Introduction
When I was invited to
deliver a paper on “Nigeria: Agriculture, Oil and the Nigerian Economy:
Which Way Forward” at the NEC Meeting of
this great Union on the 3rd of December 2015 in Birnin Kebbi, little
did we know that the Nigerian Economy
was going into full recession, even though there were early signs of the
recession. These signs included: the falling oil prices in the international
market, rising inflation coupled with scarcity of foreign exchange and Naira
depreciation, and rising unemployment, as many companies began to close
businesses. The foreign reserve was also depleted.
The National Bureau of
Economic Research (NBER) defined Recession “as a significant decline in
economic activity spread across the economy, lasting more than a few months,
normally visible in a real GDP, real income, employment, industrial production
and wholesale retail sales”. It can also be defined conventionally, “as two
consecutive quarters of negative growth of the economy as indicated by the
Gross Domestic Product (GDP)”. GDP is derived as the value of all goods and
services available for final uses and export.
The Nigerian Economic recession was formally confirmed by
the end of the second quarter of 2016. The first quarter of 2016 posted a
negative aggregate GDP of -0.36% followed by second quarter GDP of -2.06% and
stood at -2.24% (N26.6 trillion) in nominal terms at basic prices by the end of
the third quarter, compared to the third quarter 2015 value of N24.3
trillion. The Nominal GDP grew by 9.23%.
This growth was higher relative to growth recorded in the third quarter of 2015
by 3.22 %. The
negative economic growth continued up to the end of 2016. This is against an
aggregate GDP of 2.11% recorded by the end of 2015, 6.22% in 2014, 5.49% in
2013, 4.21% in 2012 and 5.3% in 2011. This is considered the worst recession in
about 29 years according to NBS.
As a share of the economy, the oil sector accounted
for about 8.19 % of total real GDP, down from figures recorded in the
corresponding period of 2015 and the preceding quarter of 2016 recorded at
10.27% and 8.26% respectively. The NBS report said the 0.03% growth in the
non-oil sector in real terms in the third quarter of 2016, reversed the
negative growth.The
Non-oil sector largely driven by agriculture, information and commerce and
other services contributed 91.81% to the GDP. Out of this Non-oil sector
performance, agriculture contributed 28.65%, industries 21.11% and services
50.24%.
Since our focus is on
the Agricultural sector, we need to assess the detailed contributions of the
sub-sectors that make up the Sector. Out of the contribution of 28.65% to the
GDP, 95% share came from the Crops Sub-sector, followed by Livestock, Fisheries
and Forestry sub-sectors. The Sector recorded a real growth rate of 4.54% by
end of the third quarter of 2016.
What are the major causes of economic recession?
Some of the major
causes of recession in an economy generally include: High inflation; high interest
rate; fall in aggregate demand, wages and income; accumulation of debt
servicing especially foreign debt; mass unemployment and general loss of
confidence in government among others. In the case of Nigeria, the current
economic recession as many experts have argued, could be attributed to the
following:
a)
Fall in oil prices coupled with
disruption of crude oil production (from the projected 2.5mb/day to an average
of 1.63mb/day by the end of 2016) by the Niger delta militants thereby bringing
down the revenue/foreign exchange accruable to government.
b)
High inflation rate currently at over
18%. Agricultural commodities and other essential products prices have been on
the increase. The removal of petroleum subsidy had also affected consumer
prices.
c)
High interest rate which was about 27%
is considered extremely high for investors. This has exacerbated the already
harsh investment climate leading to closure of businesses. This in turn has
driven many people out of employment. Unemployment rose from 8.2% by the end of
2015 % to 13.3% in the second quarter of 2016. The new CBN monetary policy has
now pegged lending rate to 14%.
d)
High taxation rate: The current tax
rates are high considering that the economy is in recession. Both high interest
rate and high tax rates have combined to lower the country’s aggregate demand.
e)
Poor economic planning coupled with
weak plan implementation.
f)
The
different actions (or inactions) of the Central Bank of Nigeria (CBN) in
forestalling recession. Although the Government had taken some
steps like the elimination of official dollar purchase for importers of 40
items such as rice, cement, toothpicks,
private planes, poultry, meats, margarine, textiles, soaps etc., there exist
round tripping practices. According to Sanusi II, when CBN was selling dollar
at official rate of N197, people were buying at N300. The highly placed
individuals were putting calls across to the banking industry to get dollar at
official rate for resell at parallel market for N300. The implication is that,
for every $1 billion taken from the Federation Account and sold by the CBN at
N200 to the Dollar, the States were losing N100 billion that could have gone
into payment of salaries, development of infrastructure and other social services.
