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

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Contents

INTRODUCTION

Section 1

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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

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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

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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

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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

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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

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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

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