Agricultural sector: beyond monetary interventions
Tuesday 01 March 2022 / 11:38 / by United Capital Research / Header image credit: AgroNigeria
In the recently released Q4-2021 GDP report, real output in the agriculture sector grew 3.6% year-on-year, up 16 basis points from the 3.4% expansion in Q4-2020, bringing FY2021 growth to 2.1% YoY. Moreover, the sector continues to remain the largest contributor to real GDP after contributing around 26.8% to total real GDP in Q4-2021, although lower than the contribution observed in Q4-2020 and Q3-2021 which stood at 27.0% and 29.9% respectively. Growth in the agricultural sector has been driven by strong demand for food from the Nigerian population and improved agricultural exports.
In recent years, the Central Bank of Nigeria (CBN) led by Emefiele has shown significant interest in the non-oil sector, particularly in the agricultural sector through its various monetary interventions through several development finance initiatives (e.g., the Anchors Borrowers program), and more. recently, foreign exchange policy tools (currency import restriction list and RT200 FX program). However, despite several facilities provided by the CBN to support farmers in the expansion and production of agricultural products, the growth of the sector remains unattractive. For context, over the previous seven years (2015 – 2021) when the CBN began its aggressive interventions in the agricultural sector, the sector’s average growth is 2.9%, 211 bps less than the seven-year average. previous 5.0%. In addition, industry growth over the past four years remains below the recent seven-year average of the Governor’s term. Thus, it can be safely established that the CBN’s multiple monetary interventions and policy frameworks have done little to accelerate the growth of the sector.
Clearly, the sector still faces challenges such as inadequate infrastructure (transportation and storage), adverse climatic conditions, inability to adopt advanced farming methods, lack of value addition and supply linkages , unclear land laws and insecurity issues that have continued to undermine sector performance. From our point of view, we believe that the strong traditional food demand (local and international) will continue to support the growth of the sector. Additionally, the success of the RT200 FX program introduced by the CBN will be a critical factor to watch. That said, the federal government must introduce tax measures that would combat the existing bottlenecks that have eroded the growth of the sector in recent times.
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