Yet, the States were going to borrow from the same Government on a bail-out
when the Government was selling dollars cheaply to a small group of people.
g)
The
delay and controversies of the 2016 budget.
h)
Nigeria’s
over-dependence on foreign products.
i)
Poor saving culture by previous
administrations especially during periods of high oil prices.
How do we get out of the Recession?
There have been
various recommendations by economists and development experts on how Nigeria
could get out of the current recession. They include the following:
i)
Strategic allocation of funds to areas
with high multiplier effects that will increase aggregate domestic demand.
ii) Increase access to Credit by entrepreneurs.
iii) Reduction in tax rate to individuals and small
businesses.
iv)
Increase in investment in skills development particularly of youths that can
lead to production in strategic sectors.
v) Increase in agricultural production and
manufactured goods for domestic consumption and export.
However, from the
foregoing statistics on the Nigeria’s Economic performance so far, it is very
obvious that the development of the
Agricultural Sector will be the panacea to getting us out of the present
economic recession and even create a more stable and sustainable economic
development. This is supported by the Sector’s contribution to the GDP in 2016
as already stated earlier. Some experts have argued that the fall of oil prices
was not responsible for the current recession considering that oil only
accounted for 15% of the GDP, and economic recession is measured on the basis
of GDP growth.
The Agricultural
sector can easily get us out of the current recession and engender future
economic stability in the following ways:
Contribution to National Income: The lessons drawn from the economic history of many advanced
countries tell us that agricultural prosperity contributed considerably in
fostering economic advancement. It is correctly observed that, “The leading
industrialized countries of today were once predominantly agricultural while
the developing economies still have the dominance of agriculture and it largely
contributes to the national income. In India for instance, 28% of national
income still comes from this sector despite the country’s level of development.
Source of Food
Supply: Agriculture is the basic
source of food supply of all the countries of the World—whether underdeveloped,
developing or even developed. Due to heavy pressure of population in
underdeveloped and developing countries and its rapid increase, the demand for
food is increasing at a fast rate. This and other changing global trends
pose food security threats to countries that are food import dependent. Today,
Nigeria spends about $ 10 billion annually on importation of agricultural
products. If agriculture fails to meet
the rising demand of food products, it is found to affect adversely the growth
rate of the economy. Raising supply of food by agricultural sector has,
therefore, great importance for economic growth of Nigeria.
Pre-Requisite for Raw Materials: Agricultural advancement is necessary for
improving the supply of raw materials for the agro-based industries especially
in developing countries. The shortage of agricultural goods has its impact on
industrial production and a consequent increase in the general price level. It
will impede the growth of the country’s economy. Our rice mills, feed mills,
oil processing mills, meat and dairy factories, sugar factories, textile
factories, confectioneries, beverages and numerous other industries are based
on agricultural products.
Provision of Surplus: The progress in agricultural sector provides
surplus for increasing the exports of agricultural products. In the earlier
stages of development, an increase in the exports earning is more desirable
because of the greater strains on the foreign exchange situation needed for the
financing of imports of basic and essential capital goods. Johnson and Mellor
are of the opinion that, “In view of the urgent need for enlarged foreign
exchange earnings and the lack of alternative opportunities, substantial
expansion of agricultural export production is frequently a rational policy
even though the World supply—demand situation for a commodity is unfavorable.”
Today, Nigeria is faced with foreign currency crisis, because our foreign
exchange earnings is dominantly from petroleum.
Shift of Manpower: Initially, agriculture absorbs a large
quantity of labour force. Again, in India about 62% labour is still absorbed in
this sector, while in Nigeria it is over 70% of the labour absorbed in the
Sector. Agricultural progress permits the shift of manpower from agricultural
to non-agricultural sector. In the initial stages, the diversion of labour from
agricultural to non-agricultural sector is more important from the point of
view of economic development as it eases the burden of surplus labour force
over the limited land. Thus, the release of surplus manpower from the
agricultural sector is necessary for the progress of agricultural sector and
for expanding the non-agricultural sector.
Creation of Infrastructure: The development of agriculture requires roads, market
structures, storage facilities, railways, dams/irrigation facilities and many
others for an infrastructure creating demand for industrial products and the
development of commercial sector.
Relief from Shortage of Capital: The development of agricultural sector has
minimized the burden of several developed countries who were facing the
shortage of foreign capital. If foreign capital is available with the
conditionality attached to it, it will create another significant problem.
Agricultural sector requires less capital for its development thus, minimizes
growth problem of foreign capital.
