprises Development Fund (MSMEDF) and the Real Sector Support Facility (RSSF).
The CACS and NIRSAL are emphatically value chain financing schemes. CACS is offered at an all-inclusive interest rate of 9% per annum. Eligible projects can obtain a maximum facility of N2 billion for a loan tenor determinable by the gestation period of the enterprise. As at date, a total of N845 billion have been disbursed to 396 projects. Of this total, the sum of N115.333 billion was disbursed to 125 projects in processing, that is, feed mills, threshing, pulverization and other forms of transmutation for value addition.
The NIRSAL programme fixes the agricultural value chains and encourages banks to lend to the sector. It offers incentives and provides technical assistance to banks. As at date, a total of N161billion have been disbursed to 247 projects under NIRSAL while N39.488 billion have been disbursed to 207 projects under the NIRSAL/ GES Scheme. Of this totals, the sum of N10.683 billion was disbursed to 23 projects in processing or with processing components of production. The other financing programmes support a mix of select manufacturing and service sub-sectors, with our commitment running into billions of naira.
To further support the domestic industry, the CBN earlier this year expanded the foreign exchange exclusion list to 41 commodities. Among these are margarine, palm kernel/ palm oil products/ vegetable oils, meat and processed meat products, poultry, vegetables and processed vegetable products, tinned fish in sauce and sardines, and tomatoes and tomato pastes. We believe we have capacity to efficiently produce them locally. While not being an outright import ban, their exclusion from the forex list has the effect of reducing their importation since importers would have to obtain forex for their importation from expensive sources, thereby discouraging them from doing so.
To enhance the capacity of banks to lend to productive sectors such as agriculture and manufacturing, the last Monetary Policy Committee (MPC) meeting of the Bank held last month voted to reduce the cash reserve ratio from 31% to 25%. This is intended to supply liquidity in the system, which should lower interest rates on loans thereby boosting investment.
Ladies and gentlemen, let me on this note assure you that the CBN will continue to provide a stable macroeconomic environment for the stimulation of food and non-food industrialization. Therefore, as you brainstorm on how to leverage industrialization to transform agribusinesses in Nigeria, I believe your minds will be engrossed with how to transform our comparative advantage in primary agricultural production into a competitive industrial brand globally. I wish you fruitful deliberations. Thank you.