Can agriculture pull Nigeria out of recession?
After entering its first recession in 25 years, Nigeria is looking for ways to kick-start its economy in a world of lower oil prices.
The Nigerian economy contracted for the first time in 25 years when its GDP fell by 1.51% in 2016. In a country where oil accounts for more than 95% of exports and foreign exchange earnings, previous economic policies have left the country vulnerable and ill-prepared for the sharp and continuous decline in crude oil prices. Its agriculture sector, which accounted for 23.1% of GDP in 2015, presents an opportunity for Nigeria to diversify its economy and rescue itself from economic recession, but only to the extent it can resolve the industry’s current state of inefficiency and underperformance.
Nigeria’s agriculture sector is dominated by smallholders and subsistence farmers. Data collected by the World Bank shows that in 2014 37.3% of the country’s total area was made up of arable land. Despite these demographics and despite agriculture employing 38% of the working population, the country is unable to meet its domestic food requirements, according to the 2016 Agriculture Promotion Policy (the APP). The APP estimated shortages of approximately four million tonnes of rice, four million tonnes of wheat and 60 million chickens in 2016. Nigeria is the leading consumer and producer of rice in Africa yet it is also the second largest importer of rice in the world behind China. There is a clear opportunity for the country to bolster its domestic agriculture sector to improve growth, diversify the economy and achieve food security.
Fortunately, in the Economic Recovery and Growth Plan published in February 2017, the government made agriculture and food security a top priority and claimed that an expansion in agribusiness will lead to mass employment as a result of large domestic demand, the potential for import substitution and opportunities arising from increasing yields and raw material processing.
One group of people already benefitting from large domestic demand and import substitution is rice farmers in places like Tarasa and Sokoto. According to the National Bureau of Statistics, the prices for locally-produced rice increased by 60% across the country in 2016, which subsequently improved rice farmers’ incomes and standards of living. Local farmers are not the only ones benefitting from the rising demand. In February 2017, Dangote Rice Ltd announced a pilot rice project involving 500 hectares of farmland in Sokoto with plans to expand the project to cover over 25,000 hectares cultivated by nearly 50,000 farmers. Similarly, Wacot Rice Ltd recently invested nearly US$ 30 million to build the country’s largest rice mill in Argungu, Kebbi State.
Despite the government’s optimism and increasing private investment, there are strong signals that the country cannot rely on agriculture alone to pull itself out of recession. The buoyant domestic rice market is primarily supported by foreign currency restrictions introduced in 2015 that are artificially increasing the price of imported rice. Even more concerning is Nigeria’s infrastructure deficit and insufficient access to inputs. According to the APP, the infrastructure deficit adds an additional 50-100% to the cost of local produce. The Growth Enhancement Scheme, an input subsidy programme introduced in 2012, has been characterised by late or non-delivery of inputs, substandard or counterfeit inputs and the exclusion of rightful beneficiaries.
Nigeria should continue to prioritise the development of its domestic agriculture industry as the demands of a growing population, rising prices and the prospect of increasing efficiencies are likely to attract further domestic and international investment in the industry.
Inside Africa would like to thank Paolo Del Val, Trainee, for his contribution to this blog post.