Helpful to Reduce Inequality: In a country which is predominantly agricultural and increasing
population, there is greater inequality of income between the rural and urban
areas of the country. To reduce this inequality of income, it is necessary to
accord higher priority to agriculture. The prosperity of agriculture would
raise the income of the majority of the rural population and the disparity in
income may therefore, be reduced to a greater extent.
Democratic
Stability: If the agricultural sector does not grow at a
faster rate, it may result in the growing discontentment amongst the masses
which is never healthy for the smooth running of democratic governments. For
economic development, it is necessary to minimize political as well as social
tensions. In case the majority of the people have to be kindled with the hopes
of prosperity, this can be attained with the help of agricultural progress.
Thus, development of agriculture sector is also relevant on political and
social grounds.
Create Effective Demand: The development of agricultural sector would tend to increase
the purchasing power of farmers and agribusinesses which will help the growth
of the non-agricultural sector of the country. It will provide a market for
increased production. In underdeveloped countries, it is well known that the
majority of people depend upon agriculture and it is they who must be able to
afford to consume the goods produced. Therefore, it will be helpful in
stimulating the growth of the non- agricultural sector. Similarly, improvement
in the productivity of cash crops may pave the way for the promotion of
exchange economy which may help the growth of non-agricultural sector. Purchase
of industrial products such as agro-chemicals (pesticides and herbicides),
fertilizers, farm machinery etc. also provide boost to industrial sector.
Helpful in Phasing out Economic
Depression: During depression as in this case of Nigeria’s
recession, industrial production can be stopped or reduced as is being
experienced, but agricultural production continues as it produces basic
necessities of life. Otherwise, there will be food crisis of monumental
proportion. Thus, it continues to create effective demand even during adverse
conditions of the economy thereby creating stability.
Source of Foreign Exchange for the
Country: Most of the developing countries of the World are exporters of
primary products. These products contribute 60% to 70% of their total export
earnings. Therefore, the capacity to import capital goods and machinery for
industrial development depends crucially on the export earning of the
agricultural sector. If exports of agricultural goods fail to increase at a
sufficiently high rate, these countries are forced to incur heavy deficit in
the balance of payments resulting in a serious foreign exchange problem.
However, primary goods face declining prices in international market and the
prospects of increasing export earnings through them are limited. Due to this,
large developing countries (having potentialities of industrial development)
are trying to diversify their production structure and promote the exports of
manufactured goods even though this requires the adoption of protective
measures in the initial period of planning. Ehiopia had done it under Prime
Minister Meles Zenawi, Nigeria can also adopt the same strategy.
Contribution to Capital Formation: Underdeveloped and developing countries need
huge amount of capital for their economic development. In the initial stages of
economic development, it is agriculture that constitutes a significant source
of capital formation. Agricultural
sector provides funds for capital formation in many ways as: (i)
agricultural taxation, (ii) export of agricultural products, (iii) purchase of
agricultural products at low prices by the government and selling them at
higher prices. This method is adopted by Russia and China. (iv) transfer of
labour and capital from farm to non-farm activities etc.
Employment Opportunities for Rural and
Urban Populace:
Agriculture provides employment opportunities along the value chain for both
rural and urban populace on a large scale in underdeveloped and developing
countries. It is an important source of livelihood in the areas of inputs
supply, production, bulking/cleaning/grading, marketing, processing&
packaging, financial services and insurance.
Farmers are also engaged in other off farm jobs like handicrafts,
leather works, pottery etc. to fulfill local demands.
Improving Rural
Welfare: The rural economy can be
stimulated based on agriculture and allied occupations in a developing country
like Nigeria. The rising agricultural surplus caused by increasing agricultural
production and productivity tends to improve social welfare, particularly in
rural areas. The living standard of rural masses rises and they start consuming
nutritious diet including meat, eggs, milk and fruits. They lead a comfortable
life having all modern amenities—a better house, motor-cycle, radio, television
and use of better clothes. They can also afford to send their children to
school and patronize healthcare facilities. These by themselves can stimulate
rural economy and rural welfare.
Extension
of Market for Industrial Output: As a result of agricultural progress, there will be extension
of market for industrial products. Increase in agricultural productivity leads
to increase in the income of rural population which in turn leads to more
demand for industrial products, thus development of industrial sector.
According to Dr. Bright Singh, “Increase in agricultural production and the
rise in the per-capita income of the rural community, together with the
industrialisation and urbanisation, lead to an increased demand in industrial
production.” In this way, agricultural sector helps promote economic growth by
securing as a supplement to industrial sector.
Key Challenges of Nigerian Agriculture
Despite the enumerated
catalytical and crucial role the agricultural sector is expected to play to get
the economy out of recession and ensure sustainable economic stability, some of
the key challenges affecting the Agricultural sector should immediately be
addressed. They include among others:
§ The
linkage between agriculture and industry in Nigeria is still very weak.
§ Agricultural
policies in Nigeria have not only been inconsistent but they have often been
poorly coordinated.
§ Limited
access to agricultural financing by farmers due to credit rationing and high
interest rate. Concessionary credit support programmes are often marred by
abuses.
§ Incentives
to invest in agriculture are also undermined by policies regarding land
ownership and land tenure.
§ Agricultural
productivity has remain low in Nigeria due to low adoption of improved
varieties and improved breeds as well low use chemical inputs such as
fertilizers and agrochemicals.
§ Limited
identification and adoption of appropriate technologies for the downstream
agricultural activities.
§ Currently,
only 0.7 percent of the nation’s cultivated land is under irrigation, or
roughly 220,000 ha. Constraints to continued development of irrigation in
Nigeria include: (i) high cost of constructing irrigation infrastructure (ii)
poor public management of water resources; and (iii) weak management capacity.
§ Private
investment in agriculture is discouraged by infrastructural deficiencies: a
national road network that is limited in its coverage and poorly maintained
ports and customs facilities that are undersized and overtaxed, an electricity
grid that suffers from frequent disruptions, water supply systems of spotty
coverage and uncertain reliability, and communication systems that fail to
reach many in the population. These deficiencies contribute to high production
costs of agricultural outputs and further undermine the profitability of
agriculture and discourage export initiatives.
§ The
disappointing impact of the research system can be attributed to three main
factors: (i) public research organizations
are poorly funded and financially unsustainable; (ii) coordination within the
Nigerian agricultural research community is weak, resulting in unnecessary
duplication of effort; and (iii) research tends to be supply-driven, with
little accountability to end-users. Also, a close collaboration between the
academic institutions and the agricultural ministry/institutes in training
agricultural professionals is required to enhance manpower development for the
sector.
§ Agricultural
extension in Nigeria suffers from lack of coordination and duplication of
efforts, financial unsustainability and poor accountability to farmers and
processors (World Bank 2004).
§ Incessant
conflicts exist between crop and livestock farmers, pastoralists (mainly Fulani
nomads) and arable crop farmers, fadama users and non-fadama users.There is
also the sustaining threat to security in some regions. Such conflicts disrupt
production and discourage private sector investment.
§ Weak
legal and regulatory framework for accelerated development of the Agricultural
sector. Agricultural policies relating to the enhancement of agricultural
competitiveness (biosafety, SPS, Sanitary etc.), provision of necessary
agricultural support, and establishment of vital agencies and so on should are not
accorded high priority.
§ Nigerian
agriculture is under-capitalized and therefore, it has not been possible to
transform and diversify opportunities in the sector. Also, Nigeria falls far
behind in agricultural expenditure by international standards, especially on
account of its level of income as an oil exporting country. Private investment
in agriculture, both in primary production as well as processing, is still very
low which is primarily attributed to the sector’s low profitability. Other
factors contributing to the low level of investment include: i). an unfavorable business climate ii).
Infrastructural deficiencies iii). Limited access to medium and long-term
credit iv). Financial policy and natural risks associated with agricultural
investments.
§ The
existing institutional arrangement for agricultural development in Nigeria is
complex. It involves numerous ministries, agencies, public corporations and
companies operating at different levels of governments, sometimes with
overlapping responsibilities. Although the system has achieved some success,
over the years it has resulted in duplication of efforts, inefficient use of
scarce human and financial resources, conflicting interests, and
misunderstanding of roles. These erode trusts among various institutions,
making and coordination difficult. This complicates project planning,
implementation and evaluation and impedes sustainable rural and agricultural
development.
§ Weak
employment capacity of the active population through education and skills acquisition.
Provision of a broad range of business support services to facilitate the
setting up agri-businesses by interested individuals is critical especially at
the grassroots level for income-generation and poverty reduction. Agriculture human capital development should
involve activities such as investment plans, food safety, grading and quality
control & standards, exhibitions, production techniques and marketing
strategies along the value chain as well as maintenance of machines and
equipment.
§ Environmental
problems associated with agriculture are very serious issues. They include:
loss of biodiversity, deforestation, flooding and erosion, drought and
desertification.
§ Resource
limitation has created intense competition for funds among the different sectors
of the economy and within the agricultural sector itself. There is also weak
inter-sectoral collaboration which has not allowed effective and comprehensive
planning, implementation and monitoring.
These challenges are
not new, they have been with the sector for a very longtime and far reaching
recommendations on how to overcome them well documented. These can be found in
the NEEDS document, Vision 2020 report and many other academic reports and
journals. However, the most fundamental challenge at the moment is the dismal
funding of the Sector despite the wide publicity of governments commitment
towards it.This claim can be validated by the 2017 and previous years’ total
budgetary allocations to the Sector.
The 2017 Budgetary Allocation to the Agric. Sector
Although the Federal
and State governments have allocated more funds to the Sector in 2017 than
2016, they would be spending less than 2% of their N13.5 trillion total budget.
The analysis has shown that the Federal and 30 state governments would spend
N254 billion representing 1.8% of the total budgets to agriculture as against
N196.3 billion (1.6 %) in 2016. About half of this allocation would go into
recurrent costs. The 2017 budgets for agriculture are dismally far from the
2003 AU-Maputo Declarations- the Comprehensive Africa Agriculture Development
Programme (CAADP). The CAADP which is an integral part of the New partnership
for Africa’s Development (NEPAD) is Africa’s policy framework for agricultural
transformation, wealth creation, food security and nutrition, economic growth
and prosperity for all. The Maputo Declaration requires African countries to
allocate at least 10% of their annual budgets to agriculture and achieve 6%
annual growth in agricultural GDP. It’s noteworthy that other African countries
who are signatory to CAADP such as Malawi was investing about 27%, Zambia,
Burundi and Mali 10%, Niger 13% and Sierra Leone 3% in agriculture.
Out of the N7.3 trillion Federal Government’s
budget, only N123 billion (1.6%) is for agriculture. Out of this, Salaries and overheads got N31.7
billion and only N91.6 billion is for capital projects. This is consistent with
Federal Government’s dismal allocations to the Sector over the years. For
instance: 2011 (1.8%), 2012 (1.6%), 2013 (1.7%), 2014 (1.4%), 2015 (0.9%) and
2016 (1.2%).
The 30 States
documented so far, will spend N131 billion (2.1%) on agriculture out of their
N6.2 trillion 2017 combined budgets. This represents an increase of about N11
billion from last year’s N120.53 billion. It’s instructive that, apart from the
states in the Niger Delta region, the remaining states have agriculture as the
economic driver. The 19 northern states expenditure on agriculture is
shrinking. Out of their combined budgets of N2.4 trillion, the States are spending
a paltry sum of N88.4 billion (3.6%) compared to N97.07 billion in 2016 on
agriculture. The Southern states total budget for agriculture is N42.2 billion
(1.1%) out of their total budgets of N3.8 trillion in 2017.
The zonal analysis
shows that; Northwest is spending N43.4 billion out of N1.01 trillion as
against N60.18 billion allocated in 2016.The Northeast has allocated N24
billion for agriculture out of its total budgets of N593.1 billion as against
N29.62 in 2016. The North Central Zone has budgeted N21.2 billion out of a
combined budgets of N781.5 billion as against N7.27 billion in 2016. Out of the
South-South region’s cumulative expenditure of N1.8 trillion, only N13.1
billion is earmarked for agriculture as against N10.94 billion in 2016. The South
Western states of Lagos, Oyo and Ogun cumulatively budgeted N21 billion for
agriculture out of N1.5 trillion total budget. The States of Anambra, Imo and
Enugu in the South East have allocated only N9.1 billion for agriculture as
against N2.32 billion in 2016. The total budget for the region stands at N581
billion.
Conclusion
It is imperative that
we need to urgently deal with the current recession to avoid the economy going
into depression by providing every available support to revamp the Agricultural
sector. Agriculture will remain the leading sector for now and it has the
capacity to regenerate other sectors for the future stability of our economy.
References
1. National Bureau of
Statistics (2016): Nigerian Gross Domestic Product Report (Expenditure and
Income Approach) Q1, Q2. 3-65.
2. National Bureau of
Statistics: Nigerian Gross Domestic Product Report (2016): Quarter three. 4-41.
3. Federal Ministry of
Agriculture, Water Resources and Rural development (1989). A Perspective Plan
for Agricultural Development in Nigeria: 1990-2005, Abuja. 1-194.
4. World Bank (2004).
World Development Report. Oxford.
5. Economic
Discussion.net (2016): Role of Agriculture in Economic Development. 1-11.
6. Daily Trust
Newspaper (2017): FG, States to spend 1.8% of Budgets on Agriculture. 1&5.
7. Matane A. I.
(2015): Nigeria: Agriculture, Oil and the Nigerian Economy: Which Way Forward,
Birnin Kebbi. 1-18.
